SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

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

                  For the Fiscal Year Ended September 30, 1996
                         Commission File Number 0-25424

                                 SEMITOOL, INC.
             (Exact name of registrant as specified in its charter)

                 Montana                               81-0384392
       (State or other jurisdiction of               (I.R.S. Employer
        incorporation or organization)               Identification No.)

                655 West Reserve Drive, Kalispell, Montana 59901
                                 (406) 752-2107
      (Address, including zip code, and telephone number, including area
             code, of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
          Title of each class                                which registered
      Common Stock, no par value                         Nasdaq National Market

Securities registered to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes [X]           No [  ]

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

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  on December 11, 1996 (based on the last  reported  sale price on the
Nasdaq National Market as of such date) was $75,888,198.

The number of shares of the registrant's Common Stock, no par value, outstanding
as of December 11, 1996 was 13,659,777.

                       DOCUMENTS INCORPORATED BY REFERENCE

There is  incorporated  by reference  in Part III of this Annual  Report on Form
10-K the information  contained in the  registrant's  definitive proxy statement
for its annual meeting of shareholders to be held February 13, 1997.

<PAGE>

                                                                PART I


Item 1.   Business

Introduction

Statements  contained in this Report on Form 10-K which are not historical facts
are  forward-looking  statements  within  the  meaning  of  Section  21E  of the
Securities Exchange Act of 1934, as amended,  and are subject to the safe harbor
provisions  created by that  statute.  A  forward-looking  statement may contain
words such as "will  continue to be," "will be,"  "continue  to,"  "expect  to,"
"anticipates   that,"  "to  be"  or  "can  impact."   Management  cautions  that
forward-looking  statements  are subject to risks and  uncertainties  that could
cause Semitool,  Inc.'s  ("Semitool" or the "Company")  actual results to differ
materially from those projected in such forward-looking statements.  These risks
and  uncertainties  include,  but are not limited to, the cyclical nature of the
semiconductor  industry in general,  lack of market acceptance for new products,
decreasing  demand for the Company's  existing  products,  impact of competitive
products and pricing,  product development,  commercialization and technological
difficulties,  capacity  and  supply  constraint  difficulties  and other  risks
detailed  under the heading "Risk Factors" and elsewhere  herein.  The Company's
future  results  will depend on its ability to continue to enhance its  existing
products  and to develop  and  manufacture  new  products  and to  finance  such
activities. There can be no assurance that the Company will be successful in the
introduction,  marketing and  cost-effective  manufacture of any new products or
that the Company will be able to develop and  introduce  in a timely  manner new
products or  enhancements  to its existing  products and processes which satisfy
customer needs or achieve widespread market acceptance.

The Company  undertakes no obligation  to release  revisions to  forward-looking
statements  to  reflect  subsequent  events,  changed   circumstances,   or  the
occurrence of unanticipated events.

The Company

Semitool,  a  Montana  corporation  organized  in 1979,  designs,  manufactures,
markets and services  equipment used in the fabrication of  semiconductors.  The
Company's products include batch and single substrate chemical processing tools,
thermal  processing  equipment,  including thermal process control systems,  and
wafer carrier cleaning systems.  These products incorporate  proprietary designs
and  technologies  to  enable   customers  to  perform  advanced   semiconductor
fabrication  processes.  The process steps  performed by the Company's  products
occur  repeatedly  throughout the fabrication  cycle, and constitute an integral
part of the  manufacturing  process for virtually every  semiconductor  produced
today. The Company's products are also used to manufacture materials and devices
fabricated  with  similar  processes,  including  thin film  heads,  flat  panel
displays, multichip modules, ink jet print heads, compact disc masters, and hard
disk media.  The  Company's  products  are designed to provide  improved  yields
through  higher  process   uniformity  and  reduced   contamination,   increased
throughput through advanced processes which reduce cycle times, and lower direct
costs  through  reduced  consumables  usage  and  smaller  footprints,   thereby
providing  lower  overall cost of ownership.  The Company  markets and sells its
products to customers worldwide.

Industry Background

Overview

The fabrication of semiconductor  devices is a complex process involving several
distinct phases repeated  numerous times during the  fabrication  process.  Each
production phase requires different processing technology and equipment,  and no
one   semiconductor    equipment   supplier   currently   produces   an   entire
state-of-the-art  fabrication system. Rather, semiconductor device manufacturers
typically construct fabrication facilities by combining  manufacturing equipment
produced  by  several  different  suppliers,  each of  which  performs  specific
functions in the manufacturing process.

The thin film head, flat panel display,  multichip module and ink jet print head
fabrication  processes  utilize  many of the same basic  technological  building
blocks  as does  the  semiconductor  manufacturing  industry,  in  that  certain
production  equipment  provides the same basic  function or  applications  for a
substrate as semiconductor manufacturing equipment does for a silicon wafer. The
flat  panel  display  and thin  film  head  markets,  while  not as large as the
semiconductor   device  market,   have  over  the  past  few  years  experienced
significant growth.

Industries that use semiconductors are demanding  increasingly  complex,  higher
performance devices. Fabrication of these devices requires increasing the number
of process steps and reducing  feature  sizes,  necessitating  narrower  process
tolerances which makes it more difficult to maintain  acceptable  yields.  These
factors, together with the industry migration to larger wafer sizes, have led to
a substantial increase in the manufacturers' per wafer investment, which in turn
has caused these manufacturers to intensify their efforts to maintain acceptable
yields.  As a result,  manufacturers  demand  equipment  that provides  superior
process results and yields and can accommodate larger wafers.

The  Company  believes  that  semiconductor   device  manufacturers  are  asking
equipment  suppliers  to  take  an  increasingly  active  role  in  meeting  the
manufacturers'  technology  requirements  and cost constraints by developing and
supporting the products and processes  required to fabricate  advanced products.
Certain  manufacturers  are  seeking  strategic   relationships  with  equipment
suppliers for specific process steps on existing and new products.  As a result,
equipment  companies  are being  asked to provide  advanced  process  expertise,
superior product performance,  reduced overall cost of ownership,  and worldwide
customer support to better meet the needs of manufacturers.

Chemical Processing

The fabrication of semiconductors  involves  numerous  distinct  processes which
can,  depending on the complexity of the device,  exceed 250 steps. The chemical
processing steps involved can include cleaning, developing,  stripping, etching,
milling,  plating and coating.  Such chemical  processes have traditionally been
performed using wet-benches which consist of open chemical and rinse tanks, into
which  cassettes  of wafers are  immersed,  either  manually  or  automatically.
Multiple  process steps are performed by  transferring  wafers from one chemical
bath to  another.  There  are  significant  disadvantages  relating  to  process
uniformity and contamination control inherent in wet-bench processing, which are
becoming increasingly problematic as process tolerances narrow. Wet-benches also
lack the flexibility to readily change  processes,  and are relatively costly to
operate  because they consume large amounts of process  chemicals and have large
footprints that use valuable clean room space. 

Thermal Processing

Thermal processing generally addresses the  oxidation/diffusion and low pressure
chemical  vapor  deposition  (LPCVD)  steps  of  the  semiconductor  fabrication
process. Conventional vertical furnaces require loading a batch of wafers into a
rack which is then lifted into an open, heated process chamber. The inability to
control and vary the  environment  within the process  chamber prior to exposing
the wafers to heat can result in unintended oxide growth. Moreover, conventional
vertical furnaces are not capable of performing  multiple processes in a single,
continuously  controlled  environment,  making it  necessary to move wafers from
furnace to furnace to perform sequential  processing.  This requires  purchasing
and operating multiple furnaces,  which constrains  throughput and increases the
risk  of  wafer  contamination.   Conventional  vertical  furnaces  also  create
variances in process  exposure times of individual  wafers (the first wafer into
the  furnace is the last wafer out),  causing  non-uniformity  of process  among
wafers. In addition, the vibration caused by loading the rack of wafers into the
process chamber can create particulate contamination that reduces yield.

Cost of Ownership

As a  result  of  the  increasing  cost  of  equipping  fabrication  facilities,
semiconductor  manufacturers are placing greater  importance on the overall cost
of ownership of each piece of process equipment.  The principal elements of cost
of ownership are yield,  throughput  and direct costs.  Yield,  or the number of
good die per wafer, is primarily  determined by contamination levels and process
uniformity.  Achieving  high yields  becomes more critical to  manufacturers  as
their  per  wafer  investment  increases.  Throughput,  or the  number of wafers
processed by a particular tool in a given period, is primarily a function of the
time required to complete a process cycle and the handling time between  process
steps. Major components of direct cost include the amount of consumables used in
the  manufacturing  process,  the cost of the clean room space  occupied  by the
equipment (i.e.,  the "footprint") and the purchase price of the equipment.  The
ability to maintain  acceptable  cost of ownership  levels becomes  increasingly
challenging  as   manufacturing   processes  become  more  complex  and  process
tolerances narrow.

The Semitool Solution

The Company has  developed a broad range of products  that enables its customers
to perform advanced fabrication  processes.  The Company's products are designed
to provide  improved  yields  through  higher  process  uniformity  and  reduced
contamination,  increased  throughput  through  advanced  processes which reduce
cycle times,  and lower direct costs through  reduced usage of  consumables  and
smaller  footprints,  thereby  providing  lower overall cost of  ownership.  The
process steps performed by the Company's  products occur  repeatedly  throughout
the  fabrication  cycle and  constitute  an integral  part of the  manufacturing
process for virtually every semiconductor produced today. The Company's products
include  chemical  processing  tools,  thermal  processing  equipment  and wafer
carrier cleaning systems.

Chemical Processing Equipment

The Company's batch and single substrate  processing  equipment employs chemical
spray multi-processing  within a self-cleaning,  enclosed process chamber. These
tools enable customers to conduct sequential chemical processing steps, and then
rinse  and  centrifugally  dry  substrates,  within  the same  chamber,  thereby
reducing contamination during and between process steps. Spray technology avoids
non-uniformity of process inherent in traditional wet-bench immersion processing
by applying the process chemicals via spray manifolds.  This technique  enhances
chemical reaction on the substrate surface,  which increases process reliability
and shortens process cycle times.  The enclosed process chamber  technology also
allows  for more  efficient  use and  disposal  of  process  chemicals  (through
reclamation, filtration and recirculation) as well as increased operator safety.
The Company's spin rinser/dryer  also utilizes the spray and centrifugal  drying
technologies to remove chemical residue from the wafer surface.  The Company has
developed  fully  automated  platforms  for both  silicon  wafers  and the glass
substrates used in the fabrication of flat panel displays, that cluster multiple
chemical  processing  modules,  thereby further increasing yield and throughput,
and providing a total process solution in a single unit with a smaller footprint
than conventional wet-benches.

Thermal Processing Equipment

The Company's  vertical furnace employs a patented "double lift" process chamber
design which provides a continuously  controlled process environment that allows
for sequential  processing  steps to be performed in the same enclosed  chamber.
This design enables the customer to control and vary the environment  within the
sealed process chamber,  thereby avoiding unintended oxide growth and minimizing
the   non-uniformity  of  process  resulting  from  varying  exposure  times  of
individual   wafers.  In  addition,   the  Company's  vertical  furnace  reduces
contamination by employing a fixed quartz process tower that remains  stationary
throughout  loading and  processing.  The double lift design permits the heating
element to be lifted away from the sealed process  chamber,  allowing  wafers to
cool more rapidly in a controlled  environment,  thereby  improving  the overall
cycle time of the thermal process. The Company has recently developed a vertical
furnace with fast ramp  technology  which  provides a shortened  period to reach
desired processing temperature thereby allowing increased throughput.

Wafer Carrier Cleaning System

The Company has developed  sophisticated  cleaning systems for the cassettes and
boxes used to carry and store finished and in-process substrates.  The Company's
wafer  carrier  cleaning  systems  allow its  customers  to  increase  yields by
reducing  particulate  contamination.  In contrast to  traditional  cleaning and
drying  methods,  the  Company's  cleaning  systems  employ  centrifugal  drying
technology,  which  eliminates  the  carrier  deformation  that can result  from
conventional  drying and reduces the  contamination  that results from  residues
left on heat dried surfaces. The double door design allows contaminated carriers
to be loaded  outside the clean room.  Once cleaned and dried,  the carriers are
then moved into the clean room  environment.  In this manner,  neither the clean
room nor the carriers are contaminated.

The Semitool Strategy

The key elements of the Company's business strategy are as follows:

Develop  Innovative  Solutions.  The  Company is  committed  to  developing  new
products, new applications for existing products and enhancing existing products
to address  evolving  process  requirements.  Accordingly,  the Company  devotes
substantial  resources  to  product  innovation  and  collaborative  development
efforts.  Recent  products  developed  through  independent  innovation  efforts
include the Magnum and Centurium,  fully automated tools which cluster  multiple
process  modules  into a single  unit to  provide  a total  chemical  processing
solution. Products developed through collaborative efforts include the Company's
EXPRESS  vertical  furnace,  which  provides  faster  thermal  ramping , and the
Company's wafer carrier  cleaning  system,  which  increases  yields by reducing
contamination.

Offer a Broad Range of Products to  Customers  in Diverse  Markets.  The Company
focuses on offering a broad range of  products,  including  chemical  processing
tools,  thermal  processing  equipment and wafer carrier  cleaning  systems,  to
semiconductor manufacturers for use in diverse process applications. The Company
leverages its technology and expertise to provide  solutions to manufacturers of
other products that are fabricated  using similar  processes,  such as thin film
heads, flat panel displays, multichip modules, ink jet print heads, compact disc
masters,  and  hard  disk  media .  Some of  these  other  applications  involve
substrates  with  surfaces   larger  than  the  current  typical   semiconductor
substrates. By providing solutions for applications involving larger substrates,
the Company  believes it gains valuable  expertise which can be later applied to
the semiconductor  industry as semiconductor  substrates continue to increase in
size. By addressing  diverse markets,  the Company seeks to increase its product
sales and reduce its reliance on the semiconductor industry.

Capitalize on Manufacturing  Expertise.  The Company's manufacturing strategy is
to identify and perform internally those manufacturing functions which add value
to the  Company's  products.  The  Company  believes  it  achieves  a number  of
competitive advantages from its vertically integrated manufacturing  operations,
including the ability to achieve cost and quality benefits, to quickly bring new
products  and  product  enhancements  to  market  and  the  ability  to  produce
sophisticated  component  parts not available  from other  sources.  The Company
encourages an entrepreneurial atmosphere by maintaining semi-autonomous business
units that are empowered to respond quickly and directly to customer needs.

Focus on  Overall  Cost of  Ownership.  The  Company  designs  and  manufactures
equipment  solutions  that  provide  its  customers  with  low  overall  cost of
ownership.  The technologies employed by the Company's chemical processing tools
provide higher yield, greater throughput,  more efficient use of consumables and
smaller  footprints  than  conventional  wet- benches.  The Magnum and Centurium
cluster multiple process modules into a single automated tool, thereby providing
further cost of ownership advantages. The Company's thermal processing equipment
also provides cost of ownership  advantages by enhancing process  uniformity and
reducing contamination that results in corresponding increases in yields.

Address Worldwide Markets.  The Company markets and sells its products worldwide
with emphasis on Europe and Asia as its  principal  international  markets.  The
Company   believes  the  strength  of  its   international   sales  and  service
organizations  is  important  to its  continued  success  in these  markets.  To
facilitate its worldwide marketing strategy,  the Company has dedicated European
sales and support  organizations  in  England,  France,  Germany and Italy.  The
Company intends to continue to aggressively pursue the Asian market. In addition
to its  office  in Japan,  the  Company  recently  opened an office in Korea and
stationed service personnel in Taiwan.  See Note 10 of Notes to the Consolidated
Financial Statements for a breakdown between domestic and foreign sales.

Products

The Company designs,  manufactures and sells batch and single substrate chemical
processing  tools,  thermal  processing  equipment  and wafer  carrier  cleaning
systems.

The mix of  products  sold by the Company  may vary  significantly  from year to
year. The following table sets forth, for the periods  indicated,  the amount of
net  sales  and  approximate  percentages  of  the  Company's  total  net  sales
contributed by the Company's principal products (dollars in thousands):

Fiscal Year Ended      September 30, 1996  September 30, 1995 September 30, 1994
                       ------------------  ------------------ ------------------
<TABLE>
<S>                        <C>      <C>      <C>       <C>      <C>        <C> 
                            $         %        $         %        $          %
Chemical Processing:
  Manual Batch .......    68,469    39.3%    59,340    46.2%    34,877     55.7%
  Automated Batch ....    24,664    14.2%     9,124     7.1%        --       --
  Single Substrate ...    21,119    12.1%     6,263     4.9%     2,814      4.5%
Thermal Processing ...    35,822    20.6%    34,300    26.8%    15,696     25.1%
Wafer Carrier Cleaning     8,141     4.6%     6,343     4.9%       802      1.3%
Spare Parts & Service     15,989     9.2%    12,956    10.1%     8,408     13.4%
                         -------   -----    -------   -----     ------    ----- 
Total ................   174,204   100.0%   128,326   100.0%    62,597    100.0%
                         =======   =====    =======   =====     ======    =====
</TABLE>


Chemical Processing

Batch  Chemical  Processing.  The  Company's  batch  chemical  processing  tools
incorporate  centrifugal  spray  technology to process  wafers and substrates by
exposing them to a  user-programmable,  sequenced  spray of chemicals  inside an
enclosed chamber. Utilizing these tools, cassettes filled with wafers are loaded
into a rotating  fixture  mounted in a process  chamber.  The process chamber is
then sealed and chemicals are sequentially  dispensed into the chamber via spray
manifolds in a closed-loop system. As the rotating fixture turns the cassette, a
chemical  spray is  applied  to the  wafer  surfaces.  This  technique  enhances
chemical reaction on the substrate surface,  which increases process reliability
and shortens process cycle times.  After  application of the process  chemicals,
deionized  ("DI")  water can be sprayed  into the  chamber to stop the  chemical
reaction and to remove chemical residues.  The wafers,  cassette and chamber are
then dried by centrifugal spinning coupled with a flow of warm nitrogen,  either
in the same process chamber or in an adjacent  rinser/dryer  module. The Company
believes its batch spray chemical processing tools offer significant  advantages
over  conventional  wet-benches.  These  advantages  include  higher  yields (by
providing  better  process  uniformity  and  lower  particulate  contamination),
increased  throughput  (by  providing  shorter  process cycle times) and reduced
direct  costs  (by  providing  more  effective  use  of  chemicals  and  smaller
footprints), thereby providing lower overall cost of ownership.

