<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q
(MARK ONE)

     [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 1996

                                       OR

   [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ____________ to ______________

Commission file number 0-20470

                       Integrated Process Equipment Corp.
             (Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
         Delaware                                                                                77-0296222
<S>                                                                                   <C>
(State or other jurisdiction of incorporation or organization)                        (I.R.S. employer identification no.)

         911 Bern Court,  San Jose, California                                                                     95112
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code  (408) 436-2170


             Former name, former address and former fiscal year, if
                           changed since last report.

         Indicate by (X) 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

         As of February 12, 1997, 456,650 shares of Class A Common Stock and
14,776,522 shares of Common Stock of the registrant were outstanding.

                                  Page 1 of 31
<PAGE>   2
                          PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                                                                      JUNE 30,     DECEMBER 31,
                                ASSETS                                                                  1996           1996
                                                                                                     ---------     ---------
                                                                                                                   (Unaudited)
<S>                                                                                                  <C>           <C>      
Current assets:
    Cash and cash equivalents                                                                        $  11,325     $  36,953
    Accounts receivable                                                                                 34,089        35,258
    Inventories                                                                                         23,437        29,540
    Prepaid expenses                                                                                       946         1,219
    Deferred income taxes                                                                                5,175        13,646
    Net assets of discontinued operations                                                               29,719         3,920
                                                                                                     ---------     ---------
            Total current assets                                                                       104,691       120,536
                                                                                                     ---------     ---------

Property, plant and equipment, net                                                                      50,225        23,301
Intangible assets, net                                                                                  15,135        13,108
Deferred income taxes                                                                                   13,175        17,928
Other assets                                                                                             1,475         1,601
                                                                                                     ---------     ---------

                                                                                                     $ 184,701     $ 176,474
                                                                                                     =========     =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Notes payable                                                                                    $   2,056     $     221
    Current portion of long-term debt                                                                    1,886         2,219
    Accounts payable                                                                                    11,961        11,510
    Accrued liabilities                                                                                 17,708        30,555
                                                                                                     ---------     ---------
            Total current liabilities                                                                   33,611        44,505

Long-term debt, less current portion                                                                    22,753        17,860
                                                                                                     ---------     ---------
        Total liabilities                                                                               56,364        62,365
                                                                                                     ---------     ---------

Stockholders' equity:
Preferred stock, $ .01 par value per share. Nonvoting, authorized 2,000,000 shares:
    Series B-1 cumulative preferred stock.  Authorized 21,478 shares, issued and outstanding
      20,941 shares at June 30, 1996, 15,572 shares at December 31, 1996.  Liquidation
      preference of $1,450                                                                                  --            --
    Series B-2 cumulative preferred stock.  Authorized 21,478 shares, issued and outstanding
      20,941 shares.  Liquidation preference of $1,950                                                      --            --
    Series B-3 cumulative preferred stock.  Authorized 21,478 shares, issued and outstanding
      21,210 shares.  Liquidation preference of $1,975                                                      --            --
    Series C convertible preferred stock.  Authorized 100,000 shares, issued and outstanding
     100,000 shares at December 31, 1996                                                                    --             1
Common stock, $.01 par value per share.  Authorized 50,000,000 shares; one vote per share;
    issued and outstanding 14,238,406 shares at June 30, 1996 and 14,442,050 at December 31, 1996          142           144
Class A common stock, $.01 par value per share.  Authorized 3,500,000 shares, four votes per
    share; issued and outstanding 521,650 shares                                                             5             5
Additional paid-in capital                                                                             151,730       178,118
Accumulated deficit                                                                                    (23,546)      (64,190)
Foreign currency translation adjustment                                                                      6            31
                                                                                                     ---------     ---------
            Total stockholders' equity                                                                 128,337       114,109
                                                                                                     ---------     ---------
                                                                                                     $ 184,701     $ 176,474
                                                                                                     =========     =========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>   3
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                   DECEMBER 31,             DECEMBER 31,
                                                                1995         1996         1995         1996
                                                              --------     --------     --------     --------
<S>                                                           <C>          <C>          <C>          <C>     
Revenue                                                       $ 36,810     $ 35,662     $ 66,974     $ 65,069
Cost of goods sold                                              21,063       20,480       37,284       39,523
                                                              --------     --------     --------     --------
            Gross margin                                        15,747       15,182       29,690       25,546
                                                              --------     --------     --------     --------

Operating expenses:
    Research and development                                     3,482        5,443        6,326       11,950
    Purchased research and development                          36,961           --       36,961           --
    Selling, general and administrative                          6,394        6,812       11,209       13,117
    Program discontinuance charge                                   --       17,601           --       17,601
                                                              --------     --------     --------     --------
            Total operating expenses                            46,837       29,856       54,496       42,668
                                                              --------     --------     --------     --------

            Operating loss                                     (31,090)     (14,674)     (24,806)     (17,122)

Other income (expense):
    Interest income                                                329           94        1,155          203
    Interest expense                                               (96)        (601)        (245)      (1,173)
    Other, net                                                     116          192          181          259
                                                              --------     --------     --------     --------
            Total other income (expense)                           349         (315)       1,091         (711)
                                                              --------     --------     --------     --------

            Loss from continuing operations before
              income taxes                                     (30,741)     (14,989)     (23,715)     (17,833)
Income tax benefit                                             (12,014)      (4,964)      (9,448)      (6,149)
                                                              --------     --------     --------     --------

            Net loss from continuing operations                (18,727)     (10,025)     (14,267)     (11,684)

Discontinued operations:
    Loss from operations of IPEC Clean, Inc., net of taxes        (219)      (1,896)      (1,167)      (3,614)
    Loss on disposal of IPEC Clean, Inc., net of taxes              --      (24,950)          --      (24,950)
                                                              --------     --------     --------     --------

            Net loss from discontinued operations                 (219)     (26,846)      (1,167)     (28,564)
                                                              --------     --------     --------     --------

            Net loss                                           (18,946)     (36,871)     (15,434)     (40,248)

Cumulative dividend on preferred stock                             (90)         (81)        (399)        (162)
                                                              --------     --------     --------     --------

            Net  loss attributable to common stockholders     $(19,036)    $(36,952)    $(15,833)    $(40,410)
                                                              ========     ========     ========     ========


Loss per common share:
    From continuing operations                                $  (1.30)    $   (.68)    $  (1.02)    $   (.80)
    From discontinued operations                                  (.02)       (1.80)        (.08)       (1.92)
                                                              --------     --------     --------     --------
Loss per common share                                         $  (1.32)    $  (2.48)    $  (1.10)    $  (2.72)
                                                              ========     ========     ========     ========

Shares used in per share calculation                            14,425       14,916       14,310       14,851
                                                              ========     ========     ========     ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>   4
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                FOR THE SIX-MONTH PERIOD ENDED DECEMBER 31, 1996
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                            Series B                      Series C
                                         Preferred Stock         Convertible Preferred Stock           Common Stock
                                         Shares    Amount           Shares        Amount            Shares      Amount
                                         ------    ------           ------        ------            ------      ------
<S>                                      <C>        <C>          <C>                <C>           <C>           <C> 
Balance at June 30, 1996                 63,092     $ --              --            $-            14,238,406    $142
                                                                                                  
Net loss                                     --       --              --             -                    --      --
                                                                                                  
Retirement of Series B-1                                                                          
   Preferred Stock                       (5,369)      --              --             -                    --      --
                                                                                                  
Issuance of Warrants                         --       --              --             -                    --      --
                                                                                                  
Exercise of Stock Options                                                                         
 (including tax benefits of $324)            --       --              --             -               151,007       2
                                                                                                  
Employee Stock Purchase Plan                 --       --              --             -                52,637      --
                                                                                                  
Issuance of Series C Preferred Stock                                                              
 (less costs of $1,570)                      --       --         100,000             1                    --      --
                                                                                                  
Cumulative translation adjustment            --       --              --             -                    --      --
                                                                                                  
Dividends Paid                               --       --              --             -                    --      --
                                        -------     ----         -------            --            ----------    ----
                                                                                                  
                                                                                                  
Balance at December 31, 1996             57,723     $ --         100,000            $1            14,442,050    $144
                                        =======     ====         =======            ==            ==========    ====
</TABLE>



<TABLE>
<CAPTION>
                                                                                                               Foreign
                                                    Class A                Additional                          Currency
                                                  Common Stock               Paid-In          Accumulated     Translation
                                              Shares         Amount          Capital            Deficit       Adjustment
                                              ------         ------          -------            -------       ----------
<S>                                           <C>              <C>         <C>                 <C>                <C>
Balance at June 30, 1996                      521,650          $5          $ 151,730           $(23,546)          $ 6

Net loss                                           --           -                 --            (40,248)           --

Retirement of Series B-1
   Preferred Stock                                 --           -               (500)                --            --

Issuance of Warrants                               --           -                848                 --            --

