-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GOvN+n5ImtDjHdWllcTIMhbRzKVxSFQfXdcuVSMTujOQfnkIvQBEVJ8C7MbrYqED fbRaOn9k1VOSnRjqRXo0LA== 0000934550-97-000012.txt : 19971230 0000934550-97-000012.hdr.sgml : 19971230 ACCESSION NUMBER: 0000934550-97-000012 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMITOOL INC CENTRAL INDEX KEY: 0000934550 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 810384392 STATE OF INCORPORATION: MT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25424 FILM NUMBER: 97744980 BUSINESS ADDRESS: STREET 1: 655 WEST RESERVE DR CITY: KALISPELL STATE: MT ZIP: 59901 BUSINESS PHONE: 4067522107 MAIL ADDRESS: STREET 2: 655 WEST RESERVE DRIVE CITY: KALISPELL STATE: MT ZIP: 59901 10-K 1 YEAR ENDED SEPTEMBER 30, 1997 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended September 30, 1997 Commission File Number 0-25424 SEMITOOL, INC. (Exact Name of Registrant as Specified in Its Charter) Montana 81-0384392 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Semitool, Inc. 655 West Reserve Drive, Kalispell, Montana 59901 (406) 752-2107 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered -------------------------- ------------------------ Common Stock, no par value Nasdaq National Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The approximate aggregate market value of the voting stock held by non-affiliates of the registrant on December 9, 1997 (based on the last reported sale price on the Nasdaq National Market as of such date) was $105,841,379. The number of shares of the registrant's Common Stock, no par value, outstanding as of December 9, 1997 was 13,770,923. DOCUMENTS INCORPORATED BY REFERENCE There is incorporated by reference in Part III of this Annual Report on Form 10-K the information contained in the registrant's definitive proxy statement for its annual meeting of shareholders to be held February 9, 1998. PART I Item 1. Business Introduction Statements contained in this Report on Form 10-K which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding trends in the semiconductor industry, future product development, strategic business development, pursuit of new and growing markets, competition, patent filings, results from operations, and the adequacy of manufacturing facilities, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "will continue to be," "will be," "continue to," "expect to," "anticipates that," "to be" or "can impact." Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include, but are not limited to, the cyclical nature of the semiconductor industry in general, lack of market acceptance for new products, decreasing demand for the Company's existing products, impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraint difficulties and other risks detailed under the heading "Risk Factors" and elsewhere herein. The Company's future results will depend on its ability to continue to enhance its existing products and to develop and manufacture new products and to finance such activities. There can be no assurance that the Company will be successful in the introduction, marketing and cost-effective manufacture of any new products or that the Company will be able to develop and introduce in a timely manner new products or enhancements to its existing products and processes which satisfy customer needs or achieve widespread market acceptance. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. The Company Semitool, Inc., (Semitool or the Company) a Montana corporation organized in 1979, designs, manufactures, markets and services equipment used in the fabrication of semiconductors. The Company's products include batch and single substrate chemical processing tools, thermal processing equipment, including thermal process control systems, wafer carrier cleaning systems and electrochemical deposition (ECD) systems. Many of these systems include the Company's own proprietary robotics. These products incorporate proprietary designs and technologies to enable customers to perform advanced semiconductor fabrication processes. The process steps performed by the Company's products occur repeatedly throughout the fabrication cycle, and constitute an integral part of the manufacturing process for virtually every semiconductor produced today. The Company's products are also used to manufacture materials and devices fabricated with similar processes, including thin film heads, flat panel displays, multichip modules, ink jet print heads, compact disc masters, and hard disk media. The Company's products are designed to provide improved yields through higher process uniformity and reduced contamination, increased throughput through advanced processes which reduce cycle times, and lower direct costs through reduced consumables usage and smaller footprints, thereby providing lower overall cost of ownership. The Company's ECD systems are designed to allow the semiconductor industry to make the transition from aluminum to copper interconnects in order to improve performance and cost. The Company markets and sells its products to customers worldwide. Industry Background Overview The fabrication of semiconductor devices is a complex process involving several distinct phases repeated numerous times during the fabrication process. As the semiconductor industry makes the transition to copper interconnects, some of these processing steps will by necessity change. Each production phase requires different processing technology and equipment, and no one semiconductor equipment supplier currently produces an entire state-of-the-art fabrication system. Rather, semiconductor device manufacturers typically construct fabrication facilities by combining manufacturing equipment produced by several different suppliers, each of which performs specific functions in the manufacturing process. The thin film head, flat panel display, multichip module and ink jet print head fabrication processes utilize many of the same basic technological building blocks as does the semiconductor manufacturing industry, in that certain production equipment provides the same basic function or applications for a substrate as semiconductor manufacturing equipment does for a silicon wafer. The flat panel display and thin film head markets, while not as large as the semiconductor device market, have over the past few years experienced significant growth. Industries that use semiconductors are demanding increasingly complex, higher performance devices. Fabrication of these devices requires increasing the number of process steps and reducing feature sizes, necessitating narrower process tolerances which makes it more difficult to maintain acceptable yields. These factors, together with the industry migration to larger wafer sizes, have led to a substantial increase in the manufacturers' per wafer investment, which in turn has caused these manufacturers to intensify their efforts to maintain acceptable yields. As a result, manufacturers demand equipment that provides superior process results and yields and can accommodate larger wafers and new materials. The Company believes that semiconductor device manufacturers are asking equipment suppliers to take an increasingly active role in meeting the manufacturers' technology requirements and cost constraints by developing and supporting the products and processes required to fabricate advanced products. Certain manufacturers are seeking strategic relationships with equipment suppliers for specific process steps on existing and new products. As a result, equipment companies are being asked to provide advanced process expertise, superior product performance, reduced overall cost of ownership, and worldwide customer support to better meet the needs of manufacturers. Electrochemical Deposition Traditionally, semiconductors have used aluminum to connect the millions of transistors on a micro chip. As line geometries become smaller to accommodate the ever shrinking chip, aluminum becomes increasing less efficient to use. Copper has long been known to have superior electrical properties when compared to aluminum, but due to its high mobility, copper will migrate through the device and poison the transistor. Recent barrier layer technology has overcome this hurdle thus allowing the use of copper interconnects on devices. The use of copper interconnects will require major changes in how future micro chips are manufactured. Existing equipment used with aluminum cannot be retrofitted to economically deposit interconnect layers of copper with acceptable quality. Different methods will be used for copper and will require different processing tools. Other applications for electrochemical deposition are emerging such as the deposition of gold interconnects on gallium arsenide in the manufacture of high speed communication devices. The process can also be used to automate the soldering required on devices utilizing flip chip technology and the manufacture of thin-film heads and ink-jet print heads can also be enhanced by ECD. Chemical Processing The fabrication of semiconductors involves numerous distinct processes which can, depending on the complexity of the device, exceed 250 steps. The chemical processing steps involved can include cleaning, developing, stripping, etching, milling, plating, and coating. Such chemical processes have traditionally been performed using wet-benches which consist of open chemical and rinse tanks, into which cassettes of wafers are immersed, either manually or automatically. Multiple process steps are performed by transferring wafers from one chemical bath to another. There are significant disadvantages relating to process uniformity and contamination control inherent in wet-bench processing, which are becoming increasingly problematic as process tolerances narrow. Wet-benches also lack the flexibility to readily change processes, and are relatively costly to operate because they consume large amounts of process chemicals and have large footprints that use valuable clean room space. Thermal Processing Thermal processing generally addresses the oxidation/diffusion and low pressure chemical vapor deposition (LPCVD) steps of the semiconductor fabrication process. Conventional vertical furnaces require loading a batch of wafers into a rack which is then lifted into an open, heated process chamber. The inability to control and vary the environment within the process chamber prior to exposing the wafers to heat can result in unintended oxide growth. Moreover, conventional vertical furnaces are not capable of performing multiple processes in a single, continuously controlled environment, making it necessary to move wafers from furnace to furnace to perform sequential processing. This requires purchasing and operating multiple furnaces, which constrains throughput and increases the risk of wafer contamination. Conventional vertical furnaces also create variances in process exposure times of individual wafers (the first wafer into the furnace is the last wafer out), causing non-uniformity of process among wafers. In addition, the vibration caused by loading the rack of wafers into the process chamber can create particulate contamination that reduces yield. Cost of Ownership As a result of the increasing cost of equipping fabrication facilities, semiconductor manufacturers are placing greater importance on the overall cost of ownership of each piece of process equipment. The principal elements of cost of ownership are yield, throughput and direct costs. Yield, or the number of good die per wafer, is primarily determined by contamination levels and process uniformity. Achieving high yields becomes more critical to manufacturers as their per wafer investment increases. Throughput, or the number of wafers processed by a particular tool in a given period, is primarily a function of the time required to complete a process cycle and the handling time between process steps. Major components of direct cost include the amount of consumables used in the manufacturing process, the cost of the clean room space occupied by the equipment (i.e., the "footprint") and the purchase price of the equipment and other operating costs. The ability to maintain acceptable cost of ownership levels becomes increasingly challenging as manufacturing processes become more complex and process tolerances narrow. The Semitool Solution The Company has developed a broad range of products that enables its customers to perform advanced fabrication processes. The Company's products are designed to provide improved yields through higher process uniformity and reduced contamination, increased throughput through advanced processes which reduce cycle times, and lower direct costs through reduced usage of consumables and smaller footprints, thereby providing lower overall cost of ownership. The process steps performed by the Company's products occur repeatedly throughout the fabrication cycle and constitute an integral part of the manufacturing process for virtually every semiconductor produced today. The Company's products include chemical processing tools, thermal processing equipment and wafer carrier cleaning systems. Chemical Processing Equipment The Company's batch and single substrate processing equipment employs chemical spray multi-processing within a self-cleaning, enclosed process chamber. These tools enable customers to conduct sequential chemical processing steps, and then rinse and centrifugally dry substrates, within the same chamber, thereby reducing contamination during and between process steps. Spray technology avoids non-uniformity of process inherent in traditional wet-bench immersion processing by applying the process chemicals via spray manifolds. This technique enhances chemical reaction on the substrate surface, which increases process reliability and shortens process cycle times. The enclosed process chamber technology also allows for more efficient use and disposal of process chemicals (through reclamation, filtration and recirculation) as well as increased operator safety. The Company's spin rinser/dryer also utilizes the spray and centrifugal drying technologies to remove chemical residue from the wafer surface. The Company has developed fully automated platforms that cluster multiple chemical processing modules for both silicon wafers and the glass substrates used in the fabrication of flat panel displays, thereby further increasing yield and throughput, and providing a total process solution in a single unit with a smaller footprint than conventional wet-benches. Electrochemical Processing Equipment The Company's single wafer processing platform is also configured to perform copper ECD. Copper has several advantages over the aluminum that has traditionally been used for device interconnects. Copper will significantly minimize the number of metal layers required, will reduce heat dissipation, will reduce manufacturing cost, and will increase chip speed. Copper has a resistance of 1.2 micro ohm/cm, while aluminum has a resistance of 3.1 micro ohm/cm, so much smaller lines of copper have the same current-carrying capability as today's aluminum interconnects. Using copper for interconnects has been discussed for years, but the process required a few recently discovered technological innovations to occur before it was feasible. Coupled with the roadblock that aluminum is facing below .25mm, a number of semiconductor manufacturers have announced that copper will be used on their devices with line widths of .18mm and below. Although, electroplating technology has been in use for a long time, until now, it has not been considered for use in the semiconductor industry. The basic process is fairly simple, with a cathod drawing the copper in solution from a solid anode. Semitool, utilizing its single wafer processing platform, adds value by providing the industry's first semiconductor production-ready, fully automated plating tool. The tool has been designed specifically for optimizing the clean room space required. Thermal Processing Equipment The Company's vertical furnace employs a patented "double lift" process chamber design which provides a continuously controlled process environment that allows for sequential processing steps to be performed in the same enclosed chamber. This design enables the customer to control and vary the environment within the sealed process chamber, thereby avoiding unintended oxide growth and minimizing the non-uniformity of process resulting from varying exposure times of individual wafers. In addition, the Company's vertical furnace reduces contamination by employing a fixed quartz process tower that remains stationary throughout loading and processing. The double lift design permits the heating element to be lifted away from the sealed process chamber, allowing wafers to cool more rapidly in a controlled environment, thereby improving the overall cycle time of the thermal process. The Company has developed a vertical furnace with fast ramp, model-based temperature control technology which provides a shortened period to reach desired processing temperature thereby allowing increased throughput. Wafer Carrier Cleaning System The Company has developed sophisticated cleaning systems for the cassettes and boxes used to carry and store finished and in-process substrates. The Company's wafer carrier cleaning systems allow customers to increase yields by reducing particulate contamination. In contrast to traditional cleaning and drying methods, the Company's cleaning systems employ centrifugal drying technology, which eliminates the carrier deformation that can result from conventional drying and reduces the contamination that results from residues left on heat dried surfaces. The double door design allows contaminated carriers to be loaded outside the clean room. Once cleaned and dried, the carriers are then moved into the clean room environment. In this manner, neither the clean room nor the carriers are contaminated. The Semitool Strategy The key elements of the Company's business strategy are as follows: Develop Innovative Solutions. The Company is committed to developing new products, new applications for existing products and enhancing existing products to address evolving process requirements. Accordingly, the Company devotes substantial resources to product innovation and collaborative development efforts. Offer a Broad Range of Products to Customers in Diverse Markets. The Company focuses on offering a broad range of products, including chemical processing tools, electrochemical deposition systems, thermal processing equipment and wafer carrier cleaning systems, to semiconductor manufacturers for use in diverse process applications. The Company leverages its technology and expertise to provide solutions to manufacturers of other products that are fabricated using similar processes, such as thin film heads, flat panel displays, multichip modules, ink jet print heads, compact disc masters, and hard disk media. Some of these other applications involve substrates with surfaces larger than the current typical semiconductor substrates. By providing solutions for applications involving larger substrates, the Company believes it gains valuable expertise which can be later applied to the semiconductor industry as semiconductor substrates continue to increase in size. By addressing diverse markets, the Company seeks to increase its product sales and reduce its reliance on the semiconductor industry. Capitalize on Manufacturing Expertise. The Company's manufacturing strategy is to identify and perform internally those manufacturing functions which add value to the Company's products. The Company believes it achieves a number of competitive advantages from its vertically integrated manufacturing operations, including the ability to achieve cost and quality benefits, to quickly bring new products and product enhancements to market and the ability to produce sophisticated component parts not available from other sources. Focus on Overall Cost of Ownership. The Company designs and manufactures equipment solutions designed to provide its customers with low overall cost of ownership. The technologies employed by the Company's chemical processing tools provide higher yield, greater throughput, more efficient use of consumables and smaller footprints than conventional wet-benches. The Magnum and Centurium cluster multiple process modules into a single automated tool, thereby providing further cost of ownership advantages. The Company's thermal processing equipment also provides cost of ownership advantages by enhancing process uniformity and reducing contamination that results in corresponding increases in yields. Additionally, the Company believes its ECD systems will provide significant cost of ownership advantages over conventional equipment used for aluminum. Address Worldwide Markets. The Company markets and sells its products worldwide with emphasis on Europe and Asia as its principal international markets. The Company believes the strength of its international sales and service organizations is important to its continued success in these markets. To facilitate its worldwide marketing strategy, the Company has dedicated European sales and support organizations in England, France, Germany and Italy. The Company intends to continue to aggressively pursue the Asian market and therefore, the company has augmented its offices in Japan, Korea and Taiwan. See Note 10 of Notes to the Consolidated Financial Statements for a breakdown between domestic and foreign sales. Products The Company designs, manufactures and sells batch and single substrate chemical processing tools, electrochemical deposition systems, thermal processing equipment and wafer carrier cleaning systems. Chemical Processing Batch Chemical Processing. The Company's batch chemical processing tools incorporate centrifugal spray technology to process wafers and substrates by exposing them to a user-programmable, sequenced spray of chemicals inside an enclosed chamber. Utilizing these tools, cassettes filled with wafers are loaded into a rotating fixture mounted in a process chamber. The process chamber is then sealed and chemicals are sequentially dispensed into the chamber via spray manifolds in a closed-loop system. As the rotating fixture turns the cassette, a chemical spray is applied to the wafer surfaces. This technique enhances chemical reaction on the substrate surface, which increases process reliability and shortens process cycle times. After application of the process chemicals, deionized ("DI") water can be sprayed into the chamber to stop the chemical reaction and to remove chemical residues. The wafers, cassette and chamber are then dried by centrifugal spinning coupled with a flow of warm nitrogen, either in the same process chamber or in an adjacent rinser/dryer module. The Company believes its batch spray chemical processing tools offer significant advantages over conventional wet-benches. These advantages include higher yields (by providing better process uniformity and lower particulate contamination), increased throughput (by providing shorter process cycle times) and reduced direct costs (by providing more effective use of chemicals and smaller footprints), thereby providing lower overall cost of ownership. All batch chemical processing tools are 300mm ready. The Company's manually loaded batch spray chemical processing products include the Spray Acid Tool and the Spray Solvent Tool. The surfaces of the Spray Acid Tool that are exposed to acids are made entirely of teflon and other acid-resistant materials. This tool addresses applications that include resist-stripping, pre-diffusion cleaning, oxide etching, polymer removal and chemical milling. The Company's Spray Solvent Tool is primarily made out of stainless steel and addresses processes which use solvents to dissolve and strip the lithographic media from substrate surfaces, remove polymer residues and develop lithographic images on substrate surfaces. In addition to customary semiconductor applications, the Spray Acid Tools and Spray Solvent Tools are being used to manufacture a variety of other products including flat panel displays and thin film heads, and are used with substrates as large as 500 millimeters square. The closed-loop/closed-chamber system of the Company's batch spray processing tools allows for reclamation, filtration and recirculation of chemicals, resulting in reduced chemical consumption, better environmental control and enhanced operator safety. The purchase prices of the Company's batch chemical processing tools range from $150,000 to $750,000, depending on configuration. Both tools types have been upgraded for 300mm substrates. The Company's manually loaded Spin Rinser/Dryer is used primarily for removing chemical residues from substrate surfaces with DI water, and utilizes the same enclosed chamber, spray processing and centrifugal drying technologies employed in the Company's Spray Acid Tools and Spray Solvent Tools. The Spin Rinser/Dryer incorporates a DI water resistivity monitor to ensure the required level of cleanliness. The Company introduced the Spin Rinser/Dryer in 1979 and, as of September 30, 1997, had delivered over 22,000 units to customers. The purchase price of the Spin Rinser/Dryer ranges from $10,000 to $150,000, depending on configuration. The Spin Rinser/Dryer has been upgraded to handle 300mm substrates. The Magnum and Magnum 3000 are multimodule chemical processing tools which cluster the Company's solvent, acid and spin rinser/dryer capabilities into single automated unit. The tools incorporate Company-designed advanced robotics which employ fiber optic communications, absolute positioning and linear motor tracking to ensure precise, reliable and particle-free automated wafer handling. Both offer standard mechanical interface ("SMIF") loading capabilities and a touch screen computer interface customized for ease of operation. The tools provide customers with the flexibility to mix and match process modules, including immersion modules as appropriate, thereby providing them with a complete chemical processing solution to meet their particular process requirements. The Magnums possess significant competitive advantages over both stand-alone tools and other automated products, including the ability to replace two or more wet-benches with a single, smaller footprint tool as well as increased yields and increased throughput per square foot of clean room space. Magnum's latest innovations include the Magnum 3000 designed for the new state-of-the-art 300mm wafer fabs currently planned by customers. The Company believes that the installed base of its widely accepted chemical processing tools has facilitated market acceptance of the Magnums. The purchase price of the Magnum and Magnum 3000 ranges from $900,000 to over $2.4 million, depending on configuration. Single Substrate Processing Electrochemical Deposition. Semitool offers two styles of fully automated single wafer processing tools that are designed for electrochemical deposition. The first generation tool utilizes a radial configuration and is designed for research and development, preproduction and production applications. The second generation, LT-210, uses a linear configuration designed for high through-put manufacturing. The LT-210 employs two track robots to feed process chambers and has automatic electrolyte dosing systems to ensure constant solution strength for repeatability of deposition, and various proprietary systems ensure uniformity of plating across the wafer. The LT-210 consistently deposits copper films with superior step coverage, lower electrical resistance, at a lower price and at a rate faster than is possible with conventional vacuum deposition systems. Both models plate copper for device interconnects, gold or solder for bonding bumps, copper for ink jet devices and copper for magneto resistive heads used in hard drives. Cleaning. The Company's Equinox addresses the needs of customers employing single substrate processing for specialized applications. The Equinox utilizes a variety of processes, including immersion, spray, hydrofluoric acid vapor and infrared heating, to address cleaning, stripping, etching and developing. All such processes are performed with the substrate suspended device side down in an enclosed process chamber. This face down positioning allows for enhanced liquid or gas delivery of the process chemicals to the substrate, and results in greater process uniformity and reduced contamination. The Equinox is a flexible platform which may contain multiple process chambers, allowing customers to cluster multiple process technologies into a single tool to perform sequential processes. The Equinox has been used to process ceramic substrates, thin film heads and photo masks in addition to its customary silicon and gallium arsenide wafer applications. In addition to offering complete Equinox tools, the Company also offers Equinox technologies to original equipment manufacturers for integration into other upstream or downstream process equipment, including thermal technologies. The price of the Equinox ranges from $150,000 to $2.0 million, depending on configuration. Thermal Processing The Company's VTP 1500 and EXPRESS vertical furnaces employ a patented design which provides a continuously controlled process environment that allows for oxidation/diffusion and LPCVD processing steps such as gate oxide/poly, oxide/nitride and oxide/nitride/oxide to be performed sequentially in the same processing chamber. The Company's furnaces feature a stationary base plate and quartz process tower with a patented double lift system which allows the process chamber and heating element to each be raised and lowered independently over the process tower. The furnace's quartz tower is loaded with wafers by a simple pick and place robot (thereby avoiding the risk of particle contamination caused by loading the wafers in batches) and the process chamber is then lowered over the wafers. The atmosphere within the process chamber is removed by vacuum purging, creating an inert environment. The heating element is then lowered over the sealed process chamber. The inert environment prevents chemical reactions from occurring until the heating element is fully in place, at which time processing can be conducted by injecting the process tube with the appropriate active gas. This design avoids variances in process exposure times of individual wafers, preventing the non-uniformity inherent in traditional vertical furnace processing. Because the process tube may be purged and alternative active gases introduced in a sequential manner, wafers can remain in a continuously controlled environment for multiple discrete thermal processing steps. The Company believes that this sequential, or "in situ," processing capability is a significant competitive advantage of its furnaces. The double lift design also permits the heating element to be lifted away from the sealed process chamber, allowing wafers to cool more rapidly in a controlled environment, thereby improving overall thermal processing cycle time of the thermal process. In addition, the furnaces have the flexibility to be quickly reconfigured for varying processes and can be easily upgraded to accommodate larger wafer sizes. The Company believes its furnaces produce higher quality film with fewer impurities and increased electrical properties, and have been designed to meet manufacturers' requirements for the production of semiconductor devices with line geometries as small as .18 micron. The prices of the VTP 1500 and EXPRESS range from $600,000 to $1.5 million, depending on configuration. The EXPRESS has been upgraded to handle 300mm wafers. The Company, through its Semy Engineering, Inc. subsidiary, manufactures equipment supervisory workstations that upgrade diffusion and low pressure chemical deposition furnaces with state-of-the-art control features. The Company has also recently introduced equipment supervisory workstations that provide data collection, analysis and control for a wide variety of process tools and fab supervisory workstations that work in concert with the equipment supervisory workstations and provide fab wide process information. Wafer Carrier Cleaning Silicon wafers are stored, handled and processed in cassettes. Cassettes filled with wafers are placed in plastic boxes for transportation and storage. Significant increases in yields may be attained through effective cleaning of these cassettes and boxes. Wafer carriers have commonly been cleaned using commercial dishwasher or conveyor type methods in which they are spray washed and then dried using hot compressed gases. Because boxes and cassettes are made of plastics, the drying process can distort the boxes and cassettes and result in subsequent wafer damage or contamination. The Company's Storm wafer carrier cleaning system cleans and dries the wafer carriers in a unique rinsing/spinning process that occurs inside an enclosed chamber. Solution is sprayed, cleaning both the boxes and cassettes and the inside of the chamber, followed by a DI water rinse. The boxes and cassettes are then dried using centrifugal force and warm filtered ambient air. The Storm monitors the humidity inside the enclosed process chamber to ensure consistent drying results. The Company believes the Storm removes particles more effectively than conventional technology and has the lowest cost of ownership of any commercially available cleaning system. The Storm also has a patented loading feature that allows through-the-wall installation whereby unwashed boxes and cassettes can be loaded into the Storm from outside the clean room and then unloaded directly into the clean room after the cleaning cycle has been completed. This feature enables customers to avoid bringing contaminated boxes and cassettes into the clean room. The price of a Storm ranges from $190,000 to $400,000, depending on configuration. Spare Parts and Service The Company sells spare part kits and spare part components for its equipment. The Company employs customer service and process engineers to assist and train the Company's customers in performing preventive maintenance and service on Semitool equipment and developing process applications for the equipment. The Company generally provides a one year parts and labor warranty on equipment and a 90-day warranty on parts. The Company offers a variety of process, service, and maintenance programs that may be purchased for a fee. A number of customers have purchased maintenance contracts whereby the Company's service employees work full-time at the customer's facility, and provide service and maintenance support for Semitool equipment. Customers, Sales and Marketing The Company's customers include leading semiconductor manufacturers worldwide as well as major manufacturers of thin film heads, flat panel displays, multichip modules, ink jet print heads, compact disc masters, and hard disk media. The following is a representative list of the Company's largest United States and international end-user customers, which had purchases in excess of $2,000,000 in fiscal 1997: Advanced Micro Devices