The Company's manually loaded batch spray chemical  processing  products include
the Spray Acid Tool and the Spray Solvent  Tool.  The surfaces of the Spray Acid
Tool  that  are  exposed  to  acids  are  made  entirely  of  Teflon  and  other
acid-resistant   materials.   This  tool  addresses  applications  that  include
resist-stripping,  pre-diffusion  cleaning,  oxide etching,  polymer removal and
chemical  milling.  The Company's  Spray  Solvent Tool is primarily  made out of
stainless steel and addresses processes which use solvents to dissolve and strip
the  lithographic  media from substrate  surfaces,  remove polymer  residues and
develop  lithographic  images on  substrate  surfaces.  In addition to customary
semiconductor  applications,  the Spray Acid Tools and Spray  Solvent  Tools are
being used to  manufacture  a variety  of other  products  including  flat panel
displays  and thin  film  heads,  and are used with  substrates  as large as 500
millimeters square. The closed-loop/closed-chamber system of the Company's batch
spray processing tools allows for reclamation,  filtration and  recirculation of
chemicals,  resulting  in reduced  chemical  consumption,  better  environmental
control and enhanced operator safety. The purchase prices of the Company's batch
chemical  processing  tools  range  from  $150,000  to  $750,000,  depending  on
configuration.

The Company's  manually loaded Spin  Rinser/Dryer is used primarily for removing
chemical  residues from substrate  surfaces with DI water, and utilizes the same
enclosed chamber,  spray processing and centrifugal drying technologies employed
in the Company's Spray Acid Tools and Spray Solvent Tools. The Spin Rinser/Dryer
incorporates  a DI water  resistivity  monitor to ensure the  required  level of
cleanliness.  The Company  introduced the Spin  Rinser/Dryer  in 1979 and, as of
September  30, 1996 had delivered  over 21,000 units to customers.  The purchase
price of the Spin  Rinser/Dryer  ranges from $10,000 to  $150,000,  depending on
configuration.

The  Magnum  is a  multimodule  chemical  processing  tool  which  clusters  the
Company's  solvent,  acid  and  spin  rinser/dryer  capabilities  into a  single
automated unit. The Magnum incorporates a Company-designed  advanced robot which
employs  fiber optic  communications,  absolute  positioning  and a linear motor
track to ensure precise,  reliable and  particle-free  automated wafer handling.
The  Magnum  also  offers  standard   mechanical   interface   ("SMIF")  loading
capabilities  and a touch screen computer  interface for ease of operation.  The
Magnum  provides  the customer  with the  flexibility  to mix and match  process
modules, including immersion modules as appropriate, thereby providing them with
a  complete  chemical  processing  solution  to meet  their  particular  process
requirements.  The Magnum possesses significant competitive advantages over both
stand-alone tools and other automated products, including the ability to replace
two or  more  wet-benches  with a  single,  smaller  footprint  tool  as well as
increased  yields and increased  throughput per square foot of clean room space.
Magnum's latest  innovations  include the "Revolver"  random access WIP station,
carrierless fault tolerant loading,  concentration  control  monitoring,  and 50
wafer  payloads.  The Company  believes  that the  installed  base of its widely
accepted  chemical  processing  tools has facilitated  market  acceptance of the
Magnum.  The  purchase  price of the Magnum  ranges  from  $900,000 to over $2.0
million, depending on configuration.  The Company, during fiscal 1996, built its
first  Centurium,  an  enlarged  Magnum,  that is used to  process  large  glass
substrates.

Single  Substrate  Processing.  The  Company's  Equinox  addresses  the needs of
customers  employing single substrate  processing for specialized  applications.
The  Equinox  utilizes  a variety  of  processes,  including  immersion,  spray,
hydrofluoric  acid vapor and infrared heating,  to address cleaning,  stripping,
etching,  developing and plating applications.  All such processes are performed
with the substrate  suspended  device side down in an enclosed  process chamber.
This face down  positioning  allows for  enhanced  liquid or gas delivery of the
process  chemicals to the substrate,  and results in greater process  uniformity
and reduced contamination.  The Equinox is a flexible platform which may contain
multiple  process  chambers,  allowing the customer to cluster  multiple process
technologies into a single tool to perform sequential processes. The Equinox has
been used to process  ceramic  substrates,  thin film  heads and photo  masks in
addition to its customary  silicon and gallium arsenide wafer  applications.  In
addition to offering  complete  Equinox  tools,  the Company also offers Equinox
technologies to original  equipment  manufacturers  for  integration  into other
upstream or downstream process equipment,  including thermal  technologies.  The
price  of the  Equinox  ranges  from  $150,000  to $1.2  million,  depending  on
configuration.


Thermal Processing

The Company's VTP 1500 and EXPRESS  vertical  furnaces  employ a patented design
which provides a continuously  controlled  process  environment  that allows for
oxidation/diffusion   and  LPCVD  processing  steps  such  as  gate  oxide/poly,
oxide/nitride and  oxide/nitride/oxide  to be performed sequentially in the same
processing  chamber.  The Company's furnaces feature a stationary base plate and
quartz process tower with a patented double lift system which allows the process
chamber and heating element to each be raised and lowered independently over the
process tower. The furnace's quartz tower is loaded with wafers by a simple pick
and place robot (thereby avoiding the risk of particle  contamination  caused by
loading the wafers in batches) and the process  chamber is then lowered over the
wafers.  The atmosphere within the process chamber is removed by vacuum purging,
creating an inert  environment.  The heating  element is then  lowered  over the
sealed process chamber.  The inert environment  prevents chemical reactions from
occurring  until the heating element is fully in place, at which time processing
can be conducted by injecting the process tube with the appropriate  active gas.
This design avoids  variances in process  exposure  times of individual  wafers,
preventing  the   non-uniformity   inherent  in  traditional   vertical  furnace
processing.  Because the process tube may be purged and alternative active gases
introduced  in  a  sequential  manner,  wafers  can  remain  in  a  continuously
controlled  environment for multiple  discrete  thermal  processing  steps.  The
Company believes that this sequential,  or "in situ," processing capability is a
significant  competitive advantage of its furnaces.  The double lift design also
permits the heating  element to be lifted away from the sealed process  chamber,
allowing  wafers to cool  more  rapidly  in a  controlled  environment,  thereby
improving  overall  thermal  processing  cycle time of the thermal  process.  In
addition,  the furnaces  have the  flexibility  to be quickly  reconfigured  for
varying processes and can be easily upgraded to accommodate  larger wafer sizes.
The  Company  believes  its  furnaces  produce  higher  quality  film with fewer
impurities and increased electrical  properties,  and have been designed to meet
manufacturers'  requirements  for the production of  semiconductor  devices with
line  geometries as small as .18 micron.  The prices of the VTP 1500 and EXPRESS
range from $600,000 to $1.3 million, depending on configuration.

The Company, through its Semy Engineering, Inc. (Semy) subsidiary,  manufactures
process  control  computers  that upgrade  diffusion  and low pressure  chemical
deposition furnaces with state-of-the-art control features. The Company has also
recently introduced a family of cell workstations that interface to a variety of
wafer  processing   equipment  produced  by  Semitool  and  other  semiconductor
equipment manufacturers.  The cell workstations collect and store data generated
by the processing  equipment and provide statistical process control,  inventory
control data and process flow control to the user in a graphical interface.

Wafer Carrier Cleaning

Silicon wafers are stored, handled and processed in cassettes.  Cassettes filled
with  wafers  are  placed in  plastic  boxes  for  transportation  and  storage.
Significant  increases in yields may be attained through  effective  cleaning of
these  cassettes  and boxes.  Wafer  carriers  have  commonly been cleaned using
commercial  dishwasher  or conveyor  type methods in which they are spray washed
and then dried using hot compressed gases.  Because boxes and cassettes are made
of plastics,  the drying  process can distort the boxes and cassettes and result
in subsequent wafer damage or  contamination.  The Company's Storm wafer carrier
cleaning system cleans and dries the wafer carriers in a unique rinsing/spinning
process that occurs inside an enclosed  chamber.  Solution is sprayed,  cleaning
both the boxes and  cassettes  and the inside of the  chamber,  followed by a DI
water rinse. The boxes and cassettes are then dried using  centrifugal force and
warm filtered  ambient air. The Storm monitors the humidity  inside the enclosed
process chamber to ensure  consistent  drying results.  The Company believes the
Storm removes  particles more effectively than  conventional  technology and has
the lowest cost of ownership of any commercially  available cleaning system. The
Storm  also  has  a  patented  loading  feature  that  allows   through-the-wall
installation  whereby  unwashed boxes and cassettes can be loaded into the Storm
from outside the clean room and then unloaded directly into the clean room after
the cleaning cycle has been completed.  This feature enables  customers to avoid
bringing  contaminated  boxes and cassettes  into the clean room. The price of a
Storm ranges from $190,000 to $400,000, depending on configuration.

Spare Parts and Service

The Company sells spare part kits and spare part  components  for its equipment.
The Company employs customer  service and process  engineers to assist and train
the Company's  customers in  performing  preventive  maintenance  and service on
Semitool  equipment and developing process  applications for the equipment.  The
Company generally  provides a one year parts and labor warranty on equipment and
a 90-day  warranty on parts.  The Company offers a variety of process,  service,
and maintenance  programs that may be purchased for a fee. A number of customers
have purchased  maintenance  contracts  whereby the Company's  service employees
work full-time at the customer's  facility,  and provide service and maintenance
support for Semitool equipment.

Customers, Sales and Marketing

The Company's customers include leading semiconductor manufacturers worldwide as
well as major  manufacturers of thin film heads, flat panel displays,  multichip
modules,  ink jet print heads,  compact disc masters,  and hard disk media.  The
following is a  representative  list of the Company's  largest United States and
international end-user customers, which had purchases in excess of $2,000,000 in
fiscal 1996:

Allegro Microsystems               Intel                       Seagate
Atmel                              Lucky Goldstar              SGS-Thomson
Austria Micro System               Micro Chip Corporation      Siemens
Cirrus Logic, Inc.                 Motorola                    Siltec Silicon
Fraunhofer Institut                National Semiconductor      Texas Instruments
Hewlett-Packard                    Philips Semiconductor       Thermco Systems
IBM                                                            Xerox


The Company believes that its sales, service and customer support  organizations
are important to the long-term success of its customer relationships.

International  sales,  primarily in Europe and Asia accounted for  approximately
44%,  40% and  40% of  total  sales  for  fiscal  years  1996,  1995  and  1994,
respectively.  The  Company  markets  and sells its  products  in North  America
through  its sales  organization  which  includes  direct  sales  personnel  and
independent sales  representatives.  The Company currently has sales and service
offices located  throughout the United States. In Europe, the Company has direct
sales and service personnel in four offices.  In Asia, the Company sells through
direct sales  personnel and six  independent  sales  representatives  as well as
through Tokyo Electron, Limited ("TEL") pursuant to a non-exclusive distribution
agreement,  whereby  TEL  sells  the  Company's  stand-alone  batch  and  single
substrate spray chemical processing products in Japan. To supplement TEL's sales
efforts, the Company has a direct sales and service operation in Japan. Semitool
opened a Korean  service  office  during  fiscal  1996.  To  enhance  its  sales
capabilities,  the Company  maintains a  demonstration  and process  development
laboratory and a clean room at its Kalispell, Montana facility.

The Company  currently  provides a one year  warranty on equipment  and a 90-day
warranty on parts.  The  Company has field  service  personnel  and  application
engineers  servicing  customers  in the  United  States,  Europe  and Asia,  who
directly  provide  warranty   service,   post-warranty   service  and  equipment
installations.  Field service engineers are located in nine sites throughout the
United States,  including dedicated  site-specific engineers in place at certain
customer  locations  pursuant to  contractual  arrangements.  To further  ensure
customer  satisfaction,  the  Company  also  provides  service  and  maintenance
training as well as process application training for its customers' personnel on
a fee basis. The Company  maintains an extensive  inventory of spare parts which
allows the Company to provide  overnight  delivery for many parts. The Company's
vertically  integrated  manufacturing  allows the Company to quickly manufacture
parts to address customers' service needs.

Backlog

Backlog  increased to  approximately  $85.9 million at September 30, 1996,  from
approximately $64.7 million at September 30, 1995. The Company's automated batch
chemical  processing  tool,  first shipped in fiscal 1995,  now  represents  the
largest single  component of the backlog with the vertical  furnace second.  Due
largely to customers rescheduling deliveries, approximately $19.0 million of the
backlog is not  scheduled to ship until the fourth  quarter of fiscal 1997.  The
Company  includes in its backlog those customer orders for which it has received
purchase  orders or purchase  order numbers and for which  shipment is scheduled
within the next twelve months.  Orders are generally  subject to cancellation or
rescheduling  by customers with limited or no penalty.  As the result of systems
ordered and shipped in the same quarter,  possible changes in customer  delivery
schedules,  cancellations  of  orders  and  delays  in  product  shipments,  the
Company's backlog at any particular date is not necessarily indicative of actual
sales for any succeeding period.

Manufacturing

Most of the Company's  manufacturing  is conducted at its facilities  located in
Kalispell, Montana. The Company's vertically integrated manufacturing operations
include   state-of-the-art   metals  and  plastics   fabrication  and  finishing
capabilities;  component  part,  circuit board and final product  assembly;  and
extensive product testing capabilities.  The Company's  manufacturing  personnel
work closely with its product  development  personnel to ensure its products are
engineered for  manufacturability,  affording a smooth transition from prototype
to full  scale  production.  Component  and  product  prototyping  is  performed
internally,  and design  engineers  often receive  prototypes of newly  designed
parts from  manufacturing  within 24 hours.  The Company  believes it achieves a
number of competitive  advantages from its vertically  integrated  manufacturing
operations,  including  the ability to achieve cost and quality  advantages,  to
quickly bring new products and product  enhancements to market,  and the ability
to produce sophisticated component parts not available from other sources.

Research and Development

The market for semiconductor  equipment is characterized by rapid  technological
change and  product  innovation.  The Company  believes  that  continued  timely
development of products for both existing and new markets is necessary to remain
competitive.  The Company devotes significant  resources to programs directed at
developing new and enhanced  products,  as well as new applications for existing
products.   The  Company  maintains  an  extensive   demonstration  and  process
development laboratory at its facilities in Montana,  including a clean room for
testing and developing its products.  Company research and development personnel
work directly with customers to provide process solutions, develop new processes
and to design and evaluate new pieces of equipment.

The Company shipped new models of its vertical furnace, automated batch chemical
processor  and single  substrate  processor  during  fiscal  1996.  The  EXPRESS
vertical  furnace uses a model based  controller to achieve much faster  thermal
ramping speeds than furnaces with  conventional  control systems.  The Centurium
automated batch chemical  processor can handle the glass  substrates used in the
production of flat panel  displays and  multichip  modules.  A Magnum  automated
batch  chemical  processor  which uses  immersion  processing  was developed and
shipped in fiscal 1996. Equinox single substrate  processors for solder bump and
interconnect  plating were also developed and shipped during fiscal 1996. All of
this equipment is either in customers'  research and  development  (R&D) labs or
production areas where it is being evaluated. Evaluation periods are expected to
vary by customer,  application and equipment type and to continue through fiscal
1997.

Expenditures  for R&D, which are expensed as incurred,  during fiscal 1996, 1995
and 1994 were  approximately  $19.5 million,  $11.4 million and $6.0 million and
represented 11.2%, 8.9% and 9.5% of net sales, respectively.

Competition

The industry in which the Company  competes is highly  competitive.  The Company
faces  substantial  competition  from  both  established  competitors  and  from
potential new market entrants. Significant competitive factors in the markets in
which the Company competes include system  performance and flexibility,  cost of
ownership,  the size of each  manufacturer's  installed customer base,  customer
support capabilities and breadth of product line. The primary competition to the
Company's  batch chemical  spray  products is currently from wet-bench  chemical
processing  equipment.  The Company is aware of at least two other manufacturers
of spray  chemical  processors.  As the demand  for more  precise  and  reliable
chemical  processing  increases,  the Company anticipates greater competition in
the centrifugal spray technology area. The Company is aware of vertical furnaces
produced by at least four other  manufacturers  which compete with the Company's
thermal processing  equipment.  The single substrate  processing market in which
the Company's  Equinox  competes and the wafer carrier  cleaning market in which
the Company's Storm competes are highly fragmented  markets. In these fragmented
markets,  the Company  believes  that it  competes  primarily  with  alternative
technologies.