Exercise of Stock Options
 (including tax benefits of $324)                  --           -              1,913                 --            --

Employee Stock Purchase Plan                       --           -                698                 --            --

Issuance of Series C Preferred Stock
 (less costs of $1,570)                            --           -             23,429                 --            --

Cumulative translation adjustment                  --           -                 --                 --            25

Dividends Paid                                     --           -                 --               (396)           --
                                              -------          --          ---------           --------           ---


Balance at December 31, 1996                  521,650          $5          $ 178,118           $(64,190)          $31
                                              =======          ==          =========           ========           ===
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>   5
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                     SIX MONTHS ENDED
                                                                                        DECEMBER 31,
Cash flows from operating activities:                                               1995            1996
                                                                                  --------        --------
<S>                                                                               <C>             <C>       
   Net income (loss)                                                              $(15,434)       $(40,248) 
   Adjustments to reconcile net loss to net                                                       
     cash used in operating activities:                                                           
        Purchased research and development                                          36,961               -
        Program discontinuance charge                                                    -          17,601
        Less on disposal of IPEC Clean, Inc., net of taxes                               -          24,950
        Depreciation and amortization                                                1,640           6,704
        Deferred tax benefit                                                       (12,097)        (12,900)
        Acquisition adjustments                                                          -            (865)
        Costs of warrants issued                                                         -             848
        Changes in assets and liabilities:                                                        
           (Increase) in accounts receivable                                        (6,647)         (1,252)
           (Increase) decrease in inventories                                        3,493         (15,104)
           (Increase) in prepaid expenses and other assets                          (1,590)           (399)
           Increase (decrease) in accounts payable                                   1,233            (451)
           Increase in accrued liabilities                                             280           8,347
           (Increase) decrease in net assets of discontinued operations             (7,975)            849
                                                                                   --------        --------
              Net cash used in operating activities                                   (136)        (11,920)
                                                                                   --------        --------
                                                                                                  
Cash flows from investing activities:                                                             
    Purchases of property and equipment                                            (19,658)           (343)
    Proceeds from sale of property and equipment                                         -          20,417
    Purchase of subsidiaries, net of cash acquired                                 (23,593)              -
                                                                                   --------        --------
             Net cash provided by (used in) investing activities                   (43,251)         20,074
                                                                                   --------        --------
                                                                                                  
Cash flows from financing activities:                                                             
    Proceeds from long-term debt                                                    10,000            4,407
    Repayment of long-term debt                                                     (3,520)         (10,719)
    Repayment of notes payable                                                           -           (1,259)
    Repayment of capital leases                                                        (44)            (303)
    Payment of preferred stock dividends                                              (351)            (396)
    Net proceeds from issuance of Series C preferred stock                               -           23,430
    Net proceeds from issuance of common stock                                                    
      and warrants                                                                   2,562            2,289
                                                                                   --------        --------
              Net cash provided by financing activities                              8,647           17,449
                                                                                   --------        --------
Effect of exchange rate changes on cash                                                  -               25
                                                                                   --------        --------
                                                                                                  
Net increase (decrease) in cash and cash equivalents                               (34,740)         25,628
                                                                                                  
Cash and cash equivalents, beginning of period                                      65,790          11,325
                                                                                   --------        --------
                                                                                                  
Cash and cash equivalents, end of period                                          $ 31,050        $ 36,953
                                                                                   ========        ========
                                                                                                  
Supplemental disclosure of cash flow information:                                                 
     Cash paid for interest during the period                                     $    423        $  1,339
                                                                                   ========        ========
     Cash paid for taxes during the period                                        $  2,906        $      -
                                                                                   ========        ========
Supplemental disclosure of noncash activities:                                                    
    Release from escrow (retirement) of Class B 6% cumulative                                     
      convertible preferred stock issued for the Westech acquisition              $  2,000        $   (500)
                                                                                   ========        ========
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>   6
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


BASIS OF PREPARATION:

         The accompanying condensed consolidated financial statements at
December 31, 1996 and for the three month and six month periods ended December
31, 1995 and December 31, 1996 are unaudited; however, in the opinion of the
management of Integrated Process Equipment Corp. ("IPEC") and subsidiaries (the
"Company"), such statements include all adjustments (consisting solely of normal
recurring accruals) necessary for the fair statement of the information
presented therein. The condensed consolidated balance sheet as of June 30, 1996
was derived from the audited financial statements at such date.

         As more fully described in the following notes to condensed
consolidated financial statements, the Company announced its strategic decision
to focus on chemical mechanical planarization (CMP) and CMP-related products and
discontinue the operations of IPEC Clean, Inc. during the second quarter of
fiscal 1997. Prior period financial statements have been restated to reflect the
discontinuation of IPEC Clean, Inc.

         Pursuant to accounting requirements of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, the accompanying
condensed consolidated financial statements and these notes do not include all
disclosures required by generally accepted accounting principles for complete
financial statements. Accordingly, these statements should be read in
conjunction with the Company's annual financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended June 30,
1996.

         Results of operations for interim periods are not necessarily
indicative of those to be achieved for full fiscal years.

ESTIMATES IN FINANCIAL STATEMENTS

         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,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

ORGANIZATION:

Westech Systems, Inc.:

         On September 3, 1993, IPEC acquired Westech Systems, Inc. ("Westech"),
a privately owned company engaged in manufacturing chemical mechanical
planarization equipment for the semiconductor

                                       6
<PAGE>   7
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


industry. Westech was renamed IPEC Planar Phoenix, Inc. On January 1, 1997, IPEC
Planar Phoenix was renamed IPEC Planar, Inc.

Acquisition of Athens Corp.:

         On November 22, 1994, the Company acquired approximately 94% of the
outstanding common stock of Athens Corp. ("Athens"), a privately owned company
engaged in manufacturing wet process reprocessing systems for the semiconductor
industry. The purchase price consisted of 1,095,695 shares of the Company's
common stock. The Company acquired the remaining 6% in the first quarter of
fiscal 1996 in exchange for 211,670 shares of the Company's common stock. The
name of Athens has subsequently been changed to IPEC Clean, Inc. ("IPEC Clean").
The operations of IPEC Clean were discontinued in the second quarter of fiscal
1997.

Acquisition of GAARD Automation, Inc.:

         On October 30, 1995, the Company acquired all of the outstanding common
stock of GAARD Automation, Inc. ("GAARD"), a privately owned company that has
developed and sells an advanced high throughput CMP system for metal
planarization. GAARD also designs and manufactures custom flexible automation
systems used outside the semiconductor industry. The name of GAARD has
subsequently been changed to IPEC Planar Portland, Inc. On January 1, 1997, IPEC
Planar Portland was merged into IPEC Planar, Inc.

Acquisition of Precision Materials:

         On December 29, 1995, the Company's subsidiary IPEC Precision, Inc.
("Precision") acquired substantially all of the assets constituting the
Precision Materials Operation of Hughes Danbury Optical Systems, Inc. (HDOS).
Precision is engaged in the design, manufacture, and sale of precision
equipment, based on proprietary plasma assisted chemical etching and metrology
technologies, for use in the production of advanced semiconductor wafers and
devices, and provides wafer processing services that use such proprietary
technology and equipment.

         The aforementioned acquisitions have all been accounted for as
purchases and, accordingly, the condensed consolidated financial statements
include the results of operations from the respective dates of acquisition.

Pro forma financial information:

         Pro forma summary of consolidated operations (excluding charges for
purchased in-process research and development), assuming the acquisitions of
GAARD and Precision had taken place on July 1, 1995 is as follows (in thousands,
except per share amounts):

                                       7
<PAGE>   8
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                       Three Months Ended      Six Months Ended
                                                                        December 31, 1995      December 31, 1995
                                                                        -----------------      -----------------
<S>                                                                    <C>                     <C>           
                  Revenues                                             $        38,821         $       75,123
                  Net income from continuing operations                $         3,698         $        7,807
                  Net loss from discontinued operations                $       (   219 )       $     (  1,167 )
                  Net income per common share
                    from continuing operations                         $           .26         $          .55
                  Net loss per common share
                    from discontinued operations                       $       (   .02 )       $     (    .08 )
</TABLE>

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Income (loss) per share of common stock:

         Net income (loss) per common share is computed by dividing net income
(loss) less dividends on convertible preferred stock by the weighted average
number of common shares outstanding during the period, plus, when their effect
is dilutive, common stock equivalents consisting of certain shares subject to
stock options and warrants.

New Accounting Standards:

         In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company has adopted
Statement 121 in the first quarter of 1997, and the impact of adoption was not
material.

         In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock Based Compensation" (SFAS 123). Under the provisions of SFAS 123,
companies can elect to account for stock-based compensation plans using a
fair-value based method or continue measuring compensation expense for those
plans using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123 requires
that companies electing to continue using the intrinsic value method must make
pro forma disclosures of net income and earnings per share as if the fair value
method had been applied. The Company has continued to account for stock-based
compensation using the intrinsic value method which will not have an impact on
the Company's results of operations or financial position.