LSI Oliver Design Atmel Lucent Technologies Seagate Fujitsu MASCA / Matsushita Semi. SGS-Thomson Hewlett-Packard Micro Chip Corporation Siemens Hyundai Electronics Motorola Texas Instruments IBM National Semiconductor TRW Intel Newport Wafer VLSI Technology The Company believes that its sales, service and customer support organizations are important to the long-term success of its customer relationships. International sales, primarily in Europe and Asia accounted for approximately 36%, 44% and 40% of total sales for fiscal years 1997, 1996 and 1995, respectively. The Company markets and sells its products in North America through its sales organization which includes direct sales personnel and independent sales representatives. The Company currently has sales and service offices located throughout the United States. In Europe, the Company has direct sales personnel. In Asia, the Company sells through direct sales personnel and independent sales representatives as well as through Tokyo Electron, Limited ("TEL") pursuant to a non-exclusive distribution agreement, whereby TEL sells the Company's stand-alone batch and single substrate spray chemical processing products (except electrochemical deposition products) in Japan. To supplement TEL's sales efforts, the Company has a direct sales operation in Japan. To enhance its sales capabilities, the Company maintains a demonstration and process development laboratory and a clean room at its Kalispell, Montana facility. The Company currently provides a one year warranty on equipment and a 90-day warranty on parts. The Company has field service personnel and application engineers servicing customers in the United States, Europe and Asia, who directly provide warranty service, post-warranty service and equipment installations. Field service engineers are located in nine sites throughout the United States, including dedicated site-specific engineers in place at certain customer locations pursuant to contractual arrangements. To further ensure customer satisfaction, the Company also provides service and maintenance training as well as process application training for its customers' personnel on a fee basis. The Company maintains an extensive inventory of spare parts which allows the Company to provide overnight delivery for many parts. The Company's vertically integrated manufacturing allows the Company to quickly manufacture parts to address customers' service needs. Backlog Backlog decreased to approximately $63.8 million at September 30, 1997, from approximately $85.9 million at September 30, 1996. The Company's automated batch chemical processing tool, first shipped in fiscal 1995, now represents the largest single component of the backlog with the spray solvent tool second. The Company includes in its backlog those customer orders for which it has received purchase orders or purchase order numbers and for which shipment is scheduled within the next twelve months. Orders are generally subject to cancellation or rescheduling by customers with limited or no penalty. As the result of systems ordered and shipped in the same quarter, possible changes in customer delivery schedules, cancellations of orders and delays in product shipments, the Company's backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. Manufacturing Most of the Company's manufacturing is conducted at its facilities located in Kalispell, Montana. The Company's vertically integrated manufacturing operations include state-of-the-art metals and plastics fabrication and finishing capabilities; component part, circuit board and final product assembly; and extensive product testing capabilities. The Company's manufacturing personnel work closely with its product development personnel to ensure its products are engineered for manufacturability, affording a smooth transition from prototype to full scale production. Component and product prototyping is performed internally, and design engineers often receive prototypes of newly designed parts from manufacturing within 24 hours. The Company believes it achieves a number of competitive advantages from its vertically integrated manufacturing operations, including the ability to achieve cost and quality advantages, to quickly bring new products and product enhancements to market, and the ability to produce sophisticated component parts not available from other sources. Research and Development The market for semiconductor equipment is characterized by rapid technological change and product innovation. The Company believes that continued timely development of products for both existing and new markets is necessary to remain competitive. The Company devotes significant resources to programs directed at developing new and enhanced products, as well as new applications for existing products. The Company maintains an extensive demonstration and process development laboratory at its facilities in Montana, including a clean room for testing and developing its products. Company research and development (R&D) personnel work directly with customers to provide process solutions, develop new processes and to design and evaluate new pieces of equipment. The Company developed new models of its vertical furnace, automated batch chemical processor and single substrate processor during fiscal 1997. The major R&D project completed during fiscal 1997 was the introduction of the LT-210 ECD single wafer processor. The LT-210 provides advanced electrochemical deposition to deliver copper with high purity and uniformity to the surface of the wafer. The tool is designed for high-throughput manufacturing and is fully automated to provide consistent, hands-free processing. The new Magnum 3000 is capable of processing 300mm wafers in a total automated ultra clean environment. Other new versions of Magnums include a standard mechanical interface (SMIF), increased batch size of fifty 200mm wafers, a vision system for the robotics and an ozone injection system designed to decrease operating expenses and enhance performance. The Express vertical furnace was enhanced to handle 300mm wafers. It received an improved, proprietary version of a model-based temperature controller that was optimized through the use of sophisticated modeling tools. The 200mm version of Express includes as an option a fully-automated WIP stocker for SMIF pods, an industry first. Expenditures for R&D, which are expensed as incurred, during fiscal 1997, 1996 and 1995 were approximately $21.2 million, $19.5 million and $11.4 million and represented 10.9%, 11.2% and 8.9% of net sales, respectively. Competition The industry in which the Company competes is highly competitive. The Company faces substantial competition from both established competitors and from potential new market entrants. Significant competitive factors in the markets in which the Company competes include system performance and flexibility, cost of ownership, the size of each manufacturer's installed customer base, customer support capabilities and breadth of product line. The primary competition to the Company's batch chemical spray products is currently from wet-bench chemical processing equipment. The Company is aware of at least two other manufacturers of spray chemical processors. As the demand for more precise and reliable chemical processing increases, the Company anticipates greater competition in the centrifugal spray technology area. The Company is aware of vertical furnaces produced by at least four other manufacturers which compete with the Company's thermal processing equipment. The single substrate processing market in which the Company's Equinox competes and the wafer carrier cleaning market in which the Company's Storm competes are highly fragmented markets. The Company is aware of at least two other companies competing in the plating market and expects other major equipment companies to enter next year. In these fragmented markets, the Company believes that it competes primarily with alternative technologies. The Company expects its competitors to continue to improve the design and performance of their products. There can be no assurance that the Company's competitors will not develop enhancements to or future generations of competitive products that will offer superior price or performance features or that new processes or technologies will not emerge that render the Company's products less competitive or obsolete. As a result of the substantial investment required to integrate capital equipment into a production line, the Company believes that once a manufacturer has selected certain capital equipment from a particular vendor, the manufacturer generally relies upon that vendor to provide equipment for the specific production line application and may seek to rely upon that vendor to meet other capital equipment requirements. Accordingly, the Company may be at a competitive disadvantage with respect to a particular customer if that customer utilizes a competitor's manufacturing equipment. Increased competitive pressure could lead to lower prices for the Company's products, thereby adversely affecting the Company's business and results of operations. There can be no assurance that the Company will be able to compete successfully in the future. Patents and Other Intellectual Property The Company currently holds numerous United States patents, some with pending foreign counterparts, has several United States patent applications pending and intends to file additional patent applications as appropriate. There can be no assurance that patents will issue from any of the Company's pending applications or that existing or future patents will be sufficiently broad to protect the Company's technology. The Company believes that patents and trademarks are of less significance in its industry than such factors as product innovation, technical expertise and its ability to quickly adapt its products to evolving processing requirements and technologies. While the Company attempts to protect its intellectual property rights through patents, copyrights and non-disclosure agreements, there can be no assurance that the Company will be able to protect its technology, or that competitors will not be able to develop similar technology independently. In addition, the laws of certain foreign countries may not protect the Company's intellectual property to the same extent as the laws of the United States. Moreover, there can be no assurance that the Company's existing or future patents will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide meaningful competitive advantages to the Company. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Although the Company is not aware of any infringement by its products of any patents or proprietary rights of others, further commercialization of the Company's products could provoke claims of infringement from third parties. In the future, litigation may be necessary to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company or to defend the Company against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by the Company, which by itself could have a material adverse effect on the Company's financial condition and operating results. Further, adverse determinations in such litigation could result in the Company's loss of proprietary rights, subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any of which could have a material adverse effect on the Company's business and results of operations. Employees At September 30, 1997, the Company had 1,363 full time employees and 189 temporary contract employees worldwide. This includes 814 in manufacturing, 373 in marketing, sales and field service, 257 in research and development, and 108 in general administration. The Company believes that the use of temporary employees allows the Company to respond more rapidly to fluctuations in manufacturing and product demand and enables the Company to better control the labor component of its manufacturing costs. None of the Company's employees are 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. Risk Factors Introduction The risks detailed in this section as well as risks and uncertainties discussed elsewhere in this annual report on Form 10-K and in the Company's other SEC filings constitute some of the risks common in the semiconductor equipment industry or risks specific to Semitool. Shareholders or potential shareholders should read these risks carefully to better understand the potential volatility of the Company's results and volatility in the Company's share price. The fact that some of the risk factors may be the same or similar to the Company's past filings means only that the risks are present in multiple periods. The Company believes that many of the risks detailed are part of doing business in the semiconductor equipment industry and will likely be present in all periods reported. The fact that certain risks are endemic to the industry does not lessen the significance of the risk. Cyclical Nature of the Semiconductor Industry The Company's business depends primarily on the capital expenditures of semiconductor manufacturers, who correspondingly depend on the demand for final products or systems that use such devices. The semiconductor industry is cyclical and has historically experienced periodic downturns characterized by oversupply and weak demand, which often have had a material adverse effect on capital expenditures by semiconductor manufacturers. These downturns generally have adversely affected the business and operating results of semiconductor equipment suppliers, including the Company. The semiconductor device industry is presently experiencing a slowdown in terms of product demand and volatility in terms of product pricing. In 1997, the average selling price of memory chips and certain other semiconductor devices significantly decreased. This has resulted in semiconductor device manufacturers announcing delays in their expansion plans. This slowdown and volatility has caused the semiconductor industry to reduce its demand for semiconductor processing equipment and, in some instances, to delay capital equipment decisions. In some cases this has resulted in order cancellations or delays of orders and delays of delivery dates for the Company's products. No assurance can be given that the Company's revenues and operating results will not be adversely affected during this and possible future downturns in the semiconductor industry. In addition, the need for continued investment in research and development, marketing and customer support may limit the Company's ability to reduce expenses in response to this and future downturns in the semiconductor industry. Fluctuations in Future Operating Results The Company's business and results of operations have fluctuated significantly in the past and the Company expects them to fluctuate significantly on a quarterly or annual basis in the future. During a particular quarter, a significant portion of the Company's revenues is often derived from the sale of a relatively small number of high selling price systems. The number of such systems sold in, and the results for, a particular quarter or year can vary significantly due to a variety of factors, including the timing of significant orders, the timing of new product announcements by the Company or its competitors, patterns of capital spending by customers, market acceptance of new and enhanced versions of the Company's products, changes in pricing by the Company, its competitors or suppliers, the mix of products sold and cyclicality in the semiconductor industry and other industries served by the Company. In addition, the cancellation or rescheduling of customer orders or any production difficulty could adversely impact shipments which would negatively impact the Company's business and results of operations for the period or periods in which such cancellation or rescheduling occurs. In light of these factors and the cyclical nature of the semiconductor industry, the Company expects to continue to experience significant fluctuations in quarterly and annual operating results. Moreover, many of the Company's expenses are fixed in the short-term which, combined with the need for continued investment in research and development, marketing and customer support, limits the Company's ability to reduce expenses quickly. As a result, shortfalls in net revenues could have a material adverse effect on the Company's business and results of operations. Dependence on Product Development Semiconductor equipment is subject to rapid technological change as well as evolving industry standards. The Company believes that its future success will depend in part upon its ability to continue to enhance its existing products and their process capabilities, to continue to decrease the overall cost of ownership of such products, and to continue to develop and manufacture new products with improved process capabilities which conform to evolving industry standards. As a result, the Company expects to continue to make significant investments in research and development. Although historically the Company has had adequate funds from its operations to devote to research and development, there can be no assurance that such funds will be available in the future or, if available, that they will be adequate. The Company also must manage product transitions successfully, since announcements or introductions of new products by the Company or its competitors could adversely affect sales of existing Company products. There can be no assurance that the Company will be able to develop and introduce new products or enhancements to its existing products on a timely basis or in a manner which satisfies customer needs or achieves widespread market acceptance. The failure to do so could adversely affect the Company's business and results of operations. Market Acceptance of New Products The Company believes that its growth prospects depend in large part upon its ability to gain customer acceptance of its products and technology. Market acceptance of new products depends upon numerous factors, including compatibility with existing manufacturing processes and products, perceived advantages over competing products and the level of customer service available to support such products. Moreover, manufacturers often rely on a limited number of equipment vendors to meet their manufacturing equipment needs. As a result, market acceptance of the Company's new products may be adversely affected to the extent potential customers utilize a competitor's manufacturing equipment. There can be no assurance that growth in sales of new products will continue or that the Company will be successful in obtaining broad market acceptance of its systems and technology. Competition The industries in which the Company competes are highly competitive. The Company faces substantial competition from established competitors, certain of which have greater financial, marketing, technical and other resources, broader product lines, more extensive customer support capabilities, and larger and more established sales organizations and customer bases than the Company. The Company may also face competition from new domestic and overseas market entrants. Significant competitive factors in the semiconductor equipment market and other markets in which the Company competes include system performance and flexibility, cost of ownership, the size of each manufacturer's installed customer base, customer service and support and breadth of product line. The Company believes that it competes favorably on the basis of these factors. In order to remain competitive, the Company must maintain a high level of investment in research and development, marketing, and customer service while controlling operating expenses. There can be no assurance that the Company will have sufficient resources to continue to make such investments or that the Company's products will continue to be viewed as competitive as a result of technological advances by competitors or changes in semiconductor processing technology. The Company's competitors may also increase their efforts to gain and retain market share through competitive pricing. Such competitive pressures may necessitate significant price reductions by the Company or result in lost orders which could adversely affect the Company's business and results of operations. The Company expects its competitors to continue to improve the design and performance of their products. There can be no assurance that the Company's competitors will not develop enhancements to, or future generations of, competitive products that will offer superior price or performance features, or that new processes or technologies will not emerge that render the Company's products less competitive or obsolete. As a result of the substantial investment required to integrate capital equipment into a production line, the Company believes that once a manufacturer has selected certain capital equipment from a particular vendor, the manufacturer generally relies upon that vendor to provide equipment for the specific production line application and may seek to rely upon that vendor to meet other capital equipment requirements. Accordingly, the Company may be at a competitive disadvantage with respect to a particular customer if that customer utilizes a competitor's manufacturing equipment. There can be no assurance that the Company will be able to compete successfully in the future. Environmental Regulations The Company is subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile or otherwise hazardous chemicals used on the Company's premises. The Company believes that it is in material compliance with these regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, current or future regulations could require the Company to purchase expensive equipment or to incur other substantial expenses to comply with environmental regulations. Any failure by the Company to control the use of, or adequately restrict the discharge or disposal of, hazardous substances could subject the Company to future liabilities, result in fines being imposed on the Company, or result in the suspension of production or cessation of the Company's manufacturing operations. International Business Approximately 36%, 44% and 40% of the Company's sales for fiscal 1997, 1996 and 1995, respectively, were attributable to customers outside the United States. The Company expects sales outside the United States to continue to represent a significant portion of its future sales. Sales to customers outside the United States are subject to various risks, including exposure to currency fluctuations, the imposition of governmental controls, the need to comply with a wide variety of foreign and United States export laws, political and economic instability, trade restrictions, changes in tariffs and taxes, and longer payment cycles typically associated with international sales. The Company's international sales activities are also subject to the difficulties of managing overseas distributors or representatives, and difficulties of staffing and managing foreign subsidiary operations. In addition, because a majority of the Company's international sales are denominated in United States dollars, the Company's ability to compete overseas could be adversely affected by a strengthening United States dollar. Moreover, although the Company endeavors to meet technical standards established by foreign standards setting organizations, there can be no assurance that the Company will be able to comply with changes in foreign standards in the future. The inability of the Company to design products to comply with foreign standards or any significant or prolonged decline in the Company's international sales could have a material adverse effect on the Company's business and results of operations. Patents and Other Intellectual Property The Company's success depends in significant part on the technically innovative features of its products. While the Company attempts to protect its intellectual property rights through patents, copyrights and non-disclosure agreements, it believes that its success will depend to a greater degree upon innovation, technological expertise and its ability to quickly adapt its products to new technology. There can be no assurance that the Company will be able to protect its technology or that competitors will not be able to independently develop similar technology. In addition, the laws of certain foreign countries may not protect the Company's intellectual property to the same extent as do the laws of the United States. No assurance can be given that the Company's patents will be sufficiently broad to protect the Company's technology, nor that any existing or future patents will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide meaningful competitive advantages to the Company. In any of such events, the Company's business and operating results could be adversely affected. There has been substantial litigation regarding patent and other intellectual property rights in semiconductor-related industries. Although the Company is not aware of any infringement by its products of any patents or proprietary rights of others, there can be no assurance that such infringements do not exist or will not occur in the future. Litigation may be necessary in the future to enforce patents issued to the Company, to protect trade secrets or know-how owned by the Company, to defend the Company against claimed infringement of the rights of others or to determine the scope and validity of the proprietary rights of others. Any such litigation could result in substantial cost and diversion of effort by the Company, which by itself could adversely affect the Company's business and results of operations. Moreover, adverse determinations in such litigation could result in the Company's loss of proprietary rights, subject the Company to significant liabilities to third parties, require the Company to seek licenses from third parties or prevent the Company from manufacturing or selling its products, any of which could adversely affect the Company's business and results of operations. The Company knows of no threatened litigation that would adversely affect the Company's intellectual property rights. Dependence on Key Personnel The Company's success depends to a significant extent upon the efforts of certain senior management and technical personnel, particularly Raymon F. Thompson, the Company's Chairman, Chief Executive Officer and President. The Company's future success will depend in large part upon its ability to attract and retain highly skilled technical, managerial, and marketing personnel. Competition for such personnel is high and, while to date the Company does not believe that its geographic location has hindered it in recruiting qualified personnel, no assurance can be given that the Company's location will not adversely affect future recruiting of key personnel. The loss of the services of Mr. Thompson or of one or more other key management or technical personnel, or the inability to attract and retain additional qualified personnel, could adversely affect the Company's business and results of operations. The Company maintains a $2.0 million "key man" life insurance policy on Mr. Thompson. Dependence on Key Customers The Company's ten largest customers accounted for 52%, 42% and 55% of the Company's net sales in fiscal 1997, 1996 and 1995, respectively. Although the composition of Semitool's largest customers has changed from year to year, the loss of, or a significant curtailment of purchases by one or more of the Company's key customers could adversely affect the Company's business and results of operations. Dependence on Key Suppliers Certain components and subassemblies included in the Company's products are obtained from a single source or a limited group of suppliers. Although the Company has vertically integrated much of its manufacturing operations, the loss of, or disruption in shipments from, certain sole or limited source suppliers could in the short-term adversely affect the Company's business and results of operations. The Company believes that it could either manufacture components or secure an alternate supplier with no long-term material adverse effect on the Company's business or operations. Further, a significant increase in the price of one or more of these components could adversely affect the Company's business and results of operations. Effect of Certain Anti-Takeover Provisions The Company's Articles of Incorporation authorize the Company's Board of Directors to issue Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued shares of Preferred Stock and to fix the number of shares constituting any series and the designations of such series, without further vote or action by the shareholders. Although the Company has no present plans to issue any Preferred Stock, and views the authorized Preferred Stock as a potential financing vehicle for the Company, the Board of Directors may issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. Any issuance of Preferred Stock may have the effect of delaying, deferring or preventing a change in control of the Company. Volatility of Stock Price The Company's Common Stock has experienced in the past, and could experience in the future, substantial price volatility as a result of a number of factors, including quarter to quarter variations in the actual or anticipated financial results, announcements by the Company, its competitors or its customers, government regulations, developments in the industry and general market conditions. In addition, the stock market has experienced extreme price and volume fluctuations which have affected the market price of many technology companies in particular and which have at times been unrelated to the operating performance of the specific companies whose stock is traded. Broad market fluctuations, as well as economic conditions generally and in the semiconductor industry specifically, may adversely affect the market price of the Company's Common Stock. Securities Litigation A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A) was filed February 26, 1996, in the Montana Eleventh Judicial District Court, Flathead County, Kalispell, Montana against the Company and certain of its officers and directors. The complaint includes allegations that the Company issued misleading statements concerning its business and prospects. The suit seeks injunctive relief, damages, costs and other relief as the court may find appropriate. The Company believes the lawsuit to be without merit and intends to contest the action vigorously. However, given the inherent uncertainty of litigation, insurance issues, and the early stage of discovery, there can be no assurance that the ultimate outcome will be in the Company's favor, or that if the ultimate outcome is not in the Company's favor, that such an outcome, the diversion of management's attention, and any costs associated with the lawsuit, will not have a material adverse effect on the Company's financial condition or results of operations. Item 2. Properties The Company's 170,000 and 21,000 square-foot facilities are located on Company-owned sites in Kalispell, Montana. The headquarters for the Company's European sales and customer service is located in Cambridge, England and is also owned by the Company. The Company believes that its existing manufacturing facilities, will be adequate to meet its requirements for the foreseeable future and that suitable additional or substitute space will be available as needed. The Company also leases various other smaller facilities worldwide which are used as sales and customer service centers. The Company is subject to a variety of governmental regulations related to the discharge or disposal of toxic, volatile, or otherwise hazardous chemicals used on the Company's premises. The Company believes that it is in material compliance with these regulations and that it has obtained all necessary environmental permits to conduct its business. Nevertheless, current or future regulations could require the Company to purchase expensive equipment or to incur other substantial expenses to comply with environmental regulations. Any failure by the Company to control the use of, or adequately restrict the discharge or disposal of, hazardous substances could subject the Company to future liabilities, result in fines being imposed on the Company, or result in the suspension of production or cessation of the Company's manufacturing operations. Item 3. Legal Proceedings A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A) was filed on February 26, 1996, in the Montana Eleventh Judicial District Court, Flathead County, Kalispell, Montana against the Company and certain of its officers and directors. The complaint includes allegations that the Company issued misleading statements concerning its business and prospects. The suit seeks injunctive relief, damages, costs and other relief as the court may find appropriate. The Company believes the lawsuit to be without merit and intends to contest the action vigorously. However, given the inherent uncertainty of litigation, insurance issues, and the early stage of discovery, there can be no assurance that the ultimate outcome will be in the Company's favor, or that if the ultimate outcome is not in the Company's favor, that such an outcome, the diversion of management's attention, and any costs associated with the lawsuit, will not have a material adverse effect on the Company's financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to the shareholders for a vote during the fourth quarter of the fiscal year. Part II Item 5. Market for Semitool's Common Stock and Related Shareholder Matters The Company's common stock is traded under the symbol "SMTL" principally on the Nasdaq National Market. The approximate number of shareholders of record at December 9, 1997 was 214 and the reported last sale price of the Company's common stock on the Nasdaq National Market was $14.47. The high and low sales prices for the Company's common stock reported by the Nasdaq National Market are shown below. Common Stock Price Range Fiscal Year Ended September 30, 1997 1996 ------------------- ---------------------- High Low High Low First Quarter $11.63 $8.38 $24.50 $12.50 Second Quarter $14.88 $9.50 $17.75 $12.50 Third Quarter $13.50 $9.50 $17.00 $13.00 Fourth Quarter $26.88 $12.88 $13.50 $10.25 The Company, prior to its initial public offering of common stock in February 1995 (the "Initial Public Offering"), made distributions to shareholders for their share of income taxes related to the Company's S Corporation status. The Company also made a final distribution of S Corporation retained earnings prior to the initial public offering. The Company intends to retain its earnings to fund the development and growth of its business and therefor, does not anticipate paying any cash dividends in the foreseeable future. Item 6. Selected Financial Data This summary should be read in conjunction with the consolidated financial statements and related notes included elsewhere herein.