The  Company  expects  its  competitors  to  continue  to improve the design and
performance  of their  products.  There can be no assurance  that the  Company's
competitors  will  not  develop   enhancements  to  or  future   generations  of
competitive  products that will offer superior price or performance  features or
that new  processes or  technologies  will not emerge that render the  Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate  capital  equipment  into a production  line,  the Company
believes that once a manufacturer has selected certain capital  equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that  vendor to meet other  capital  equipment  requirements.  Accordingly,  the
Company  may be at a  competitive  disadvantage  with  respect  to a  particular
customer  if that  customer  utilizes a  competitor's  manufacturing  equipment.
Increased  competitive  pressure  could lead to lower  prices for the  Company's
products,  thereby  adversely  affecting the  Company's  business and results of
operations.  There can be no assurance  that the Company will be able to compete
successfully in the future.

Patents and Other Intellectual Property

The Company  currently holds numerous  United States patents,  some with pending
foreign counterparts,  has several United States patent applications pending and
intends to file additional patent  applications as appropriate.  There can be no
assurance that patents will issue from any of the Company's pending applications
or that  existing or future  patents will be  sufficiently  broad to protect the
Company's  technology.  The Company  believes that patents and trademarks are of
less  significance  in its  industry  than such  factors as product  innovation,
technical  expertise  and its ability to quickly  adapt its products to evolving
processing requirements and technologies.  While the Company attempts to protect
its intellectual property rights through patents,  copyrights and non-disclosure
agreements,  there can be no assurance  that the Company will be able to protect
its  technology,  or  that  competitors  will  not be able  to  develop  similar
technology independently. In addition, the laws of certain foreign countries may
not protect the Company's  intellectual  property to the same extent as the laws
of the United States. In this regard,  the Company is aware that TEL, one of the
Company's  distributors  and  competitors  in  Japan,  which  accounted  for the
distribution  of  approximately  6% of the Company's  sales in fiscal 1996,  has
filed patent applications in Japan which are based on certain  Company-developed
designs in one of the Company's  chemical  processing tools. The Japanese patent
applications were filed without the authority or approval of the Company and the
Company  has  demanded   that  the   applications   be  abandoned  or  otherwise
relinquished.  While the Company believes that the Japanese patent  applications
constitute an improper attempt to patent the Company's  proprietary  designs, no
assurances  can be given that the Company  will prevail in any  negotiations  or
litigation  the Company may initiate to secure the other party's  abandonment or
other relinquishment of the patent applications.  If the Company is unsuccessful
in securing the abandonment or  relinquishment  of the  applications,  or if the
competitor were to file patent  applications on the  Company-developed  designs,
the Company's competitive position in Japan could be adversely affected although
the Company  believes that any such effect should not be material to the overall
results  of  operations  of the  Company  or  materially  adversely  affect  the
Company's  relationship with TEL.  Moreover,  there can be no assurance that the
Company's  existing or future  patents will not be  challenged,  invalidated  or
circumvented,  or that the rights  granted  thereunder  will provide  meaningful
competitive advantages to the Company.

There has been substantial  litigation  regarding patent and other  intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any  infringement by its products of any patents or proprietary  rights
of others,  further  commercialization  of the Company's  products could provoke
claims of  infringement  from third  parties.  In the future,  litigation may be
necessary to enforce patents issued to the Company,  to protect trade secrets or
know-how  owned  by  the  Company  or to  defend  the  Company  against  claimed
infringement  of the rights of others and to determine the scope and validity of
the  proprietary   rights  of  others.  Any  such  litigation  could  result  in
substantial  cost and diversion of effort by the Company,  which by itself could
have  a  material  adverse  effect  on the  Company's  financial  condition  and
operating  results.  Further,  adverse  determinations  in such litigation could
result in the  Company's  loss of  proprietary  rights,  subject  the Company to
significant  liabilities to third parties,  require the Company to seek licenses
from third  parties or prevent the  Company  from  manufacturing  or selling its
products,  any of which could have a material  adverse  effect on the  Company's
business and results of operations.

Employees

At  September  30,  1996,  the  Company  had 1,214 full time  employees  and 246
temporary contract employees worldwide. This includes 718 in manufacturing,  372
in marketing, sales and field service, 186 in research and development,  and 184
in  general  administration.  The  Company  believes  that the use of  temporary
employees  allows the  Company  to  respond  more  rapidly  to  fluctuations  in
manufacturing  and product  demand and enables the Company to better control the
labor component of its manufacturing  costs. None of the Company's employees are
represented  by a labor  union  and the  Company  has never  experienced  a work
stoppage or strike.  The Company  considers  its employee  relations to be good.


Risk Factors

Introduction

The risks detailed in this section as well as risks and uncertainties  discussed
elsewhere  in this  annual  report on Form 10-K and in the  Company's  other SEC
filings  constitute  some of the  risks  common in the  semiconductor  equipment
industry or risks specific to Semitool.  Shareholders or potential  shareholders
should read these risks carefully to better understand the potential  volatility
of the Company's  results and volatility in the Company's share price.  The fact
that some of the risk factors may be the same or similar to the  Company's  past
filings means only that the risks are present in multiple  periods.  The Company
believes  that  many of the risks  detailed  are part of doing  business  in the
semiconductor  equipment  industry  and will  likely be present  in all  periods
reported.  The fact that  certain  risks are  endemic to the  industry  does not
lessen the significance of the risk.

Cyclical Nature of the Semiconductor Industry

The  Company's  business  depends  primarily  on  the  capital  expenditures  of
semiconductor manufacturers,  who correspondingly depend on the demand for final
products  or  systems  that use such  devices.  The  semiconductor  industry  is
cyclical and has historically  experienced  periodic downturns  characterized by
oversupply  and weak demand,  which often have had a material  adverse effect on
capital expenditures by semiconductor  manufacturers.  These downturns generally
have  adversely  affected the business and  operating  results of  semiconductor
equipment suppliers, including the Company. The semiconductor device industry is
presently  experiencing  a slowdown in terms of product demand and volatility in
terms  of  product  pricing.  During  1995,  many  of the  semiconductor  device
manufacturers  announced  plans to expand  existing  or build new  semiconductor
device  manufacturing  facilities.  In early 1996, the average  selling price of
memory chips and certain other semiconductor  devices  significantly  decreased.
This has resulted in semiconductor  device  manufacturers  announcing  delays in
their expansion plans. This slowdown and volatility has caused the semiconductor
industry to reduce its demand for  semiconductor  processing  equipment  and, in
some instances,  to delay capital equipment  decisions.  In some cases, this has
resulted in order cancellations or delays of orders and delays of delivery dates
for the  Company's  products.  No  assurance  can be given  that  the  Company's
revenues and operating  results will not be adversely  affected  during this and
possible future downturns in the semiconductor  industry. In addition,  the need
for  continued  investment in research and  development,  marketing and customer
support may limit the Company's  ability to reduce  expenses in response to this
and future downturns in the semiconductor industry.

Fluctuations in Future Operating Results

The Company's  business and results of operations have fluctuated  significantly
in the past and are expected to fluctuate significantly on a quarterly or annual
basis in the future.  During a particular  quarter, a significant portion of the
Company's  revenues is often derived from the sale of a relatively  small number
of high  selling  price  systems.  The number of such  systems  sold in, and the
results  for,  a  particular  quarter  or year can vary  significantly  due to a
variety of factors,  including the timing of significant  orders,  the timing of
new product announcements by the Company or its competitors, patterns of capital
spending by customers,  market  acceptance  of new and enhanced  versions of the
Company's  products,  changes in  pricing by the  Company,  its  competitors  or
suppliers,  the  mix of  products  sold  and  cyclicality  in the  semiconductor
industry  and  other  industries  served  by  the  Company.  In  addition,   the
cancellation or  rescheduling  of customer  orders or any production  difficulty
could adversely  impact  shipments which would  negatively  impact the Company's
business  and  results  of  operations  for the  period or periods in which such
cancellation or rescheduling  occurs. In light of these factors and the cyclical
nature of the  semiconductor  industry,  the  Company  expects  to  continue  to
experience  significant  fluctuations in quarterly and annual operating results.
Moreover,  many of the  Company's  expenses  are fixed in the short term  which,
combined  with the need for continued  investment  in research and  development,
marketing and customer support,  limits the Company's ability to reduce expenses
quickly.  As a result,  shortfalls in net revenues could have a material adverse
effect on the Company's business and results of operations.

Dependence on Product Development

Semiconductor  equipment  is  subject to rapid  technological  change as well as
evolving industry  standards.  The Company believes that its future success will
depend in part upon its ability to continue to enhance its existing products and
their  process  capabilities,  to  continue  to  decrease  the  overall  cost of
ownership  of such  products,  and to continue to develop  and  manufacture  new
products with improved process  capabilities  which conform to evolving industry
standards.  As a result,  the Company  expects to  continue to make  significant
investments in research and development.  Although  historically the Company has
had adequate  funds from its  operations to devote to research and  development,
there can be no assurance that such funds will be available in the future or, if
available,  that they will be  adequate.  The Company  also must manage  product
transitions  successfully,  since announcements or introductions of new products
by the  Company or its  competitors  could  adversely  affect  sales of existing
Company  products.  There can be no  assurance  that the Company will be able to
develop and introduce new products or enhancements to its existing products on a
timely  basis  or  in a  manner  which  satisfies  customer  needs  or  achieves
widespread  market  acceptance.  The failure to do so could adversely affect the
Company's business and results of operations.

Market Acceptance of New Products

The Company  believes  that its growth  prospects  depend in large part upon its
ability to gain  customer  acceptance  of its  products and  technology.  Market
acceptance   of  new  products   depends  upon   numerous   factors,   including
compatibility  with existing  manufacturing  processes  and products,  perceived
advantages over competing  products and the level of customer service  available
to support such products. Moreover, manufacturers often rely on a limited number
of equipment vendors to meet their  manufacturing  equipment needs. As a result,
market acceptance of the Company's new products may be adversely affected to the
extent potential customers utilize a competitor's manufacturing equipment. There
can be no assurance  that growth in sales of new products  will continue or that
the Company will be  successful  in obtaining  broad  market  acceptance  of its
systems and technology.

Competition

The industries in which the Company competes are highly competitive. The Company
faces  substantial  competition from established  competitors,  certain of which
have  greater  financial,  marketing,  technical  and other  resources,  broader
product lines, more extensive customer support capabilities, and larger and more
established sales organizations and customer bases than the Company. The Company
may also face  competition  from new  domestic  and  overseas  market  entrants.
Significant  competitive factors in the semiconductor equipment market and other
markets  in  which  the  Company   competes   include  system   performance  and
flexibility,  cost of  ownership,  the  size of  each  manufacturer's  installed
customer  base,  customer  service and support and breadth of product line.  The
Company  believes that it competes  favorably on the basis of these factors.  In
order  to  remain  competitive,  the  Company  must  maintain  a high  level  of
investment in research and  development,  marketing,  and customer service while
controlling operating expenses.  There can be no assurance that the Company will
have  sufficient  resources  to  continue to make such  investments  or that the
Company's  products  will  continue to be viewed as  competitive  as a result of
technological  advances by  competitors or changes in  semiconductor  processing
technology.  The Company's  competitors  may also increase their efforts to gain
and retain market share through competitive pricing.  Such competitive pressures
may necessitate  significant  price  reductions by the Company or result in lost
orders  which  could  adversely  affect the  Company's  business  and results of
operations.

The  Company  expects  its  competitors  to  continue  to improve the design and
performance  of their  products.  There can be no assurance  that the  Company's
competitors  will  not  develop  enhancements  to,  or  future  generations  of,
competitive products that will offer superior price or performance  features, or
that new  processes or  technologies  will not emerge that render the  Company's
products less competitive or obsolete. As a result of the substantial investment
required to integrate  capital  equipment  into a production  line,  the Company
believes that once a manufacturer has selected certain capital  equipment from a
particular vendor, the manufacturer generally relies upon that vendor to provide
equipment for the specific production line application and may seek to rely upon
that  vendor to meet other  capital  equipment  requirements.  Accordingly,  the
Company  may be at a  competitive  disadvantage  with  respect  to a  particular
customer if that customer utilizes a competitor's manufacturing equipment. There
can be no assurance that the Company will be able to compete successfully in the
future.

Management of Growth

Semitool has  recently  undergone a period of rapid  growth.  In response to the
recent growth, the Company has expanded its facilities in Kalispell,  Montana in
each  of the  last  three  years,  added  significantly  to its  workforce,  and
implemented a variety of new and upgraded management  information systems.  This
recent   expansion   may   significantly   strain  the   Company's   management,
manufacturing,  engineering,  financial and other personnel at its  headquarters
location in Kalispell. The Company also merged with Semy, in fiscal 1996. Semy's
product line of controllers and supervisory  systems are developed and assembled
in Phoenix,  Arizona,  and are the first new  products  made by the Company away
from its headquarters  location.  Any failure to efficiently  manage the Company
and its subsidiaries  could adversely effect the Company's  business and results
of operations.

Environmental Regulations

The Company is subject to a variety of governmental  regulations  related to the
discharge or disposal of toxic,  volatile or otherwise  hazardous chemicals used
on  the  Company's  premises.  The  Company  believes  that  it is  in  material
compliance  with  these  regulations  and  that it has  obtained  all  necessary
environmental permits to conduct its business.  Nevertheless,  current or future
regulations  could  require the Company to purchase  expensive  equipment  or to
incur other substantial expenses to comply with environmental  regulations.  Any
failure  by the  Company  to  control  the use of, or  adequately  restrict  the
discharge  or disposal of,  hazardous  substances  could  subject the Company to
future  liabilities,  result in fines being imposed on the Company, or result in
the  suspension  of  production  or  cessation  of the  Company's  manufacturing
operations.

International Business

Approximately  44%, 40% and 40% of the Company's sales for fiscal 1996, 1995 and
1994,  respectively,  were  attributable to customers outside the United States.
The Company  expects  sales outside the United States to continue to represent a
significant  portion of its future sales.  Sales to customers outside the United
States  are   subject  to  various   risks,   including   exposure  to  currency
fluctuations, the imposition of governmental controls, the need to comply with a
wide variety of foreign and United  States  export laws,  political and economic
instability,  trade  restrictions,  changes  in tariffs  and  taxes,  and longer
payment cycles  typically  associated with  international  sales.  The Company's
international  sales activities are also subject to the difficulties of managing
overseas  distributors  or  representatives,  and  difficulties  of staffing and
managing foreign subsidiary operations.  In addition,  because a majority of the
Company's  international  sales are  denominated in United States  dollars,  the
Company's  ability  to  compete  overseas  could  be  adversely  affected  by  a
strengthening United States dollar. Moreover,  although the Company endeavors to
meet technical standards established by foreign standards setting organizations,
there can be no  assurance  that the Company will be able to comply with changes
in foreign  standards  in the  future.  The  inability  of the Company to design
products  to comply with  foreign  standards  or any  significant  or  prolonged
decline in the  Company's  international  sales  could  have a material  adverse
effect on the Company's business and results of operations.

Patents and Other Intellectual Property

The Company's success depends in significant part on the technically  innovative
features of its products. While the Company attempts to protect its intellectual
property rights through patents,  copyrights and non-disclosure  agreements,  it
believes  that its  success  will depend to a greater  degree  upon  innovation,
technological  expertise  and its ability to quickly  adapt its  products to new
technology.  There can be no assurance  that the Company will be able to protect
its technology or that  competitors  will not be able to  independently  develop
similar technology.  In addition,  the laws of certain foreign countries may not
protect the Company's intellectual property to the same extent as do the laws of
the United  States.  In this  regard,  the Company is aware that TEL, one of the
Company's  distributors  and  competitors  in  Japan,  which  accounted  for the
distribution  of  approximately  6% of the Company's  sales in fiscal 1996,  has
filed patent applications in Japan which are based on certain  Company-developed
designs  in one of the  Company's  chemical  processing  tools.  Sales  of  this
equipment  accounted for less than $500,000 of the Company's revenue in Japan in
the three year period ended September 30, 1996. The Japanese patent applications
were filed  without the authority or approval of the Company and the Company has
demanded that the applications be abandoned or otherwise relinquished. While the
Company  believes that the Japanese patent  applications  constitute an improper
attempt to patent the Company's  proprietary designs, no assurances can be given
that the Company will prevail in any  negotiations or litigation the Company may
initiate to secure the other party's abandonment or other  relinquishment of the
patent applications.  If the Company is unsuccessful in securing the abandonment
or relinquishment of the applications, or if the competitors were to file patent
applications  on  the  Company-developed   designs,  the  Company's  competitive
position in Japan could be adversely affected although the Company believes that
any such effect  should not be material to the overall  result of  operations of
the Company or materially adversely affect the Company's  relationship with TEL.
No assurance can be given that the Company's patents will be sufficiently  broad
to protect the  Company's  technology,  nor that any existing or future  patents
will not be challenged,  invalidated or circumvented, or that the rights granted
thereunder will provide meaningful competitive advantages to the Company. In any
of such events,  the Company's business and operating results could be adversely
affected.