                                       8
<PAGE>   9
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


INVENTORIES:

         Inventories are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                      June 30, 1996    December 31, 1996
                                                      -------------    -----------------
                                                                      (Unaudited)
<S>                                                   <C>              <C>      
         Raw materials                                $14,318          $  24,081
         Work in process                               10,165             15,705
         Finished goods                                   906              1,238
                                                      --------         ---------  
                                                       25,389             41,024
         Less inventory obsolescence reserve          ( 1,952)          ( 11,484 )
                                                      --------         ---------
                                                                      
                                                      $23,437          $  29,540
                                                      ========         =========
</TABLE>
                                                                      
DISCONTINUED OPERATIONS                                           

         In the second quarter of fiscal 1997, the Company announced its
decision to focus its resources on the manufacturing of CMP and CMP-related
equipment. As a result of this decision, the Company has adopted a plan for the
disposition by sale of IPEC Clean within the next twelve months.

         IPEC Clean has been accounted for as a discontinued operation, and
accordingly its operations are segregated for all periods presented in the
accompanying statements of operations. Revenue, related losses and income tax
benefits associated with the discontinued operation for the three and six month
periods ended December 31, 1995 and 1996 are as follows:

<TABLE>
<CAPTION>
                                  Three Months Ended       Six Months Ended
                                     December 31,            December 31,
                                  1995        1996         1995         1996
                                  ----        ----         ----         ----
                                               (in thousands)
<S>                             <C>          <C>         <C>          <C>    
Revenue                         $ 11,168     $ 1,998     $ 19,016     $ 4,609
                                ========     =======     ========     =======

Loss from operations                (184)     (2,891)      (1,546)     (5,495)
Income tax expense (benefit)          35      (  995)        (379)     (1,881)
                                --------     --------    --------     -------
Loss from operations            $   (219)    $(1,896)    $ (1,167)    $(3,614)
                                ========     =======     ========     =======
</TABLE>

The effective income tax benefit rate for discontinued operations differs from
the Company's Federal statutory rate (34%) primarily as a result of
nondeductible amortization of intangible assets.

                                       9
<PAGE>   10
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


         The Company recorded a pre-tax charge amounting to $27.2 million to
write down intangible assets, accounts receivable, inventory, equipment and
other assets to estimated net realizable value and to record additional
liabilities in the second quarter of fiscal 1997. A charge amounting to $3
million was also recorded to reflect the estimated phase out costs associated
with IPEC Clean. This charge is included in accrued liabilities at December 31,
1996 in the accompanying condensed consolidated balance sheet. The tax benefit
associated with these charges amounted to $5.2 million.

         The net assets of the discontinued operation have been reclassified
from the June 30, 1996 audited financial statement presentation and are
summarized in the accompanying condensed consolidated balance sheets as follows:

<TABLE>
<CAPTION>
                                                  June 30, 1996     December 31, 1996
                                                  -------------     -----------------
                                                          (in thousands)
<S>                                               <C>                    <C>     
         Current assets                           $   19,234             $  9,179
         Property, plant and equipment, net            2,430                  372
         Intangible assets                            12,911                  ---
         Other assets                                  2,127                  581
         Current liabilities                         ( 6,895)             ( 6,212)
         Long-term debt                              (    88)                 ---
                                                  ----------             ---------
                                                  $   29,719             $  3,920
                                                  ==========             =========
</TABLE>

PROGRAM DISCONTINUANCE CHARGE:

         In the second quarter of fiscal 1997, the Company recorded a pre-tax
nonrecurring charge of $17.6 million, primarily related to write downs of
inventories of $9 million, property, plant and equipment of $4.1 million due to
discontinuance of the Avanti 672 product development program and noncancellable
purchase orders of $4.5 million included in accrued liabilities.

PREFERRED STOCK:

         During the six months ended December 31, 1996, 5,370 shares of B-1
Preferred Stock were released from escrow to the selling shareholders of Westech
(including a director) upon settlement of the purchase price of Westech, now
known as IPEC Planar, Inc. In accordance with the escrow settlement, the
remaining 5,369 shares of the B-1 preferred stock held in escrow were retired.

         In the second quarter of fiscal 1997 the Company sold 100,000 shares of
newly issued Series C convertible preferred stock for $25 million. The Series C
convertible preferred stock is convertible, at the holder's option, into shares
of the Company's common stock on or after January 31, 1997 and will
automatically convert into common stock on December 31, 2002. Each share of
Series C convertible preferred stock is convertible at a premium over an average
of the volume weighted average daily 

                                       10
<PAGE>   11
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


market prices of the common stock. The number of shares of common stock to be
issued upon conversion will vary based on future stock price movements. At
January 31, 1997, the Series C convertible preferred stock was convertible into
approximately 1.2 million shares of the Company's common stock.

         In connection with the issuance of the Series C convertible preferred
stock, the holder was granted a warrant to acquire up to 456,000 shares of the
Company's common stock. The warrant may generally be exercised from and after
June 16, 1998 until December 16, 2002 at an exercise price of $24.567 per share.

SALE/LEASEBACK:

         The Company completed an $18.7 million sale/leaseback transaction of
its Phoenix manufacturing and administrative facility in the second quarter of
fiscal 1997. The Company leased back the facility for an initial fifteen year
term with two five year renewal options. Proceeds from the transaction were used
to repay a $10 million term loan with a bank. Annual rental payments will vary
but will range between $2.1 million and $2.3 million over the next five years.

LOAN AGREEMENT:

         The Company entered into a loan agreement in April 1996 with a bank.
Under the terms of the agreement, the Company received a $10 million term loan
and a $30 million revolving loan facility to provide working capital for general
corporate purposes. The $10 million term loan was repaid in the second quarter
of fiscal 1997. The borrowing base for the revolving loan facility consists of
eighty percent of eligible accounts receivable as defined by the agreement.

         The facility bears interest at the Company's option at the prime rate
or LIBOR plus 2.75%. The revolving loan facility matures in April 1997 with
options to renew the facility annually for a two year period which the Bank must
approve. If the revolving credit facility expires, the Company is obligated to
repay the outstanding balance in eight equal quarterly payments of principal
plus interest. The revolving loan facility is secured by a blanket first lien on
all assets of the Company and its subsidiaries.

         The terms of the loan agreement include various covenants, which, among
other things, include maintenance of certain financial ratios, limits on the
amount of dividends that can be paid to common stockholders and acquisitions of
treasury stock. At December 31, 1996 the Company was in compliance with all
covenants of the agreement.

                                       11
<PAGE>   12
               INTEGRATED PROCESS EQUIPMENT CORP. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


CONTINGENCIES AND COMMITMENTS:

Concentration of credit risk:

         The Company sells products and services to customers, primarily
semiconductor manufacturers, and extends credit based on an evaluation of the
customer's financial condition, generally without requiring collateral. Exposure
to losses on receivables is principally dependent on each customer's financial
condition. The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses. At December 31, 1996, accounts receivable of
the Company's largest customer amounted to $14 million.

                                       12
<PAGE>   13
                         PART I -- FINANCIAL INFORMATION


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         The following information should be read in conjunction with the
condensed consolidated financial statements and notes thereto included in this
Quarterly Report and in the audited Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in the Company's Annual Report on Form 10-K for the year ended June
30, 1996.

         IPEC is a Delaware corporation organized in December 1991 and is the
successor by merger to a California corporation of the same name that was
incorporated in October 1989. The Company is primarily engaged in designing,
manufacturing, marketing and servicing equipment for the semiconductor
manufacturing industry.

         In connection with the acquisitions described in the notes to condensed
consolidated financial statements under "Organization," in the second quarter of
fiscal 1996, the Company reorganized its business into three divisions. IPEC
Planar, the Company's CMP division, consists of the Company's IPEC Planar
Phoenix operation, (formerly named Westech) and the IPEC Planar Portland
operation (formerly named GAARD). IPEC Clean consists of the former Athens
Corporation and produces on site wet ultra high purity chemical reprocessing
systems, chemical distribution systems and cleaning systems that can be marketed
as stand alone products or clustered with Planar's CMP systems. IPEC Precision
consists of the Precision Materials Operation acquired from HDOS and is engaged
in manufacturing of advanced plasma assisted chemical etching equipment and
metrology equipment for use primarily in manufacturing of silicon wafers and
semiconductor devices.

         As more fully described in the notes to the condensed consolidated
financial statements, in the second quarter of fiscal 1997 the Company announced
its decision to discontinue the operations of IPEC Clean. Losses from IPEC
Clean's operations have been reported separately. The discontinuation resulted
in a $1.9 million charge for the quarter. Financial information from prior
periods contained in this section have been restated to reflect the
discontinuation of IPEC Clean. As a result, dollar amounts, percentages, and
percentages of revenues contained in this Quarterly Report may differ from those
presented in Quarterly Reports for prior periods.