Summary Consolidated Financial Information (in thousands, except per share data) Year Ended September 30, 1997 1996 1995 1994 1993 Statement of Operations Data: Net sales $193,952 $174,204 $128,326 $62,597 $48,532 Gross profit 91,090 84,631 65,858 31,957 24,070 Income from operations 20,432 24,182 20,927 3,020 356 Net income (loss) 12,523 15,136 14,885 2,170 (445) Pro forma Statement of Operations Data: Income from operations (1) 20,432 24,182 22,599 6,509 3,126 Net income (2) 12,523 15,136 14,403 3,723 1,579 Net income per share (3) 0.91 1.09 1.15 0.37 Shares used in per share computation (4) 13,833 13,858 12,563 9,946 Balance Sheet Data: Working capital 50,047 43,797 37,209 6,109 6,223 Total assets 131,725 114,954 88,067 39,807 30,744 Short-term debt 4,393 4,374 924 7,409 5,164 Long-term debt 3,364 3,637 4,011 6,089 1,940 Shareholders' equity 81,580 68,003 52,813 12,487 2,741
(1) Pro forma income from operations has been determined by eliminating for each period presented payments for technology rights that ceased in February 1995, upon closing of the initial public offering of the Company's common stock. (2) Between October 1, 1986 and February 1, 1995, the Company elected to be taxed under the provisions of Subchapter S of the Code. Under those provisions, the Company had not been subject to federal corporate income taxation. In connection with the closing of the Company's initial public offering, the Company terminated its S corporation status. Pro forma net income has been determined by assuming that the Company had been taxed as a C corporation for federal income tax purposes for each period presented. The pro forma provision for income taxes has been calculated by using statutory rates for federal and state taxes applied to pro forma income before income taxes, net of actual research and development credits generated in each year. The pro forma effective tax rates in fiscal 1993 through 1997 were 33.0%, 36.4%, 37.1%, 37.0%, and 38.0% respectively. (3) In accordance with Staff Accounting Bulletin No. 55 issued by the Securities and Exchange Commission, pro forma net income per share data is not presented prior to fiscal year 1994. Also, prior to the termination of S corporation status, dividends were paid by the Company only in amounts sufficient to cover shareholders' tax liabilities other than the final distribution of prior accumulated S Corporation earnings. The per share dividend information has therefore not been presented. (4) See Note 1 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing pro forma net income per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations CAUTION Statements contained in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding use of sales, service and support organizations, gross margins, research and development, costs of manufacturing, future balances, and effects of new accounting standards, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "will continue to be," "will be," "continue to," "expect to," "anticipates that," "to be" or "can impact." Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected in such forward-looking statements. These risks and uncertainties include, but are not limited to, the cyclical nature of the semiconductor industry in general, lack of market acceptance for new products, decreasing demand for the Company's existing products, impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraint difficulties and other risks detailed herein. The Company's future results will depend on its ability to continue to enhance its existing products and to develop and manufacture new products and to finance such activities. There can be no assurance that the Company will be successful in the introduction, marketing and cost-effective manufacture of any new products or that the Company will be able to develop and introduce in a timely manner new products or enhancements to its existing products and processes which satisfy customer needs or achieve widespread market acceptance. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. OVERVIEW The Company was incorporated in 1979 to develop, manufacture and market innovative manufacturing equipment for the semiconductor industry, and shipped its first product, a spin rinser/dryer, that year. During the 1980s, the Company introduced several generations of its acid and solvent spray chemical processing tools and vertical furnaces, and began to market its products to manufacturers outside the semiconductor industry. Since 1990, the Company has developed its Equinox single substrate chemical processing system, its Storm wafer carrier cleaning system, and its Magnum automated multimodule chemical processing system. In the last year the Company has completed development of its 300mm tools, the Magnum 3000, and Express furnace. The Company has also developed the industry's first production-ready copper plating tool, the Equinox LT-210. In response to increased demand for the Company's established and recently introduced products, the Company expanded its Montana facility in 1994 and 1995 from approximately 65,000 square feet at the beginning of fiscal 1994 to approximately 170,000 square feet at the end of fiscal 1995. The Company built a separate 21,000 square foot facility, also in Montana, in fiscal 1996. In addition, during fiscal 1997 the Company increased its production capacity by completing a 14,000 square foot facility in Cambridge, England. The unit selling prices for the Company's products range from $15,000 to $150,000 for a spin rinser/dryer, to $900,000 to over $2.0 million for the Magnum and LT-210 linear copper plating tool. Due to these relatively high unit selling prices, a significant portion of the Company's revenue in any given period is often derived from the sale of a relatively small number of units. From time to time, the Company has experienced, and expects to continue to experience, significant fluctuations in its results of operations, particularly on a quarterly basis. The Company's expense levels are based in part on expectations of future sales. If sales levels in a particular period do not meet expectations, operating results will be adversely affected. A variety of factors have an influence on the Company's operating results in a particular period. These factors include specific economic conditions in the semiconductor industry, the timing of the receipt of orders from major customers, customer cancellations or delays of shipments, specific feature requests by customers, production delays or manufacturing inefficiencies, management decisions to commence or discontinue product lines, the Company's ability to design, introduce and manufacture new products on a cost-effective and timely basis, the introduction of new products by the Company or its competition, the selection of the Company's or its competitors' products by semiconductor manufacturers for new generations of fabrication facilities, the timing of research and development expenditures, exchange rate fluctuations, and expenses attendant to acquisitions, strategic alliances and the further development of marketing and service capabilities. The Company markets and sells its products worldwide with an emphasis on Europe and Asia as its principal international markets. During fiscal 1997, approximately 35.9% of the Company's revenues were derived from sales to customers outside the United States. The Company anticipates that international sales will continue to account for a significant portion of net sales, although the percentage of international sales may fluctuate from period to period. The Company believes its sales, service and support organizations are important to the long-term success of its customer relationships. The Company provides sales, service and support worldwide, primarily through direct employees in the United States, Europe, Japan, Korea, and through distributors elsewhere in the world. RESULTS OF OPERATIONS The following table sets forth the Company's actual and pro forma results of operations for the periods indicated expressed as a percentage of net sales: Year Ended September 30, 1997 1996 1995 Statement of Operations Data: Net sales 100.0% 100.0% 100.0% Cost of sales 53.0 51.4 48.7 ----- ----- ----- Gross profit 47.0 48.6 51.3 ----- ----- ----- Operating expenses: Selling, general and administrative 25.5 23.5 24.8 Research and development 10.9 11.2 8.9 Cost of technology rights -- -- 1.3 ----- ----- ----- Total operating expenses 36.4 34.7 35.0 ----- ----- ----- Income from operations 10.6 13.9 16.3 Other income (expense), net (0.1) (0.1) 0.2 ----- ----- ----- Income before income taxes 10.5 13.8 16.5 Provision for income taxes 4.0 5.1 4.9 ----- ----- ----- Net income 6.5% 8.7% 11.6% ===== ===== ===== Pro Forma Statement of Operations Data: Income from operations before pro forma adjustments 10.6% 13.9% 16.3% Elimination of cost of technology rights -- -- 1.3 ----- ----- ----- Income from operations 10.6 13.9 17.6 Other income (expense), net (0.1) (0.1) 0.2 ----- ----- ----- Income before income taxes 10.5 13.8 17.8 Provision for income taxes 4.0 5.1 6.6 ----- ----- ----- Net income 6.5% 8.7% 11.2% ===== ===== ===== YEARS ENDED SEPTEMBER 30, 1997 AND 1996 Net Sales. Net sales consist of revenues from sales of equipment, spare parts and service contracts. Net sales increased $19.7 million (11.3%) to $194.0 million in fiscal 1997 from $174.2 million in fiscal 1996. Net sales of the Company's automated batch chemical processing tools accounted for the majority of the increase. The Company shipped a number of new tool models during 1997. The first 50 wafer batch size Magnum with a newly designed work-in-process (WIP) station was delivered during the fiscal year. New versions of Magnum also include vision systems to guide the robotics and an ozone injection system designed to decrease operating expenses and enhance performance. In addition to our own proprietary, newly designed model-based temperature controller which decreases cycle time, the Express furnace received new robotics and a fully standard mechanical interface (SMIF) compatible WIP station. The adoption of any of these tools for future widespread production use is dependent on a number of factors including, but not limited to, performance and pricing competition from other equipment manufacturers. International sales, predominantly to customers based in Europe and Asia, accounted for 35.9% of net sales in fiscal 1997 compared to 43.9% in the prior year. The Company anticipates that international sales will continue to account for a significant portion of net sales, although the percentage may fluctuate from period to period. Gross Profit. Gross margin decreased to 47.0% in fiscal 1997 from 48.6% in the prior year. The Company's gross margin has been, and will continue to be, affected by a variety of factors, including the costs to manufacture, service and support new and enhanced products, as well as the mix and average selling prices of products sold. The Company believes that the largest single factor in the 1997 gross margin decline is costs and inefficiencies related to recently developed products. The Company anticipates that the cost to manufacture and support the newer tool models will improve over time, but that it will continue to design and sell additional models of its existing tools and additional tool types, which may somewhat offset the anticipated improvement in gross margins. Selling, General and Administrative. Selling, general and administrative (SG&A) expenses were $49.5 million or 25.5% of net sales in fiscal 1997 compared to $40.9 million or 23.5% of net sales in the prior year. The $8.6 million increase in SG&A expense in 1997 as compared to 1996 reflects higher costs associated with increased sales volumes, a broader range of equipment to market and service, and costs associated with additional sales and service personnel supporting the domestic and Asian marketplaces. A substantial portion of the Company's SG&A expense is fixed in the short-term. While it is the Company's goal to reduce SG&A expense as a percentage of net sales during periods of rising sales, a decline in net sales would cause the Company's selling, general and administrative expense to increase as a percentage of net sales and could have an adverse effect on the Company's business and results of operations. Research and Development. Research and development (R&D) expenses consist of salaries, project materials, laboratory costs, consulting fees and other costs associated with the Company's research and development efforts. R&D expenses were $21.2 million or 10.9% of net sales in fiscal 1997 compared to $19.5 million or 11.2% of net sales in the prior year. Major projects during the year include development of the Equinox LT-210 linear copper plating tool and the completion of development of the 300mm Magnum 3000 and 300mm Express products. Spending on R&D increased 8.6% or $1.7 million in absolute dollars over the prior year due to the number and complexity of projects undertaken. The Company is committed to technology leadership in the semiconductor equipment industry and expects to continue to fund research and development expenditures with a multiyear perspective. Such funding has resulted in fluctuations in R&D expenses from period to period in the past. The Company expects such fluctuations to continue in the future, both in absolute dollars and as a percentage of net sales, primarily due to the timing of expenditures and changes in the level of net sales. Other Income (Expense). Interest income on short-term investments declined from $173,000 in fiscal 1996 to $97,000 in 1997. Provision for Income Taxes. The provisions for income taxes for 1997 and 1996 were $7.7 million and $8.9 million, respectively. The effective tax rates for 1997 and 1996 were 38% and 37%, respectively. YEARS ENDED SEPTEMBER 30, 1996 AND 1995 Net Sales. Net sales consist of revenues from sales of equipment, spare parts and service contracts. Net sales increased $45.9 million (35.8%) to $174.2 million in fiscal 1996 from $128.3 million in fiscal 1995. Net sales of the Company's automated batch chemical processing tools and its single substrate processor accounted for the majority of the increase. Aggregate sales for these two tool types increased from $15.4 million in fiscal 1995 to $45.8 million in fiscal 1996. The Company shipped a number of new tool models during 1996. New automated batch chemical processing tools included two models for processing glass substrates used in the manufacture of flat panel displays and multichip modules, an immersion tool for processing silicon wafers, and a carrierless spray processing tool. New single substrate processor models were introduced for plating, including multilevel interconnect processes for advanced integrated circuit devices. A vertical furnace with much faster thermal ramp capabilities was shipped to three different customers. The Company also shipped a new model of its carrier cleaning system developed late in 1995 and a chemical delivery unit to interface between bulk chemical storage and the Company's batch and single substrate chemical processing tools. The adoption of any of these tools for future widespread production use is dependent on a number of factors including, but not limited to, performance and pricing competition from other equipment manufacturers. In February of 1996, the Company merged with Semy Engineering, Inc. (Semy) in a transaction accounted for as a pooling-of-interests and consequently, the Company's financial statements prior to the merger have been restated to include Semy. Semy accounted for 10.2% of 1995 sales and 8.6% of 1996 sales after eliminating intercompany transactions. International sales, predominantly to customers based in Europe and Asia, accounted for 43.9% of net sales in fiscal 1996 compared to 40.4% in the prior year. The Company anticipates that international sales will continue to account for a significant portion of net sales, although the percentage may fluctuate from period to period. Gross Profit. Gross margin decreased to 48.6% in fiscal 1996 from 51.3% in the prior year. The Company's gross margin has been, and will continue to be, affected by a variety of factors, including the costs to manufacture, service and support new and enhanced products, as well as the mix and average selling prices of products sold. The Company believes that the largest single factor in the 1996 gross margin decline is costs and inefficiencies related to the manufacturing and servicing of recently developed products. The number of new tool models introduced in fiscal 1996 was unprecedented in the Company's history, both as to number and complexity. The Company anticipates that the cost to manufacture and support the newer tool models will improve over time, but that it will continue to design and sell additional models of its existing tools and additional tool types, which may somewhat offset the anticipated improvement in gross margins. Selling, General and Administrative. Selling, general and administrative (SG&A) expenses were $40.9 million or 23.5% of net sales in fiscal 1996 compared to $31.8 million or 24.8% of net sales in the prior year. The $9.1 million increase in SG&A expense in 1996 as compared to 1995 reflects higher costs associated with increased sales volumes, a broader range of equipment to market and service, costs associated with additional sales and service personnel supporting the Asian marketplace, and employee severance cost accruals provided at year end in response to a decline in the Company's fourth quarter bookings, partially offset by reduced employee bonus costs. The decline in these expenses, as a percentage of net sales, was primarily due to improved overhead absorption. A substantial portion of the Company's SG&A expense is fixed in the short term. While it is the Company's goal to continue to reduce SG&A expense as a percentage of net sales during periods of rising sales, a decline in net sales would cause the Company's selling, general and administrative expense to increase as a percentage of net sales and could have an adverse effect on the Company's business and results of operations. Research and Development. Research and development (R&D) expenses consist of salaries, project materials, laboratory costs, consulting fees and other costs associated with the Company's research and development efforts. R&D expenses were $19.5 million or 11.2% of net sales in fiscal 1996 compared to $11.4 million or 8.9% of net sales in the prior year. Spending on R&D increased 70.8% or $8.1 million in absolute dollars over the prior year due to the number and complexity of projects undertaken. The Company is committed to technology leadership in the semiconductor equipment industry and expects to continue to fund research and development expenditures with a multiyear perspective. Such funding has resulted in fluctuations in R&D expenses from period to period in the past. The Company expects such fluctuations to continue in the future, both in absolute dollars and as a percentage of net sales, primarily due to the timing of expenditures and changes in the level of net sales. Cost of Technology Rights. In 1979, the Company acquired certain technology rights from Raymon F. Thompson for installment payments equal to 8% of revenues from the sale of certain of the Company's products that embody the technology. All expense recognized in fiscal 1995 relates to the period from October 1, 1994 to February 2, 1995. All payments for technology rights ceased in conjunction with the Company's initial public offering, resulting in no cost to the Company from that point forward, including all of fiscal 1996. Other Income (Expense). Interest income on short-term investments declined from $428,000 in fiscal 1995 to $173,000 in 1996 as the funds raised in the Company's initial public offering have been invested in receivables, inventory and fixed assets. The Company realized a net loss of $17,000 on the sale of fixed assets in 1996 compared to a net gain of $191,000 the year before. Provision for Income Taxes. The provisions for income taxes for 1996 and 1995 were $8.9 million and $6.4 million, respectively. Effective in 1986, the Company elected to have its United States income taxed under Subchapter S of the Code. The Company, however, remained a taxpaying entity for Montana state income tax purposes. Income tax provisions recognized by the Company after 1986 and before February 1, 1995 relate to state income taxes and taxes imposed by foreign governments on the Company's foreign operations. The Company terminated its Subchapter S election as of the close of business on January 31, 1995 and subsequent to that date became subject to federal income taxation at the corporate level. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its growth since its February 1995 initial public offering primarily through amounts raised in conjunction with that offering, operations and borrowings on its revolving line of credit. Cash generated by operating activities in fiscal 1997 was $8.5 million as compared to $4.2 million used by operations in fiscal 1996. Substantial investments in accounts receivable and inventory and a decrease in customer advances in 1997 were more than offset by net income and non-cash expenses. As of September 30, 1997, the Company had $40.9 million of accounts receivable and $41.1 million of inventory, compared to $39.2 million of accounts receivable and $36.9 million of inventory at September 30, 1996. As is customary in the semiconductor manufacturing equipment industry, products are generally built to fill specific customer orders, with typical order fulfillment times ranging from four to six weeks for certain products to six months or more for more complex products. Accordingly, while the Company's finished goods inventory accounts for slightly over 10% of total inventory, overall inventory levels tend to fluctuate with the level and type of orders received. Currently, the tools with the longest average cycle times are the automated batch chemical tools and the single substrate processor. The Company expects future receivable and inventory balances to fluctuate with net sales. Cash used in investing activities in fiscal 1997 was $7.3 million as compared to $7.8 million in fiscal 1996. Investing activities consisted primarily of acquisitions of property and equipment and intangible assets in fiscal 1997. Property and equipment purchases used cash of $6.2 million in fiscal 1997 and $10.2 million in fiscal 1996. During fiscal 1996, the Company constructed and put into service a separate satellite facility in Kalispell totaling approximately 21,000 square feet and refurbished one of the several buildings on the Cambridge, England site for use as office space and an inventory storage depot. In connection with the merger of Semy, the Company invested $1.2 million in a covenant not to compete with certain of the principals of Semy. Financing activities consisted primarily of $1.0 million in proceeds from the exercise of stock options and $0.4 million of long-term debt repayments. As of September 30, 1997, the Company's principal sources of liquidity consisted of approximately $5.1 million of cash and cash equivalents, $6.0 million available under the Company's $10 million revolving line of credit, and $15 million under a long-term facility renewed during the fourth quarter of fiscal 1997. Both credit facilities are with Seafirst Bank and bear interest at the bank's prime lending rate. The revolving line of credit expires on March 31, 1999 when all principal amounts owing are due. The long-term credit facility expires on December 31, 1999 with principal amounts outstanding repayable in monthly principal and interest payments over a five-year period ending December 2004. The Company believes that cash and cash equivalents, funds generated from operations, and funds available under its bank lines will be sufficient to meet the Company's planned capital requirements during the next twelve months including the spending of approximately $10 million to purchase property, plant and equipment. The Company believes that success in its industry requires substantial capital in order to maintain the flexibility to take advantage of opportunities as they arise. The Company may, from time to time, as market and business conditions warrant, invest in or acquire complementary businesses, products or technologies. The Company may effect additional equity or debt financings to fund such activities or to fund greater than anticipated growth. The sale of additional equity securities or the issuance of equity securities in a business combination could result in dilution to the Company's shareholders. LITIGATION A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A) was filed on February 26, 1996, in the Montana Eleventh Judicial District Court, Flathead County, Kalispell, Montana against the Company and certain of its officers and directors. The complaint includes allegations that the Company issued misleading statements concerning its business and prospects. The suit seeks injunctive relief, damages, costs and other relief as the court may find appropriate. The Company believes the lawsuit to be without merit and intends to contest the action vigorously. However, given the inherent uncertainty of litigation, insurance issues, and the early stage of discovery, there can be no assurance that the ultimate outcome will be in the Company's favor, or that if the ultimate outcome is not in the Company's favor, that such an outcome, the diversion of management's attention, and any costs associated with the lawsuit, will not have a material adverse effect on the Company's financial condition or results of operations. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" was issued. SFAS 128 established standards for computing and presenting earnings per share (EPS) and simplifies the existing standards. This standard will replace the presentation of primary EPS with a presentation of basic EPS. It also requires the dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and will require a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods and requires restatement of all prior-period EPS data presented. The Company does not believe the application of this standard will have a material effect on its earnings per share. In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive Income," was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented. The Company does not believe the application of this standard will have a material effect on the results of operations or financial condition of the Company. In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," was issued. SFAS 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented. The Company does not believe the application of this standard will have a material effect on the results of operations or financial condition of the Company. FOREIGN EXCHANGE CONTRACTS The Company conducts its Japanese business in Japanese yen. The Company enters into forward foreign exchange contracts primarily as an economic hedge against the short-term impact of foreign currency fluctuations of its Japanese subsidiary. In 1997, these contracts were denominated in the Japanese yen. The maturities of the forward foreign exchange contracts are generally short-term in nature. The impact of movements in currency exchange rates on forward foreign exchange contracts offsets the related impact on anticipated transactions denominated in yen. Net foreign currency gains and losses have not been material. Item 8. Financial Statements and Supplementary Data The financial statements and supplementary data listed in the Index to Consolidated Financial Statements at Item 14 of this Form 10-K are incorporated by reference into this Item 8 of Part II of this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. PART III Item 10. Executive Officers and Directors The following table sets forth certain information with respect to the executive officers and directors of the Company: Name Age Position Raymon F. Thompson 56 Chairman, President and Chief Executive Officer Timothy C. Dodkin 48 Senior Vice President Managing Director, Semitool Europe, Ltd. Thomas Sulzbacher 29 Vice President, Sales and Customer Service Gregory L. Perkins 54 Vice President, Operations and General Manager Larry A. Viano 43 Treasurer, Principal Financial Officer and Controller Howard E. Bateman (1) 63 Director Richard A. Dasen (2) 55 Director Daniel J. Eigeman (2) 63 Director John Osborne (1) 53 Director Calvin S. Robinson (1) 77 Director and Secretary - ----------- (1) Member of the Compensation and Stock Option Committee. (2) Member of the Audit Committee. The following sets forth the background of each of the Company's executive officers and directors, including the principal occupation of those individuals for the past five years: Raymon F. Thompson founded the Company and has served as Chairman, Chief Executive Officer and President since its inception in 1979. In 1979, Mr. Thompson designed, patented and introduced the first on-axis rinser/dryer for the semiconductor industry. Timothy C. Dodkin joined the Company in 1985 and served as the Company's European Sales Manager from 1985 to 1986. Since 1986, Mr. Dodkin has served as Managing Director of Semitool Europe, Ltd. Prior to joining the Company, Mr. Dodkin worked at Cambridge Instruments, a semiconductor equipment manufacturer, for ten years in national and international sales. Thomas Sulzbacher is Semitool's Vice President of Sales and Customer Service. Mr. Sulzbacher has been with Semitool for nine years; his experience in the semiconductor industry was developed through Service and Sales positions in Semitool's Bad Reichenhall, Germany office. Upon relocating to the United States in 1994, Mr. Sulzbacher managed the Magnum sales force prior to his current position. Mr. Sulzbacher is Raymon F. Thompson's son-in-law. Gregory L. Perkins joined the Company in 1990 as Vice President, Manufacturing and, since August 1994, has served as the Company's Vice President and General Manager. Prior to joining the Company, Mr. Perkins served as General Manager for Modulair, Inc., a manufacturer of clean rooms, from 1987 to 1990. Larry A. Viano joined the Company in 1985 and serves as the Company's treasurer, principal financial officer and controller. Mr. Viano serves on the Board of Directors of Semitool Europe, Ltd. Mr. Viano, a Certified Public Accountant, also serves on the Accounting Advisory Board of the University of Montana. Howard E. Bateman has served on the Company's Board of Directors since 1990. Mr. Bateman formerly owned and operated Entech, a Pennsylvania company that has been an independent sales representative for the Company's products since 1979. Richard A. Dasen has served on the Company's Board of Directors since 1984. From 1974 to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank holding company. Since 1992, Mr. Dasen has been an independent businessman. Daniel J. Eigeman has served on the Company's Board of Directors since 1985. From 1971 to 1993, Mr. Eigeman was President of Eigeman, Hanson & Co., P.C., an accounting firm, and since 1993 has been Vice President of Junkermier, Clark, Campanella, Stevens, P.C., CPAs. Mr. Eigeman served as President of the Montana Society of Certified Public Accountants in 1993. John Osborne has served on the Company's Board of Directors since July of 1997 and has thirty years of experience in the semiconductor industry, including 20 years in microchip manufacturing and ten years in the capital equipment industry. During the past ten years, Mr. Osborne had held senior management positions at Lam Research in Fremont, CA. These positions included Vice President of Lam's Worldwide Customer Support. Mr. Osborne holds seven patents, has numerous technical and business publications, and has served on the Board of Directors of four companies. Calvin S. Robinson has served as a director of the Company since 1982. Mr. Robinson has been of counsel to Crowley, Haughey, Hanson, Toole & Dietrich, P.L.L.P. since 1989. This firm has provided legal services to the Company since 1979. Mr. Robinson is also a director of Winter Sports, Inc. The executive officers are elected each year by the Board of Directors to serve for a one-year term of office. The information concerning compliance with Section 16(a) of the Securities and Exchange Act of 1934, as amended, required under this item is contained in the Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting of Shareholders under the caption "Other Matters" and is incorporated herein by reference. Item 11. Executive Compensation The information concerning compensation of executive officers and directors required under this item is contained in the Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting of Shareholders under the caption "Executive Compensation," and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information concerning certain principal holders of securities and security ownership of executive officers and directors required under this item is contained in the Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting of Shareholders under the caption "Security Ownership of Certain Beneficial Owners and Management" and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information concerning certain relationships and related transactions required under this item is contained in the Company's Proxy Statement to be filed in connection with its 1998 Annual Meeting of Shareholders under the caption "Certain Transactions," and is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as a part of this report: 1. Financial Statements: -------------------- Report of Independent Accountants Consolidated Balance Sheets at September 30, 1997 and September 30, 1996 Consolidated Statements of Income for the Years Ended September 30, 1997, September 30, 1996, and September 30, 1995 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended September 30, 1997, September 30, 1996 and September 30, 1995 Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, September 30, 1996 and September 30, 1995 Notes to Consolidated Financial Statements 2. Financial Statement Schedules: ----------------------------- Report of Independent Accountants II - Valuation and Qualifying Accounts 3. Exhibits: -------- (a) The exhibits listed below are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference: Exhibit No. Description - ---------- ----------- 2.1 Asset Purchase Agreement and Plan of Reorganization, dated February 19, 1996 between the Compan and Semy Engineering, Inc (1) 3.1 Restated Articles of Incorporation of the Company (2) 3.2 By-laws of the Company dated August 1, 1979 and related amendments to these By-laws (2) 3.3 Amended Bylaws of Semitool, Inc. (5) 3.4 Amended Bylaws of Semitool, Inc. (6) 10.1 Form of Semitool, Inc. S Corporation Termination, Tax Allocation and Indemnification Agreement between the Company and its current shareholders (2) 10.2 Form of Indemnification Agreement between the Company and each of its officers and directors (2) 10.3 Form of Semitool, Inc. 1994 Stock Option Plan (2) 10.4 Form of Agreement and Plan of Merger between the Company and Semitherm, Inc. (2) 10.5 Aircraft Lease Agreement, dated September 9, 1994, between the Company and Mr. Thompson (2) 10.6 Aircraft Lease Agreement, dated November 1, 1994, between the Company and Mr. Thompson (2) 10.7 Agreement, dated June 7, 1983, between the Company and Entech (2) 10.8 Form of Agreement of Cancellation of Sale Agreement between the Company and Mr. Thompson (2) 10.9 Agreement of Sale of Centrifugal Wafer Processor Invention, dated August 1, 1979, between the Company and Mr. Thompson (2) 10.10 Articles of Merger, dated September 1, 1993, of Semitool, Inc., a California corporation, with and into the Company (2) 10.11 Agreement, dated June 1994, among Robert G. Massey, Donald W, Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm Partnership, Mr. Thompson and the Company (2) 10.12 Agreement between the Company and the Semitool European Companies (2) 10.13 Aircraft Lease Agreement, dated April 1, 1996, between the Company and Mr. Thompson (3) 10.14 Business Loan Agreement, dated September 30, 1996, between the Company and the Bank of America NW, N.A. doing business as Seafirst Bank (3) 10.15 Promissory Note, dated September 30, 1996, between the Company and the Bank of America NW, N.A doing business as Seafirst Bank (3) 10.16 Business Loan Agreement, dated September 30, 1997, between the Company and the Bank of America NT & SA doing business as Seafirst Bank (6) 10.17 Promissory Note, dated September 29, 1997, between the Company and the Bank of America National Trust and Savings Association doing business as Seafirst Bank (6) 10.18 Loan Modification Agreement, dated September 29, 1997 between the Company and The Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 10.19 Loan Modification Agreement, dated October 2, 1997 between the Company and the Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 10.20 Loan Modification Agreement, dated October 2, 1997 between the Company and the Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 11.1 Statement Re Computation of Pro Forma per share Earnings (6) 21.1 Subsidiaries of Registrant (6) 27 Financial data schedule (6) 99.1 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4) (1) Incorporated herein by reference to the identically numbered exhibits to the Company's Current Report on Form 8-K, date of report February 29, 1996. (2) Incorporated herein by reference to the identically numbered exhibits to the Company's Registration Statement on Form S-1 (File No. 33-87548), which became effective on February 2, 1995. (3) Incorporated herein by reference to the identically numbered exhibits to the Company's Annual Report on Form 10-K, date of report September 30, 1996. (4) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q, date of report March 31, 1997. (5) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on form 10-Q, date of report June 30, 1997. (6) Filed herewith. (b) Reports on Form 8-K. During the fourth quarter of fiscal 1997, there were no Form 8-K's filed by the Company. (c) Exhibits. The Exhibits listed in Item 14(a)(3)(a) hereof are filed as part of this Annual Report on Form 10-K or incorporated herein by reference. (d) Financial Statement Schedules. See Item 14(a)(2) above. Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: December 22, 1997 SEMITOOL, INC. By:/s/Raymon F. Thompson -------------------------------- Raymon F. Thompson Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/Raymon F. Thompson - ---------------------- Raymon F. Thompson Chairman of the Board, December 22, 1997 President and Chief Executive Officer (Principal Executive Officer) /s/Larry A. Viano - ---------------------- Larry A. Viano Treasurer, Controller and December 22, 1997 Principal Financial Officer /s/Howard E. Bateman - ---------------------- Howard E. Bateman Director December 22, 1997 /s/Richard A. Dasen - ---------------------- Richard A. Dasen Director December 22, 1997 /s/Daniel J. Eigeman - ---------------------- Daniel J. Eigeman Director December 22, 1997 /s/John Osborne - ---------------------- John Osborne Director December 22, 1997 /s/Calvin S. Robinson - ---------------------- Calvin S. Robinson Director and Secretary December 22, 1997 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Shareholders Semitool, Inc. We have audited the accompanying consolidated balance sheets of Semitool, Inc. and subsidiaries as of September 30, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended September 30, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 consolidated financial position of Semitool, Inc. and subsidiaries as of September 30, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. Spokane, Washington October 30, 1997
SEMITOOL, INC. CONSOLIDATED BALANCE SHEETS September 30, 1997 and 1996 (Amounts in Thousands, Except for Share Amounts) ASSETS 1997 1996 Current assets: Cash and cash equivalents $ 5,060 $ 3,058 Trade receivables, less allowance for doubtful accounts of $224 and $233 40,896 39,183 Inventories 41,124 36,909 Prepaid expenses and other current assets 1,771 2,323 Deferred income taxes 5,902 4,373 ----------- ----------- Total current assets 94,753 85,846 Property, plant and equipment, net 33,685 26,337 Intangibles, less accumulated amortization of $1,460 and $899 2,142 1,581 Other assets, net 1,145 1,190 ----------- ----------- Total assets $ 131,725 $ 114,954 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Note payable to bank $ 4,000 $ 4,000 Accounts payable 16,735 17,177 Accrued commissions 1,850 1,751 Accrued warranty and installation 9,820 7,997 Accrued payroll and related benefits 6,164 5,032 Other accrued liabilities 1,029 594 Customer advances 1,722 3,757 Income taxes payable 2,986 1,334 Long-term debt, due within one year 393 374 Payable to shareholders 7 33 ----------- ----------- Total current liabilities 44,706 42,049 Long-term debt, due after one year 3,364 3,637 Deferred income taxes 2,075 1,265 ----------- ----------- Total liabilities 50,145 46,951 ----------- ----------- Commitments and contingencies (Note 9) Shareholders' equity: Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, no par value, 30,000,000 shares authorized, 13,755,514 and 13,655,577 shares issued and outstanding in 1997 and 1996 40,590 39,577 Retained earnings 40,949 28,426 Foreign currency translation adjustment 41 -- ----------- ----------- Total shareholders' equity 81,580 68,003 ----------- ----------- Total liabilities and shareholders' equity $ 131,725 $ 114,954 =========== =========== The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC. CONSOLIDATED STATEMENTS OF INCOME for the years ended September 30, 1997, 1996 and 1995 (Amounts in Thousands, Except for Per Share Amounts) 1997 1996 1995 Net sales $ 193,952 $ 174,204 $ 128,326 Cost of sales 102,862 89,573 62,468 --------- --------- --------- Gross profit 91,090 84,631 65,858 --------- --------- --------- Operating expenses: Selling, general and administrative 49,479 40,946 31,843 Research and development 21,179 19,503 11,416 Cost of technology rights -- -- 1,672 --------- --------- --------- Total operating expenses 70,658 60,449 44,931 --------- --------- --------- Income from operations 20,432 24,182 20,927 --------- --------- --------- Other income (expense): Interest income 97 173 428 Interest expense (499) (540) (571) Other, net 168 211 456 --------- --------- --------- (234) (156) 313 --------- --------- --------- Income before income taxes 20,198 24,026 21,240 Provision for income taxes 7,675 8,890 6,355 --------- --------- --------- Net income $ 12,523 $ 15,136 $ 14,885 ========= ========= ========= Unaudited pro forma information (Notes 1 and 13): Income from operations before pro forma adjustments $ 20,432 $ 24,182 $ 20,927 Elimination of cost of technology rights -- -- 1,672 --------- --------- --------- Income from operations 20,432 24,182 22,599 Other income (expense), net (234) (156) 313 --------- --------- --------- Income before income taxes 20,198 24,026 22,912 Provision for income taxes 7,675 8,890 8,509 --------- --------- --------- Net income $ 12,523 $ 15,136 $ 14,403 ========= ========= ========= Net income per share $ 0.91 $ 1.09 $ 1.15 ========= ========= ========= Shares used in pro forma calculation 13,833 13,858 12,563 ========= ========= ========= The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the years ended September 30, 1997, 1996 and 1995 (Amounts in Thousands, Except for Per Share Amount) Common Stock ----------------------------------------- Semitool Semitool European Semitherm Inc. Companies Inc. ----------------------------------------- Number Foreign of Retained Currency Shares Amount Amount Amount Earnings Translation Total Balance September 30, 1994 8,657 $ 1,038 $ 36 $ 8,650 $ 2,763 $ -- $12,487 Net income -- -- -- -- 14,885 -- 14,885 Dividends on common stock ($1.08 per share) -- -- -- -- (8,665) -- (8,665) Proceeds from initial public offering 4,242 33,414 -- -- -- -- 33,414 Purchase and merger of Semitherm, Inc. for Semitool, Inc. stock 692 -- -- (8,650) 8,650 -- -- Purchase of the Combined Group of Semitool European Companies by Semitool, Inc. -- -- (36) -- (170) -- (206) Contribution of S corporation retained earnings with change to C corporation status -- 4,173 -- -- (4,173) -- -- Exercise of stock options 59 509 -- -- -- -- 509 Stock compensation -- 18 -- -- -- -- 18 Income tax effect of nonqualified stock options -- 371 -- -- -- -- 371 ------ ------- ----- ------- -------- ------ ------- Balance September 30, 1995 13,650 39,523 -- -- 13,290 -- 52,813 Net income -- -- -- -- 15,136 -- 15,136 Exercise of stock options 6 54 -- -- -- -- 54 ------ ------- ----- ------- -------- ------ ------- Balance September 30, 1996 13,656 39,577 -- -- 28,426 -- 68,003 Net income -- -- -- -- 12,523 -- 12,523 Exercise of stock options 100 1,013 -- -- -- -- 1,013 Translation adjustment -- -- -- -- -- 41 41 ------ ------- ----- ------- -------- ------ ------- Balance September 30, 1997 13,756 $40,590 $ -- $ -- $ 40,949 $ 41 $81,580 ====== ======= ===== ======= ======== ====== ======= The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS for the years ended September 30, 1997, 1996 and 1995 (Amounts in Thousands) 1997 1996 1995 Operating activities: Net income $ 12,523 $ 15,136 $ 14,885 Adjustments to reconcile net income to net cash provided by (used in) operating activities: (Gain) loss on sale of equipment 6 17 (191) Depreciation and amortization 6,077 4,002 2,392 Reduction in patent costs -- 42 50 Deferred income tax benefit (719) (1,093) (2,138) Stock compensation -- -- 18 Change in: Trade receivables (1,662) (10,700) (15,155) Inventories (10,649) (18,837) (8,343) Prepaid expenses and other current assets 552 (989) (921) Shareholders receivable/payable (26) (44) (668) Other assets (262) 134 (268) Accounts payable (442) 11,115 (262) Accrued commissions 99 (341) 846 Accrued warranty and installation 1,823 3,746 3,502 Accrued payroll and related benefits 1,132 (4,149) 6,429 Other accrued liabilities 435 (1,427) 1,276 Customer advances (2,035) 808 2,019 Income taxes payable 1,652 (1,648) 3,175 --------- --------- -------- Net cash provided by (used in) operating activities 8,504 (4,228) 6,646 --------- --------- -------- Investing activities: Purchases of marketable securities -- -- (10,015) Proceeds from the sale of marketable securities -- 4,010 6,005 Purchases of property, plant and equipment (6,174) (10,194) (8,069) Increase in intangible assets (1,122) (796) (841) Increase in covenant not to compete -- (1,200) -- Proceeds from sale of equipment 42 397 192 --------- --------- -------- Net cash used in investing activities (7,254) (7,783) (12,728) --------- --------- -------- Financing activities: Net proceeds from initial public offering -- -- 33,414 Proceeds from exercise of stock options 1,013 54 509 Borrowings under line of credit 61,835 49,170 12,805 Repayments under line of credit (61,835) (45,170) (19,045) Proceeds from long-term debt 131 -- 71 Repayments of long-term debt (385) (924) (2,394) Dividends distributed -- -- (8,871) --------- --------- -------- Net cash provided by financing activities 759 3,130 16,489 --------- --------- -------- Effect of exchange rate changes on cash and cash equivalents (7) -- -- --------- --------- -------- Net increase (decrease) in cash and cash equivalents 2,002 (8,881) 10,407 Cash and cash equivalents at beginning of year 3,058 11,939 1,532 --------- --------- -------- Cash and cash equivalents at end of year $ 5,060 $ 3,058 $ 11,939 ========= ========= ========
SEMITOOL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED for the years ended September 30, 1997, 1996 and 1995 (Amounts in Thousands) 1997 1996 1995 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest, net of amounts capitalized $ 497 $ 582 $ 579 Income taxes 6,748 10,699 5,711 Supplemental disclosures of noncash financing and investing activity: Inventory transferred to equipment $ 6,434 $ 1,191 $ 994 The accompanying notes are an integral part of the consolidated financial statements.