There has been substantial  litigation  regarding patent and other  intellectual
property rights in semiconductor-related industries. Although the Company is not
aware of any  infringement by its products of any patents or proprietary  rights
of others,  there can be no assurance  that such  infringements  do not exist or
will not occur in the  future.  Litigation  may be  necessary  in the  future to
enforce  patents  issued to the Company,  to protect  trade  secrets or know-how
owned by the Company, to defend the Company against claimed  infringement of the
rights of others or to  determine  the  scope and  validity  of the  proprietary
rights of others.  Any such  litigation  could  result in  substantial  cost and
diversion of effort by the Company,  which by itself could adversely  affect the
Company's business and results of operations.  Moreover,  adverse determinations
in such  litigation  could result in the Company's loss of  proprietary  rights,
subject the Company to significant  liabilities  to third  parties,  require the
Company  to seek  licenses  from  third  parties or  prevent  the  Company  from
manufacturing  or selling its products,  any of which could adversely affect the
Company's business and results of operations. The Company knows of no threatened
litigation  that would  adversely  affect the  Company's  intellectual  property
rights.

Dependence on Key Personnel

The  Company's  success  depends to a  significant  extent  upon the  efforts of
certain  senior  management  and  technical  personnel,  particularly  Raymon F.
Thompson,  the Company's  Chairman,  Chief Executive Officer and President.  The
Company's  future  success will depend in large part upon its ability to attract
and retain  highly  skilled  technical,  managerial,  and  marketing  personnel.
Competition  for such  personnel is high and, while to date the Company does not
believe that its  geographic  location has hindered it in  recruiting  qualified
personnel,  no  assurance  can be given  that the  Company's  location  will not
adversely affect future recruiting of key personnel. The loss of the services of
Mr. Thompson or of one or more other key management or technical  personnel,  or
the  inability  to attract  and retain  additional  qualified  personnel,  could
adversely affect the Company's  business and results of operations.  The Company
maintains a $2.0 million "key man" life insurance policy on Mr. Thompson.

Dependence on Key Customers

The  Company's  ten  largest  customers  accounted  for 42%,  55% and 58% of the
Company's net sales in fiscal 1996,  1995 and 1994,  respectively.  Although the
composition of Semitool's  largest  customers has changed from year to year, the
loss  of,  or a  significant  curtailment  of  purchases  by one or  more of the
Company's  key  customers  could  adversely  affect the  Company's  business and
results of operations.

Dependence on Key Suppliers

Certain  components  and  subassemblies  included in the Company's  products are
obtained  from a single  source or a limited  group of  suppliers.  Although the
Company has vertically integrated much of its manufacturing operations, the loss
of, or disruption in shipments  from,  certain sole or limited source  suppliers
could in the short term adversely  affect the Company's  business and results of
operations.  The Company believes that it could either manufacture components or
secure an alternate  supplier with no long-term  material  adverse effect on the
Company's business or operations.  Further, a significant  increase in the price
of one or more of these components could adversely affect the Company's business
and results of operations.

Effect of Certain Anti-Takeover Provisions

The  Company's  Articles  of  Incorporation  authorize  the  Company's  Board of
Directors to issue  Preferred Stock in one or more series and to fix the rights,
preferences,  privileges and restrictions  granted to or imposed upon any wholly
unissued shares of Preferred Stock and to fix the number of shares  constituting
any series and the  designations of such series,  without further vote or action
by the  shareholders.  Although  the Company  has no present  plans to issue any
Preferred  Stock,  and  views  the  authorized  Preferred  Stock as a  potential
financing  vehicle for the Company,  the Board of Directors may issue  Preferred
Stock with voting and conversion  rights which could adversely affect the voting
power of the holders of Common Stock.  Any issuance of Preferred  Stock may have
the  effect of  delaying,  deferring  or  preventing  a change in control of the
Company.

Volatility of Stock Price

The Company's  Common Stock has experienced in the past, and could experience in
the future,  substantial  price  volatility  as a result of a number of factors,
including quarter to quarter  variations in the actual or anticipated  financial
results,  announcements  by the  Company,  its  competitors  or  its  customers,
government regulations, and developments in the industry. In addition, the stock
market has experienced extreme price and volume fluctuations which have affected
the market price of many  technology  companies in particular  and which have at
times been  unrelated to the  operating  performance  of the specific  companies
whose stock is traded. Broad market fluctuations, as well as economic conditions
generally and in the semiconductor industry  specifically,  may adversely affect
the market price of the Company's Common Stock.

Securities Litigation

A purported class action lawsuit brought by Dr. Stanley  Bierman,  IRA (Case No.
DV-96-124A)  was filed  February  26,  1996,  in the Montana  Eleventh  Judicial
District  Court,  Flathead  County,  Kalispell,  Montana against the Company and
certain of its officers and directors.  The complaint includes  allegations that
the Company issued misleading  statements concerning its business and prospects.
The suit seeks injunctive relief,  damages,  costs and other relief as the court
may find  appropriate.  The Company believes the lawsuit to be without merit and
intends  to  contest  the  action  vigorously.   However,   given  the  inherent
uncertainty of litigation,  insurance issues,  and the early stage of discovery,
there can be no  assurance  that the ultimate  outcome will be in the  Company's
favor, or that if the ultimate outcome is not in the Company's favor,  that such
an outcome,  the diversion of management's  attention,  and any costs associated
with the  lawsuit,  will not have a  material  adverse  effect on the  Company's
financial condition or results of operations.


Item 2.  Properties

The  Company's  170,000  and  21,000  square-foot   facilities  are  located  on
Company-owned  sites in Kalispell,  Montana.  The headquarters for the Company's
European sales and customer service is located in Cambridge, England and is also
owned by the  Company.  The Company  believes  that its  existing  manufacturing
facilities, will be adequate to meet its requirements for the foreseeable future
and that suitable  additional  or substitute  space will be available as needed.
The Company also leases  various other smaller  facilities  worldwide  which are
used as sales and customer service centers.

The Company is subject to a variety of governmental  regulations  related to the
discharge or disposal of toxic,  volatile, or otherwise hazardous chemicals used
on  the  Company's  premises.  The  Company  believes  that  it is  in  material
compliance  with  these  regulations  and  that it has  obtained  all  necessary
environmental permits to conduct its business.  Nevertheless,  current or future
regulations  could  require the Company to purchase  expensive  equipment  or to
incur other substantial expenses to comply with environmental  regulations.  Any
failure  by the  Company  to  control  the use of, or  adequately  restrict  the
discharge  or disposal of,  hazardous  substances  could  subject the Company to
future  liabilities,  result in fines being imposed on the Company, or result in
the  suspension  of  production  or  cessation  of the  Company's  manufacturing
operations.


Item 3.  Legal Proceedings

A purported class action lawsuit brought by Dr. Stanley  Bierman,  IRA (Case No.
DV-96-124A)  was filed  February  26,  1996,  in the Montana  Eleventh  Judicial
District  Court,  Flathead  County,  Kalispell,  Montana against the Company and
certain of its officers and directors.  The complaint includes  allegations that
the Company issued misleading  statements concerning its business and prospects.
The suit seeks injunctive relief,  damages,  costs and other relief as the court
may find  appropriate.  The Company believes the lawsuit to be without merit and
intends  to  contest  the  action  vigorously.   However,   given  the  inherent
uncertainty of litigation,  insurance issues,  and the early stage of discovery,
there can be no  assurance  that the ultimate  outcome will be in the  Company's
favor, or that if the ultimate outcome is not in the Company's favor,  that such
an outcome,  the diversion of management's  attention,  and any costs associated
with the  lawsuit,  will not have a  material  adverse  effect on the  Company's
financial condition or results of operations.


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

No matters  were  submitted  to the  shareholders  for a vote  during the fourth
quarter of the fiscal year.

<PAGE>


                                                                Part II

Item 5.  Market for Semitool's Common Stock and Related Shareholder Matters.

The Company's common stock is traded under the symbol "SMTL"  principally on the
Nasdaq  National  Market.  The  approximate  number of shareholders of record at
December  11,  1996 was 229 and the  reported  last sale price of the  Company's
common stock on the Nasdaq National  Market was $11.625.  The high and low sales
prices for the common  stock  reported  by the Nasdaq  National  Market for each
quarter that the Company's common stock has traded publicly are shown below.
<TABLE>

                                                                     Common Stock Price Range
                                                                          Fiscal Year
                                                                       Ended September 30,
                                                              1996                                  1995
<S>                                               <C>                <C>                <C>                <C>                <C>  
                                                       High                Low               High               Low
First Quarter .......................             $   24.50          $   12.50                 NA                 NA          (1)
Second Quarter ......................             $   17.75          $   12.50          $   16.33          $    8.67          (2)(3)
Third Quarter .......................             $   17.00          $   13.00          $   21.83          $   13.17          (3)
Fourth Quarter ......................             $   13.50          $   10.25          $   36.75          $   21.00          (3)

(1) Prior to the Company's Initial Public Offering (IPO) of common stock.
(2) The low price is the IPO price.
(3) Adjusted for the August 1995 three-for-two stock split.
</TABLE>

The Company,  prior to its initial  public  offering of common stock in February
1995, made distributions to shareholders for their share of income taxes related
to  the  Company's  S  Corporation   status.  The  Company  also  made  a  final
distribution  of S Corporation  retained  earnings  prior to the initial  public
offering. The Company intends to retain its earnings to fund the development and
growth  of its  business  and  therefor,  does not  anticipate  paying  any cash
dividends in the foreseeable future.


<PAGE>



Item 6.  Selected Financial Data

This  summary  should be read in  conjunction  with the  consolidated  financial
statements and related notes included elsewhere herein.

<TABLE>

                                                                        Summary Consolidated Financial Information
                                                                           (in thousands, except per share data)
<S>                                                           <C>            <C>            <C>            <C>             <C>    

                            Year Ended September 30,
                                                                  1996           1995           1994           1993            1992
Statement of Operations Data:
Net sales .............................................       $174,204       $128,326       $ 62,597       $ 48,532        $ 32,445
Gross profit ..........................................         84,631         65,858         31,957         24,070          17,764
Income from operations ................................         24,182         20,927          3,020            356             481
Net income (loss) .....................................         15,136         14,885          2,170           (445)           (353)

Pro forma Statement of Operations Data:
Income from operations (1) ............................         24,182         22,599          6,509          3,126           2,534
Net income (2) ........................................         15,136         14,403          3,723          1,579           1,110
Net income per share (3) ..............................           1.09           1.15           0.37
Shares used in per share computation (4) ..............         13,858         12,563          9,946

Balance Sheet Data:
Working capital .......................................         43,797         37,209          6,109          6,223           5,785
Total assets ..........................................        114,954         88,067         39,807         30,744          20,927
Short-term debt .......................................          4,374            924          7,409          5,164           2,199
Long-term debt ........................................          3,637          4,011          6,089          1,940           2,287
Shareholders' equity ..................................         68,003         52,813         12,487          2,741           3,519
</TABLE>


(1) Pro forma income from operations has been determined by eliminating for each
period  presented  payments for technology  rights that ceased in February 1995,
upon closing of the initial public offering of the Company's  common stock.  See
Note 14 of Notes to Consolidated Financial Statements.

(2)  Between  October 1, 1986 and  February 1, 1995,  the Company  elected to be
taxed under the provisions of Subchapter S of the Internal  Revenue Code.  Under
those  provisions,  the Company had not been subject to federal corporate income
taxation.  In  connection  with the  closing  of the  Company's  initial  public
offering,  the Company terminated its S corporation status. Pro forma net income
has  been  determined  by  assuming  that  the  Company  had  been  taxed as a C
corporation for federal income tax purposes for each period  presented.  The pro
forma  provision for income taxes has been  calculated by using  statutory rates
for federal and state taxes applied to pro forma income before income taxes, net
of actual research and development credits generated in each year. The pro forma
effective tax rates in fiscal 1992 through 1996 were 41.8%,  33.0%, 36.4%, 37.1%
and 37.0%, respectively.

(3) In accordance with Staff Accounting Bulletin No. 55 issued by the Securities
and Exchange  Commission,  pro forma net income per share data is not  presented
prior to fiscal  year 1994.  Also,  prior to the  termination  of S  corporation
status,  dividends were paid by the Company only in amounts  sufficient to cover
shareholders'  tax  liabilities  other  than  the  final  distribution  of prior
accumulated S  Corporation  earnings.  The per share  dividend  information  has
therefore not been presented.

(4) See Note 1 of Notes to Consolidated  Financial Statements for an explanation
of the  determination  of the number of shares used in  computing  pro forma net
income per share.



<PAGE>



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

CAUTION

Statements contained in this "Management's  Discussion and Analysis of Financial
Condition and Results of Operations"  and elsewhere in this report which are not
historical facts are  forward-looking  statements  within the meaning of Section
21E of the Securities  Exchange Act of 1934, as amended,  and are subject to the
safe harbor provisions created by that statute. A forward-looking  statement may
contain words such as "will  continue to be," "will be,"  "continue to," "expect
to,"  "anticipates  that," "to be" or "can  impact."  Management  cautions  that
forward-looking  statements  are subject to risks and  uncertainties  that could
cause the Company's actual results to differ  materially from those projected in
such forward-looking statements.  These risks and uncertainties include, but are
not limited to, the cyclical  nature of the  semiconductor  industry in general,
lack of market acceptance for new products,  decreasing demand for the Company's
existing  products,   impact  of  competitive  products  and  pricing,   product
development,  commercialization  and  technological  difficulties,  capacity and
supply  constraint  difficulties and other risks detailed herein.  The Company's
future  results  will depend on its ability to continue to enhance its  existing
products  and to develop  and  manufacture  new  products  and to  finance  such
activities. There can be no assurance that the Company will be successful in the
introduction,  marketing and  cost-effective  manufacture of any new products or
that the Company will be able to develop and  introduce  in a timely  manner new
products or  enhancements  to its existing  products and processes which satisfy
customer needs or achieve widespread market acceptance.

The Company  undertakes no obligation  to release  revisions to  forward-looking
statements  to  reflect  subsequent  events,  changed   circumstances,   or  the
occurrence of unanticipated events.


OVERVIEW

The  Company  was  incorporated  in  1979 to  develop,  manufacture  and  market
innovative  manufacturing  equipment for the semiconductor industry, and shipped
its first product, a spin rinser/dryer, that year. During the 1980s, the Company
introduced several generations of its acid and solvent spray chemical processing
tools and vertical  furnaces,  and began to market its products to manufacturers
outside the  semiconductor  industry.  Since 1990, the Company has developed its
Equinox single substrate  chemical  processing  system,  its Storm wafer carrier
cleaning  system,  and its  Magnum  automated  multimodule  chemical  processing
system.  In response  to  increased  demand for the  Company's  established  and
recently introduced products,  the Company expanded its Montana facility in 1994
and 1995 from  approximately  65,000 square feet at the beginning of fiscal 1994
to  approximately  170,000  square feet at the end of fiscal  1995.  The Company
built a separate 21,000 square foot facility, also in Montana, in fiscal 1996.

The unit  selling  prices  for the  Company's  products  range  from  $10,000 to
$150,000  for a spin  rinser/dryer,  to  $900,000  to over $2.0  million for the
Magnum. Due to these relatively high unit selling prices, a significant  portion
of the Company's revenue in any given period is often derived from the sale of a
relatively  small  number  of  units.   From  time  to  time,  the  Company  has
experienced, and expects to continue to experience,  significant fluctuations in
its results of  operations,  particularly  on a quarterly  basis.  The Company's
expense  levels are based in part, on  expectations  of future  sales.  If sales
levels in a particular period do not meet  expectations,  operating results will
be adversely  affected.  A variety of factors have an influence on the Company's
operating  results  in a  particular  period.  These  factors  include  specific
economic conditions in the semiconductor  industry, the timing of the receipt of
orders from major  customers,  customer  cancellations  or delays of  shipments,
specific  feature  requests by  customers,  production  delays or  manufacturing
inefficiencies,  management  decisions to commence or discontinue product lines,
the Company's  ability to design,  introduce and  manufacture  new products on a
cost-effective and timely basis, the introduction of new products by the Company
or its competition,  the selection of the Company's or its competitors' products
by semiconductor  manufacturers  for new generations of fabrication  facilities,
the timing of research and development expenditures, exchange rate fluctuations,
and expenses  attendant to  acquisitions,  strategic  alliances  and the further
development of marketing and service capabilities.

The Company markets and sells its products  worldwide with an emphasis on Europe
and  Asia  as  its  principal   international   markets.   During  fiscal  1996,
approximately  43.9%  of the  Company's  revenues  were  derived  from  sales to
customers outside the United States. The Company  anticipates that international
sales will continue to account for a significant portion of net sales,  although
the percentage of international  sales may fluctuate from period to period.  The
Company believes its sales,  service and support  organizations are important to
the long-term success of its customer relationships. The Company provides sales,
service and support worldwide,  primarily through direct employees in the United
States and Europe, and through distributors in Asia and elsewhere.