         The Company's revenue is derived from the sale of products, related
spare parts and service. In accordance with generally accepted accounting
principles, the Company recognizes revenue when a product is shipped. Revenue
from spare part sales or service is recognized when shipped or upon completion
of service.

         The Company's gross margins may vary due to many factors, and are
especially dependent on direct versus indirect sales, product mix and domestic
versus international sales. The Company sells directly in the United States and
such sales have higher gross margins than indirect international sales. Thus,
gross margins in any period may not be indicative of margins for future periods.
See "Factors Affecting Operating Results--International Sales."

                                       13
<PAGE>   14
         This report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which are subject to the
"safe harbor" created by that section. These forward-looking statements include,
but are not limited to, statements concerning future revenues, operating
margins, expenses, dividend and tax rates, and access to equity or debt
financing. The Company's actual future results could differ materially from
those projected in the forward-looking statements. Some factors which could
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements are described in
"Factors Affecting Operating Results" below. The Company assumes no obligation
to update the forward-looking statements or such factors.


                           - Continued on next page -

                                       14
<PAGE>   15
RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated the results of
operations for the Company expressed as a percentage of total revenue.

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED            SIX MONTHS ENDED
                                                                              DECEMBER 31,                  DECEMBER 31,
                                                                            1995         1996           1995           1996
                                                                           -----        ------          -----         ------
<S>                                                                        <C>           <C>            <C>            <C>    
Revenue                                                                    100.0 %       100.0 %        100.0 %        100.0 %
Cost of goods sold                                                          57.2 %        57.4 %         55.7 %         60.7 %
                                                                           ----         -----           ----          -----
            Gross margin                                                    42.8 %        42.6 %         44.3 %         39.3 %
                                                                           ----         -----           ----          -----
                                                                                                                      
Operating expenses:                                                                                                   
    Research and development                                                 9.4 %        15.2 %          9.4 %         18.4 %
    Purchased research and development                                     100.5 %           -           55.2 %            -
    Selling, general and administrative                                     17.4 %        19.1 %         16.7 %         20.2 %
    Program discontinuance charge                                              -          49.4 %            -           27.0 %
                                                                           ----         -----           ----          -----
            Total operating expenses                                       127.2 %        83.7 %         81.3 %         65.6 %
                                                                           ----         -----           ----          -----
                                                                                                                      
            Operating loss                                                 (84.4)%       (41.1)%        (37.0)%        (26.3)%
                                                                                                                      
Other income (expense):                                                                                               
    Interest income                                                           .9 %          .3 %          1.7 %           .3 %
    Interest expense                                                         (.2)%        (1.7)%          (.4)%         (1.8)%
    Other, net                                                                .3 %          .5 %           .3 %           .4 %
                                                                           ----         -----           ----          -----
            Total other income (expense)                                     1.0 %         (.9)%          1.6 %         (1.1)%
                                                                           ----         -----           ----          -----
                                                                                                                      
            Loss from continuing operations before income taxes            (83.4)%       (42.0)%        (35.4)%        (27.4)%
Income tax benefit                                                         (32.6)%       (13.9)%        (14.1)%         (9.4)%
                                                                           ----         -----           ----          -----
            Net loss from continuing operations                            (50.8)%       (28.1)%        (21.3)%        (18.0)%
                                                                                                                      
Discontinued operations:                                                                                              
    Loss from operations of IPEC Clean, Inc., net of taxes                   (.6)%        (5.3)%         (1.7)%         (5.6)%
    Loss on disposal of IPEC Clean, Inc., net of taxes                                   (70.0)%            -          (38.3)%
                                                                           ----         -----           ----          -----
            Net loss from discontinued operations                            (.6)%       (75.3)%         (1.7)%        (43.9)%
                                                                           ----         -----           ----          -----
                                                                                                                      
            Net loss                                                       (51.4)%      (103.4)%        (23.0)%        (61.9)%
                                                                                                                      
Cumulative dividend on preferred stock                                       (.2)%         (.2)%          (.6)%          (.2)%
                                                                           ----         -----           ----          -----
                                                                                                                      
            Net  loss attributable to common stockholders                  (51.6)%      (103.6)%        (23.6)%        (62.1)%
                                                                           ====         =====           ====          =====
</TABLE>

QUARTER ENDED DECEMBER 31, 1996 COMPARED TO QUARTER ENDED DECEMBER 31, 1995

         Revenue for the second fiscal quarter ended December 31, 1996 decreased
3% to $35.7 million from $36.8 million in the quarter ended December 31, 1995.
This decrease was primarily attributable to the current industry slowdown. The
Company expects that revenue for the year ending June 30, 1997 will be below the
$148.7 of revenue reported for the year ended June 30, 1996.

                                       15
<PAGE>   16
         The gross margin percentage for the second quarter of fiscal 1997 was
42.6% of revenue, compared to a gross margin percentage of 42.8% of revenue in
the second quarter of fiscal 1996. The Company's gross margins are impacted by a
number of factors such as product mix, material costs and the level of
international sales, which result in greater sales discounts and lower gross
margins. Gross margins in future periods may be higher or lower than those in
the second quarter of fiscal 1997 depending on such factors.

         Research and development costs increased to $5.4 million in the second
quarter of fiscal 1997 from $3.5 million in the second quarter of fiscal 1996,
primarily due to development of the Company's AvantGAARD 676 high-throughput CMP
tool. The increase in these costs also involved $.8 million of research and
development expenses incurred at IPEC Precision, which was acquired in December
1995, for the development of proprietary plasma assisted chemical etching and
metrology technologies.

         Selling, general and administrative expenses increased to $6.8 million
in the second quarter of fiscal 1997 from $6.4 million in the second quarter of
fiscal 1996. The absolute dollar increase is primarily attributable to
incremental selling, general and administrative expenses incurred at IPEC
Precision. Higher depreciation, amortization and overhead charges have also
resulted from the IPEC Planar Portland and IPEC Precision acquisitions. These
expenses have been partially offset by work force reductions in the first and
second quarters of fiscal 1997 which reduced salary expense at IPEC Planar and
IPEC Precision by approximately $200 thousand per quarter.

         The Company has demonstrated that the AvantGAARD 676 tool can be used
for both metal and oxide planarization, resulting in a decision to focus solely
on the AvantGAARD 676 as the next generation CMP tool. Accordingly, the Company
is repositioning the Avanti 672 for the wafer polishing market and in the second
quarter incurred a $17.6 million program discontinuance charge from write downs
of inventory and assets relating to the Company's program of developing the
Avanti 672 as a CMP tool. The Company incurred a charge of $37 million for
purchased in-process research and development in the second quarter of fiscal
1996 as a result of the acquisitions of IPEC Planar Portland and IPEC Precision.

         Interest income decreased from $.3 million in the second quarter of
fiscal 1996 to $.1 million in the second quarter of fiscal 1997 as a result of
lower cash and cash equivalent balances in the second quarter of fiscal 1997.
Higher balances in the second quarter of fiscal 1996 resulted from the exercise
of the Company's Class B warrants in the fourth quarter of fiscal 1995 that
realized proceeds of $63.2 million. Cash generated from the Series C convertible
preferred stock financing and the sale/leaseback of the Phoenix manufacturing
and administrative facility, discussed in the "Liquidity and Capital Resources"
section below, were completed in December 1996 and had no significant effect on
interest income or expense. Interest expense increased from $.1 million in the
second quarter of fiscal 1996 to $.6 million in the second quarter of fiscal
1997 as a result of increased borrowings.

         As a result of the Company's decision to focus on CMP and CMP-related
products, the Company has decided to divest the operations of IPEC Clean by the
end of fiscal 1997. There can be no assurance that this divestiture will occur
in fiscal 1997. The operating results of IPEC Clean have been segregated from
the continuing operations of the Company and reported separately as discontinued
operations for all periods presented. The loss from operations of IPEC Clean
increased from $.2 million in the second

                                       16
<PAGE>   17
quarter of fiscal 1996 to $1.9 million in the second quarter of fiscal 1997,
primarily due to lower levels of business activity at IPEC Clean in the current
fiscal year. An estimated loss on disposal of IPEC Clean, net of taxes,
amounting to $25 million was recorded in the second quarter of fiscal 1997. The
charge relates primarily to adjustments of intangible assets, equipment,
inventory, accounts receivable and other assets to net realizable value and to
record additional liabilities.

         The net loss attributable to common stockholders, inclusive of all
charges, in the second quarter of fiscal 1997 amounted to $37 million, or $2.48
per share on 14.9 million weighted shares outstanding. This compares to the net
loss attributable to common stockholders in the second quarter of fiscal 1996 of
$19 million, or $1.32 per share, based on 14.4 million weighted shares
outstanding.

SIX MONTHS ENDED DECEMBER 31, 1996 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1995

         Revenue for the six months ended December 31, 1996 was $65 million
compared to $67 million for the six months ended December 31, 1995. This 3%
decrease is primarily attributable to the current industry slow down.