SEMITOOL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Company Organization and Summary of Significant Accounting Policies: Semitool, Inc. (Semitool) designs, manufactures, markets and services equipment used in the manufacture of semiconductors as well as other products requiring similar processes including thin film heads, compact disc masters, flat panel displays and hard disk media. Semitool has various subsidiaries which operate as sales and service offices in their respective geographic areas. Significant accounting policies followed by Semitool, Inc. and its subsidiaries (the Company) are: Principles of Consolidation The 1997 consolidated financial statements include the accounts of Semitool and its wholly-owned subsidiaries: Semitool Europe Ltd., (United Kingdom); Semitool Halbleitertechnik Vertriebs GmbH, (Germany); Semitool France SARL; Semitool Italia SRL; Semitool KK, Japan; Semitool, Inc., Korea; Semitool, Inc., FSC; Semy Engineering, Inc. (Semy) and Rhetech, Inc. (Rhetech). The British, German, and French Companies (the "Combined Group of Semitool European Companies") were acquired by Semitool in connection with the initial public offering (Offering) in February 1995. Semitool also acquired all the outstanding common shares of Semitherm, Inc. (Semitherm) in exchange for its common stock in connection with the Offering and concurrently merged Semitherm into Semitool (see Note 12) in February 1995. On February 29, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of Semy, in exchange for 600,000 shares of the Company's common stock. This transaction was accounted for using the pooling-of-interests method and accordingly all periods presented are restated to show the effects of this transaction as if it had occurred at the beginning of each period presented. All significant intercompany accounts and transactions are eliminated in consolidation. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Cash Equivalents The Company considers cash equivalents to consist of short-term, highly liquid investments with remaining maturities at time of purchase of three months or less. Substantially all of its cash and cash equivalents are held by major financial institutions. At times such investments may be in excess of the federal insurance limit. Inventories Inventories are carried at the lower of first-in, first-out (FIFO) cost or net realizable value. The Company periodically reviews its inventories to identify slow moving and obsolete inventories to record such inventories at net realizable values. It is reasonably possible that the Company's estimates regarding net realizable values could change in the near term due to technological changes. Property, Plant and Equipment Property, plant and equipment is stated at cost. Depreciation and amortization is provided using the straight-line method with estimated useful lives as follows: Buildings and improvements 10-40 years Machinery and equipment 2-5 years Furniture, fixtures and leasehold improvements 3-7 years Vehicles and aircraft 5-10 years Major additions and betterments are capitalized. Costs of maintenance and repairs which do not improve or extend the lives of the respective assets are expensed currently. When items are disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized in operations. Interest Capitalization The Company capitalizes interest costs during the construction period for qualifying assets. During the years ended September 30, 1997, 1996 and 1995, the Company capitalized $0, $9,000 and $18,000 of interest costs, respectively. Intangible Assets Intangible assets include, among other things, the cost of internally developed software and legal costs associated with obtaining patents. Costs incurred for internally developed software products and enhancements after technological feasibility and marketability have been established for the related product are capitalized and are stated at the lower of cost or net realizable value. Amortization is provided based on the greater of the amount computed using (a) the ratio that current gross revenues for a product bears to the total of current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining economic life of the product, estimated at three years. The cost of patents is amortized on a straight-line basis over the lesser of the statutory life of 17 years or estimated product life. It is reasonably possible that estimates of future gross revenues for software products, the estimated remaining product life, or both could change in the near term due to technological advances which would result in a reduction in the carrying value of capitalized software development costs and patents. Accrued Payroll and Related Benefits The Company records the estimated costs of employee severance at the date management implements a plan of termination. Foreign Currency Except for Semitool KK, Japan where the functional currency was changed to the yen during the fourth quarter of 1997, the functional currency for the Company's foreign operations is the U.S. dollar, in which substantially all sales and purchases are denominated. For these foreign operations, realized gains and losses from foreign currency transactions and unrealized gains and losses from re-measurement of the financial statements of the foreign operations into the functional currency are included in the consolidated statements of income. In July 1997, Semitool KK, Japan commenced invoicing its customers in yen, and therefore, the Company changed the functional currency from the U.S. dollar to the yen. The change in the functional currency has been accounted for prospectively commencing in the fourth quarter of 1997. Realized gains and losses are included in the consolidated statements of income and unrealized gains and losses from re-measurement of the financial statements of Semitool KK, Japan are reflected as a component of shareholders' equity. Revenue Recognition Revenue from sales of products is generally recognized at the time the product is shipped. Accrued Warranty and Installation The Company's remaining obligations at time of shipment for installation and warranty are accrued concurrently with the revenue recognized. The Company has made a provision for its warranty and installation obligations based upon historical costs incurred for such obligations adjusted, as necessary, for current conditions and factors. Due to the significant uncertainties and judgments involved in estimating the Company's warranty and installation obligations, including changing product designs and specifications, the ultimate amount incurred for all warranty and installation costs could change in the near term from the Company's currently recorded accrual. Foreign Currency Exchange Contracts The Company uses foreign currency exchange contracts as part of an overall risk-management strategy. These instruments are used as a means of mitigating exposure to foreign currency risk connected to anticipated sales or existing assets. In entering into these contracts, the Company has assumed the risk which might arise from the possible inability of counterparties to meet the terms of their contracts. The Company does not expect any losses as a result of counterparty defaults. The Company does not hold or issue derivative financial instruments for trading purposes. The foreign currency exchange contracts are accounted for based on whether the contract is speculative or serves as a hedge. A speculative transaction is marked to market, with unrealized gains or losses recognized currently. Unrealized gains or losses on a hedged transaction are determined based on changes in the underlying spot rate. The difference between the spot rate and the contract price on the date of the transaction is accounted for as a premium or discount and amortized over the life of the contract. For hedged transactions, unrealized gains and losses and amortization of the initial discount or premium are deferred and included in the basis of the related foreign currency transaction. Cash flows from foreign currency exchange contracts are recognized in the statement of cash flows and are reported in the same category as that of the hedged item. Research and Development Costs Costs of research and development are expensed as incurred. Net Income Per Common Share Historical net income per common share for the years ended September 30, 1997, 1996 and 1995 has not been presented as it is not meaningful in the presentation of these consolidated financial statements. Pro forma net income per common share equals pro forma net income divided by the weighted average common shares outstanding, after giving effect to dilutive stock options and common shares issued for the acquisition of Semy. Pro forma net income per share in fiscal 1997 and 1996 is the same as historical amounts due to the lack of any pro forma adjustments. In July 1995, the Board of Directors of Semitool adopted a resolution to split all common shares of Semitool on a 3-for-2 basis. All share amounts and per share data presented herein reflect the common stock split. New Accounting Pronouncements In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share" was issued. SFAS 128 established standards for computing and presenting earnings per share (EPS) and simplifies the existing standards. This standard will replace the presentation of primary EPS with a presentation of basic EPS. It also requires the dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and will require a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods and requires restatement of all prior-period EPS data presented. The Company does not believe the application of this standard will have a material effect on its earnings per share. In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130), "Comprehensive Income," was issued. SFAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. SFAS 130 is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented. The Company does not believe the application of this standard will have a material effect on the results of operations or financial condition of the Company. In June 1997, Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information," was issued. SFAS 131 establishes standards for the way that a public enterprise reports information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. SFAS 131 is effective for fiscal years beginning after December 15, 1997, and requires restatement of earlier periods presented. The Company does not believe the application of this standard will have a material effect on the results of operations or financial condition of the Company. 2. Inventories: Inventories at September 30, 1997 and 1996 are summarized as follows (in thousands): 1997 1996 Parts and raw materials $ 22,028 $ 18,157 Work-in-process 14,869 15,702 Finished goods 4,227 3,050 ---------- ---------- $ 41,124 $ 36,909 ========== ========== 3. Property, Plant and Equipment: Property, plant and equipment at September 30, 1997 and 1996 is summarized as follows (in thousands): 1997 1996 Buildings and improvements $ 13,892 $ 12,504 Machinery and equipment 16,638 10,055 Furniture, fixtures and leasehold improvements 10,206 7,892 Vehicles and aircraft 5,577 5,478 --------- --------- 46,313 35,929 Less accumulated depreciation and amortization (15,460) (12,072) --------- --------- 30,853 23,857 Land and land improvements 2,832 2,480 --------- --------- $ 33,685 $ 26,337 ========= ========= 4. Note Payable to Bank: The Company has two uncollateralized lines of credit totaling $25 million under an agreement with Seafirst Bank (Seafirst). Borrowings under both of the lines of credit bear interest at the bank's prime lending rate (8.50% at September 30, 1997) with the first line of $10 million expiring on March 31, 1999 and the second line of $15 million expiring on December 31, 1999. The lines of credit require monthly interest payments only, with the $10 million line principal amount due in full on expiration and the $15 million line principal amount repayable in monthly principal and interest payments over a five-year period ending December 2004. At September 30, 1997, there were $4 million of advances outstanding on the first line of credit. The Company has the option with the second line of credit to fix the interest rate for specific periods of time ranging from 30 days to five years in amounts of $500,000 or more. The option, if exercised, would fix the interest rate at the London Interbank Offered Rate (LIBOR) plus 1.75%. The agreement for both lines of credit provides for a quarterly commitment fee on any unused portion of the lines of credit. Additionally, the agreement includes various restrictive covenants, the most significant of which relates to a prohibition against pledging or in any way encumbering current or operating assets during the term of the agreement and the maintenance of various financial ratios. 5. Long-Term Debt: Long-term debt at September 30, 1997 is summarized as follows (in thousands): Mortgage term note payable in monthly installments of $23 including interest at a blended rate of 5.5%, maturing on September 1, 2014 (A) $ 2,994 Mortgage term note payable in monthly installments of $25 including interest at a blended rate of 4.7%, maturing on December 1, 1999 (A) 643 Japanese yen term note payable in a single payment of 14,470,500 Japanese yen due on April 5, 1999. Interest accrues at a fixed rate of 2.9% per annum and is payable in arrears, on various dates, until repaid in full 120 ---------- 3,757 Less current portion 393 ---------- $ 3,364 ========== (A)The mortgage term notes payable are collateralized by a first lien deed of trust on the Kalispell office and manufacturing facility and by all fixtures and personal property of Semitool necessary for the operation of the facility. The Montana State Board of Investments provided 80% of the financing with Seafirst providing the remaining 20%. The notes are personally guaranteed by Raymon F. Thompson, the Company's chief executive officer, and are subject to the restrictive covenants described in Note 4. Principal maturities for long-term debt outstanding at September 30, 1997, are summarized by year as follows (in thousands): Year Ending September 30, 1998 $ 393 1999 532 2000 198 2001 134 2002 141 Thereafter 2,359 -------- $ 3,757 ======== 6. Employee Benefit and Stock Option Plans: Semitool maintains a profit-sharing plan and trust under Section 401(k) of the Internal Revenue Code. Under the terms of the plan, the U.S. employees of Semitool, Semy and Rhetech may make voluntary contributions to the plan. Semitool contributes a matching amount equal to 50% of the employee's voluntary contribution up to 5% of the employee's compensation. Semitool may also make non-matching contributions to the plan, which are determined annually by the Board of Directors. Total profit sharing contribution expense to this plan was approximately $1,115,000, $639,000 and $377,000 for the years ended September 30, 1997, 1996 and 1995, respectively. Semitool Europe Ltd. maintains a defined contribution pension agreement. This pension agreement is open to all employees with more than three months of service. The employer and employee contributions are invested in each individual member's personal pension plan with a United Kingdom insurance company. The employer has an obligation to make contributions at one-half of the contribution rate paid by the employee, subject to a rate between 2.5% and 5.0% of the employee's salary. However, there is no upper limit on the contributions payable by the employee. The total pension cost under this plan for the years ended September 30, 1997, 1996 and 1995 approximated $37,000, $23,000 and $15,000, respectively. The pension agreement does not impose any obligation on the employer to make contributions for the periods after an individual retires or terminates employment. The Company's other foreign subsidiaries do not operate their own pension plans, but retirement benefits are provided to employees through government plans operated in their respective countries. In December 1994, the Board of Directors adopted and the shareholders approved the Semitool, Inc. 1994 Stock Option Plan (the Option Plan). A total of 900,000 shares of common stock were reserved for issuance under the Option Plan. In February 1997, the Option Plan was amended to increase the number of shares of common stock available for issuance thereunder by 200,000 shares from 900,000 to 1,100,000 shares. Options granted under the Option Plan generally become exercisable at a rate of 5% per quarter commencing three months after the grant date. Semitool may grant options which qualify as incentive stock options to employees and nonqualified stock options to employees, officers, directors, independent contractors and consultants. The Option Plan also provides for automatic grants of nonqualified stock options to independent directors. The Option Plan will terminate in December 2004, unless terminated earlier at the discretion of the Board of Directors. At September 30, 1997, 337,350 shares were available for future issuance under the Option Plan. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 (SFAS No. 123) "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the Option Plan. Had compensation cost for the Option Plan been determined based on the fair value at the grant date for awards in fiscal 1997 and 1996 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts shown below (in thousands, except for per share amounts): 1997 1996 Net income: As reported $ 12,523 $ 15,136 Pro forma $ 12,275 $ 15,021 Earnings per share: As reported $ 0.91 $ 1.09 Pro forma $ 0.89 $ 1.08 The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997 and 1996, respectively: dividend yield of 0% for both years; expected volatility of 67.8% for both years; risk-free interest rates of 6.31% and 6.07%; and expected lives of 5.2 years for both years. The following summary shows stock option activity for the three years ended September 30, 1997: Number of Weighted- Shares Optioned Average But Not Exercise Price Stock Option Activity Exercised per Share --------------------- --------------- -------------- September 30, 1994 -- -- Granted 576,000 $8.73 Exercised (58,715) $8.67 Forfeited (4,800) $8.67 --------------- -------------- September 30, 1995 512,485 $8.73 Granted 179,000 $14.26 Exercised (5,675) $8.93 Forfeited (50,000) $10.90 --------------- -------------- September 30, 1996 635,810 $10.12 Granted 163,000 $10.54 Exercised (99,937) $10.14 Forfeited (100,550) $10.66 --------------- -------------- September 30, 1997 598,323 $10.14 =============== ============== The weighted-average fair value of stock options granted during the years ended September 30, 1997 and 1996, calculated using the Black-Scholes option-pricing model, was $6.31 and $8.46, respectively. The following tables summarize information about stock options outstanding at September 30, 1997: Options Outstanding --------------------------------------------------- Weighted- Average Weighted- Remaining Average Number Contractual Exercise Range of Outstanding at Life Price Exercise Prices September 30, 1997 (in years) per Share ------------------- ------------------ ----------- --------- $8.67 - $8.88 335,023 7.1 $8.67 $9.75 - $11.17 121,800 9.5 $9.77 $12.00 - $13.88 104,500 8.5 $13.53 $14.63 - $16.25 37,000 9.3 $15.06 ------------------ ----------- --------- 598,323 8.0 $10.14 ================== =========== ========= Options Exercisable --------------------------------------------------- Weighted- Average Number Exercise Range of Exercisable at Price Exercise Prices September 30, 1997 per Share ------------------- ------------------ --------- $8.67 - $8.88 154,387 $8.67 $9.75 - $11.17 6,300 $9.86 $12.00 - $13.88 19,700 $13.45 $14.63 - $16.25 16,250 $15.11 ------------------ --------- 196,637 $9.72 ================== ========= The exercise and sale of certain qualified options resulted in the treatment of those options as nonqualified options. As a result, the Company received a tax benefit associated with those options of $371,000 in 1995, which has been recorded as additional contributed capital. 7. Income Taxes: The provision for income taxes for the years ended September 30, 1997, 1996 and 1995 consists of the following (in thousands): 1997 1996 1995 Federal: Current $ 7,643 $ 7,882 $ 6,354 Deferred (643) (551) (1,966) State: Current 899 1,776 1,545 Deferred (76) (67) (172) Foreign: Current (148) 325 594 Deferred -- (475) -- -------- -------- -------- $ 7,675 $ 8,890 $ 6,355 ======== ======== ======== Domestic and foreign components of income (loss) before income taxes for the years ended September 30, 1997, 1996 and 1995 are as follows (in thousands): 1997 1996 1995 Domestic $ 22,245 $ 24,277 $ 19,793 Foreign (2,047) (251) 1,447 -------- -------- -------- $ 20,198 $ 24,026 $ 21,240 ======== ======== ======== Prior to February 1, 1995, Semitool and Semitherm were treated for federal and state (excluding Montana) income tax purposes as S corporations under Subchapter S of the Internal Revenue Code. As a result, the companies' earnings for such period were taxed at the shareholder level. Effective February 1, 1995, Semitherm was merged into Semitool and Semitool terminated its S corporation status (see Notes 1 and 12). From February 1, 1995, Semitool's earnings have been taxed as a C corporation and provisions for income taxes have been reflected in the consolidated financial statements. Semitool recorded a nonrecurring net deferred tax benefit of approximately $890,000 associated with the recognition of a related deferred tax asset due to the termination of the S corporation status in 1995. The Company's foreign subsidiaries are subject to the tax regulations that exist in their respective countries. These subsidiaries provide for deferred taxation at current rates to take into account temporary differences between the treatment of certain items for financial statement purposes and the treatment of those items for corporation tax purposes. The components of the deferred tax assets and liabilities as of September 30, 1997 and 1996 are as follows (in thousands): September 30, 1997 Assets Liabilities Total Accrued liabilities, principally vacation, health insurance and profit sharing $ 1,127 $ -- $ 1,127 Accrued reserves, principally bad debt, warranty and inventory 3,608 -- 3,608 Inventory capitalization 485 -- 485 Depreciation and software amortization -- (2,075) (2,075) Covenant not to compete 132 -- 132 Foreign net operating loss carryforward 475 -- 475 Other 75 -- 75 -------- --------- -------- $ 5,902 $ (2,075) $ 3,827 ======== ========= ======== September 30, 1996 Assets Liabilities Total Accrued liabilities, principally vacation and health insurance $ 709 $ -- $ 709 Accrued reserves, principally bad debt, warranty and inventory 2,669 -- 2,669 Inventory capitalization 433 -- 433 Depreciation and software amortization -- (1,265) (1,265) Covenant not to compete 49 -- 49 Foreign net operating loss carryforward 475 -- 475 Other 38 -- 38 -------- --------- -------- $ 4,373 $ (1,265) $ 3,108 ======== ========= ========
The Company does not believe a valuation allowance is necessary at September 30, 1997 to reduce the deferred tax asset as this asset will more likely than not be realized through the generation of future taxable income. The differences between the consolidated provision for income taxes and income taxes computed using income before income taxes and the U.S. federal income tax rate for the years ended September 30, 1997, 1996 and 1995 are as follows (in thousands): 1997 1996 1995 Amount computed using the statutory rate $ 7,069 $ 8,409 $ 7,434 Increase (decrease) in taxes resulting from: Benefit of recognition of deferred tax asset in connection with S corporation termination -- -- (890) State taxes, net of federal benefit 959 1,155 893 Tax effect of income not subject to federal tax due to Subchapter S election -- -- (793) Effect of foreign taxes 569 (62) 119 Research and experimentation credit (863) (355) (140) Foreign sales corporation benefit (822) (695) -- Other, net 763 438 (268) -------- -------- -------- $ 7,675 $ 8,890 $ 6,355 ======== ======== ========
8. Related Party Transactions: In August 1979, Semitool entered into an agreement with Raymon F. Thompson, the Company's chief executive officer and majority shareholder, to acquire all rights, title to and interest in a centrifugal wafer processor invention. The agreement called for payments to Mr. Thompson through September 30, 1999 amounting to 8% of all sales of the centrifugal wafer processor, equipment using the processor's technology and replacement parts. This agreement was terminated effective with the Offering in February 1995 (see Note 12). Total costs, pursuant to this agreement, were approximately $1,672,000 for the year ended September 30, 1995. Semitool also has agreements with Mr. Thompson to lease aircraft. The current rental rate is $106,100 per month. Under these agreements, rent expense was approximately $1,276,600, $1,158,000 and $835,000 for the years ended September 30, 1997, 1996 and 1995, respectively. Periodically, Semitool advances funds to Mr. Thompson and pays certain expenses for the benefit of Mr. Thompson. These advances are offset by amounts payable to Mr. Thompson under the agreements described in the preceding paragraphs. Net advances to (from) Mr. Thompson are charged interest at the federal funds short-term rate. Associated with these advances, Mr. Thompson received approximately $2,000 of interest income in 1996, and paid the Company interest of $31,000 in 1995. Semitool purchased raw materials approximating $720,000, $651,000, and $570,000 for the years ended September 30, 1997, 1996 and 1995, respectively, from a company owned by Mr. Thompson. 9. Commitments and Contingencies: The Company has various operating lease agreements for equipment and office space that expire through the year 2003. Total rent expense for the years ended September 30, 1997, 1996 and 1995, exclusive of amounts paid to a related party as described in Note 8, was approximately $1,305,000, $950,000, and $648,000, respectively. At September 30, 1997, future rental payments under these agreements and the aircraft leases described in Note 8 are as follows (in thousands): Year Ending September 30, Total 1998 $ 2,099 1999 1,726 2000 936 2001 364 2002 273 Thereafter 273 -------- $ 5,671 ======== A class action lawsuit brought by Dr. Stanley Bierman, IRA (Case No. DV-96-124A) was filed on February 26, 1996, in the Montana Eleventh Judicial District Court, Flathead County, Kalispell, Montana against the Company and certain of its officers and directors. The complaint includes allegations that the Company issued misleading statements concerning its business and prospects. The suit seeks injunctive relief, damages, costs and other relief as the court may find appropriate. The Company believes the lawsuit to be without merit and intends to contest the action vigorously. However, given the inherent uncertainty of litigation, insurance issues, and the early stage of discovery, there can be no assurance that the ultimate outcome will be in the Company's favor, or that if the ultimate outcome is not in the Company's favor, that such an outcome, the diversion of management's attention, and any costs associated with the lawsuit, will not have a material adverse effect on the Company's financial condition or results of operations. 10. Concentration of Credit Risk and Foreign Operations: At September 30, 1997 and 1996, the trade receivables of the Company were primarily from companies in the semiconductor industry, and included approximately $11.7 million and $20.5 million, respectively, of foreign receivables. Accordingly, the Company is exposed to concentrations of credit risk. The Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade accounts receivable credit risk exposure is limited. Consolidated sales to major customers, represented as a percentage of total consolidated sales, for the years ended September 30, 1997, 1996 and 1995 are as follows: 1997 1996 1995 Customer A 10.9% 0.3% --% Customer B 3.9% 3.1% 13.1% Summarized data for the Company's foreign operations (principally Europe) for the years ended September 30, 1997, 1996 and 1995 are as follows (in thousands): 1997 1996 1995 Net sales - unaffiliated customers $ 41,011 $ 49,197 $ 38,091 Income (loss) from operations (2,046) 332 1,677 Identifiable assets 21,144 23,472 13,232 Export sales from the Company's United States operations were approximate- ly $27.9 million (14%), $27.2 million (16%) and $13.7 million (11%) for the years ended September 30, 1997, 1996 and 1995, respectively. 11. Preferred Stock: The Board of Directors has the authority to issue preferred stock of Semitool in one or more series and to fix the rights, privileges, preferences and restrictions granted to or imposed upon any unissued shares of preferred stock, without further vote or action by the common shareholders. 12. Transactions Associated with the Offering: In February 1995, the Company completed its initial public stock offering through the sale of 4,241,815 shares of its common stock. As a result of the Offering, the Company received net proceeds of approximately $33.4 million. Approximately $9.4 million and $8.7 million of the net proceeds were used to repay debt of the Company and make distributions of dividends to shareholders, respectively. Also, in connection with the completion of the Company's initial public offering, payments for technology rights to Mr. Raymon F. Thompson described in Note 8 ceased. 13. Unaudited Pro Forma Statement of Income Information: The pro forma information included in the consolidated statements of income reflects the effects of certain transactions that occurred as a result of the Offering which are more completely described in Notes 7 and 12. The consolidated pro forma statement of income for the year ended September 30, 1995 presents the pro forma effects on the historical financial information to eliminate the cost of technology rights and to recognize a provision for income taxes at statutory rates applied to pro forma income before income taxes, net of actual research and development credits generated. 14. Financial Instruments: The Company has estimated the fair value of its financial instruments including cash and cash equivalents, payable to shareholder, note payable to bank and long-term debt. The fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Accordingly, the estimates are not necessarily indicative of what the Company could realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments at September 30, 1997 and 1996 for which it is practicable to estimate that value: Cash and Cash Equivalents - The carrying value of cash and cash equivalents approximates fair value due to the nature of the cash investments. Payable to Shareholder - The carrying value of the shareholder payable approximates fair value. Note Payable to Bank - The carrying value of the note payable to bank approximates fair value due to the fact that the note bears a negotiated variable interest rate. Long-Term Debt - The fair value of notes payable is based on the discounted value of contractual cash flows using a discount rate which the Company could currently obtain for debt with similar remaining maturities. Foreign Currency Exchange Contracts - The fair value of foreign currency exchange contracts is estimated based on quoted market prices from financial institutions. The estimated fair value of financial instruments at September 30, 1997 and 1996, consisted of the following (in thousands): 1997 1996 Carrying Fair Carrying Fair Amount Value Amount Value ---------------------- ---------------------- Cash and cash equivalents $ 5,060 $ 5,060 $ 3,058 $ 3,058 Payable to shareholder 7 7 33 33 Note payable to bank 4,000 4,000 4,000 4,000 Long-term debt 3,757 3,182 4,011 3,412 Foreign currency exchange contracts 2,564 2,521 -- --