RESULTS OF OPERATIONS

The  following  table sets forth the  Company's  actual and pro forma results of
operations for the periods indicated expressed as a percentage of net sales:

<TABLE>
<CAPTION>

                                                                      Year Ended September 30,
                                                        ------------------------------------------------------
<S>                                                                               <C>                  <C>                <C>

                                                                                   1996                 1995               1994
                                                                                  -------              ------             -------

Statement of Operations Data:
     Net sales ........................................................             100.0 %             100.0 %             100.0 %
     Cost of sales ....................................................              51.4                48.7                49.0
                                                                                  -------              ------             -------
     Gross profit .....................................................              48.6                51.3                51.0
                                                                                  -------              ------             -------

     Operating expenses:
        Selling, general and administrative ...........................              23.5                24.8                31.1
        Research and development ......................................              11.2                 8.9                 9.5
        Cost of technology rights .....................................                --                 1.3                 5.6
                                                                                  -------             -------             -------
            Total operating expenses ..................................              34.7                35.0                46.2
                                                                                  -------             -------             -------
     Income from operations ...........................................              13.9                16.3                 4.8
     Other income (expense), net ......................................              (0.1)                0.2                (1.0)
                                                                                  -------             -------             -------
     Income before income taxes .......................................              13.8                16.5                 3.8
     Provision for income taxes .......................................               5.1                 4.9                 0.3
                                                                                  -------             -------             -------
     Net income .......................................................               8.7 %              11.6 %               3.5 %
                                                                                  =======             =======             =======

Pro Forma Statement of Operations Data:
     Income from operations before
        pro forma adjustments .........................................              13.9 %              16.3 %               4.8 %
     Elimination of cost of technology                                 
        rights ........................................................                --                 1.3                 5.6  
                                                                                  -------             -------             -------
     Income from operations ...........................................              13.9                17.6                10.4
     Other income (expense), net ......................................              (0.1)                0.2                (1.0)
                                                                                  -------             -------             -------
     Income before income taxes .......................................              13.8                17.8                 9.4
     Provision for income taxes .......................................               5.1                 6.6                 3.5
                                                                                  -------             -------             -------
     Net income .......................................................               8.7 %              11.2 %               5.9 %
                                                                                  =======             =======             =======
</TABLE>


YEARS ENDED SEPTEMBER 30, 1996 AND 1995

Net Sales.  Net sales consist of revenues  from sales of equipment,  spare parts
and service  contracts.  Net sales  increased  $45.9  million  (35.8%) to $174.2
million in fiscal  1996 from  $128.3  million in fiscal  1995.  Net sales of the
Company's  automated batch chemical  processing  tools and its single  substrate
processor accounted for the majority of the increase.  Aggregate sales for these
two tool types  increased  from $15.4 million in fiscal 1995 to $45.8 million in
fiscal 1996.

The Company shipped a number of new tool models during 1996. New automated batch
chemical  processing  tools included two models for processing  glass substrates
used in the  manufacture  of flat  panel  displays  and  multichip  modules,  an
immersion tool for processing silicon wafers, and a carrierless spray processing
tool.  New single  substrate  processor  models  were  introduced  for  plating,
including  multilevel  interconnect  processes for advanced  integrated  circuit
devices.  A vertical  furnace  with much faster  thermal ramp  capabilities  was
shipped to three  different  customers.  The Company also shipped a new model of
its carrier cleaning system developed late in 1995 and a chemical  delivery unit
to interface  between bulk chemical  storage and the Company's  batch and single
substrate  chemical  processing  tools.  The  adoption of any of these tools for
future widespread  production use is dependent on a number of factors including,
but not limited to,  performance  and pricing  competition  from other equipment
manufacturers.

In February of 1996, the Company merged with Semy Engineering,  Inc. (Semy) in a
transaction  accounted  for  as a  pooling-of-interests  and  consequently,  the
Company's financial statements prior to the merger have been restated to include
Semy.  Semy  accounted  for  10.2% of 1995  sales and 8.6% of 1996  sales  after
eliminating intercompany transactions.

International  sales,  predominantly  to  customers  based in  Europe  and Asia,
accounted  for 43.9% of net sales in fiscal 1996  compared to 40.4% in the prior
year. The Company  anticipates that international sales will continue to account
for a significant  portion of net sales,  although the  percentage may fluctuate
from period to period.

Gross Profit.  Gross margin  decreased to 48.6% in fiscal 1996 from 51.3% in the
prior  year.  The  Company's  gross  margin has been,  and will  continue to be,
affected by a variety of factors,  including the costs to  manufacture,  service
and support new and enhanced  products,  as well as the mix and average  selling
prices of products sold. The Company  believes that the largest single factor in
the 1996  gross  margin  decline  are costs and  inefficiencies  related  to the
manufacturing and servicing of recently  developed  products.  The number of new
tool  models  introduced  in  fiscal  1996 was  unprecedented  in the  Company's
history, both as to number and complexity. The Company anticipates that the cost
to  manufacture  and support the newer tool models will improve  over time,  but
that it will continue to design and sell additional models of its existing tools
and additional tool types, which may somewhat offset the anticipated improvement
in gross margins.

Selling, General and Administrative.  Selling, general and administrative (SG&A)
expenses  were $40.9  million or 23.5% of net sales in fiscal  1996  compared to
$31.8 million or 24.8% of net sales in the prior year. The $9.1 million increase
in SG&A expense in 1996 as compared to 1995  reflects  higher  costs  associated
with  increased  sales  volumes,  a broader  range of  equipment  to market  and
service, costs associated with additional sales and service personnel supporting
the Asian marketplace, and employee severance cost accruals provided at year end
in response to a decline in the Company's  fourth  quarter  bookings,  partially
offset by reduced  employee  bonus costs.  The decline in these  expenses,  as a
percentage of net sales, was primarily due to improved  overhead  absorption.  A
substantial  portion of the  Company's  SG&A expense is fixed in the short term.
While  it is the  Company's  goal  to  continue  to  reduce  SG&A  expense  as a
percentage of net sales during  periods of rising sales,  a decline in net sales
would  cause the  Company's  selling,  general  and  administrative  expense  to
increase as a  percentage  of net sales and could have an adverse  effect on the
Company's business and results of operations.

Research and  Development.  Research and development  (R&D) expenses  consist of
salaries,  project materials,  laboratory costs, consulting fees and other costs
associated  with the Company's  research and development  efforts.  R&D expenses
were  $19.5  million  or 11.2% of net sales in  fiscal  1996  compared  to $11.4
million or 8.9% of net sales in the prior year.

Spending on R&D  increased  70.8% or $8.1  million in absolute  dollars over the
prior year due to the number and complexity of projects undertaken.  The Company
is committed to technology  leadership in the semiconductor  equipment  industry
and expects to continue to fund  research and  development  expenditures  with a
multiyear perspective. Such funding has resulted in fluctuations in R&D expenses
from period to period in the past.  The Company  expects  such  fluctuations  to
continue in the  future,  both in absolute  dollars and as a  percentage  of net
sales,  primarily due to the timing of expenditures  and changes in the level of
net sales.

Cost of Technology  Rights.  In 1979, the Company  acquired  certain  technology
rights from Raymon F. Thompson for installment  payments equal to 8% of revenues
from the sale of certain of the Company's  products that embody the  technology.
All expense recognized in fiscal 1995 relates to the period from October 1, 1994
to February 2, 1995.  All payments for  technology  rights ceased in conjunction
with the Company's  initial public offering  resulting in no cost to the Company
from that point forward, including all of fiscal 1996.

Other Income (Expense).  Interest income on short-term investments declined from
$428,000 in fiscal 1995 to $173,000 in 1996 as the funds raised in the Company's
initial public offering have been invested in  receivables,  inventory and fixed
assets.  The Company  realized a net loss of $17,000 on the sale of fixed assets
in 1996 compared to a net gain of $191,000 the year before.

Provision for Income Taxes.  The  provisions  for income taxes for 1996 and 1995
were $8.9 million and $6.4 million, respectively. Effective in 1986, the Company
elected to have its United States  income taxed under  Subchapter S of the Code.
The Company,  however,  remained a taxpaying entity for Montana state income tax
purposes.  Income tax provisions recognized by the Company after 1986 and before
February  1, 1995  relate to state  income  taxes and taxes  imposed  by foreign
governments  on the Company's  foreign  operations.  The Company  terminated its
Subchapter  S  election  as of the close of  business  on January  31,  1995 and
subsequent  to that date  became  subject  to  federal  income  taxation  at the
corporate level.


YEARS ENDED SEPTEMBER 30, 1995 AND 1994

Net Sales.  Net sales consist of revenues  from sales of equipment,  spare parts
and service  contracts.  Net sales  increased  $65.7 million  (105.0%) to $128.3
million  in 1995  from  $62.6  million  in 1994.  This  increase  was  primarily
attributable  to increased  unit volumes of existing  products and the continued
market  penetration of products with higher average selling prices introduced in
recent years.

The  Company's  largest  product  line growth  occurred in the Magnum  automated
multimodule  chemical  processing  system and the Storm wafer  carrier  cleaning
system.  The Magnum was  introduced in the fourth quarter of fiscal 1994 and had
no net sales in that year. Magnum net sales in fiscal 1995 totaled $9.1 million.
Net sales of the Storm  totaled  $6.3  million  and  $802,000  in 1995 and 1994,
respectively.  Net sales of the VTP 1500 vertical furnace and the Equinox single
substrate  processor also grew rapidly in 1995. Each more than doubled net sales
in fiscal 1995 and exceeded the corporate  average growth rate. The  controllers
and  supervisor  systems sold by Semy  increased 90% from $6.9 million in fiscal
1994 to $13.0  million in fiscal 1995.  Net sales of the  Company's  established
manual batch spray  chemical  tools  increased 70% in 1995 compared to 1994. Net
sales of spare parts and service are related to both  current year sales and the
Company's  installed  base of process  tools.  Growth in spare parts and service
sales exceeded 50% in 1995 when compared to 1994.

International  sales,  predominantly  to  customers  based in  Europe  and Asia,
accounted  for 40.4% of net sales in fiscal 1995  compared to 40.0% in the prior
year.

Gross Profit.  Gross margin  increased to 51.3% in fiscal 1995 from 51.0% in the
prior  year.  The  Company's  manufacturing  facility  was  doubled in size from
approximately  65,000  square  feet  to  130,000  square  feet  in an  expansion
completed  mid-year in fiscal 1994. A further  40,000  square foot  addition was
completed at the end of the third quarter of fiscal 1995. The  manufacturing and
assembly  space  provided by these two additions  enabled the Company to install
improved material flow and assembly systems  resulting in improved  productivity
and lower costs.  Gross margins in both 1995 and 1994 were favorably impacted by
the merger of Semy which, over the two-year period,  had margins higher than the
average of the Company's other products.

Selling,  General and Administrative.  SG&A expenses were $31.8 million or 24.8%
of net sales in fiscal 1995  compared to $19.5  million or 31.1% of net sales in
the prior year.  The  increase in these costs in absolute  dollars  reflects the
increased  costs  associated  with a much higher  sales  volume and, to a lesser
extent,  the ongoing costs related to being a public company for eight months of
fiscal 1995. The decline in these  expenses,  as a percentage of net sales,  was
primarily  due to improved  overhead  absorption.  The increase in net sales was
105.0%  compared to a 63.5% increase in SG&A expense.  SG&A expense in both 1995
and 1994 was unfavorably impacted by the merger of Semy which, over the two-year
period,  had SG&A expense as a  percentage  of net sales higher than the Company
average excluding Semy.

Research and Development.  R&D expenses consist of salaries,  project materials,
laboratory costs,  consulting fees and other costs associated with the Company's
research and development efforts. R&D expenses were $11.4 million or 8.9% of net
sales in fiscal 1995  compared to $6.0 million or 9.5% of net sales in the prior
year.

During  fiscal  1995,  the  Company  completed  the  development  of the  Magnum
multimodule  chemical  processing  system and began work on a larger  version of
this tool designed to process flat panel display  substrates.  New models of the
Equinox single substrate  processor were designed as a thick film resist develop
tool, an acid  immersion  etch tool, a solvent  resist strip tool, a solder bump
plating tool, and a metal  lift-off tool. The first VTP 1500 Express,  fast ramp
vertical furnace,  was designed and built in fiscal 1995 in preparation for beta
testing in fiscal 1996. The Storm III wafer carrier cleaning system was designed
and  introduced  during the year to address  the needs of  customers  with lower
processing  throughput  needs or customers  desiring  smaller machines placed at
multiple locations within their facility.

Spending on R&D  increased  91.1% or $5.4  million in absolute  dollars over the
prior year due to the number and complexity of projects undertaken, but declined
as a  percentage  of  net  sales  which  increased  105.0%.  R&D  expense,  as a
percentage  of net  sales,  was  higher  in both  1995 and 1994 at Semy than the
Company average excluding Semy.

Cost of Technology  Rights.  In 1979, the Company  acquired  certain  technology
rights from Raymon F. Thompson for installment  payments equal to 8% of revenues
from the sale of certain of the Company's  products that embody the  technology.
All expense recognized in fiscal 1995 relates to the period from October 1, 1994
to February 2, 1995.  All payments for  technology  rights ceased in conjunction
with the Company's  initial public offering  resulting in no cost to the Company
from that point forward.

Other Income  (Expense).  Other income  (expense)  includes  interest  income on
short-term investments and interest expense on bank borrowings. Interest expense
net of  interest  income  declined  from  $708,000 in fiscal 1994 to $143,000 in
fiscal  1995  primarily  as a  result  of  decreased  borrowings  and  increased
investment  income subsequent to the Company's public stock offering in February
of 1995. The Company realized a net gain of $191,000 on the sale of fixed assets
in 1995 compared to $7,000 the year before.

Provision for Income Taxes.  The  provisions  for income taxes for 1995 and 1994
were $6.4 million and  $194,000,  respectively.  Effective in 1986,  the Company
elected to have its United States  income taxed under  Subchapter S of the Code.
The Company,  however,  remained a taxpaying entity for Montana state income tax
purposes.  Income tax provisions recognized by the Company after 1986 and before
February  1, 1995  relate to state  income  taxes and taxes  imposed  by foreign
governments  on the Company's  foreign  operations.  The Company  terminated its
Subchapter  S  election  as of the close of  business  on January  31,  1995 and
subsequent  to that date  became  subject  to  federal  income  taxation  at the
corporate level.


LIQUIDITY AND CAPITAL RESOURCES

The Company has  financed its growth  since its  February  1995  initial  public
offering  primarily through amounts raised in conjunction with that offering and
borrowings on its revolving line of credit. Cash used by operating activities in
fiscal 1996 was $4.2 million as compared to $6.6 million  provided by operations
in fiscal 1995.  Substantial  investments  in accounts  receivable and inventory
occurred in both years as sales levels increased.  As of September 30, 1996, the
Company had $39.2 million of accounts receivable and $36.9 million of inventory,
compared to $28.5 million of accounts  receivable and $19.3 million of inventory
at September  30,  1995.  As is  customary  in the  semiconductor  manufacturing
equipment  industry,  products are  generally  built to fill  specific  customer
orders,  with typical order fulfillment times ranging from four to six weeks for
certain products to six months or more for more complex  products.  Accordingly,
while the Company's finished goods inventory accounts for less than 10% of total
inventory, overall inventory levels tend to fluctuate with the level and type of
orders received.  Currently,  the tools with the longest average cycle times are
the automated  batch  chemical  tools and the single  substrate  processor.  The
Company expects future  receivable and inventory  balances to fluctuate with net
sales.

Investing  activities  consisted  primarily  of  acquisitions  of  property  and
equipment  and,  in  fiscal  1996,  $4.0  million  of net  sales  of  marketable
securities  purchased in the prior year.  Property and equipment  purchases used
cash of $8.1 million in fiscal 1995 and $10.2  million in fiscal 1996.  Capacity
expansions  were completed in both fiscal years.  In fiscal 1995,  approximately
40,000  square feet were added to the  Company's  main  facility  in  Kalispell,
Montana, resulting in a 170,000 square foot total size. Also in fiscal 1995, the
Company  purchased  land and buildings in  Cambridge,  England in support of its
sales and service  effort.  During fiscal 1996, the Company  constructed and put
into service a separate satellite  facility in Kalispell totaling  approximately
21,000  square  feet  and  refurbished  one  of  the  several  buildings  on the
Cambridge,  England site for use as office space and an inventory storage depot.
In connection  with the merger of Semy,  the Company  invested $1.2 million in a
covenant not to compete with certain of the principals of Semy.

Financing activities consisted primarily of $4.0 million of borrowings in excess
of repayments under the Company's  revolving line of credit, and $0.9 million of
long-term debt repayments.

As of September 30, 1996, the Company's principal sources of liquidity consisted
of  approximately  $3.1  million  of cash and  cash  equivalents,  $6.0  million
available  under the Company's  $10 million  revolving  line of credit,  and $15
million  under a long-term  facility put in place  during the fourth  quarter of
fiscal 1996. Both credit  facilities are with Seafirst Bank and bear interest at
the bank's prime lending rate.  The revolving line of credit expires on December
31, 1997 when all principal amounts owing are due. The long-term credit facility
expires on December 31, 1998 with  principal  amounts  outstanding  repayable in
monthly  principal and interest payments over a five-year period ending December
2003.