         Gross margins amounted to $25.5 million or 39.3% of revenue for the six
months ended December 31, 1996 compared to $29.7 million or 44.3% of revenue for
the six months ended December 31, 1995. This decrease is primarily attributable
to the allocation of higher levels of customer service expenditures across lower
revenue, costs associated with repositioning of the Avanti 672 for wafer
polishing in the first half of fiscal 1997 and a higher percentage of sales
through international distributors.

         Gross margin during the first six months of fiscal 1997 was also
adversely affected by a $.8 million increase in cost of goods sold related to
warrants issued to a major customer in connection with an agreement permitting
the Company to accelerate certain deliveries in the first, second and third
quarters of fiscal 1997. During the first six months of fiscal 1997 the customer
accelerated orders under this agreement which accounted for approximately 19% of
revenue. The charge in a quarter is based on the market value of the warrant
shares on the date of the agreement and the incremental number of warrant shares
issued in the quarter. There can be no assurance that the Company can obtain
additional orders from other customers for shipments in fiscal 1998 to replace
orders shifted to fiscal 1997.

         Research and development costs increased from $6.3 million in the first
six months of fiscal 1996 to $12 million in the first six months of fiscal 1997,
primarily due to development of the Company's AvantGAARD 676 and Avanti 672 high
throughput CMP tools. The Avanti 672 program was discontinued in the second
quarter of fiscal 1997. Additional incremental costs amounting to $2 million
were incurred at IPEC Precision, which was acquired in December 1995, for the
development of proprietary plasma assisted chemical etching and metrology
technology.

         Selling, general and administrative expenses increased from $11.2
million in the first six months of fiscal 1996 to $13.1 million in the first six
months of fiscal 1997. This increase was primarily due to additional
depreciation, amortization and higher overhead resulting from acquisitions in
the first half of fiscal 1996. Selling, general and administrative expenses for
the first six months of fiscal 1997 were

                                       17
<PAGE>   18
offset in part by a $.9 million benefit resulting from adjustments for both the
fiscal 1994 Westech and fiscal 1996 GAARD acquisitions.

         The first six months of fiscal 1997 reflect a $17.6 million program
discontinuance charge relating to the Avanti 672 development program. The first
six months of fiscal 1996 reflect a $37 million charge for purchased in-process
research and development costs described above.

         Interest income decreased from $1.1 million in the first six months of
fiscal 1996 to $.2 million in the first six months of fiscal 1997 as a result of
lower average cash and cash equivalent balances in fiscal 1997. Higher balances
resulted from the exercise of the Company's Class B warrants in the fourth
quarter of fiscal 1995 described above. Interest expense increased from $.2
million in the first six months of fiscal 1996 to $1.2 million in the first six
months of fiscal 1997 as a result of increased borrowings.

         The loss from continuing operations before income taxes amounted to
$23.7 million and $17.8 million for the six month periods of fiscal 1996 and
1997, respectively. Income tax benefits amounted to $9.4 million and $6.1
million for the six month periods of fiscal 1996 and 1997, or effective tax
benefit rates of 39% and 34%, respectively. The lower benefit rate for the
fiscal 1997 six month period results primarily from adjustments of deferred tax
balances and state tax accruals.

         Losses from discontinued operations of IPEC Clean, described above,
amounted to $1.2 million and $28.6 million for the six month periods of fiscal
1996 and 1997, respectively. This resulted in net losses attributable to common
stockholders of $15.8 million and $40.4 million or $1.10 and $2.72 per share of
common stock for the six month periods of fiscal 1996 and 1997, respectively
based on 14.3 million and 14.9 million weighted average shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's principal sources of liquidity include cash and cash
equivalents of $37 million at December 31, 1996. At December 31, 1996, $14.2
million was outstanding under the revolving loan facility. It is estimated that
an additional $1.6 million was available under the revolving loan facility for
borrowings at December 31, 1996 based on eligible accounts receivable which can
be used to collateralize such borrowings.

         During the second quarter of fiscal 1997 the Company issued 100,000
shares of newly issued Series C convertible preferred stock in exchange for $25
million. During the second quarter, the Company also completed a sale/leaseback
of its 150,000 square foot Phoenix manufacturing and administrative facility.
The facility was sold for $18.7 million and leased back to the Company for an
initial fifteen year term and two five year renewal options. Proceeds from these
financings were used to repay a $10 million term loan and for working capital
purposes.

         The Company believes that its cash and cash equivalents will be
sufficient to fund the Company's operations through the end of fiscal 1997.
Additional new debt or equity financing may be required in fiscal 1998 to fund
the Company's operations. There can be no assurance that such additional
financing will be available when needed or if available, will be on satisfactory
terms. In order 

                                       18
<PAGE>   19
to raise capital, the Company may issue debt or equity securities senior to the
outstanding Common Stock and may incur substantial dilution.

FACTORS AFFECTING OPERATING RESULTS

         Limited Operating History with Annual and Quarterly Losses. Prior to
the Company's acquisition of Westech in fiscal 1994, the Company did not have
significant revenue. The Company had a net loss in fiscal 1994 and fiscal 1996
of $8.9 million and $10.7 million, respectively. The Company had a net loss of
$3.4 million in the first quarter of fiscal 1997. The Company had a net loss of
$37.0 million in the second quarter of fiscal 1997, due in part to one-time
charges of $42.6 million in the quarter. Operating results for future periods
are subject to numerous uncertainties, and there can be no assurance that the
Company will be profitable in fiscal 1997 or on a quarterly basis.

         Operating Results Subject to Quarterly Fluctuations for Varied Reasons.
The Company's operating results are subject to quarterly fluctuations due to a
variety of factors, including industry-wide changes in the demand for
semiconductors or for semiconductor production equipment; the timing of
significant shipments and delays or cancellations or postponement of orders;
acceptance of the Company's products; the gain or loss of significant customers;
competitive pressures; availability and costs of components from the Company's
suppliers; the timing of product announcements and introductions by the Company,
its customers or its competitors; the timing and structure of acquisitions and
dispositions or spin-offs; changes in the mix of products sold; the level of
international sales, which have lower margins than domestic sales; delayed or
canceled construction of wafer fabrication facilities by customers; research and
development expenses associated with new product introductions; market
acceptance of new or enhanced versions of the Company's and its customers'
products; reductions in personnel and the sufficiency of capital resources to
support operations at current levels. The Company cannot assure that it will be
able to anticipate or respond timely to changes in any of the factors listed
above.

         The Company has experienced adverse effects from some of these factors
in the past and may experience them in the future. For example, the Company's
results in fiscal 1994 were adversely impacted by an engineering redesign of its
372M CMP product. In the second quarters of fiscal 1995 and 1996, the Company
had losses due to nonrecurring charges associated with the Athens, GAARD and
HDOS acquisitions. The Company had a loss in the first quarter of fiscal 1997,
primarily because IPEC Clean and IPEC Precision manufactured products and
incurred operating expenses based on sales plans which were not achieved, and to
a lesser degree due to increased cost of goods sold arising from warrants issued
to a major customer as described below. While the Company has attempted to
reduce its operating expenses, due to industry conditions, there can be no
assurance that the Company will be profitable in future quarters. The Company
incurred a net loss in the second quarter of fiscal 1997, primarily due to a
$25.0 million charge for estimated losses on disposal of IPEC Clean and a $17.6
million charge for asset write downs due to discontinuation of the Company's
Avanti 672 product development effort. If current industry conditions continue,
the Company expects that revenue for fiscal 1997 will be below the $148.7
million of revenue recorded in fiscal 1996.

                                       19
<PAGE>   20
         Results of operations in any period should not be considered indicative
of the results to be expected for future periods. Fluctuations in operating
results may also result in fluctuations in the price of the Company's Common
Stock.

         The Timing of Significant Shipments, Delays or Cancellation or
Postponement of Orders Can Impact Quarterly Results. The Company derives most of
its revenue from the sale of products in a price range from $100,000 to
$1,300,000 per unit and the sale of a clustered system can be priced much
higher. As a result, the timing of individual shipments can have a significant
impact on the Company's results of operations for a particular period. The
Company has previously experienced order and delivery delays and cancellations
which caused the Company to miss its quarterly revenue and profit projections
and there can be no assurance that the Company can avoid such order and delivery
delays in the future. Significant shipments by IPEC Precision are not expected
before the fourth quarter of fiscal 1997. A significant portion of the Company's
operating expenses are relatively fixed in nature and planned expenditures are
based in part on anticipated orders. Ongoing expenditures for product
development and engineering make it difficult to reduce expenses in a particular
quarter if the Company's sales goals for the quarter are not met. Any inability
to reduce spending quickly enough to mitigate any revenue shortfall would
magnify the adverse impact of the revenue shortfall on the Company's results of
operations.