Foreign Currency Exchange Risk Management In the normal course of business, the Company is party to foreign currency exchange contracts and borrowings in foreign currency to reduce its exposure to fluctuations in exchange rates. These instruments involve, to varying degrees, elements of credit and/or exchange rate risk in excess of the amount recognized in the financial statements. The Company selectively uses foreign currency exchange contracts and borrowings in foreign currency to offset the effects of exchange rate changes on cash flow exposures denominated in foreign currencies. These exposures include firm and anticipated sales. The primary exposure is denominated in yen. The Company normally hedges cash flow exposures for periods up to one year. As of September 30, 1997, the Company had foreign currency exchange contracts maturing at various dates in 1998 to sell 304,300,265 yen at contracted forward rates. These forward contracts do not qualify as hedges for financial reporting purposes. The Company had no outstanding foreign currency exchange contracts at September 30, 1996. Exhibit Index Exhibit No. Description - ----------- ----------- 2.1 Asset Purchase Agreement and Plan of Reorganization, dated as of February 19, 1996 between the Company and Semy Engineering, Inc. (1) 3.1 Restated Articles of Incorporation of the Company (2) 3.2 By-laws of the Company dated August 1, 1979 and related amendments to these By-laws (2) 3.3 Amended Bylaws of Semitool, Inc. (5) 3.4 Amended Bylaws of Semitool, Inc. (6) 10.1 Form of Semitool, Inc. S Corporation Termination, Tax Allocation and Indemnification Agreement between the Company and its current shareholders (2) 10.2 Form of Indemnification Agreement between the Company and each of its officers and directors (2) 10.3 Form of Semitool, Inc. 1994 Stock Option Plan (2) 10.4 Form of Agreement and Plan of Merger between the Company and Semitherm, Inc. (2) 10.5 Aircraft Lease Agreement, dated September 9, 1994, between the Company and Mr. Thompson (2) 10.6 Aircraft Lease Agreement, dated November 1, 1994, between the Company and Mr. Thompson (2) 10.7 Agreement, dated June 7, 1983, between the Company and Entech(2) 10.8 Form of Agreement of Cancellation of Sale Agreement between the Company and Mr. Thompson (2) 10.9 Agreement of Sale of Centrifugal Wafer Processor Invention, dated August 1, 1979, between the Company and Mr. Thompson (2) 10.10 Articles of Merger, dated September 1, 1993, of Semitool, Inc., a California corporation, with and into the Company (2) 10.11 Agreement, dated June 1994, among Robert G. Massey, Donald W, Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm Partnership, Mr. Thompson and the Company (2) 10.12 Agreement between the Company and the Semitool European Companies (2) 10.13 Aircraft Lease Agreement, dated April, 1996, between the Company and Mr. Thompson (3) 10.14 Business Loan Agreement, dated September 30, 1996, between the Company and the Bank of America NW,N.A. doing business as Seafirst Bank (3) 10.15 Promissory Note, dated September 30, 1996, between the Company and the Bank of America NW,N.A. doing business as Seafirst Bank (3) 10.16 Business Loan Agreement, dated September 30, 1997, between the Company and the Bank of America NT & SA doing business as Seafirst Bank (6) 10.17 Promissory Note, dated September 29, 1997, between the Company and the Bank of America National Trust and Savings Association doing business as Seafirst Bank (6) 10.18 Loan Modification Agreement, dated September 29, 1997 between the Company and the Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 10.19 Loan Modification Agreement, dated October 2, 1997 between the Company and the Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 10.20 Loan Modification Agreement, dated October 2, 1997 between the Company and the Bank of America National Trust And Savings Association doing business as Seafirst Bank (6) 11.1 Statement Re Computation of Pro Forma per share Earnings (6) 21.1 Subsidiaries of Registrant (6) 27 Financial data schedule (6) 99.1 Amended and Restated Semitool, Inc. 1994 Stock Option Plan (4) (1) Incorporated herein by reference to the identically numbered exhibits to the Company's Current Report on Form 8-K, date of report February 29, 1996. (2) Incorporated herein by reference to the identically numbered exhibits to the Company's Registration Statement on Form S-1 (File No. 33-87548), which became effective on February 2, 1995. (3) Incorporated herein by reference to the identically numbered exhibits to the Company's Annual Report on Form 10-K, date of report September 30, 1996. (4) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q, date of report March 31, 1997. (5) Incorporated herein by reference to the identically numbered exhibit to the Company's Quarterly Report on Form 10-Q, date of report June 30, 1997. (6) Filed herewith. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Board of Directors and Shareholders Semitool, Inc. Our report on the consolidated financial statements of Semitool, Inc. is included elsewhere in this Form 10-K. In connection with our audits of such financial statements, we have also audited the related financial statement schedule listed under Item 14(a) of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Spokane, Washington October 30, 1997
SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS Three Years Ended September 30, 1997 (Amounts in Thousands) Additions ----------------------- Balance at Charged to Charged Balance beginning Costs and to Other at end of Period Expenses Accounts Deductions of Period --------- ---------- --------- ---------- --------- Year ended September 30, 1997: Deducted from asset accounts: Allowance for doubtful accounts $ 233 $ -- $ -- $ 9 $ 224 Allowance for inventory obsolescence 548 328 -- -- 876 Year ended September 30, 1996: Deducted from asset accounts: Allowance for doubtful accounts 213 20 -- -- 233 Allowance for inventory obsolescence 817 31 -- 300 548 Year ended September 30, 1995: Deducted from asset accounts: Allowance for doubtful accounts 81 132 -- -- 213 Allowance for inventory obsolescence 267 550 -- -- 817
EX-3.4 2 AMENDED BYLAWS OF SEMITOOL, INC. EXHIBIT 3.4 AMENDED BYLAWS OF SEMITOOL, INC. (July 7, 1997) ARTICLE I. Offices The principal office of the corporation in the State of Montana shall be located in the City of Kalispell, County of Flathead. The corporation may have such other offices, either within or without the State of Montana as the Board of Directors may designate or as the business of the corporation may require from time to time. The registered office of the corporation required by the Montana Business Corporation Act to be maintained in the State of Montana may be, but need not be, identical with the principal office in the State of Montana, and the registered agent 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 Meeting. The annual meeting of the shareholders shall be held in the month of February, beginning with the year 1996, and at such date, and at such hour, and at such place as shall be determined by the Board of Directors, and such meeting shall be held for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the election of directors shall not be held on the date designated by the action of the Board of Directors at the annual meeting of the shareholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special annual meeting of the shareholders as soon thereafter as conveniently may be and as determined by the Board of Directors in accordance with the statutes of the State of Montana. Section 2. Special Meetings. Special meetings of the shareholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the President, Vice President, Secretary, or by the Board of Directors, or by the holders of not less than one-fourth of all shares entitled to vote at the meeting. Section 3. Place of Meeting. The Board of Directors may designate any place either within or without the State of Montana, 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 entitled to vote at a meeting may designate any place, either within or without the State of Montana, 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 Montana. Section 4. Notice of Meeting. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by mail, by or at the direction of the President, or 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 Unites States mail, addressed to the shareholder at his address as it appears on the stock transfer books of the corporation, with postage thereon prepaid. Section 5. Closing of Transfer Books or Fixing of Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the corporation may provide that the stock transfer books shall be closed for a stated period, but not to exceed, in any case, sixty (60) days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of the shareholders, such books shall be closed for a period of at least ten (10) days immediately preceding such meeting and not to exceed sixty (60) days preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors 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 (60) days and, in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination of shareholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to receive payment of a dividend, 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. Section 6. Voting Right. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten (10) days before each meeting of the stockholders, a complete list of the shareholders entitled to vote at such meeting, or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten (10) 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 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 stock transfer book shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 7. Quorum. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders, but in no event shall a quorum consist of less than one-third (1/3) of the shares entitled to vote at the meeting. If a meeting cannot be organized because a quorum has not attended, those present may adjourn the meeting from time to time until a quorum is present, at which time any business may be transacted that may have been transacted at the meeting as originally called. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum. Section 8. Voting of Shares. Subject to the provisions of Section 10 of this Article II, each outstanding share shall be entitled to one vote, and each fractional share shall be entitled to a corresponding fractional vote, on each matter submitted to a vote at a meeting of shareholders. Neither treasury shares nor shares of its own stock held by the corporation in a fiduciary capacity nor shares held by another corporation if a majority of the shares entitled to vote for the election of director of such other corporation is held by the corporation shall be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Shares held by an administrator, executor, guardian or conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of the trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing 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 his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. 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. Shares of its own stock belonging to the corporation or held by it in a fiduciary capacity shall not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the total number of outstanding shares at any given time. Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney in fact. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy. Section 10. Cumulative Voting. At each election for directors every shareholder entitled to vote at such election shall have the right to vote, in person or by proxy, the number of shares and fractional shares owned by him for as many persons as there are directors to be elected and for whose election he has a right to vote, or to cumulate his votes by giving a candidate as many votes as the number of such directors multiplied by the number of his shares including fractional shares shall equal, or by distributing such votes and fractional votes on the same principal among any number of candidates. ARTICLE III. Board of 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 six (6). Each director shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified. Directors need not be residents of the State of Montana or shareholders of the corporation. Section 3. Annual Meeting. The annual meeting of the Board of Directors shall be held without other notice than this Bylaw immediately after, and at the same place as, the annual meeting of shareholders. Section 3a. Regular Meetings. Regular meetings of the Board of Directors shall be held at such time as shall be determined by the President or by resolution of the Board. No notice need be given of meetings held pursuant to the determination by the President or by resolution of the Board. Section 4. Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Montana, 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) days previously thereto by written notice delivered personally, mailed or faxed to each director at his business address, or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage prepaid thereon. If notice is given by fax, the notice shall be deemed to be delivered when the fax is sent to the fax number maintained in the records of the corporation for each director. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. Any director may waive notice of any meeting. The attendance of a director at a 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. The notice is not required to describe the purpose of the meeting. Section 6. Quorum. A majority of the number of directors fixed by Section 2 of this Article III shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, but if less than such majority is present at the meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. Section 7. Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board of Directors. Section 8. Compensation. By resolution of the Board of Directors, directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and non-employee directors may be paid an annual retainer plus a fixed sum for attendance at each meeting of the Board of Directors. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV. Officers Section 1. Number. The officers of the corporation shall be a President, one or more Vice Presidents (the number, qualification and titles thereof to be determined by the Board of Directors from time to time), a Secretary and a Treasurer, each of whom shall be elected by the Board of Directors. Such other officers, assistant officers, and agents as may be necessary may be elected or appointed by the Board of Directors. Any two or more offices may be held by the same person, except the offices of President and Secretary. Section 2. Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the 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. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. 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. Election or appointment of an officer or agent shall not in itself create contract rights. 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. President. The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors shall, in general, supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the shareholders and of the Board of Directors. He may sign, with the Secretary or any other proper officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and, in general, shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Section 6. Vice President. In the absence of the President or in the event of his death, inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Section 7. Secretary. The Secretary shall: (a) keep the minutes of the shareholders and 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 Bylaws 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 documents, the execution of which on behalf of the corporation under its seal is duly authorized; (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, or a Vice 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 him by the President or by the Board of Directors. Section 8. Treasurer. The Treasurer shall have charge and supervision and be responsible for all funds and securities of the corporation and shall have charge and supervision of the deposits of all monies due and payable to the corporation from any source whatsoever in such banks or depositories as shall be selected by the Board of Directors, and shall, in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. Section 9. Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries shall exercise the duties of the Secretary and those duties incident to the office of the Secretary when the Secretary is absent or not available and such other duties as shall be assigned by the President or by the Board of Directors. The Assistant Treasurers shall perform those duties incident to the office of Treasurer and those assigned to the Treasurer in the absence or unavailability of the Treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. ARTICLE V. Certificates for Shares and Their Transfer Section 1. Certificates for Shares. Certificates representing shares of the corporation shall be in such form as shall be determined by the Board of Directors. Such certificates shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. The names and addresses of the persons to whom the shares represented thereby are issued, with the number of shares and dates of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, 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. Section 2. Transfer of Shares. Transfer of shares of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his 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 by the corporation to be the owner thereof for all purposes. Section 3. Sale of Stock by a Stockholder. It is intended that this shall be a closed corporation and that by becoming holders of the common or voting stock of this corporation, each holder thereof agrees that he will not sell his stock in the open market or to the public without having first offered the same to the existing holders of the issued and outstanding stock of the corporation. In case any stockholder owning voting stock of this corporation shall decide to sell any or all of the shares of such stock owned by him, he shall file with the Secretary a written statement of the number of shares he desires to sell and price asked for same. The Secretary shall present said statement to the Board of Directors at a meeting called within five (5) days after such statement is received by him and the Board of Directors shall cause a notice in writing of such statement to be given to each shareholder of record. Each such shareholder shall have the right to purchase such number of shares of stock so offered for sale as the number of shares of voting stock owned by him bears to the number of such shares issued and outstanding; and in case that he desires to purchase such shares shall so signify such desire by filing with the Secretary a written statement within ten (10) days after mailing of the notice to him as above provided. Any holder of such common or voting stock not having filed such notice of his desire to purchase any of the said shares of stock shall, after the expiration of said ten-day period, lose his right to purchase the same, and the remaining shareholders may file a written statement as to their desire to purchase any of the said shares of stock offered for sale at any time within ten (10) days after the expiration of said first ten-day period, and in case more than one such shareholder shall desire to purchase said stock, said stock shall be divided among them in proportion to the number of shares held by them. Should the corporation and the holders of the issued and outstanding stock of the corporation have entered into a stock purchase agreement or any agreement relating to the sale of the corporate stock of any of the stockholders, the provisions of such stock purchase agreement and the sale price of said stock as provided in said stock purchase agreement shall control over the terms and provisions of this Section 3. ARTICLE VI. Fiscal Year The fiscal year of the corporation shall begin on the 1st day of October and end on the 30th day of September in each year. ARTICLE VII. 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. ARTICLE VIII. Seal The Board of Directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "Corporate Seal". ARTICLE IX. Waiver of Notice Whenever any notice is required to be given to any shareholder or director of the corporation under the provisions of these Bylaws or under the provisions of the Montana Business Corporation Act, a waiver therefor 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 X. Action Without a Meeting Any action required to be taken at a meeting of the shareholders or directors of the corporation or any action which may be taken at a meeting of the shareholders or directors, may be taken without a meeting if a consent, in writing, setting forth the action so taken, shall be signed by all the shareholders or directors entitled to vote with respect to the subject matter thereof. Such consent shall have the same effect as a unanimous vote and may be stated in any articles or documents filed with the Secretary of State under the Montana Business Corporation Act. ARTICLE XI. Amendments These Amended Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board of Directors at any regular or special meeting of the Board of Directors. We, the undersigned, being all of the directors of SEMITOOL, INC., do hereby formally and regularly adopt, ratify and sign the foregoing Amended Bylaws as the Bylaws of this corporation for the guidance of the corporation and regulation of its business and as evidence of such adoption and ratification, we do hereby set our hands this 8th day of April, 1997. /s/ R. Thompson /s/ C. S. Robinson - ------------------ ------------------ Raymon F. Thompson C.S. Robinson /s/ Daniel Eigeman /s/ Richard Dasen - ------------------ ------------------ Daniel Eigeman Richard Dasen /s/ Howard Bateman - ------------------ Howard Bateman EX-10.16 3 BUSINESS LOAN AGREEMENT EXHIBIT 10.16 BUSINESS LOAN AGREEMENT This Seafirst Business Loan Agreement ("Agreement") is made between Bank of America NT&SA doing business as Seafirst Bank ("Bank") and Semitool, Inc. __("Borrower") with respect to the following: PART A I. LINE OF CREDIT #59 . Subject to the terms of this Agreement, Bank will make loans to Borrower under a [ X] revolving [ ] non-revolving line of credit as follows: (a) Total Amount Available: $ _10,000,000.00__ [ ] Subject to the provisions of any accounts receivable and/or inventory borrowing plan required herein; it is expressly understood that collateral ineligible for borrowing purposes is determined solely by Bank. [ ] Subject to (describe): N/A (b) Availability period: September 30, 1997 through March, 31, 1999 . However, if loans are made and/or new promissory notes executed after the last date, such advances will be subject to the terms of this Agreement until repaid in full unless a written statement signed by the Bank and Borrower provides otherwise, or a replacement loan agreement is executed. The making of such additional advances alone, however, does not constitute a commitment by the bank to make any further advances or extend the availability period. (c) Interest Rate: 1. Bank's publicly announced Reference Rate plus -0- percent of the principal per annum. "Reference Rate" means the rate of interest publicly announced from time to time by Bank in San Francisco, California as its "Reference Rate". The Reference Rate is set based on various factors, including Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate. 2. LIBOR - At the option of Borrower, loans within the approved line of credit may be available, in minimum amounts of $250,000 or more for specific periods of time ranging from 30 days to 180 days, at LIBOR + 2.0% per annum. Any LIBOR borrowings shall be requested at least two business days prior to funding. LIBOR borrowings shall be based on the British Bankers' Association Interest Settlement Rate (BBAIRS), page 3750 on Telerate. The LIBOR rate shall be adjusted for reserves, deposit insurance, assessments and/or taxes. Borrowing periods for the LIBOR rate option may be for 30, 60, 90 or 180 days. Under the LIBOR rate option, any advance which is prepaid prior to maturity may be subject to a prepayment penalty as described in Exhibit 1 - Prepayment Fees. (d) Interest Rate Basis. All interest will be calculated at the per annum interest rate based on 360-day year and applied to the actual number of days elapsed. (e) Repayment: At the times and in amounts as set forth in note(s) required under Part B Article 1 of this Agreement. (f) Loan Fee: $ N/A payable on N/A . (g) Fee on Unutilized Portion of Line: On December 31, 1997 , and