The  Company  believes  that cash and cash  equivalents,  funds  generated  from
operations,  and funds available under its bank lines will be sufficient to meet
the  Company's  planned  capital  requirements  during  the next  twelve  months
including the spending of approximately $9.0 million to purchase property, plant
and  equipment.  The Company  believes  that  success in its  industry  requires
substantial  capital in order to maintain the  flexibility  to take advantage of
opportunities  as they arise.  The Company may, from time to time, as market and
business  conditions  warrant,  invest in or acquire  complementary  businesses,
products  or  technologies.  The Company  may effect  additional  equity or debt
financings to fund such activities or to fund greater than  anticipated  growth.
The sale of additional equity securities or the issuance of equity securities in
a business combination could result in dilution to the Company's shareholders.


LITIGATION

A purported class action lawsuit brought by Dr. Stanley  Bierman,  IRA (Case No.
DV-96-124A)  was filed  February  26,  1996,  in the Montana  Eleventh  Judicial
District  Court,  Flathead  County,  Kalispell,  Montana against the Company and
certain of its officers and directors.  The complaint includes  allegations that
the Company issued misleading  statements concerning its business and prospects.
The suit seeks injunctive relief,  damages,  costs and other relief as the court
may find  appropriate.  The Company believes the lawsuit to be without merit and
intends  to  contest  the  action  vigorously.   However,   given  the  inherent
uncertainty of litigation,  insurance issues,  and the early stage of discovery,
there can be no  assurance  that the ultimate  outcome will be in the  Company's
favor, or that if the ultimate outcome is not in the Company's favor,  that such
an outcome,  the diversion of management's  attention,  and any costs associated
with the  lawsuit,  will not have a  material  adverse  effect on the  Company's
financial condition or results of operations.


NEW ACCOUNTING PRONOUNCEMENT

In October 1995, the Financial  Accounting  Standards Board issued SFAS No. 123,
"Accounting for Stock-Based  Compensation." This Statement establishes financial
accounting and reporting standards for stock-based employee  compensation plans.
The  Statement  encourages  all  entities to adopt a fair value based  method of
accounting,  but allows an entity to continue to measure  compensation  cost for
those plans using the intrinsic  value based method of accounting  prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company must
implement SFAS No. 123 on October 1, 1996. Management does not plan to adopt the
measurement  provisions  of SFAS No. 123,  although the Company will comply with
the pro  forma  disclosure  requirements  of the  Statement  in its 1997  annual
financial statements.


Item 8.  Financial Statements and Supplementary Data

The  financial  statements  and  supplementary  data  listed  in  the  Index  to
Consolidated  Financial Statements at Item 14 of this Form 10-K are incorporated
by reference into this Item 8 of Part II of this Form 10-K.


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

None.



<PAGE>




                                                               PART III


Item 10.  Executive Officers and Directors

The following table sets forth certain information with respect to the executive
officers and directors of the Company:

          Name              Age                Position
   Raymon F. Thompson       55   Chairman of the Board of Directors, Chief
                                 Executive, Officer and President
   Robert W. Berner         52   Vice President and General Manager,
                                 Metallization Group
   Timothy C. Dodkin        47   Managing Director, Semitool Europe Ltd.
   James R. Gordley         45   Vice President, Sales, Thermal Products
                                 Division
   Jean B. Hugues           38   Vice President and General Manager, Thermal
                                 Products Division
   Gregory L. Perkins       53   Vice President and General Manager
   John W. Sullivan         50   Vice President, Finance and Assistant Secretary
   Steven R. Thompson       33   Vice President
   Howard E. Bateman (1)    62   Director
   Richard A. Dasen (2)     54   Director
   Daniel J. Eigeman (2)    62   Director
   Ryal R. Poppa (2)        63   Director
   Calvin S. Robinson (1)   76   Director and Secretary
-----------

(1)      Member of the Compensation and Stock Option Committee.
(2)      Member of the Audit Committee.

The  following  sets forth the  background  of each of the  Company's  executive
officers and directors,  including the principal occupation of those individuals
for the past five years:

Raymon F.  Thompson  founded  the  Company  and has  served as  Chairman,  Chief
Executive  Officer and  President  since its  inception  in 1979.  In 1979,  Mr.
Thompson  designed,  patented and introduced the first on-axis  rinser/dryer for
the semiconductor industry.

Robert W.  Berner  joined the  Company  in 1991 and has served as the  Company's
Engineering Manager from October 1991 until August of 1995 when he was appointed
General  Manager of the Equinox  Divison.  In January of 1996,  he was appointed
General Manager and Vice President of the Metallization  Group. Prior to joining
the Company, Mr. Berner worked for Motorola, a semiconductor  manufacturer,  for
16 years.

Timothy  C.  Dodkin  joined  the  Company  in 1985 and  served as the  Company's
European  Sales Manager from 1985 to 1986.  Since 1986, Mr. Dodkin has served as
Managing  Director of Semitool  Europe,  Ltd. Prior to joining the Company,  Mr.
Dodkin worked at Cambridge Instruments,  a semiconductor equipment manufacturer,
for ten years in national and international sales.

James R.  Gordley  joined  the  Company  in 1989 as Vice  President,  Sales  and
Marketing  and, in October 1994,  was appointed  Vice  President and Director of
Sales, Thermal Products Division. For twelve years prior to joining the Company,
Mr. Gordley was employed by Minnesota Mining and  Manufacturing  Corporation,  a
manufacturing   conglomerate,   where  he  held  several  sales  and  management
positions.

Jean B. Hugues  joined the Company  with the merger of Semy in February of 1996.
In October of 1996, he was appointed Vice President and General Manager, Thermal
Products  Division.  Prior to joining the  Company,  Mr.  Hugues was Founder and
President of Semy Engineering, Inc., for 11 years.

Gregory L. Perkins joined the Company in 1990 as Vice  President,  Manufacturing
and,  since August 1994,  has served as the Company's Vice President and General
Manager. Prior to joining the Company, Mr. Perkins served as General Manager for
Modulair, Inc., a manufacturer of clean rooms, from 1987 to 1990.

John W. Sullivan joined the Company in March 1993 as Vice President, Finance and
was  appointed  Assistant  Secretary in February  1996.  From 1974 to 1992,  Mr.
Sullivan  was  employed  by United  Dominion  Industries,  a  manufacturing  and
construction company, most recently as a Group Vice President of Finance. Mr.
Sullivan is a Certified Public Accountant.

Steven R. Thompson  joined the Company in 1979 and served as Vice  President and
General Manager, Thermal Products Division from 1990 to September of 1996. Prior
to 1990, he served as Engineering  Manager,  Thermal Products Division from 1988
to 1990 and Manufacturing Manager, Thermal Products Division from 1986 to 1988.
Steven R. Thompson is Raymon F. Thompson's son.

Howard E. Bateman has served on the Company's Board of Directors since 1990. Mr.
Bateman formerly owned and operated Entech, a Pennsylvania company that has been
an independent sales representative for the Company's products since 1979.

Richard A. Dasen has served on the Company's Board of Directors since 1984. From
1974 to 1992, Mr. Dasen owned and managed Evergreen Bancorporation, a multi-bank
holding company. Since 1992, Mr. Dasen has been an independent businessman.

Daniel J. Eigeman has served on the  Company's  Board of  Directors  since 1985.
From 1971 to 1993, Mr. Eigeman was President of Eigeman,  Hanson & Co., P.C., an
accounting  firm, and since 1993 has been Vice  President of Junkermier,  Clark,
Campanella,  Stevens, P.C., CPAs. Mr. Eigeman served as President of the Montana
Society of Certified Public Accountants in 1993.

Ryal R. Poppa has served on the Company's  Board of Directors since May of 1995.
Mr. Poppa is the former  Chairman of the Board,  Chief  Executive  Officer and a
director of Storage Technology Corporation.

Calvin S. Robinson has served as a director of the Company since 1982 and, since
February 1996 has served as the Company's  Secretary.  Mr.  Robinson has been of
counsel to Murphy,  Robinson,  Heckathorn & Phillips  since 1989.  This firm has
provided  legal  services to the  Company  since  1979.  Mr.  Robinson is also a
director of Winter Sports, Inc.

The executive  officers are elected each year by the Board of Directors to serve
for a one-year term of office.

The information  concerning  compliance with Section 16(a) of the Securities and
Exchange Act of 1934, as amended,  required  under this item is contained in the
Company's Proxy Statement to be filed in connection with its 1997 Annual Meeting
of Shareholders under the caption "Section 16(a) Beneficial  Ownership Reporting
Compliance" and is incorporated herein by reference.


Item 11.  Executive Compensation

The  information  concerning  compensation  of executive  officers and directors
required  under this item is contained in the  Company's  Proxy  Statement to be
filed in  connection  with its 1997  Annual  Meeting of  Shareholders  under the
caption "Executive Compensation," and is incorporated herein by reference.


Item 12.  Security Ownership of Certain Beneficial Owners and Management

The information  concerning certain principal holders of securities and security
ownership  of  executive  officers  and  directors  required  under this item is
contained in the Company's  Proxy  Statement to be filed in connection  with its
1997 Annual Meeting of  Shareholders  under the caption  "Security  Ownership of
Certain  Beneficial  Owners  and  Management"  and  is  incorporated  herein  by
reference.

Item 13.  Certain Relationships and Related Transactions

The  information  concerning  certain  relationships  and  related  transactions
required  under this item is contained in the  Company's  Proxy  Statement to be
filed in  connection  with its 1997  Annual  Meeting of  Shareholders  under the
caption "Certain Transactions," and is incorporated herein by reference.






<PAGE>






                                                                PART IV

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

         (a)  The following documents are filed as a part of this report:

1.   Financial Statements:

         Report of Independent Accountants

         Consolidated Balance Sheets at September 30, 1996 and
                  September 30, 1995

         Consolidated Statements of Income for the Years Ended
                  September 30, 1996, September 30, 1995, and
                  September 30, 1994

         Consolidated  Statements  of  Changes in  Shareholders'  Equity for the
                  Years  Ended  September  30,  1996,  September  30,  1995  and
                  September 30, 1994

         Consolidated Statements of Cash Flows for the Years Ended September 30,
                  1996, September 30, 1995 and September 30, 1994

         Notes to Consolidated Financial Statements

2.   Financial Statement Schedules: 

         Report of Independent Accountants

         II - Valuation and Qualifying Accounts

3.   Exhibits:

(a) The exhibits  listed  below are filed as part of this Annual  Report on Form
10-K or are incorporated herein by reference:

Exhibit No.                     Description

2.1       Asset Purchase Agreement and Plan of Reorganization, dated as of
           February 19, 1996 between the Company and Semy Engineering, Inc. (1)
3.1       Restated Articles of Incorporation of the Company (2)
3.2       By-laws of the Company dated August 1, 1979 and related amendments
          to these By-laws (2)
10.1      Form of Semitool, Inc. S Corporation Termination, Tax Allocation and
           Indemnification Agreement between the Company and its current
            shareholders (2)
10.2      Form of Indemnification Agreement between the Company and each of its
           officers and directors (2)
10.3      Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4      Form of Agreement and Plan of Merger between the Company and
           Semitherm, Inc. (2)
10.5      Aircraft Lease Agreement, dated September 9, 1994, between the Company
           and Mr. Thompson (2)
10.6      Aircraft Lease Agreement, dated November 1, 1994, between the Company
           and Mr. Thompson (2)
10.7      Agreement, dated June 7, 1983, between the Company and Entech (2)
10.8      Form of Agreement of Cancellation of Sale Agreement between the
           Company and Mr. Thompson (2)
10.9      Agreement of Sale of Centrifugal Wafer Processor Invention, dated
           August 1, 1979, between the Company and Mr. Thompson (2)
10.10     Articles of Merger, dated September 1, 1993, of Semitool, Inc., a
           California corporation, with and into the Company (2)
10.11     Agreement, dated June 1994, among Robert G. Massey, Donald W, Heidt,
           Steven R. Thompson, Semitherm, Inc., Semitherm Partnership,
           Mr. Thompson and the Company (2)
10.12     Agreement  between the Company and the Semitool European Companies (2)
10.13     Aircraft Lease Agreement, dated April 1, 1996, between the Company
           and Mr. Thompson (3)
10.14     Business Loan Agreement, dated September 30, 1996, between the Company
          and the Bank of America NW, N.A. doing business as Seafirst Bank (3)
10.15     Promissory Note, dated September 30, 1996, between the Company and
          the Bank of America NW, N.A. doing business as Seafirst Bank (3)
11.1      Statement Re Computation of Pro Forma per share Earnings (3)
21.1      Subsidiaries of Registrant (3)
27.1      Financial data schedule (3)

(1) Incorporated herein by reference to the identically numbered exhibits to the
Company's Current Report on Form 8-K, date of report February 29, 1996.

(2) Incorporated herein by reference to the identically numbered exhibits to the
Company's Registration  Statement on Form S-1 (File No. 33-87548),  which became
effective on February 2, 1995.

(b) Reports on Form 8-K. During the fourth quarter of fiscal 1996, there were no
Form 8-K's filed by the Company.
(c) Exhibits.  The Exhibits listed in Item 14(a)(3)(a)  hereof are filed as part
of this Annual Report on Form 10-K or incorporated herein by reference.
(d) Financial Statement Schedules.  See Item 14(a)(2) above.

(3) Filed herewith.



<PAGE>


                                   Signatures

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


Dated:  December 27, 1996                       SEMITOOL, INC.



                                            By: /s/Raymon F. Thompson
                                                -------------------------
                                                Raymon F. Thompson
                                                Chairman of the Board, President
                                                 and Chief Executive Officer

<PAGE>


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

<TABLE>
<S>                                  <C>                                      <C>    

             Signature                                Title                            Date

                                                                              
/s/Raymon F. Thompson                
-----------------------------------  Chairman of the Board, President and     December  27,  1996
Raymon F. Thompson                   Chief Executive Officer
                                     (Principal Executive Officer)


/s/John W. Sullivan                  
-----------------------------------  Vice President-Finance, Assistant        December  27,  1996
John W. Sullivan                     Secretary and
                                     Chief Financial Officer
                                     (Principal Financial
                                         Accounting Officer)


-----------------------------------                 
Howard E. Bateman                                   Director                  December  __,  1996


                                                    
/s/Richard A. Dasen
----------------------------------
Richard A. Dasen                                    Director                  December  27,  1996

                                                    

/s/Daniel J. Eigeman
----------------------------------
Daniel J. Eigeman                                   Director                  December  27,  1996
                                                    


----------------------------------
Ryal R. Poppa                                       Director                  December  __,  1996


                                             
/s/Calvin S. Robinson
----------------------------------
Calvin S. Robinson                           Director and Secretary           December  27,  1996

</TABLE>


<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS



Board of Directors and Shareholders
Semitool, Inc.


We have audited the accompanying  consolidated balance sheets of Semitool,  Inc.
and subsidiaries as of September 30, 1996 and 1995, and the related consolidated
statements  of income,  changes in  shareholders'  equity and cash flows for the
years ended  September 30, 1996,  1995 and 1994.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Semitool,  Inc.  and  subsidiaries  as of September  30, 1996 and 1995,  and the
consolidated  results  of their  operations  and their  cash flows for the years
ended September 30, 1996,  1995 and 1994 in conformity  with generally  accepted
accounting principles.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
changed its method of accounting for income taxes in fiscal 1994.



                                           Coopers & Lybrand L.L.P.