         Fiscal 1997 Cost of Goods Sold Will Increase Due to Issuance of
Warrants. The Company's fiscal 1997 operating results will also be affected by
the Company's exercise of its right to cause a significant customer to
accelerate planned orders and the issuance to the customer of additional
warrants to purchase IPEC Common Stock. During the first quarter of fiscal 1997,
the customer agreed to accelerate certain orders into the first three quarters
of fiscal 1997. The Company committed to issue, during the first three quarters
of fiscal 1997, warrants to purchase an aggregate minimum of 155,000 shares and
an aggregate maximum of 250,000 shares of Common Stock. Costs associated with
the aggregate minimum purchase of 155,000 shares were incurred in the first
quarter of fiscal 1997, resulting in a $657,000 increase in cost of goods sold.
Costs associated with an additional 45,000 shares were incurred in the second
quarter of fiscal 1997 resulting in a $191,000 increase in cost of goods sold.
The number of warrant shares to be issued depends on the extent to which the
Company accelerates shipments to the customer. Should additional orders be
accelerated into the third quarter, the Company could incur costs for the
remaining 50,000 shares resulting in a $211,000 increase in cost of goods sold.
To the extent orders are accelerated during fiscal 1997, this may reduce
shipments anticipated for fiscal 1998. There can be no assurance that the
Company can obtain replacement orders for shipment in fiscal 1998.

           The Company Depends on Small Number of Major Customers. A small
number of customers account for a significant percentage of the Company's sales
volume and revenue. In fiscal 1995, Intel, IBM and Motorola represented 16%, 24%
and 16%, respectively, of the Company's revenue. In fiscal 1996, Intel and IBM
represented 35% and 11% of the Company's revenue, respectively. In the first six
months of fiscal 1997, Intel represented 45% of the Company's revenue. The
Company anticipates that its revenue will continue to depend on a limited number
of major customers, although the companies considered major customers and the
percentage of the Company's revenue represented by each major customer may vary
from quarter to quarter. The loss of a major customer or any material reduction
in orders by such customers, including reductions due to market or competitive
conditions, would have a 

                                       20
<PAGE>   21
material adverse effect on the Company's business, financial condition and
results of operations. The Company's future success depends in part upon its
ability to obtain orders from new customers, as well as the financial condition
of its customers and the general economy.

         The Company Depends on Sales of its Existing CMP Equipment and Products
under Development. The Company derives virtually all of its revenue from sales
by IPEC Planar. Semiconductor manufacturing equipment and processes are subject
to rapid technological changes and product obsolescence. Sales of certain of the
Company's products generally depend on new facility construction projects and
facility upgrades. The Company's strategy depends in part on developing and
introducing products which lower the semiconductor manufacturer's cost of
ownership, which involves a number of factors, including product acquisition and
operating expenses, throughput, reliability, footprint and wafer yields. The
Company believes that its future success will depend in part upon its ability to
develop and enhance its existing products and develop new products to meet such
anticipated technological changes.

         The Company's future results are highly dependent on market acceptance
of the Company's AvantGAARD 676, which is designed to be a high-throughput metal
and oxide CMP tool. IPEC Precision has been developing its Plasma Jet wafer
etching tool. Semiconductor equipment companies often experience delays in
completing advanced products. In the past the Company has experienced delays in
developing new CMP tools and processes and the Plasma Jet tool. The Company
cannot assure that any product in development will be completed as scheduled or
that completed products will be commercially adopted.

         If any of the Company's products currently under development are not
commercialized in a timely manner, the Company could be required to write off
inventory and other assets related to the development project. The Company
incurred a $17.6 million asset write-off in the second quarter of fiscal 1997
for discontinuance of the Avanti 672 product development program. To the extent
products developed by the Company are based upon anticipated changes in
semiconductor production technologies, sales for such products may be adversely
affected if other technology becomes accepted in the industry.

         The Company is attempting to market product bays and, with other
companies, to develop "performance optimized production systems" ("POPS"). The
Company may need access to certain products manufactured by IPEC Clean for
product bays or POPS. Due to the early stage of efforts to dispose of IPEC
Clean, the Company cannot predict whether the Company will continue to have
access to these products.

         The Company May be Adversely Affected by Intensely Competitive Market
in Which it Participates. The semiconductor equipment industry is an intensely
competitive market. The Company believes that direct domestic and international
competition in CMP polisher systems and clustered CMP polisher and cleaning
systems is likely to increase substantially. The Company is aware of a number of
companies currently marketing CMP systems that directly compete with the
Company's systems. Competition is increasing significantly in the market for
high throughput planarization systems. In December 1995 Applied Materials, Inc.
announced a CMP system for oxide that has not yet been commercially accepted,
but which would compete directly with the Company's CMP product offerings. 

                                       21
<PAGE>   22
The Company is aware that other capital equipment manufacturers not currently
involved in the development of CMP systems may also attempt to enter and develop
products for this market or to develop alternative technologies which may reduce
the need for the Company's products.

         The trend towards consolidation in the semiconductor equipment industry
has made it increasingly important to have the financial resources necessary to
compete effectively across a broad range of product offerings, to fund customer
service and support on a world-wide basis and to invest in both product and
process research and development. Certain current and potential competitors have
substantially greater financial resources, name recognition and more extensive
engineering, manufacturing, marketing and customer service and support
capabilities than the Company. The Company expects its current competitors to
continue to improve the design and performance of their existing products and
processes, and to introduce new products and processes with improved price and
performance characteristics. New product introductions or product announcements
by the Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. Moreover, increased competitive
pressure could lead to intensified price based competition, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.

         The Company Is Subject to Risks Associated with International Sales.
International sales accounted for approximately 18% and 28% of the Company's
revenue in fiscal 1995 and 1996, respectively. International sales were
approximately 37% of revenue in the first six months of fiscal 1997.
International sales may carry lower gross margins than domestic sales. The
Company expects that international sales will continue to account for a
significant portion of its revenue in future periods. International sales are
subject to certain inherent risks including tariffs, embargoes and other trade
barriers, staffing and operating foreign sales and service operations, managing
distributors and collecting accounts receivable. The Company is also subject to
risks associated with regulations relating to the import and export of high
technology products. The export of the Company's products to certain countries
is limited by law. The Company cannot predict whether quotas, duties, taxes or
other charges or restrictions upon the importation or exportation of the
Company's products in the future will be implemented by the United States or any
other country.

         Fluctuations in currency exchange rates could cause the Company's
products to become relatively more expensive to customers in a particular
country, leading to a reduction in sales or profitability in that country. While
the Company's sales are currently denominated only in U.S. dollars, future
international activity may result in foreign currency denominated sales. Gains
and losses on the conversion to U.S. dollars of accounts receivable and accounts
payable arising from international operations may contribute to fluctuations in
the Company's results of operations.

         The Company's Strategy Relies on Increased Penetration of the Asian
Market. The Company believes that its future success will depend in part upon
continued acceptance of its products by Asian semiconductor manufacturers. This
market segment is large, represents a substantial percentage of the worldwide
semiconductor manufacturing capacity, and is difficult for foreign companies to
penetrate. Asian manufacturers may develop alternative techniques, or may
enhance existing techniques such as spin-on glass and deposited glass, to
achieve acceptable yields for DRAMs and other integrated circuits involving
three or more metal layers and line widths at or below 0.5 micron. The Company
currently 

                                       22
<PAGE>   23
sells its products in Asian countries through distributors. If the Company
determines to develop a direct presence in these markets, particularly Japan,
such decision would require the allocation of substantial management and
financial resources, may adversely affect the Company's relationship with its
current distributors, and would increase a number of risks related to
international sales as described above.

         The Semiconductor Industry Is Cyclical, Causing Fluctuations in the
Company's Results. The Company's business depends upon capital expenditures by
manufacturers of semiconductor devices, primarily for the opening of new or
expansion of existing fabrication facilities which, in turn, depends upon the
current and anticipated market demand for semiconductor devices and products
utilizing such devices. The semiconductor industry is highly cyclical and has
experienced significant overall growth in recent years, which has resulted in
growth in the semiconductor capital equipment industry. However, the
semiconductor industry is currently experiencing a downturn, which could have a
severe adverse effect on the industry's demand for semiconductor processing
equipment. In certain instances, industry downturns have lasted for extended
periods of time. There can be no assurance that past growth in the semiconductor
and semiconductor capital equipment industries, or the resulting growth in the
Company's business, can be sustained in the future or that the recent downturn
in the market will not continue.

         The Company's planned operations assume that a significant portion of
new orders will result from demand from semiconductor manufacturers building or
expanding fabrication facilities for advanced multi-level semiconductor devices
with design requirements of 0.5 micron and below, and there can be no assurance
that such demand will exist.