every quarter thereafter, Borrower shall pay a fee based upon the average daily unused portion of the line of credit. This fee will be calculated as follows: 1/4% of 1% per annum (h) Other Fee(s) (identify): N/A (i) Collateral. This revolving line of credit shall be secured by a security interest, which is hereby granted, in favor of Bank on the following collateral: N/A Also, collateral securing other loans with Bank may secure this loan. II. LINE OF CREDIT #323 . Subject to the terms of this Agreement, Bank will make loans to Borrower under a [ X] revolving [ ] non-revolving line of credit as follows: (a) Total Amount Available: $ _15,000,000.00__ [ ] Subject to the provisions of any accounts receivable and/or inventory borrowing plan required herein; it is expressly understood that collateral ineligible for borrowing purposes is determined solely by Bank. [ ] Subject to (describe): N/A (b) Availability period: September 30, 1997 through March, 31, 1999 . However, if loans are made and/or new promissory notes executed after the last date, such advances will be subject to the terms of this Agreement until repaid in full unless a written statement signed by the Bank and Borrower provides otherwise, or a replacement loan agreement is executed. The making of such additional advances alone, however, does not constitute a commitment by the bank to make any further advances or extend the availability period. (c) Interest Rate: 1. Bank's publicly announced Reference Rate plus -0- percent of the principal per annum. "Reference Rate" means the rate of interest publicly announced from time to time by Bank in San Francisco, California as its "Reference Rate". The Reference Rate is set based on various factors, including Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate. 2. LIBOR - At the option of Borrower, loans within the approved line of credit may be available, in minimum amounts of $250,000 or more for specific periods of time ranging from 30 days to 180 days, at LIBOR + 2.0% per annum. Any LIBOR borrowings shall be requested at least two business days prior to funding. LIBOR borrowings shall be based on the British Bankers' Association Interest Settlement Rate (BBAIRS), page 3750 on Telerate. The LIBOR rate shall be adjusted for reserves, deposit insurance, assessments and/or taxes. Borrowing periods for the LIBOR rate option may be for 30, 60, 90 or 180 days. Under the LIBOR rate option, any advance which is prepaid prior to maturity may be subject to a prepayment penalty as described in Exhibit 1 - Prepayment Fees. (d) Interest Rate Basis. All interest will be calculated at the per annum interest rate based on 360-day year and applied to the actual number of days elapsed. (e) Repayment: At the times and in amounts as set forth in note(s) required under Part B Article 1 of this Agreement. (f) Loan Fee: $ N/A payable on N/A . (g) Fee on Unutilized Portion of Line: On December 31, 1997 , and every quarter thereafter, Borrower shall pay a fee based upon the average daily unused portion of the line of credit. This fee will be calculated as follows: 1/8% of 1% per annum (h) Other Fee(s) (identify): N/A (i) Collateral. This revolving line of credit shall be secured by a security interest, which is hereby granted, in favor of Bank on the following collateral: N/A Also, collateral securing other loans with Bank may secure this loan. Bank of America NT & SA dba Seafirst Bank BUSINESS LOAN AGREEMENT PART B 1. Promissory Note(s). All loans shall be evidenced by promissory notes in a form and substance satisfactory to Bank. 2. Conditions to Availability of Loan/Line of Credit. Before Bank is obligated to disburse/make any advance, or at any time thereafter which Bank deems necessary and appropriate, Bank must receive all of the following, each of which must be in form and substance satisfactory to Bank ("loan documents"): 2.1 Original, executed promissory note(s); 2.2 Original executed security agreement(s) and/or deed(s) of trust covering the collateral described in Part A; 2.3 All collateral described in Part A in which Bank wishes to have a possessory security interest; 2.4 Financing statement(s) executed by Borrower; 2.5 Such evidence that Bank may deem appropriate that the security interests and liens in favor of Bank are valid, enforceable, and prior to the rights and interests of others except those consented to in writing by Bank; +2.6 The following guaranty(ies) in favor of the Bank: N/A +2.7 Subordination agreement(s) in favor of Bank executed by: N/A 2.8 Evidence that the execution, delivery, and performance by Borrower of this Agreement and the execution, delivery, and performance by Borrower and any corporate guarantor or corporate subordinating creditor of any instrument or agreement required under this Agreement, as appropriate, have been duly authorized; 2.9 Any other document which is deemed by the Bank to be required from time to time to evidence loans or to effect the provisions of this Agreement; 2.10 If requested by Bank, a written legal opinion expressed to Bank, of counsel for Borrower as to the matters set forth in sections 3.1 and 3.2, and to the best of such counsel's knowledge after reasonable investigation, the matters set forth in sections 3.3, 3.5, 3.6, 3.7, 3.8 and such other matters as the Bank may reasonably request; 2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in making or administering the loans made hereunder including without limitation attorney's fees (including allocated costs of in-house counsel); +2.12 Other (describe): N/A 3. Representations and Warranties. Borrower represents and warrants to Bank, except as Borrower has disclosed to Bank in writing, as of the date of this Agreement and hereafter so long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory notes that: +3.1 Borrower is duly organized and existing under the laws of the state of its organization as a: General Limited _X Corporation ___ Partnership ___ Partnership __ Sole Proprietorship dba LLC with duration of Borrower is properly licensed and in good standing in each state in which Borrower is doing business and Borrower has qualified under, and complied with, where required, the fictitious or trade name statutes of each state in which Borrower is doing business, and Borrower has obtained all necessary government approvals for its business activities; the execution, delivery, and performance of this Agreement and such notes and other instruments required herein are within Borrower's powers, have been duly authorized, and, as to Borrower and any guarantor, are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower, and this Agreement, such notes and the loan documents are valid and enforceable according to their terms; 3.2 The execution, delivery, and performance of this Agreement, the loan documents and any other instruments are not in conflict with any law or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; 3.3 Borrower has title to each of the properties and assets as reflected in its financial statements (except such assets which have been sold or otherwise disposed of in the ordinary course of business), and no assets or revenues of the Borrower are subject to any lien except as required or permitted by this Agreement, disclosed in its financial statements or otherwise previously disclosed to Bank in writing; 3.4 All financial information, statements as to ownership of Borrower and all other statements submitted by Borrower to Bank, whether previously or in the future, are and will be true and correct in all material respects upon submission and are and will be complete upon submission insofar as may be necessary to give Bank a true and accurate knowledge of the subject matter thereof; 3.5 Borrower has filed all tax returns and reports as required by law to be filed and has paid all taxes and assessments applicable to Borrower or to its properties which are presently due and payable, except those being contested in good faith; 3.6 There are no proceedings, litigation or claims (including unpaid taxes) against Borrower pending or, to the knowledge of the Borrower, threatened, before any court or government agency, and no other event has occurred which may have a material adverse effect on Borrower's financial condition; 3.7 There is no event which is, or with notice or lapse of time, or both, would be, an Event of Default (as defined in Section 7) under this Agreement; 3.8 Borrower has exercised due diligence in inspecting Borrower's properties for hazardous wastes and hazardous substances. Except as otherwise previously disclosed and acknowledged to Bank in writing: (a) during the period of Borrower's ownership of Borrower's properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or hazardous substance by any person in, on, under or about any of Borrower's properties; (b) Borrower has no actual or constructive knowledge that there has been any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or hazardous substance by any person in, on, under or about any of Borrower's properties by any prior owner or occupant of any of Borrower's properties; and (c) Borrower has no actual or constructive notice of any actual or threatened litigation or claims of any kind by any person relating to such matters. The terms "hazardous waste(s)," hazardous substance(s)," "disposal," "release," and "threatened release" as used in this Agreement shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Superfund Amendments and Reauthorization Act of 1986, as amended, Pub. L. No. 99-499, the Hazardous Materials Transportation Act, as amended, 49 U.S. C. Section 1801, et seq., the Resource Conservation and Recovery Act, as amended, 49 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules or regulations adopted pursuant to any of the foregoing. +3.9 Each chief place of business of Borrower, and the office or offices where Borrower keeps its records concerning any of the collateral, is located at: 655 West Reserve Drive, Kalispell, MT 59901 4. Affirmative Covenants. So long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory note(s) Borrower will: +4.1 Use the proceeds of the loans covered by this Agreement only in connection with Borrower's business activities and exclusively for the following purposes: To finance normal short-term cash operating needs. +4.2 Maintain current assets in an amount at least equal to N/A times current liabilities, and not less than $ N/A in excess thereof. Current assets and current liabilities shall be determined in accordance with generally accepted accounting principles and practices, consistently applied; +4.3 Maintain a tangible net worth of at least $70,000,000 plus 50% of net income (excluding losses) and not permit Borrower's total indebtedness which is not subordinated in a manner satisfactory to Bank to exceed __1.0_times Borrower's tangible net worth. "Tangible net worth" means the excess of total assets over total liabilities, excluding, however, from the determination of total assets (a) all assets which should be classified as intangible assets such as goodwill, patents, trademarks, copyrights, franchises, and deferred charges (including unamortized debt discount and research and development costs), (b) treasury stock, (c) cash held in a sinking or other similar fund established for the purpose of redemption or other retirement of capital stock, (d) to the extent not already deducted from total assets, reserves for depreciation, depletion, obsolescence or amortization of properties and other reserves or appropriations of retained earnings which have been or should be established in connection with the business conducted by the relevant corporation, and (e) any revaluation or other write-up in book value of assets subsequent to the fiscal year of such corporation last ended at the date of this Agreement; +4.4 Upon request Borrower agrees to insure and to furnish Bank with evidence of insurance covering the life of Borrower (if an individual) or the lives of designated partners or officers of Borrower (if a partnership or corporation) in the amounts stated below. Borrower shall take such actions as are reasonably requested by Bank, such as assigning the insurance policies to Bank or naming Bank as beneficiary and obtaining the insurer's acknowledgment thereof, to provide that in the event of the death of any of the named insureds the policy proceeds will be applied to payment of Borrower's obligations owing to Bank; Name: ______N/A__________Amount: $ _____N/A____ Name: ______N/A__________Amount: $ _____N/A____ +4.5 Promptly give written notice to Bank of: (a) all litigation and claims made or threatened affecting Borrower where the amount is $250,000 or more; (b) any substantial dispute which may exist between Borrower and any governmental regulatory body or law enforcement authority; (c) any Event of Default under this Agreement or any other agreement with Bank or any other creditor or any event which become an Event of Default; and (d) any other matter which has resulted or might result in a material adverse change in Borrower's financial condition or operations; +4.6 Borrower shall as soon as available, but in any event within 90 days following the end of each Borrower's fiscal years and within 45 days following the end of each quarter provide to Bank, in a form satisfactory to Bank (including audited statements if required at any time by Bank), such financial statements and other information respecting the financial condition and operations of Borrower as Bank may reasonably request; 4.7 Borrower will maintain in effect insurance with responsible insurance companies in such amounts and against such risks as is customarily maintained by persons engaged in businesses similar to that of Borrower and all policies covering property given as security for the loans shall have loss payable clauses in favor of Bank. Borrower agrees to deliver to Bank such evidence of insurance as Bank may reasonably require and, within thirty (30) days after notice from Bank, to obtain such additional insurance with an insurer satisfactory to the Bank; 4.8 Borrower will pay all indebtedness taxes and other obligations for which the Borrower is liable or to which its income or property is subject before they shall become delinquent, except any which is being contested by the Borrower in good faith; 4.9 Borrower will continue to conduct its business as presently constituted, and will maintain and preserve all rights, privileges and franchises now enjoyed, conduct Borrower's business in an orderly, efficient and customary manner, keep all Borrowers properties in good working order and condition, and from time to time make all needed repairs, renewals or replacements so that the efficiency of Borrower's properties shall be fully maintained and preserved; 4.10 Borrower will maintain adequate books, accounts and records and prepare all financial statements required hereunder in accordance with generally accepted accounting principles and practices consistently applied, and in compliance with the regulations of any governmental regulatory body having jurisdiction over Borrower or Borrower's business; 4.11 Borrower will permit representatives of Bank to examine and make copies of the books and records of Borrower and to examine the collateral of the Borrower at reasonable times; 4.12 Borrower will perform, on request of Bank, such acts as may be necessary or advisable to perfect any lien or security interest provided for herein or otherwise carry out the intent of this Agreement; 4.13 Borrower will comply with all applicable federal, state and municipal laws, ordinances, rules and regulations relating to its properties, charters, businesses and operations, including compliance with all minimum funding and other requirements related to any of Borrower's employee benefit plans; 4.14 Borrower will permit representatives of Bank to enter onto Borrower's properties to inspect and test Borrower's properties as Bank, in its sole discretion, may deem appropriate to determine Borrower's compliance with section 5.8 of this Agreement; provided however, that any such inspections and tests shall be for Bank's sole benefit and shall not be construed to create any responsibility or liability on the part of Bank to Borrower or to any third party. 5. Negative Covenants. So long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory note(s): +5.1 Borrower will not, during any fiscal year, expend or incur in the aggregate more than $_N/A for fixed assets, nor more than $ N/A for any single fixed asset whether or not payable that fiscal year or later under any purchase agreement or lease; 5.2 Borrower will not, without the prior written consent of Bank, purchase or lease under an agreement for acquisition, incur any other indebtedness for borrowed money, mortgage, assign, or otherwise encumber any of Borrower's assets, nor sell, transfer or otherwise hypothecate any such assets except in the ordinary course of business. Borrower shall not guaranty, endorse, co-sign, or otherwise become liable upon the obligations of others, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business. For purposes of this paragraph, the sale or assignment of accounts receivable, or the granting of a security interest therein, shall be deemed the incurring of indebtedness for borrowed money; +5.3 The total of salaries, withdrawals, or other forms of compensation, whether paid in cash or otherwise, by Borrower shall not exceed the following amounts for the persons indicated, nor will amounts in excess of such limits be paid to any other person: Name: ____________N/A_________________________ Monthly/Yearly Amount: $ _____N/A_________________ Name: ____________N/A_________________________ Monthly/Yearly Amount: $ _____N/A_________________ 5.4 Borrower will not, without Bank's prior written consent, declare any dividends on shares of its capital stock, or apply any of its assets to the purchase, redemption or other retirement of such shares, or otherwise amend its capital structure; +5.5 Borrower will not make any loan or advance to any person(s) or purchase or otherwise acquire the capital stock, assets or obligations of, or any interest in, any person, except: (a) commercial bank time deposits maturing within one year, (b) marketable general obligations of the United States or a State, or marketable obligations fully guarantied by the United States, (c) short-term commercial paper with the highest rating of a generally recognized rating service, (d) other investments related to the Borrower's business which, together with such other investments now outstanding, do not in the aggregate exceed the sum of $ N/A at any time; 5.6 Borrower will not liquidate or dissolve or enter into any consolidation, merger, pool, joint venture, syndicate or other combination, or sell, lease, or dispose of Borrower's business assets as a whole or such as in the opinion of Bank constitute a substantial portion of Borrower's business or assets; 5.7 Borrower will not engage in any business activities or operations substantially different from or unrelated to present business activities or operations; and 5.8 Borrower, and Borrower's tenants, contractors, agents or other parties authorized to use any of Borrower's properties, will not use, generate, manufacture, store, treat, dispose of, or release any hazardous substance or hazardous waste in, on, under or about any of Borrower's properties, except as previously disclosed to Bank in writing as provided in section 3.8; and any such activity shall be conducted in compliance with all applicable federal, state and local laws, regulations and ordinances, including without limitation those described in section 3.8. 6. Waiver, Release and Indemnification. Borrower hereby: (a) releases and waives any claims against Bank for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any of the applicable federal, state or local laws, regulations or ordinances, including without limitation those described in section 3.8, and (b) agrees to indemnify and hold Bank harmless from and against any and all claims, losses, liabilities, damages, penalties and expenses which Bank may directly or indirectly sustain or suffer resulting from a breach of (i) any of Borrower's representations and warranties with respect to hazardous wastes and hazardous substances contained in section 3.8, or (ii) section 5.8. The provisions of this section 6 shall survive the full and final payment of all sums outstanding under this Agreement and promissory notes and shall not be affected by Bank's acquisition of any interest in any of the Borrower's properties, whether by foreclosure or otherwise. 7. Events of Default. The occurrence of any of the following events ("Events of Default") shall terminate any and all obligations on the part of Bank to make or continue the loan and/or line of credit and, at the option of Bank, shall make all sums of interest and principal outstanding under the loan and/or line of credit immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of non payment or dishonor, or other notices or demands of any kind or character, all of which are waived by Borrower, and Bank may proceed with collection of such obligations and enforcement and realization upon all security which it may hold and to the enforcement of all rights hereunder or at law: 7.1 The Borrower shall fail to pay when due any amount payable by it hereunder on any loans or notes executed in connection herewith; 7.2 Borrower shall fail to comply with the provisions of any other covenant, obligation or term of this Agreement for a period of fifteen (15) days after the earlier of written notice thereof shall have been given to the Borrower by Bank or Borrower or any Guarantor has knowledge of an Event of Default or an event that can become an Event of Default; 7.3 Borrower shall fail to pay when due any other obligation for borrowed money, or to perform any term or covenant on its part to be performed under any agreement relating to such obligation or any such other debt shall be declared to be due and payable and such failure shall continue after the applicable grace period; 7.4 Any representation or warranty made by Borrower in this Agreement or in any other statement to Bank shall prove to have been false or misleading in any material respect when made; 7.5 Borrower makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions to any court for a receiver or trustee for Borrower or any substantial part of its property, commences any proceeding relating to the arrangement, readjustment, reorganization or liquidation under any bankruptcy or similar laws, or if there is commenced against Borrower any such proceedings which remain undismissed for a period of thirty (30) days or, if Borrower by any act indicates its consent or acquiescence in any such proceeding or the appointment of any such trustee or receiver; +7.6 Any judgment attaches against Borrower or any of its properties for an amount in excess of $100,000 which remains unpaid, unstayed on appeal, unbonded, or undismissed for a period of thirty (30) days; 7.7 Loss of any required government approvals, and/or any governmental regulatory authority takes or institutes action which, in the opinion of Bank, will adversely affect Borrower's condition, operations or ability to repay the loan and/or line of credit; 7.8 Failure of Bank to have a legal, valid and binding first lien on, or a valid and enforceable prior perfected security interest in, any property covered by any deed of trust or security agreement required under this Agreement; 7.9 Borrower dies, becomes incompetent, or ceases to exist as a going concern; 7.10 Occurrence of an extraordinary situation which gives Bank reasonable grounds to believe that Borrower may not, or will be unable to, perform its obligations under this or any other agreement between Bank and Borrower; or 7.11 Any of the preceding events occur with respect to any guarantor of credit under this Agreement, or such guarantor dies or becomes incompetent, unless the obligations arising under the guaranty and related agreements have been unconditionally assumed by the guarantor's estate in a manner satisfactory to Bank. 8. Successors; Waivers. Notwithstanding the Events of Default above, this Agreement shall be binding upon and inure to the benefit of Borrower and Bank, their respective successors and assigns, except that Borrower may not assign its rights hereunder. No consent or waiver under this Agreement shall be effective unless in writing and signed by the Bank and shall not waive or affect any other default, whether prior or subsequent thereto, and whether of the same or different type. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. 9. Arbitration. 9.1 At the request of either Bank or Borrower any controversy or claim between the Bank and Borrower, arising from or relating to this Agreement or any Loan Document executed in connection with this Agreement or arising from any alleged tort shall be settled by arbitration in King County Washington. The United States Arbitration Act will apply to the arbitration proceedings which will be administered by the American Arbitration Association under its commercial rules of arbitration except that unless the amount of the claim(s) being arbitrated exceeds $5,000,000 there shall be only one arbitrator. Any controversy over whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of any action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of either party, including plaintiff, to submit the controversy or claim to arbitration if such action for judicial relief is contested. For purposes of the application of the statute of limitations the filing of an arbitration as provided herein is the equivalent of filing a lawsuit and the arbitrator(s) will have the authority to decide whether any claim or controversy is barred by the statute of limitations, and if so, to dismiss the arbitration on that basis. The parties consent to the joinder in the arbitration proceedings of any guarantor, hypothecator or other party having an interest related to the claim or controversy being arbitrated. 9.2 Notwithstanding the provisions of Section 9.1, no controversy or claim shall be submitted to arbitration without the consent of all parties if at the time of the proposed submission, such controversy or claim arises from or relates to an obligation secured by real property; 9.3 No provision of this Section 9 shall limit the right of the Borrower or the Bank to exercise self-help remedies such as setoff, foreclosure or sale of any collateral, or obtaining any ancillary provisional or interim remedies from a court of competent jurisdiction before, after or during the pendency of any arbitration proceeding. The exercise of any such remedy does not waive the right of either party to request arbitration. At Bank's option foreclosure under any deed of trust may be accomplished by exercise of the power of sale under the deed of trust or judicial foreclosure as a mortgage. 10. Collection Activities, Lawsuits and Governing Law. Borrower agrees to pay Bank all costs and expenses (including reasonable attorney's fees and the allocated cost for in-house legal services incurred by Bank), to enforce this Agreement, any notes or any Loan Documents pursuant to this Agreement, whether or not suit is instituted. If suit is instituted by Bank to enforce this Agreement or any of these documents, Borrower consents to the personal jurisdiction of the Courts of the State of Washington and Federal Courts located in the State of Washington. Borrower further consents to the venue of this suit, being laid in King County, Washington. This Agreement and any notes and security agreements entered into pursuant to this Agreement shall be construed in accordance with the laws of the State of Washington. +11. Additional Provisions. Borrower agrees to the additional provisions set forth immediately following this Section 11 or on any "Exhibit__N/A_" attached to and hereby incorporated into Agreement. This Agreement supersedes all oral negotiations or agreements between Bank and Borrower with respect to the subject matter hereof and constitutes the entire understanding and Agreement of the matters set forth in this Agreement. 11.1 If any provision of this Agreement is held to be invalid or unenforceable, then (a) such provision shall be deemed modified if possible, or if not possible, such provision shall be deemed stricken, and (b) all other provisions shall remain in full force and effect. 