Spokane, Washington
November 1, 1996


<PAGE>


<TABLE>
<CAPTION>




                                                   SEMITOOL, INC.
                                             CONSOLIDATED BALANCE SHEETS
                                             September 30, 1996 and 1995
                                  (Amounts in Thousands, Except for Share Amounts)
<S>                                                                                                       <C>               <C>   

                                                       ASSETS
                                                                                                              1996              1995
Current assets:
   Cash and cash equivalents ...................................................................          $  3,058          $ 11,939
   Marketable securities .......................................................................              --               4,010
   Trade receivables, less allowance for doubtful accounts of $233 and $213.....................            39,183            28,483
   Inventories .................................................................................            36,909            19,263
   Prepaid expenses and other current assets ...................................................             2,323             1,334
   Deferred income taxes .......................................................................             4,373             2,719
                                                                                                          --------          --------
         Total current assets ..................................................................            85,846            67,748
Property, plant and equipment, net .............................................................            26,337            18,771
Intangibles, less accumulated amortization of $899 and $481 ....................................             1,581             1,249
Other assets, net ..............................................................................             1,190               299
                                                                                                          --------          --------
         Total assets ..........................................................................          $114,954          $ 88,067
                                                                                                          ========          ========

                                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Note payable to bank ........................................................................          $  4,000          $   --
   Accounts payable ............................................................................            17,177             6,062
   Accrued commissions .........................................................................             1,751             2,092
   Accrued warranty and installation ...........................................................             7,997             4,251
   Accrued payroll and related benefits ........................................................             5,032             9,181
   Other accrued liabilities ...................................................................               594             2,021
   Customer advances ...........................................................................             3,757             2,949
   Income taxes payable ........................................................................             1,334             2,982
   Long-term debt, due within one year .........................................................               374               924
   Payable to shareholders .....................................................................                33                77
                                                                                                          --------          --------
         Total current liabilities .............................................................            42,049            30,539
Long-term debt, due after one year .............................................................             3,637             4,011
Deferred income taxes ..........................................................................             1,265               704
                                                                                                          --------          --------
         Total liabilities .....................................................................            46,951            35,254
Commitments and contingencies (Note 9)                                                                    --------          --------
Shareholders' equity:
   Preferred stock, no par value, 5,000,000 shares authorized, no
      shares issued and outstanding ............................................................              --                --
   Common stock, no par value, 30,000,000 shares authorized,
      13,655,577 and 13,649,902 shares issued and outstanding
      in 1996 and 1995 .........................................................................            39,577            39,523
   Retained earnings ...........................................................................            28,426            13,290
                                                                                                          --------          --------
         Total shareholders' equity ............................................................            68,003            52,813
                                                                                                          --------          --------
         Total liabilities and shareholders' equity ............................................          $114,954          $ 88,067
                                                                                                          ========          ========
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                   SEMITOOL, INC.
                                          CONSOLIDATED STATEMENTS OF INCOME
                                for the years ended September 30, 1996, 1995 and 1994
                                (Amounts in Thousands, Except for Per Share Amounts)
<S>                                                                     <C>              <C>              <C>

                                                                           1996             1995             1994

Net sales ......................................................        $174,204         $128,326         $ 62,597
Cost of sales ..................................................          89,573           62,468           30,640
                                                                        --------         --------         --------
Gross profit ...................................................          84,631           65,858           31,957
                                                                        --------         --------         --------
Operating expenses:
    Selling, general and administrative ........................          40,946           31,843           19,473
    Research and development ...................................          19,503           11,416            5,975
    Cost of technology rights ..................................            --              1,672            3,489
                                                                        --------         --------         --------
       Total operating expenses ................................          60,449           44,931           28,937
                                                                        --------         --------         --------
Income from operations .........................................          24,182           20,927            3,020
                                                                        --------         --------         --------
Other income (expense):
    Interest income ............................................             173              428               87
    Interest expense, net ......................................            (540)            (571)            (795)
    Other, net .................................................             211              456               52
                                                                        --------         --------         --------        
                                                                            (156)             313             (656)
                                                                        --------         --------         --------
Income before income taxes .....................................          24,026           21,240            2,364
Provision for income taxes .....................................           8,890            6,355              194
                                                                        --------         --------         --------
Net income .....................................................        $ 15,136         $ 14,885         $  2,170
                                                                        ========         ========         ========
Unaudited pro forma information (Notes 1 and 14):
    Income from operations before pro forma
       adjustments .............................................        $ 24,182         $ 20,927         $  3,020
    Elimination of cost of technology rights ...................            --              1,672            3,489
                                                                        --------         --------         --------
    Income from operations .....................................          24,182           22,599            6,509
    Other income (expense), net ................................            (156)             313             (656)
                                                                        --------         --------         --------
    Income before income taxes .................................          24,026           22,912            5,853
    Provision for income taxes .................................           8,890            8,509            2,130
                                                                        --------         --------         --------
    Net income .................................................        $ 15,136         $ 14,403         $  3,723
                                                                        ========         ========         ========
    Net income per share .......................................        $   1.09         $   1.15         $   0.37

    Shares used in pro forma calculation .......................          13,858           12,563            9,946
</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>

<TABLE>
<CAPTION>

                                                     SEMITOOL, INC.
                               CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY  
                                                  for  the  years  ended
                  September 30, 1996,  1995 and 1994 (Amounts in Thousands, Except for Per Share Amounts)



                                                                                  Common Stock
                                                                   -------------------------------------------
                                                                                        Semitool
                                                                        Semitool,       European    Semitherm,
                                                                          Inc.          Companies      Inc.
                                                                   -------------------------------------------
                                                                   Number
                                                                     of                                        Retained
                                                                   Shares     Amount     Amount      Amount    Earnings       Total
<S>                                                                 <C>     <C>        <C>         <C>         <C>         <C>
                                                                                                                           

Balance September 30, 1993 ...................................      8,657   $  1,034   $     36    $    100    $  1,571    $  2,741
 Net income ..................................................       --         --         --          --         2,170       2,170
 Dividends on common stock
     ($.12 per share) ........................................       --         --         --          --          (978)       (978)
 Note payable converted to stock .............................       --         --         --         9,300        --         9,300
 Redemption and retirement of stock ..........................       --         --         --          (750)       --          (750)
 Stock compensation ..........................................       --            4       --          --          --             4
                                                                    -----   --------   --------    --------    --------    --------
Balance September 30, 1994 ...................................      8,657      1,038         36       8,650       2,763      12,487
 Net income ..................................................       --         --         --          --        14,885      14,885
 Dividends on common stock
     ($1.08 per share) .......................................       --         --         --          --        (8,665)     (8,665)
 Proceeds from initial public offering .......................      4,242     33,414       --          --          --        33,414
 Purchase and merger of Semitherm, Inc. ......................
     for Semitool, Inc. stock ................................        692       --         --        (8,650)      8,650        --
 Purchase of the Combined Group of
     Semitool European Companies
     by Semitool, Inc. .......................................       --         --          (36)       --          (170)       (206)
 Contribution of S corporation
     retained earnings with change
     to C corporation status .................................       --        4,173       --          --        (4,173)       --
 Exercise of stock options ...................................         59        509       --          --          --           509
 Stock compensation ..........................................       --           18       --          --          --            18
 Income tax effect of nonqualified
     stock options ...........................................       --          371       --          --          --           371
                                                                   ------   --------   --------    --------    --------    --------
Balance September 30, 1995 ...................................     13,650     39,523       --          --        13,290      52,813
 Net income ..................................................       --         --         --          --        15,136      15,136
 Exercise of stock options ...................................          6         54       --          --          --            54
                                                                   ------   --------   --------    --------    --------    --------
Balance September 30, 1996 ...................................     13,656   $ 39,577   $   --      $   --      $ 28,426    $ 68,003
                                                                   ======   ========   ========    ========    ========    ========
</TABLE>

The accompanying  notes are an integral part of the consolidated
financial statements.



<PAGE>
<TABLE>
<CAPTION>


                                                   SEMITOOL, INC.
                                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                for the years ended September 30, 1996, 1995 and 1994
                                               (Amounts in Thousands)
<S>                                                                                  <C>                <C>                <C>    

                                                                                         1996               1995               1994

Operating activities:
  Net income ..............................................................          $ 15,136           $ 14,885           $  2,170
  Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
        (Gain) loss on sale of equipment ..................................                17               (191)                (7)
        Depreciation and amortization .....................................             4,002              2,392              1,743
        Interest on shareholder note ......................................              --                 --                  301
        Reduction in patent costs .........................................                42                 50               --
        Deferred income tax benefit .......................................            (1,093)            (2,138)              --
        Stock compensation ................................................              --                   18                  4
        Change in:
          Trade receivables ...............................................           (10,700)           (15,155)            (3,456)
          Inventories .....................................................           (18,837)            (8,343)            (2,223)
          Prepaid expenses and other current assets .......................              (989)              (921)                 5
          Shareholders receivable/payable .................................               (44)              (668)             1,413
          Other assets ....................................................               134               (268)                33
          Accounts payable ................................................            11,115               (262)              (168)
          Accrued commissions .............................................              (341)               846                669
          Accrued warranty and installation ...............................             3,746              3,502                467
          Accrued payroll and related benefits ............................            (4,149)             6,429                818
          Other accrued liabilities .......................................            (1,427)             1,276                152
          Customer advances ...............................................               808              2,019               (553)
          Income taxes payable ............................................            (1,648)             3,175                 92
             Net cash provided by (used in) operating                                --------           --------            -------
             activities ...................................................            (4,228)             6,646              1,460
                                                                                     --------           --------            -------
Investing activities:
  Purchases of marketable securities ......................................              --              (10,015)              --
  Proceeds from the sale of marketable securities .........................             4,010              6,005               --
  Purchases of property, plant and equipment ..............................           (10,194)            (8,069)            (6,141)
  Increase in intangible assets ...........................................              (796)              (841)              (325)
  Increase in covenant not to compete .....................................            (1,200)              --                 --
  Proceeds from sale of equipment .........................................               397                192                 25
                                                                                     --------           --------           --------
             Net cash used in investing activities ........................            (7,783)           (12,728)            (6,441)
                                                                                     --------           --------           --------
Financing activities:
  Net proceeds from initial public offering ...............................              --               33,414               --
  Proceeds from exercise of stock options .................................                54                509               --
  Borrowings under line of credit .........................................            49,170             12,805             23,208
  Repayments under line of credit .........................................           (45,170)           (19,045)           (20,129)
  Proceeds from long-term debt ............................................              --                   71              3,636
  Repayments of long-term debt ............................................              (924)            (2,394)            (1,071)
  Net borrowings from shareholder .........................................              --                 --                  898
  Dividends distributed ...................................................              --               (8,871)              (978)
  Change in bank overdraft ................................................              --                 --                  (28)
                                                                                     --------           --------           --------
             Net cash provided by financing activities ....................             3,130             16,489              5,536
                                                                                     --------           --------           --------
Net increase (decrease) in cash and cash equivalents ......................            (8,881)            10,407                555
Cash and cash equivalents at beginning of year ............................            11,939              1,532                977
                                                                                     --------           --------           --------
Cash and cash equivalents at end of year ..................................          $  3,058           $ 11,939           $  1,532
                                                                                     ========           ========           ========
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                   SEMITOOL, INC.
                                  CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                                for the years ended September 30, 1996, 1995 and 1994
                                               (Amounts in Thousands)
<S>                                                                                      <C>               <C>               <C>    


                                                                                           1996              1995              1994
Supplemental  disclosures  of cash flow  information:  Cash paid during the year
  for:
     Interest, net of amounts capitalized ....................................           $   582           $   579           $   491
     Income taxes ............................................................            10,699             5,711                99

Supplemental disclosures of noncash financing and investing activity:
     Inventory transferred to equipment ......................................           $ 1,191           $   994           $   223
     Equipment transferred to inventory ......................................              --                --                 115
     Noncurrent deposit reclassified to prepaid expenses .....................              --                --                  71
     Conversion of note payable to shareholder into
        Semitherm, Inc. common stock .........................................              --                --               9,300
     Purchase of Semitherm, Inc. common stock in exchange
        for notes payable ....................................................              --                --                 750

</TABLE>


The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.



<PAGE>


                                 SEMITOOL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    Company Organization and Summary of Significant Accounting Policies:

Semitool, Inc. (Semitool) designs, manufactures,  markets and services equipment
used in the manufacture of  semiconductors  as well as other products  requiring
similar processes  including thin film heads,  compact disc masters,  flat panel
displays and hard disk media. Semitool has various subsidiaries which operate as
sales and service offices in their respective geographic areas.

Significant accounting policies followed by Semitool,  Inc. and its subsidiaries
(the Company) are:

Principles of Consolidation

The 1996 consolidated  financial statements include the accounts of Semitool and
its wholly-owned subsidiaries:  Semitool Europe Ltd., (United Kingdom); Semitool
Halbleitertechnik  Vertriebs GmbH,  (Germany);  Semitool  France SARL;  Semitool
Italia SRL; Semitool KK, Japan; Semitool, Inc., Korea; Semitool, Inc., FSC; Semy
Engineering,  Inc. (Semy) and Rhetech, Inc. (Rhetech).  The British, German, and
French  Companies (the "Combined  Group of Semitool  European  Companies")  were
acquired by Semitool in connection with the initial public  offering  (Offering)
in February 1995.  Semitool also acquired all the  outstanding  common shares of
Semitherm,  Inc. (Semitherm) in exchange for its common stock in connection with
the Offering and  concurrently  merged  Semitherm into Semitool (see Note 12) in
February 1995.

On February 29, 1996, the Company acquired  substantially  all of the assets and
assumed  certain  liabilities  of Semy,  in exchange  for 600,000  shares of the
Company's   common  stock.   This   transaction  was  accounted  for  using  the
pooling-of-interests  method and accordingly all periods  presented are restated
to show the effects of this  transaction  as if it had occurred at the beginning
of each period presented.

Separate net sales and net income of the combined companies are presented in the
following table (in thousands):
<TABLE>


                                                                    Five Months                   Year                     Year
                                                                       Ended                      Ended                    Ended
                                                                    February 29,               September 30,           September 30,
<S>                                                                   <C>                        <C>                      <C> 
                                                                        1996                       1995                     1994
Net sales:
   Semitool .......................................                   $ 56,957                   $115,300                 $ 55,742
   Semy ...........................................                      7,424                     13,026                    6,855
                                                                      --------                   --------                 --------
                                                                      $ 64,381                   $128,326                 $ 62,597
                                                                      ========                   ========                 ========
Net income:
   Semitool .......................................                   $  5,392                   $ 14,880                 $  2,073
   Semy ...........................................                      1,331                          5                       97
                                                                      --------                   --------                 --------
                                                                      $  6,723                   $ 14,885                 $  2,170
                                                                      ========                   ========                 ========
</TABLE>



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.  Company  Organization  and  Summary  of  Significant   Accounting  Policies,
continued:

Principles of Consolidation, continued:

All  significant  intercompany  accounts  and  transactions  are  eliminated  in
consolidation.

The 1994  financial  statements  represent  the  combined  accounts of Semitool,
Semitherm and the Combined Group of Semitool European  Companies.  The companies
were under common control of one  shareholder  and engaged in the same business.
Other companies under the control of this shareholder  which were not engaged in
the same business were not combined.  All significant  intercompany accounts and
transactions were eliminated in the combination.

Estimates

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

Cash Equivalents

The Company  considers cash equivalents to consist of short-term,  highly liquid
investments  with  remaining  maturities  at time of purchase of three months or
less.  Substantially all of its cash and cash equivalents are held by five major
financial institutions.

Marketable Securities

The  Company's  marketable  securities  are  classified  as  available-for-sale.
Available-for-sale  securities  consist  primarily of municipal  bonds which are
carried  at  market  value.  Realized  gains  and  losses  on the  sale of these
securities are recognized in the statement of income in the period they are sold
on a specific  identification basis. The estimated fair value of each investment
approximates the amortized cost, and therefore, there are no unrealized gains or
losses.  For other than a temporary  decline in the value of an investment below
cost, the investment is reduced to its net realizable  value,  which becomes the
new cost basis of the  investment.  The amount of the reduction is reported as a
loss in the  statement of income.  Any recovery of market value in excess of the
investment's  new cost basis is  recognized as a realized gain only upon sale or
other  disposition  of the  investment.  Factors which the Company  evaluates in
determining  the existence of any other than temporary  decline in value include
the length of time and extent to which market value has been less than cost; the
financial  condition and near term  prospects of the issuer;  and the intent and
ability of the Company to retain its  investment for the  anticipated  period of
time for the recovery in market value.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.  Company  Organization  and  Summary  of  Significant   Accounting  Policies,
Continued:

Inventories

Inventories are carried at the lower of first-in,  first-out  (FIFO) cost or net
realizable value. The Company  periodically  reviews its inventories to identify
slow  moving  and  obsolete  inventories  to  record  such  inventories  at  net
realizable  values.  It is  reasonably  possible  that the  Company's  estimates
regarding  net  realizable   values  could  change  in  the  near  term  due  to
technological changes.

Property, Plant and Equipment

Property,  plant and equipment is stated at cost.  Depreciation and amortization
is provided  using the  straight-line  method  with  estimated  useful  lives as
follows:

Buildings and improvements                                           10-40 years
Machinery and equipment                                               2-5 years
Furniture, fixtures and leasehold
 improvements                                                         5-7 years
Vehicles and aircraft                                                 5-10 years

Major  additions and  betterments  are  capitalized.  Costs of  maintenance  and
repairs  which do not improve or extend the lives of the  respective  assets are
expensed  currently.   When  items  are  disposed  of,  the  related  costs  and
accumulated  depreciation  are removed from the accounts and any gain or loss is
recognized in operations.

Interest Capitalization

The  Company  capitalizes  interest  costs  during the  construction  period for
qualifying assets. During the years ended September 30, 1996, 1995 and 1994, the
Company   capitalized   $9,000,   $18,000  and   $201,000  of  interest   costs,
respectively.

Intangible Assets

Intangible assets include,  among other things, the cost of internally developed
software and patents.

Costs incurred for internally developed software products and enhancements after
technological  feasibility  and  marketability  have  been  established  for the
related  product  are  capitalized  and are  stated  at the lower of cost or net
realizable  value.  Amortization  is provided based on the greater of the amount
computed  using (a) the ratio that current gross revenues for a product bears to
the total of current and  anticipated  future gross revenues for that product or
(b) the  straight-line  method over the remaining  economic life of the product,
estimated at three years.

The cost of patents is amortized on a straight-line basis over the lesser of the
statutory life of 17 years or estimated product life.


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.  Company  Organization  and  Summary  of  Significant   Accounting  Policies,
Continued:

Intangible Assets, continued:

It is reasonably  possible that  estimates of future gross revenues for software
products, the estimated remaining product life, or both could change in the near
term due to  technological  advances  which would  result in a reduction  in the
carrying value of capitalized software development costs and patents.

Accrued Payroll and Related Benefits

The  Company  records the  estimated  costs of  employee  severance  at the date
management  implements  a plan of  termination.  In September  1996,  management
implemented a plan which included a planned reduction in the Company's workforce
by approximately 10%.

Foreign Currency

The functional currency for the Company's foreign operations is the U.S. dollar,
in which  substantially all sales and purchases are denominated.  Realized gains
and losses from foreign  currency  transactions  and unrealized gains and losses
from  re-measurement of the financial  statements of the foreign operations into
the functional currency are included in the consolidated statements of income.