         Acquisitions May Adversely Affect Operating Results. The Company's
growth in annual revenues from fiscal 1994 through fiscal 1996 has resulted not
only from expansion of its core CMP business, but also from acquisitions in
fiscal 1994, 1995 and 1996. The Company's expansion through acquisitions has
resulted in significantly higher operating expenses, particularly because the
Company's strategy has been to initially operate each acquired business
independently, resulting in separate marketing, customer support and
administrative functions. The companies acquired had not operated profitably
before their acquisition by IPEC. IPEC Precision has not yet achieved
significant revenue from shipments of production equipment.

         Future Acquisitions and Dispositions May Require Significant Resources
and Adversely Affect Results. The Company's strategy is to obtain additional
wafer fabrication technologies and may involve, in part, acquisitions of
products, technologies or businesses from third parties. In addition, the
Company may make additional acquisitions to obtain additional distribution
capacity in specified geographic markets. An acquisition could absorb
substantial cash resources, require the Company to incur or assume debt
obligations, or involve the issuance of additional Common Stock which could
dilute the Company's outstanding Common Stock. An acquisition which is accounted
for as a purchase, like the acquisitions of Westech, Athens, GAARD or the
Precision Materials Operation of HDOS, could involve significant one-time
non-cash write-offs, or could involve the amortization of goodwill over a number
of years, which would adversely affect earnings in those years. An acquired
entity may have unknown liabilities, and its business may not achieve the
results anticipated at the time of the acquisition.

                                       23
<PAGE>   24
         The Company may dispose of or spin off portions of its businesses which
the Company determines are not complementary to its strategy. The Company
intends to dispose of IPEC Clean by the end of fiscal 1997, but discussions with
potential acquirers are at an early stage. The financial impact of any
disposition of IPEC Clean cannot currently be predicted. Any acquisition or
disposition could absorb significant management time and could adversely affect
the Company's business, financial condition and results of operations.

         The Industry Has Not Broadly Accepted the Company's Products. The CMP
process is in an early stage of implementation and has not yet been broadly
adopted by semiconductor manufacturers for volume production. Most major
semiconductor manufacturers are beginning to introduce the CMP process only for
pilot line production of integrated circuits with three or more metal layers and
line widths at or less than 0.5 micron. Only a limited number of semiconductor
manufacturers are producing commercial quantities of integrated circuits with
these characteristics using CMP machines. To date, the Company's products have
been used primarily in the manufacture of advanced semiconductor logic and
memory devices.

         Similarly, IPEC Precision's products are based on technologies which
have not been adopted by the semiconductor manufacturing industry, and there can
be no assurance that customers will accept these products, or that these
products can be sold profitably or in volume.

         The Company May Need to Raise Capital on Unfavorable Terms. The Company
believes that its cash and cash equivalents are sufficient to support its
operation through fiscal 1997. Additional new debt or equity financing may be
required in fiscal 1998 to fund the Company's operations. There can be no
assurance that such additional financing will be available when needed or, if
available, will be on satisfactory terms. In order to raise capital, the Company
may issue debt or equity securities senior to the outstanding Common Stock, and
may incur substantial dilution. The failure to obtain additional financing when
needed on satisfactory terms would also hinder the Company's ability to make
continued capital investments.

         The Company Would be Adversely Affected if Suppliers Could Not Deliver
Goods and Services. The Company relies on a limited number of independent
manufacturers to provide certain components in assemblies made to the Company's
specifications and use in the Company's products. In the event that the
Company's subcontractors were to experience financial, operational, production
or quality assurance difficulties that resulted in the reduction or interruption
of supply to the Company, the Company's business, financial condition and
results of operations would be materially adversely affected. In addition, the
Company purchases certain key components from qualified vendors for which
alternative qualified sources are not currently available. Any prolonged
inability to obtain adequate amounts of qualified components would have a
material adverse effect on the Company's business, financial condition and
results of operations.

         The Company Depends on Proprietary Technology and Protection is
Uncertain. The Company's success depends in significant part on the proprietary
nature of its technology. Patents issued to the Company may not provide the
Company with meaningful advantages. Patents issued to the Company may be
challenged. The two initial patents relating to the Company's single wafer
planarization system products are scheduled to expire in 1997. In 1993, the
technology covered by these

                                       24
<PAGE>   25
patents currently forming the basis of the CMP process and used in the Company's
primary products was licensed on a royalty-free basis to a competitor pursuant
to a settlement arrangement in which the Company also incurred settlement
obligations aggregating $1.4 million, of which $125,000 remained outstanding at
December 31, 1996. The Company currently has no patents with respect to its acid
reprocessing technology outside the United States. To the extent that a
competitor of the Company is able to reproduce or otherwise capitalize on the
Company's technology prior to the issuance of a patent, it may be difficult or
impossible for the Company to obtain necessary intellectual property protection
in the United States or other countries where such competitor conducts its
operations. Moreover, the laws of foreign countries may not protect the
Company's intellectual property to the same extent as do the laws of the United
States.

         The Company also relies on trade secrets and proprietary technology
that it seeks to protect, in part, through confidentiality agreements with
employees and other parties. These agreements may be breached. The Company may
not have adequate remedies for any breach. The Company's trade secrets may
become known to or independently developed by others.

         The Company Is Subject to Infringement Claims. In the future the
Company may receive notice of claims of infringement of other parties'
proprietary rights. If any Company equipment is found to infringe a patent, a
court may grant an injunction to prevent making, selling or using the equipment
in the applicable country. The Company may seek to obtain a license of such
third party's intellectual property rights, which may not be available under
reasonable terms or at all. Expensive and time-consuming litigation may be
necessary 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 and to determine the scope and validity of
proprietary rights of others.

         The Company Has Significant License Agreements. The Company also has
entered into significant agreements that provide for the escrow, licensing and
royalty payment of the Company's technology to various third parties. The
Company manufactures the AvantGAARD 676 under a license from a volume
manufacturer of advanced microprocessors. The Company has escrowed technical
data sufficient to permit such manufacturer to manufacture the Company's
AvantGAARD 676 for release if the Company does not meet certain criteria
regarding product or spare part delivery schedules to the manufacturer. If the
data is released from escrow, the manufacturer could manufacture the AvantGAARD
676 or have the AvantGAARD 676 manufactured by others for its use. The escrow
terminates in October 1998.

         The Company Is Exposed to Product Liability and Environmental
Regulations. The nature of the Company's business exposes it to product
liability claims, as well as the risk that harmful substances will escape into
the workplace and the environment and cause damage or injuries. For example, in
June 1995 and again in July 1996, an acid reprocessor malfunctioned and caused
sulfuric acid to escape from its quartz cylinder container. In these instances
no acid escaped from the compartment containing the quartz cylinder and no
damage to the manufacturing facility resulted. The Company's products could
malfunction in the future and damage a customer's facilities. The Company and
its customers are subject to stringent federal, state and local regulations
governing the storage, use, discharge and disposal of toxic, volatile or
otherwise hazardous chemicals used in their manufacturing operations. Current or
future regulations could require the Company or its customers to make
substantial expenditures for

                                       25
<PAGE>   26
preventive or remedial action, reduction of chemical exposure or waste treatment
or disposal. To the extent that the Company's strategy to provide integrated
on-site wet chemical management services to its customers is successful, the
Company faces increased risks with respect to environmental and occupational
health and safety liabilities.

         The Company Depends on its Key Personnel. The Company's future success
is dependent upon its ability to attract and retain qualified management,
technical, sales and support personnel. The competition for such personnel is
intense. The loss of certain key people or the Company's inability to attract
and retain new key employees could have a material adverse effect on the
Company's business, financial condition and results of operations. During July
and October 1996, the Company effected reductions in its work force to reduce
its expenses and may do so in the future. Repeated layoffs could adversely
affect the retention of employees, and could adversely affect the Company's
ability to hire new personnel if industry conditions improve and the Company's
volume of production increases. Personnel terminations at IPEC Precision
included technical personnel, who could be difficult to replace if IPEC
Precision successfully markets its products and requires additional engineering
staff to support customers. The Company's announcement that it intends to
discontinue IPEC Clean's operations could adversely affect retention of IPEC
Clean personnel. If key employees depart IPEC Clean, this could adversely affect
IPEC Clean's operations, which in turn could adversely affect the Company's
ability to sell or otherwise dispose of IPEC Clean.

         Stock Price is Volatile. The Company's Common Stock has experienced
substantial price volatility and such volatility may occur in the future,
particularly as a result of quarter to quarter variations in the actual or
anticipated financial results of the Company or of other companies in the
semiconductor industry, or in the markets served by the Company, or
announcements by the Company or its competitors regarding new product
introductions. In addition, the stock market has experienced extreme price and
volume fluctuations that have affected the market price of many technology
companies' stocks in particular and that have often been unrelated or
disproportionate to the operating performance of these companies. These factors
may adversely affect the market price of the Common Stock.

                                       26
<PAGE>   27
                          PART II -- OTHER INFORMATION

ITEM 2.     CHANGES  IN SECURITIES

         The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, 3,500,000 shares of Class A Common Stock, and 2,000,000 shares of
Preferred Stock. 21,478, 21,478 and 21,478 shares of Preferred Stock have been
designated Series B-1, B-2 and B-3 Preferred Stock, respectively. 100,000 shares
of Preferred Stock have been designated as Series C Preferred Stock.