11.2 If the imposition of or any change in any law, rule, or regulation guideline or the interpretation or application of any thereof by any court of administrative or governmental authority (including any request or policy whether or not having the force of law) shall impose or modify any taxes (except U.S. federal, state or local income or franchise taxes imposed on Bank), reserve requirements, capital adequacy requirements or other obligations which would: (a) increase the cost to Bank for extending or maintaining any loans and/or line of credit to which this Agreement relates, (b) reduce the amounts payable to Bank under this Agreement, such notes and other instruments, or(c) reduce the rate of return on Bank's capital as a consequence of Bank's obligations with respect to any loan and/or line of credit to which this Agreement relates, then Borrower agrees to pay Bank such additional amounts as will compensate Bank therefor, within five (5) days after Bank's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive, absent manifest error. 11.3 Bank may sell participations in or assign this loan in whole or in part without notice to Borrower and Bank may provide information regarding the Borrower and this Agreement to any prospective participant or assignee. If a participation is sold or the loan is assigned the purchaser will have the right of set off against the Borrower and may enforce its interest in the Loan irrespective of any claims or defenses the Borrower may have against the Bank. 11.4 Not permit Borrower's debt coverage ratio to fall below 1.50 (measured quarterly based upon the immediately preceding four quarters financial results), and computed as follows: Debt Net Income + Depreciation + Amortization - Coverage = Maint. CAPEX ($3,000,000) - Dividends ------------------------------------------ Ratio Current Portion Long-Term Debt 11.5 So long as any amounts or obligations of any type are owing by Borrower to Bank, or Bank is committed to lend to Borrower: a) Borrower shall not, without the prior written consent of Bank, create or permit to exist any lien or encumbrance upon, or transfer any interest in, any of its accounts receivable or inventory, other than sales of inventory in the ordinary course of business. b) Borrower to provide Loan Agreement Compliance Certificates on a quarterly basis; and c) If at any time the principal amount outstanding under Borrower's revolving line of credit from Bank exceeds the sum of (I) 50% of Borrower's accounts receivable plus (ii) 25% of the value (based on the lower of cost or market) of Borrower's inventory, then, upon request by Bank, Borrower shall grant to Bank a security interest in all of its accounts receivable and inventory to secure all obligations of Borrower under the revolving line of credit, pursuant to a security agreement and UCC filings in form satisfactory to Bank. 12. Notices. Any notices shall be given in writing to the opposite party's signature below or as that party may otherwise specify in writing. 13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. This Business Loan Agreement (Parts A and B) executed by the parties on ____September 30,_____________19_97__. Borrower acknowledges having read al of the provisions of this Agreement and Borrower agrees to its terms. SEAFIRST BANK Spokane & Eastern ------------------------ (Branch/Office) By: /s/Joe Poole ------------------------ Title: Vice President Address: P.O. Box 1446 City, State, Zip Spokane, WA 99210 Phone: (509) 353-1475 Fax: (509) 353-1492 Semitool, Inc. ------------------------ (Borrower Name) By: /s/Raymon F. Thompson ------------------------ Raymon F. Thompson Title: President Address: 655 West Reserve Drive City, State, Zip: Kalispell, MT 59901 Phone: (406) 752-2107 Fax: (406) 752-5522 EX-10.17 4 PROMISSORY NOTE EXHIBIT 10.17 DUE: March 31, 1999 PROMISSORY NOTE SEMITOOL, INC $10,000,000.00 Dated: September 29, 1997 Spokane, Washington SEMITOOL, INC, a MONTANA corporation ("Maker") unconditionally promises to pay to the order of Bank of America National Trust and Savings Association, doing business as SEAFIRST BANK ("Bank"), at its Spokane Wholesale Banking office, on or before March 31, 1999, in immediately available funds, the principal sum of Ten Million and no/100ths Dollars ($10,000,000.00), or such lesser sum as may be advanced hereunder. Maker further agrees to pay interest on the daily unpaid principal balance, in arrears on the 31st day of each month, beginning the 31st day of October, 1997, in accordance with the terms, conditions, and definitions of Exhibit A attached, which are incorporated herein. Also incorporated herein is Exhibit 1 attached hereto, regarding prepayment fees. All advances under this Note, all conversions between the interest rate options, and all payments of principal and interest may be reflected on a schedule or a computer-generated statement which shall become a part hereof. All unpaid principal and accrued but unpaid interest under this Note shall be paid in full on March 31, 1999. Bank is authorized to automatically debit each required installment of interest from Borrower's checking account number 13629803 at Bank, or such other deposit account at Bank as Borrower may authorize in the future. A Commitment Fee of .25 percentage points of the unused portion of the commitment shall be collected quarterly. If all or any portion of the principal amount or any installment of interest is not paid when due, interest shall accrue, at the option of the holder of this Note, from the date of default at a floating rate per annum three percent (3%) above the Reference Rate, as the Reference Rate may vary from time to time, and the entire unpaid principal amount of this Note, together with all accrued interest, shall become immediately due and payable at the option of the holder hereof. Advances under this Note may be made by Bank at the oral or written request of Raymon F Thompson, Larry Viano, John Sullivan, Rebecca Hand-Smith, any one acting alone, who are authorized to request advances and direct the disposition of any such advances until written notice of the revocation of such authority is received by Bank at its office indicated above. Any such advance shall be conclusively presumed to have been made to or for the benefit of Maker when made in accordance with such requests and directions, or when said advances are deposited to the credit of an account of Maker with Bank, regardless of the fact that persons other than those authorized under this paragraph may have authority to draw against such account. Maker hereby waives presentment, demand, protest, and notice of dishonor hereof. Each party signing or endorsing this Note signs as maker and principal, and not as guarantor, surety, or accommodation party; and is estopped from asserting any defense based on any capacity other than maker or principal. This Note shall be governed by and construed in accordance with the laws of the State of Washington. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. SEMITOOL, INC By: /s/ Raymon F. Thompson ------------------------ Raymon F Thompson Its: President ------------------------ EXHIBIT A INTEREST PROVISIONS ARTICLE 1 Definitions All terms defined below shall have the meaning indicated: 1.1 Adjusted LIBOR Rate shall mean for any day that per annum rate equal to the sum of (a) a margin of 2.00%, (b) the Assessment Rate, and (c) the quotient of (i) the LIBOR Rate as determined for such day, divided by (ii) the Reserve Adjustment. The Adjusted LIBOR Rate shall change with any change in the LIBOR Rate on the first day of each Interest Period and on the effective date of any change in the Assessment Rate or Reserve Adjustment. 1.2 Advances shall mean the disbursement of loan proceeds under the Note. 1.3 Assessment Rate shall mean as of any day the minimum annual percentage rate established by the Federal Deposit Insurance Corporation (or any successor) for the assessment due from members of the Bank Insurance Fund (or any successor) in effect for the assessment period during which said day occurs based on deposits maintained at such members' offices located outside of the United States. In the event of a retroactive reduction in the Assessment Rate after a commencement of any Interest Period, Bank shall not retroactively adjust as to such Interest Period any interest rate calculated using the Assessment Rate. 1.4 Available Amounts shall mean $10,000,000.00 less the outstanding principal balance of the Note. 1.5 Bank shall mean the holder of the Note. 1.6 Borrower shall mean the maker of the Note. 1.7 Business Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in Seattle, Washington, are authorized or required by law to close. 1.8 Commencement Date shall mean the first day of any Interest Period as requested by Borrower. 1.9 Floating Rate Loans shall mean those portions of principal of the Note accruing interest at the Floating Rate. 1.10 Floating Rate shall mean the Reference Rate plus 0.00% per annum. 1.11 Interest Period shall mean the period commencing on the date of any advance at or conversion to an Adjusted LIBOR Rate and ending on any date thereafter as selected by Borrower, subject to the restrictions of Section 0. If any Interest Period would end on a day which is not a Business Day, the Interest Period shall be extended to the next succeeding Business Day. 1.12 LIBOR Rate shall mean for any Interest Period the per annum rate, calculated on the basis of actual number of days elapsed over a year of 360 days, for U.S. Dollar deposits for a period equal to the Interest Period appearing on the display designated as "Page 3750" on the Telerate Service (or such other page on that service or such other service designated by the British Banker's Association for the display of that Association's Interest Settlement Rates for U.S. Dollar deposits) as of 11:00 a.m., London time, on the day which is two London Banking Days prior to the first day of the Interest Period. If there is no period equal to the Interest Period on the display, the LIBOR Rate shall be determined by straight-line interpolation to the nearest month (or week or day if expressed in weeks or days) corresponding to the Interest Period between the two nearest neighboring periods on the display. 1.13 LIBOR Rate Loans shall mean those portions of principal of the Note accruing interest at the Adjusted LIBOR Rate. 1.14 London Banking Day shall mean any day other than a Saturday, Sunday, or other day on which commercial banks in London, England, are authorized or required by law to close. 1.15 Note shall mean the promissory note to which this exhibit is attached. 1.16 Reference Rate shall mean the rate of interest publicly announced from time to time by Bank in San Francisco, California, as its "Reference Rate." The Reference Rate is set based on various factors, including Bank's costs and desired return, general economic conditions, and other factors, and is used as a reference point for pricing some loans. Bank may price loans to its customers at, above, or below the Reference Rate. Any change in the Reference Rate shall take effect at the opening of business on the day specified in the public announcement of a change in the Reference Rate. 1.17 Reserve Adjustment shall mean as of any day the remainder of one minus that percentage (expressed as a decimal) which is the highest of any such percentages established by the Board of Governors of the Federal Reserve System (or any successor) for required reserves (including any emergency, marginal, or supplemental reserve requirement) regardless of the aggregate amount of deposits with said member bank and without benefit of any possible credit, proration, exemptions, or offsets for time deposits established at offices of member banks located outside of the United States or for eurocurrency liabilities, if any. 1.18 Termination Date shall mean March 31, 1999, or such earlier date upon which Bank makes demand for payment in full under the Note based on a default under the Note. ARTICLE 2 Interest Rate Options 2.1 Interest Rates and Payment Date. The Note shall bear interest from the date of Advance on the unpaid principal balance outstanding from time to time at the Floating Rate or Adjusted LIBOR Rate as selected by Borrower and all accrued interest shall be payable in arrears as provided in the Note. 2.2 Procedure. Borrower may, on any London Banking Day two London Banking Days before a Commencement Date, request Bank to give an Adjusted LIBOR Rate quote for a specified loan amount and Interest Period. Bank will then quote to Borrower the available Adjusted LIBOR Rate. Borrower shall have two hours from the time of the quote to elect an Adjusted LIBOR Rate by giving Bank irrevocable notice of such election. 2.3 Restrictions. Each Interest Period shall be one month or two months or three months or six months or any other term acceptable to Bank in its sole discretion. In no event shall an Interest Period extend beyond the Termination Date. The minimum amount of a LIBOR Rate Loan shall be $250,000. 2.4 Prepayments. If Borrower prepays all or any portion of a LIBOR Rate Loan prior to the end of an Interest Period, there shall be due at the time of any such prepayment the Prepayment Fee, determined in accordance with Form 51-6325 which is attached as Exhibit 1 to the Note. 2.5 Reversion to Floating. The Note shall bear interest at the Floating Rate unless an Adjusted LIBOR Rate is specifically selected. At the termination of any Interest Period each LIBOR Rate Loan shall revert to a Floating Rate Loan unless Borrower directs otherwise pursuant to Section 0. 2.6 Inability to Participate in Market. If Bank in good faith cannot participate in the Eurodollar market for legal or practical reasons, the Adjusted LIBOR Rate shall cease to be an interest rate option. Bank shall notify Borrower of and when it again becomes legal or practical to participate in the Eurodollar market, at which time the Adjusted LIBOR Rate shall resume being an interest rate option. 2.7 Costs. Borrower shall, as to LIBOR Rate Loans, reimburse Bank for all costs, taxes, and expenses, and defend and hold Bank harmless for any liabilities, which Bank may incur as a consequence of any changes in the cost of participating in, or in the laws or regulations affecting, the Eurodollar market, including any additional reserve requirements, except to the extent such costs are already calculated into the Adjusted LIBOR Rate. This covenant shall survive the payment of the Note. 2.8 Basis of Quotes. Borrower acknowledges that Bank may or may not in any particular case actually match-fund a LIBOR Rate Loan. FDIC assessments, and Federal Reserve Board reserve requirements, if any are assessed, will be based on Bank's best estimates of its marginal cost for each of these items. Whether such estimates in fact represent the actual cost to Bank for any particular dollar or Eurodollar deposit or any LIBOR Rate Loan will depend upon how Bank actually chooses to fund the LIBOR Rate Loan. By electing an Adjusted LIBOR Rate, Borrower waives any right to object to Bank's means of calculating the Adjusted LIBOR Rate quote accepted by Borrower. ARTICLE 3 Advances 3.1 Revolving Loan Facility. Bank shall until the earlier of demand or the Termination Date make Advances to Borrower from time to time, to the extent of the Available Amounts, with the aggregate principal amount at any one time outstanding not to exceed $10,000,000.00. Borrower may borrow, prepay, and reborrow the principal of the Note in whole or in part. 3.2 Procedure for Advances. Borrower may borrow on any Business Day. Borrower shall give Bank irrevocable notice (written or oral) specifying the amount to be borrowed and the requested borrowing date. Bank must receive such notice on or before 11:30 a.m., Seattle time, on the day borrowing is requested. All Advances shall be discretionary to the extent notification by Borrower is given subsequent to that time. Exhibit 1 -- PREPAYMENT FEES If the principal balance of this note is prepaid in whole or in part, whether by voluntary prepayment, operation of law, acceleration or otherwise, a prepayment fee, in addition to any interest earned, will be immediately payable to the holder of this note. The amount of the prepayment fee depends on the following: (1) The amount by which interest reference rates as defined below have changed between the time the loan is prepaid and either a) the time the loan was made for fixed rate loans, or b) the time the interest rate last changed (repriced) for variable rate loans. (2) A prepayment fee factor (see "Prepayment Fee Factor Schedule" on reverse). (3) The amount of principal prepaid. If the proceeds from a CD or time deposit pledged to secure the loan are used to prepay the loan resulting in payment of an early withdrawal penalty for the CD, a prepayment fee will not also be charged under the loan. Definition of Reference Rate for Variable Rate Loans The "Reference Rate" used to represent interest rate levels for variable rate loans shall be the index rate used to determine the rate on this loan having maturities equivalent to the remaining period to interest rate change date (repricing) of this loan rounded upward to the nearest month. The "Initial Reference Rate" shall be the Reference Rate at the time of last repricing and a new Initial Reference Rate shall be assigned at each subsequent repricing. The "Final Reference Rate" shall be the Reference Rate at the time of prepayment. Definition of Reference Rate for Fixed Rate Loans The "Reference Rate" used to represent interest rate levels on fixed rate loans shall be the bond equivalent yield of the average U.S. Treasury rate having maturities equivalent to the remaining period to maturity of this loan rounded upward to the nearest month. The "Initial Reference Rate" shall be the Reference Rate at the time the loan was made. The "Final Reference Rate" shall be the Reference Rate at time of prepayment. The Reference Rate shall be interpolated from the yields as displayed on Page 119 of the Dow Jones Telerate Service (or such other page or service as may replace that page or service for the purpose of displaying rates comparable to said U.S. Treasury rates) on the day the loan was made (Initial Reference Rate) or the day of prepayment (Final Reference Rate). An Initial Reference Rate of N/A % has been assigned to this loan to represent interest rate levels at origination. CALCULATION OF PREPAYMENT FEE If the Initial Reference Rate is less than or equal to the Final Reference Rate, there is no prepayment fee. If the Initial Reference Rate is greater than the Final Reference Rate, the prepayment fee shall be equal to the difference between the Initial and Final Reference Rates (expressed as a decimal), multiplied by the appropriate factor from the Prepayment Fee Factor Schedule, multiplied by the principal amount of the loan being prepaid. Example of Prepayment Fee Calculation Variable Rate Loan: A non-amortizing 6-month LIBOR based loan with principal of $250,000 is fully prepaid with 3 months remaining until next interest rate change date (repricing). An Initial Reference Rate of 7.0% was assigned to the loan at last repricing. The Final Reference Rate (as determined by the 3-month LIBOR index) is 6.5%. Rates therefore have dropped 0.5% since last repricing and a prepayment fee applies. A prepayment fee factor of 0.31 is determined from Table 3 below and the prepayment fee is computed as follows: Prepayment Fee = (0.07 -- 0.065) x (0.31) x ($250,000) = $387.50 Fixed Rate Loan: An amortizing loan with remaining principal of $250,000 is fully prepaid with 24 months remaining until maturity. An Initial Reference Rate of 9.0% was assigned to the loan when the loan was made. The Final Reference Rate (as determined by the current 24-month U.S. Treasury rate on Page 119 of Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan was made and a prepayment fee applies. A prepayment fee factor of 1.3 is determined from Table 1 below and the prepayment fee is computed as follows: Prepayment Fee = (0.09 -- 0.075) x (1.3) x ($250,000) = $4,875
PREPAYMENT FEE FACTOR SCHEDULE TABLE I: FULLY AMORTIZING LOANS Proportion of Remaining PrincipalMonths Remaining To Maturity/Repricing1 Amount Being Prepaid - -------------------------------------------------------------------------------------------------------------------- 0 3 6 9 12 24 36 48 60 84 120 240 360 - -------------------------------------------------------------------------------------------------------------------- 90-100% 0 .21 .36 .52 .67 1.3 1.9 2.5 3.1 4.3 5.9 10.3 13.1 60-89% 0 .24 .44 .63 .83 1.6 2.4 3.1 3.9 5.4 7.5 13.2 17.0 30-59% 0 .28 .53 .78 1.02 2.0 3.0 4.0 5.0 7.0 9.9 18.5 24,4 0-29% 0 .31 .63 .92 1.22 2.4 3.7 5.0 6.3 9.0 13.4 28.3 41.8
TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS Proportion of Remaining PrincipalMonths Remaining To Maturity/Repricing1 Amount Being Prepaid - -------------------------------------------------------------------------------------------------------------------- 0 3 6 9 12 24 36 48 60 84 120 240 360 - -------------------------------------------------------------------------------------------------------------------- 90-100% 0 .26 .49 .71 .94 1.8 2.7 3.4 4.2 5.6 7.4 11.6 14.0 60-89% 0 .30 .59 .86 1.15 2.2 3.3 4.3 5.3 7.1 9.4 15.0 18.1 30-59% 0 .31 .63 .95 1.27 2.6 3.9 5.3 6.6 9.1 12.6 21.2 26.2 0-29% 0 .31 .63 .95 1.27 2.6 4.0 5.4 7.0 10.2 15.7 33.4 46.0
TABLE III: NONAMORTIZING (INTEREST ONLY) LOANS Proportion of Remaining PrincipalMonths Remaining To Maturity/Repricing1 Amount Being Prepaid - -------------------------------------------------------------------------------------------------------------------- 0 3 6 9 12 24 36 48 60 84 120 240 360 - -------------------------------------------------------------------------------------------------------------------- 0-100% 0 .31 .61 .91 1.21 2.3 3.4 4.4 5.3 6.9 8.9 13.0 14.8
1 For the remaining period to maturity/repricing between any two maturities/repricings shown in the above schedules, interpolate between the corresponding factors to the closest month. The holder of this note is not required to actually reinvest the prepaid principal in any U.S. Government Treasury Obligations, or otherwise prove its actual loss, as a condition to receiving a prepayment fee as calculated above. EX-10.18 5 LOAN MODIFICATION AGREEMENT EXHIBIT 10.18 LOAN MODIFICATION AGREEMENT This agreement amends the Promissory Note dated September 30, 1996 ("Note") executed by SEMITOOL, INC ("Borrower") in favor of Bank of America National Trust and Savings Association, doing business as Seafirst Bank ("Bank"), regarding a loan in the maximum principal amount of $15,000,000.00 (the "Loan"). For mutual consideration, Borrower and Bank agree to amend the above loan documents as follows: 1. Payments. Beginning on the 31st day of October, 1997, Borrower shall make monthly interest-only payments equal to all accrued interest under the Note, with all other payment-related provisions of the Note remaining unchanged. 2. Maturity Date. The maturity date of the Note is changed to December 31, 1999. Bank's commitment to make advances to Borrower under its line of credit is also extended to December 31, 1999. 3. Other Terms. Except as specifically amended by this agreement or any prior amendment, all other terms, conditions, and definitions of the Note and all other security agreements, guaranties, deeds of trust, mortgages, and other instruments or agreements entered into with regard to the Loan shall remain in full force and effect. 4. Commitment Fee. A Commitment fee of .125 percentage points of the unused portion of the commitment shall be collected quarterly. DATED SEPTEMBER 29, 1997. Bank: Borrower: SEAFIRST BANK SEMITOOL, INC By /s/Joe Poole By: /s/Raymon F. Thompson - ------------------- -------------------------------- Title VP Raymon F. Thompson, President EX-10.19 6 LOAN MODIFICATION AGREEMENT EXHIBIT 10.19 LOAN MODIFICATION AGREEMENT This agreement amends the Promissory Note dated September 29, 1997 ("Note") executed by SEMITOOL, INC ("Borrower") in favor of Bank of America National Trust and Savings Association, doing business as Seafirst Bank ("Bank"), regarding a loan in the maximum principal amount of $10,000,000.00 (the "Loan"). For mutual consideration, Borrower and Bank agree to amend the above loan documents as follows: 1. Interest Rate. The Adjusted LIBOR Rate margin as shown in Exhibit A, Article 1 to the note is changed to 1.75% 2. Other Terms. Except as specifically amended by this agreement or any prior amendment, all other terms, conditions, and definitions of the Note and all other security agreements, guaranties, deeds of trust, mortgages, and other instruments or agreements entered into with regard to the Loan shall remain in full force and effect. DATED October 2, 1997. Bank: Borrower: SEAFIRST BANK SEMITOOL, INC By /s/Joe Poole By: /s/Raymon F. Thompson - ------------------- ------------------------------- Title VP Raymon F. Thompson, President EX-10.20 7 LOAN MODIFICATION AGREEMENT EXHIBIT 10.20 LOAN MODIFICATION AGREEMENT This agreement amends the Promissory Note dated September 30, 1996 ("Note") executed by SEMITOOL, INC ("Borrower") in favor of Bank of America National Trust & Savings Association, doing business as Seafirst Bank, successor by name change to Bank of America NW, NA doing business as Seafirst Bank("Bank"), regarding a loan in the maximum principal amount of $15,000,000.00 (the "Loan"). For mutual consideration, Borrower and Bank agree to amend the above loan documents as follows: 1. Interest Rate. The Adjusted LIBOR Rate margin as shown in Exhibit A, Article 1 to the note is changed to 1.75%. 2. Other Terms. Except as specifically amended by this agreement or any prior amendment, all other terms, conditions, and definitions of the Note and all other security agreements, guaranties, deeds of trust, mortgages, and other instruments or agreements entered into with regard to the Loan shall remain in full force and effect. DATED October 2, 1997. Bank: Borrower: SEAFIRST BANK SEMITOOL, INC By /s/Joe Poole By: /s/ Raymon F. Thompson - ------------------- ------------------------------- Title VP Raymon F. Thompson, President EX-11.1 8 COMPUTATION OF PRO FORMA PER SHARE EARNINGS
EXHIBIT 11.1 Semitool, Inc. STATEMENT RE COMPUTATION OF PRO FORMA PER SHARE EARNINGS (Amounts in Thousands, Except for Per Share Amounts) Weighted average shares outstanding at September 30, 1995 12,349 Additional shares that are assumed to be issued in the offering to fund shareholder distributions in excess of net income for the 12 months ended February 2, 1995 (1) 214 ------ Shares used in pro forma calculation for the year ended September 30, 1995 12,563 ====== Weighted average shares outstanding at September 30, 1996 13,858 ------ Shares used in pro forma calculation for the year ended September 30, 1996 13,858 ====== Weighted average shares outstanding at September 30, 1997 13,833 ------ Shares used in pro forma calculation for the year ended September 30, 1997 13,833 ====== (1) Computed as follows in accordance with Staff Accounting Bulletin Topic 1.B.3: Shares assumed to be issued September 30, 1994 at the $8.67 per share Offering price to fund distributions in excess of net income (See (1) above) 597 Less adjustment to reflect outstanding distributive shares included in weighted average shares outstanding for the period February 3, 1995 to September 30, 1995 383 ------ Additional shares that are assumed to be outstanding for the period September 30, 1994 to February 2, 1995 214 ======
EX-21.1 9 SUBSIDIARIES OF REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF REGISTRANT Name Jurisdiction of Incorporation - ----------------------------------------- ----------------------------- Semitool Europe Ltd. United Kingdom Semitool Halbleitertechnik Vertriebs GmbH Germany Semitool France SARL France Semitool Italia SRL Italy Semitool KK, Japan Japan Semitool, Inc., Korea Korea Semitool, Inc., FSC Barbados Semy Engineering, Inc. Delaware Rhetech, Inc. Delaware EX-27 10 FDS FOR FORM 10-K
5 Exhibit 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K AS OF SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS SEP-30-1997 SEP-30-1997 5,060 0 41,120 224 41,124 94,753 49,145 15,460 131,725 44,706 3,364 0 0 40,590 40,990 131,725 191,471 193,952 102,422 102,862 21,179 0 499 20,198 7,675 12,523 0 0 0 12,523 0.91 0.91
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