COMMON STOCK AND CLASS A COMMON STOCK

         The rights of the holders of the Common Stock and the Class A Common
Stock are essentially identical, except that: (i) the holders of the Common
Stock are entitled to one vote per share, and holders of Class A Common Stock
are entitled to four votes per share with respect to all matters on which
holders of the Company's Common Stock are entitled to vote, (ii) if stock
dividends, splits, distributions, reverse splits, combinations, reclassification
of shares, or other recapitalizations (collectively, "recapitalizations") are
declared or effected, such recapitalizations shall be effected in a like manner
with respect to the Common Stock and the Class A Common Stock except that
payments in shares of capital stock shall be paid in Common Stock with respect
to Common Stock and Class A Common Stock with respect to Class A Common Stock,
and (iii) shares of Class A Common Stock are convertible into Common Stock at
the option of the holder at any time on a share-for-share basis.

         Shares of Class A Common Stock are automatically converted into shares
of Common Stock upon their transfer to any person other than the following
transferees (the "Permitted Transferees"): (a) the spouse, lineal descendants or
adopted children ("Family Members"); (b) a trust for the sole benefit of Family
Members; (c) a partnership or a corporation wholly owned by Class A Common
Stockholders and their Family Members; and (d) any other Class A Common
Stockholders. Class A Common Stock held by a partnership or a corporation may be
transferred to its partners or stockholders existing at the time a transferor
acquired its Class A Common Stock or if such Partner or stockholder is a
Permitted Transferee. There is no trading market for the Class A Common Stock.

         Subject to the preferences of the Preferred Stock, holders of the
Common Stock and Class A Common Stock have equal ratable rights to dividends
from funds legally available therefor, when, as and if declared by the Board of
Directors and are entitled to share ratably, as a single class, in all of the
assets of the Company available for distribution to holders of shares of Common
Stock and Class A Common Stock upon the liquidation, dissolution or winding up
of the affairs of the Company. Holders of Common Stock do not have preemptive,
subscription or conversion rights. There are no redemption or sinking fund
provisions for the benefit of the Common Stock or Class A Common Stock in the
Company's Certificate of Incorporation.

PREFERRED STOCK

         The Preferred Stock may be issued in series, and shares of each series
will have such rights and preferences as are fixed by the Board in the
resolutions authorizing the issuance of that particular series. In designating
any series of Preferred Stock, the Board may, without further action by the
holders of 

                                       27
<PAGE>   28
Common Stock, fix the number of shares constituting that series and fix the
dividend rights, dividend rate, conversion rights, voting rights (which may be
greater or lesser than the voting rights of the Common Stock), rights and terms
of redemption (including any sinking fund provisions), and the liquidation
preferences of the series of Preferred Stock.

         The holders of the Series B-1, B-2 and B-3 Preferred Stock have no
voting rights except as required by law or in connection with an amendment of
the Certificate of Incorporation of the Company which may adversely affect their
preferences, rights, powers or privileges. The holders of the Series B-1, B-2
and B-3 Preferred Stock are entitled to an annual cumulative dividend of $5.59
per share, accruing from September 3, 1993, payable on each December 31 and June
30, beginning on June 30, 1994, June 30, 1995 and June 30, 1996 for the Series
B-1, B-2 and B-3 Preferred, respectively. Upon the dissolution or liquidation of
the Company, the holder of each share of Series B-1, B-2 and B-3 Preferred Stock
shall be entitled to payment of $93.12 before the holders of the Common Stock or
Class A Common Stock (or any other series of Preferred Stock which is junior to
the Series B Preferred Stock on dissolution or liquidation) receive any payment.
Each share of Series B-1 and B-2 Preferred Stock is convertible into 12.54 and
11.41 shares of Common Stock, respectively. Each share of Series B-3 Preferred
Stock is convertible into 15 shares of Common Stock. The conversion rate on the
Series B Preferred Stock would be adjusted in the event of a stock dividend,
stock split, combination or reclassification of the Common Stock. The Series B
Preferred Stock has certain anti-dilution rights upon certain issuances of
rights or warrants and distributions of indebtedness on the Common Stock. The
Series B-1, B-2 and B-3 Preferred Stock is not subject to redemption.

         The holders of Series C Preferred Stock have no voting rights except as
required by law or in connection with an amendment of the Certificate of
Incorporation of the Company which may adversely affect their preferences,
rights, powers or privileges. The holders of Series C Preferred Stock are not
entitled to any dividends. Upon liquidation or dissolution of the Company, the
holders of Series C Preferred Stock are entitled to receive $250.00 per share
before any payment is made or set apart for the holders of Common Stock or any
other series or class of stock of the Company ranking junior to the Series C
Preferred Stock. The Series C Preferred Stock is convertible at the holder's
option into shares of Common Stock and will automatically convert into Common
Stock on December 31, 2002. Each share of Series C Preferred Stock is
convertible at the lesser of (i) a 1% premium over the average of the volume
weighted average daily market prices of the Common Stock over a 40-day pricing
period, or (ii) a 15% premium over the average of the volume weighted average
daily market prices of the Common Stock during the first 5 days of the 40-day
pricing period. The number of shares of Common Stock to be issued upon
conversion will vary based on future stock price movements. The conversion rate
on the Series C Preferred Stock would be adjusted proportionately in the event
of a stock dividend, stock split, combination or reclassification of the Common
Stock.

         If at any time the conversion of the Series C Preferred Stock would
cause the number of shares of Common Stock held by the holder of Series C
Preferred Stock to exceed 19.9% of the number of shares of Common Stock
outstanding on December 16, 1996, and such circumstances would require the
approval of the holders of Common Stock pursuant to the rules of the Nasdaq
National Market (or such other exchanges or other interdealer quotation system
on which Common Stock is then listed or quoted), then no more Series C Preferred
Stock can be converted by the holder until the Company's stockholders approve
the issuance of Common Stock which would allow the Company to issue additional
shares of 

                                       28
<PAGE>   29
Common Stock to the holder above the 19.9% limit. If the necessary stockholder
approval is not obtained within a specific time, the Company must either
repurchase the unconvertible Series C Preferred Stock or convert them into a
note with interest at 15% per year. In addition, if at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all the then outstanding shares of the Series C Preferred Stock
and the Company fails to eliminate this deficiency within a specified time, the
Company must either repurchase the unconvertible Series C Preferred Stock or
convert the shares into a note with interest at 15% per year.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         (a)      An annual meeting of stockholders of the Company was held on
                  November 21, 1996.

         (b)      The name of each director elected at the meeting is as
                  follows: Harold C. Baldauf, Sanjeev R. Chitre, Roger D.
                  Emerick, William J. Freschi, Kenneth Levy, and Roger D.
                  McDaniel.

         (c)      The matters voted upon and the results of the voting were as
                  follows:

                  (1)      The following six persons were elected as Directors
                           at the annual meeting pursuant to the following vote:

<TABLE>
<CAPTION>
                                                    Votes For       Votes Withheld
                                                    ---------       --------------
<S>                        <C>                      <C>               <C>    
                           Harold C. Baldauf        10,374,667        204,889
                           Sanjeev R. Chitre        10,362,867        216,689
                           Roger D. Emerick         10,376,167        203,389
                           William J. Freschi       10,375,167        204,389
                           Kenneth Levy             10,375,367        204,189
                           Roger D. McDaniel        10,323,267        256,289
</TABLE>

                  (2)      The appointment of KPMG Peat Marwick, LLP as the
                           independent auditors of the Company was ratified at
                           the annual meeting pursuant to the following vote:

<TABLE>
<CAPTION>
<S>                        <C>                               <C>       
                           Votes For:                        10,413,407

                           Votes Against:                        54,499

                           Votes Abstaining:                    111,650

                           Broker Non-Votes:                        ---
</TABLE>

                                       29
<PAGE>   30
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
<CAPTION>
<S>      <C>      <C>
         (a)      Exhibits

                  10.1     Lease Agreement between Seldin Properties and
                           Integrated Process Equipment Corporation, dated
                           December 26, 1996.


         (b)      Reports on Form 8-K:

                  A report on Form 8-K was filed on December 30, 1996 reporting
                  (under Item 5) with respect to the issuance of $25 million of
                  newly issued Series C Convertible Preferred Stock and a
                  warrant to acquire up to 456,000 shares of the Registrant's
                  common stock.
</TABLE>

                                       30
<PAGE>   31
SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.


Date: February   , 1997                  INTEGRATED PROCESS EQUIPMENT CORP.
                                         AND SUBSIDIARIES


                                         By: /s/ John S. Hodgson
                                            ----------------------------------
                                            John S. Hodgson
                                            Vice President
                                            and Chief Financial Officer

                                       31