Revenue Recognition

Revenue from sales of products is generally  recognized  at the time the product
is shipped.

Accrued Warranty and Installation

The Company's  remaining  obligations at time of shipment for  installation  and
warranty are accrued  concurrently with the revenue recognized.  The Company has
made a  provision  for its  warranty  and  installation  obligations  based upon
historical  costs  incurred for such  obligations  adjusted,  as necessary,  for
current  conditions  and  factors.  Due to  the  significant  uncertainties  and
judgments  involved  in  estimating  the  Company's  warranty  and  installation
obligations, including changing product designs and specifications, the ultimate
amount incurred for all warranty and installation costs could change in the near
term from the Company's currently recorded provision.

Research and Development Costs

Costs of research and development are expensed as incurred.

Income Taxes

Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards  (SFAS) No. 109,  "Accounting for Income Taxes." SFAS No. 109 requires
the use of the liability method of computing deferred income taxes. The adoption
of SFAS No. 109 did not have a material  effect on the  financial  condition  or
results of operations of the Company.


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


1.Company Organization and Summary of Significant Accounting Policies, 
  Continued:

Net Income Per Common Share

Historical  net income per common share for the years ended  September 30, 1996,
1995 and 1994 has not been presented as it is not meaningful in the presentation
of these consolidated financial statements.

Pro forma net income per common share equals pro forma net income divided by the
weighted  average  common  shares  outstanding,  after giving effect to dilutive
stock options and common shares issued for the acquisition of Semy.

Pro forma weighted average common shares outstanding has been calculated for the
year  ended  September  30,  1994  using the sum of:  (i) the  weighted  average
outstanding  common  shares of Semitool,  (ii) the  additional  common shares of
Semitool  issued  for  the  acquisition  of  Semitherm  as if such  shares  were
outstanding  for the entire  period,  (iii) the 600,000  common shares issued by
Semitool to acquire Semy and (iv) the  additional  common shares that would need
to be issued in connection  with the Offering to fund dividends to  shareholders
in excess of net income for the year ended  September 30, 1994 (see Notes 13 and
14).

In July 1995,  the Board of Directors of Semitool  adopted a resolution to split
all common  shares of Semitool  on a 3-for-2  basis.  All share  amounts and per
share data presented herein reflect the common stock split.

Reclassifications

Certain  prior years'  financial  statement  amounts have been  reclassified  to
conform to the 1996 presentation.  Such  reclassifications  had no impact on net
income or retained earnings as previously presented.


2.    Inventories:

Inventories  at  September 30,  1996 and  1995  are  summarized  as  follow  (in
thousands):

                                                            1996           1995

         Parts and raw materials                        $   18,157    $   10,080
         Work-in-process                                    15,702         7,834
         Finished goods                                      3,050         1,349
                                                        ----------    ----------
                                                        $   36,909    $   19,263
                                                        ==========    ==========


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


3.    Property, Plant and Equipment:

Property,  plant and equipment at  September 30,  1996 and 1995 is summarized as
follows (in thousands):

                                                            1996          1995

Buildings and improvements                               $  12,504   $   11,037
Machinery and equipment                                     10,055        6,901
Furniture, fixtures and leasehold improvements               7,892        5,093
Vehicles and aircraft                                        5,478        2,585
                                                         ---------   ----------
                                                            35,929       25,616
Less accumulated depreciation and amortization             (12,072)      (9,147)
                                                         ---------   -----------
                                                            23,857       16,469
         Land and land improvements                          2,480        2,302
                                                         ---------   ----------
                                                         $  26,337   $   18,771
                                                         =========   ==========


4.    Note Payable to Bank:

The Company has two uncollateralized  lines of credit totaling $25 million under
an agreement with Seafirst Bank (Seafirst) . Borrowings  under both of the lines
of credit bear interest at the bank's prime lending rate (8.25% at September 30,
1996) with the first line of $10 million  expiring on December  31, 1997 and the
second line of $15 million  expiring on December 31,  1998.  The lines of credit
require  monthly  interest  payments  only,  with the $10 million line principal
amount due in full on  expiration  and the $15  million  line  principal  amount
repayable in monthly  principal and interest  payments  over a five-year  period
ending  December 2003. At September 30, 1996,  there were $4 million of advances
outstanding  on the first line of credit.  The  Company  has the option with the
second  line of credit to fix the  interest  rate for  specific  periods of time
ranging  from 30 days to five years in amounts of $500,000 or more.  The option,
if exercised,  would fix the interest rate at the London Interbank  Offered Rate
(LIBOR) plus two percent.  The agreement for both lines of credit provides for a
quarterly  commitment  fee  on  any  unused  portion  of the  lines  of  credit.
Additionally,  the agreement includes various  restrictive  covenants,  the most
significant  of which  relates to a prohibition  against  pledging or in any way
encumbering current or operating assets during the term of the agreement and the
maintenance of various financial ratios.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


5.     Long-Term Debt:

Long-term debt at September 30, 1996 is summarized as follows (in thousands):

Mortgage term note payable to Seafirst in monthly  installments of 
 $23 including interest at a blended  rate of 5.5%,  maturing on
 September  1, 2014 (A)                                                  $3,102
Mortgage term note payable to Seafirst in monthly  installments of 
 $25 including interest at a blended rate of 4.7%, maturing on 
 December 1, 1999 (A)                                                       909
                                                                         ------
                                                                          4,011
    Less current portion                                                    374
                                                                         ------
                                                                         $3,637
                                                                         ======

(A)The  mortgage term notes payable are  collateralized  by a first lien deed of
trust on the Kalispell office and manufacturing facility and by all fixtures and
personal property of Semitool  necessary for the operation of the facility.  The
Montana State Board of  Investments  provided 80% of the financing with Seafirst
providing the remaining  20%. The notes are  personally  guaranteed by Raymon F.
Thompson,  the  Company's  chief  executive  officer,  and  are  subject  to the
restrictive covenants described in Note 4.

Principal  maturities for long-term debt  outstanding at September 30, 1996, are
summarized by year as follows (in thousands):

                     Year Ending
                    September 30,

                        1997                                         $    374
                        1998                                              393
                        1999                                              412
                        2000                                              198
                        2001                                              134
                     Thereafter                                         2,500
                                                                     --------
                                                                     $  4,011
                                                                     ========

6.    Employee Benefit and Stock Option Plans:

Semitool  maintains a profit-sharing  plan and trust under Section 401(k) of the
Internal  Revenue  Code.  Under  the terms of the plan,  the U.S.  employees  of
Semitool,  Semy  and  Rhetech  may make  voluntary  contributions  to the  plan.
Semitool  contributes a matching amount equal to 50% of the employee's voluntary
contribution  up to 5% of the  employee's  compensation.  Semitool may also make
non-matching  contributions  to the plan,  which are determined  annually by the
Board of Directors.  Total profit sharing  contribution expense to this plan was
approximately $639,000,  $377,000 and $190,000 for the years ended September 30,
1996, 1995 and 1994, respectively.


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


6.    Employee Benefit and Stock Option Plans, Continued:

Semitool Europe Ltd. maintains a defined  contribution  pension agreement.  This
pension  agreement  is open to all  employees  with  more than  three  months of
service. The employer and employee contributions are invested in each individual
member's  personal  pension plan with a United Kingdom  insurance  company.  The
employer has an obligation to make contributions at one-half of the contribution
rate paid by the employee,  subject to a maximum rate of 2.5% of the  employee's
salary.  However,  there is no upper limit on the  contributions  payable by the
employee.  The total pension cost under this plan for the years ended  September
30, 1996, 1995 and 1994 approximated $23,000, $15,000 and $11,000, respectively.
The pension  agreement  does not impose any  obligation  on the employer to make
contributions  for  the  periods  after  an  individual  retires  or  terminates
employment.

The Company's other foreign subsidiaries do not operate their own pension plans,
but  retirement  benefits  are provided to employees  through  government  plans
operated in their respective countries.

In December 1994, the Board of Directors  adopted and the shareholders  approved
the Semitool,  Inc. 1994 Stock Option Plan (the Option Plan). A total of 900,000
shares of common stock were reserved for issuance under the Option Plan. Options
granted under the Option Plan generally  become  exercisable at a rate of 5% per
quarter commencing three months after the grant date. Semitool may grant options
which qualify as incentive  stock options to employees  and  nonqualified  stock
options  to  employees,   officers,   directors,   independent  contractors  and
consultants.  The Option Plan also provides for automatic grants of nonqualified
stock  options to  independent  directors.  The Option  Plan will  terminate  in
December  2004,  unless  terminated  earlier at the  discretion  of the Board of
Directors.

      Option  activity  for the years  ended  September  30, 1996 and 1995 is as
follows:
<TABLE>


                                                                                       Nonqualified   Qualified
                                                                                         Number        Number        Option Price
                                                                                        of Shares     of Shares        Per Share
<S>                                                                                      <C>           <C>            <C>          
Outstanding, September 30, 1994 ................................................           --             --
   Granted .....................................................................         15,000        561,000        $ 8.67-$15.33
   Exercised ...................................................................           --          (58,715)       $ 8.67
   Canceled ....................................................................           --           (4,800)       $ 8.67
                                                                                         ------        -------        -------------
Outstanding, September 30, 1995 ................................................         15,000        497,485        $ 8.67-$15.33

   Granted .....................................................................         24,700        154,300        $12.00-$16.25
   Exercised ...................................................................           --           (5,675)       $ 8.67-$11.17
   Canceled ....................................................................           --          (50,000)       $ 8.67-$16.25
                                                                                         ------        -------        -------------
Outstanding, September 30, 1996 ................................................         39,700        596,110        $ 8.67-$16.25
                                                                                         ======        =======        =============
Exercisable, September 30, 1996 ................................................         20,520        141,378
                                                                                         ======        =======
      On September 30, 1996, 199,800 shares were available for grant.
</TABLE>


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


6.    Employee Benefit and Stock Option Plans, Continued:

The exercise and sale of certain  qualified options resulted in the treatment of
those options as nonqualified  options.  As a result, the Company received a tax
benefit  associated  with those  options  of  $371,000  in 1995,  which has been
recorded as additional contributed capital.

In October 1995, the Financial  Accounting  Standards Board issued SFAS No. 123,
"Accounting for Stock-Based  Compensation." This Statement establishes financial
accounting and reporting standards for stock-based employee  compensation plans.
The  Statement  encourages  all  entities to adopt a fair value based  method of
accounting,  but allows an entity to continue to measure  compensation  cost for
those plans using the intrinsic  value based method of accounting  prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company must
implement SFAS No. 123 on October 1, 1996. Management does not plan to adopt the
measurement  provisions  of SFAS No. 123,  although the Company will comply with
the pro  forma  disclosure  requirements  of the  Statement  in its 1997  annual
financial statements.


7.    Income Taxes:

The provision for income taxes for the years ended  September 30, 1996, 1995 and
1994 consists of the following (in thousands):

                                               1996         1995         1994
         Federal:
            Current                        $  7,882     $    6,354    $      14
            Deferred                           (551)        (1,966)          --
         State:
            Current                           1,776          1,545          146
            Deferred                            (67)          (172)          --
         Foreign:
             Current                            325            594           34
             Deferred                          (475)            --           --
                                           --------     ----------    ---------
                                           $  8,890     $    6,355    $     194
                                           ========     ==========    =========

Domestic and foreign  components  of income  (loss)  before income taxes for the
years ended September 30, 1996, 1995 and 1994 are as follows (in thousands):


                                             1996          1995         1994

         Domestic                        $   24,277     $   19,793    $   2,228
         Foreign                               (251)         1,447          136
                                         ----------     ----------    ---------
                                         $   24,026     $   21,240    $   2,364
                                         ==========     ==========    =========




<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


7.    Income Taxes, Continued:

Prior to February 1, 1995,  Semitool and Semitherm  were treated for federal and
state (excluding Montana) income tax purposes as S corporations under Subchapter
S of the Internal  Revenue Code. As a result,  the companies'  earnings for such
period  were  taxed  at the  shareholder  level.  Effective  February  1,  1995,
Semitherm  was merged into  Semitool and Semitool  terminated  its S corporation
status (see Notes 1 and 12).  From  February 1, 1995,  Semitool's  earnings have
been  taxed as a C  corporation  and  provisions  for  income  taxes  have  been
reflected  in  the  consolidated  financial  statements.   Semitool  recorded  a
nonrecurring net deferred tax benefit of approximately  $890,000 associated with
the recognition of a related  deferred tax asset due to the termination of the S
corporation status in 1995.

The Company's foreign subsidiaries are subject to the tax regulations that exist
in their respective countries.  These subsidiaries provide for deferred taxation
at  current  rates  to take  into  account  temporary  differences  between  the
treatment of certain items for financial statement purposes and the treatment of
those items for  corporation  tax purposes.  The  components of the deferred tax
assets and  liabilities  as of  September  30,  1996 and 1995 are as follows (in
thousands):
<TABLE>
<S>                                                                                 <C>                 <C>                 <C>    

September 30, 1996 ......................................................             Assets            Liabilities           Total

Accrued liabilities, principally vacation and
   health insurance .....................................................            $   709            $  --               $   709
Accrued reserves, principally bad debt, warranty
   and inventory ........................................................              2,669               --                 2,669
Inventory capitalization ................................................                433               --                   433
Depreciation and software amortization ..................................               --               (1,265)             (1,265)
Covenant not to compete .................................................                 49               --                    49
Foreign net operating loss carryforward .................................                475               --                   475
Other ...................................................................                 38               --                    38
                                                                                     -------            -------             -------
Total ...................................................................            $ 4,373            $(1,265)            $ 3,108
                                                                                     =======            =======             =======

September 30, 1995 ......................................................             Assets            Liabilities           Total

Accrued liabilities, principally vacation and
    health insurance ....................................................            $   509            $  --               $   509
Accrued reserves, principally bad debt, warranty
   and inventory ........................................................              1,724               --                 1,724
Inventory capitalization ................................................                550               --                   550
Depreciation and software amortization ..................................               --                 (734)               (734)
Other ...................................................................                 47                (81)                (34)
                                                                                     -------            -------             -------
Total ...................................................................            $ 2,830            $  (815)            $ 2,015
                                                                                     =======            =======             =======
</TABLE>


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


7.    Income Taxes, Continued:

The Company does not believe a valuation allowance is necessary at September 30,
1996 to reduce the deferred tax asset as this asset will more likely than not be
realized through the generation of future taxable income.

The differences  between the consolidated  provision for income taxes and income
taxes computed using income before income taxes and the U.S.  federal income tax
rate for the years ended  September  30, 1996,  1995 and 1994 are as follows (in
thousands):
<TABLE>


                                                                                       1996                1995                1994

<S>                                                                                 <C>                 <C>                 <C>    
Amount computed using the statutory rate ...............................            $ 8,409             $ 7,434             $   805
Increase (decrease) in taxes resulting from:
   Benefit of recognition of deferred tax asset in
       connection with S corporation termination .......................               --                  (890)               --
   State taxes, net of federal benefit .................................              1,155                 893                 146
   Tax effect of income not subject to federal tax
       due to Subchapter S election ....................................               --                  (793)               (720)
   Effect of foreign taxes .............................................                (62)                119                 (12)
   Research and experimentation credit .................................               (355)               (140)               --
   Foreign sales corporation benefit ...................................               (695)               --                  --
   Other, net ..........................................................                438                (268)                (25)
                                                                                    -------             -------             -------
                                                                                    $ 8,890             $ 6,355             $   194
                                                                                    =======             =======             ======= 
</TABLE>



8.    Related Party Transactions:

In August 1979, Semitool entered into an agreement with Raymon F. Thompson,  the
Company's  chief  executive  officer and  majority  shareholder,  to acquire all
rights,  title to and interest in a centrifugal wafer processor  invention.  The
agreement  called for  payments  to Mr.  Thompson  through  September  30,  1999
amounting to 8% of all sales of the centrifugal wafer processor, equipment using
the processor's  technology and replacement parts. This agreement was terminated
effective  with the  Offering  in  February  1995 (see Note  13).  Total  costs,
pursuant to this agreement, were approximately $1,672,000 and $3,489,000 for the
years ended September 30, 1995 and 1994, respectively.

Semitool also has agreements with Mr.  Thompson to lease  aircraft.  The current
rental rate is $109,500  per month.  Under these  agreements,  rent  expense was
approximately  $1,158,000,  $835,000, and $650,000 for the years ended September
30, 1996, 1995 and 1994, respectively.

Periodically,  Semitool advances funds to Mr. Thompson and pays certain expenses
for the benefit of Mr. Thompson. These advances are offset by amounts payable to
Mr.  Thompson under the agreements  described in the preceding  paragraphs.  Net
advances  to (from) Mr.  Thompson  are charged  interest  at the  federal  funds
short-term  rate.   Associated  with  these  advances,   Mr.  Thompson  received
approximately   $2,000  and  $66,000  of  interest  income  in  1996  and  1994,
respectively, and paid the company interest of $31,000 in 1995.


<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


8.    Related Party Transactions, Continued:

During  1994  and  prior,   Semitherm   received   advances  from  its  majority
shareholder,  Mr.  Thompson,  and  recorded  such  advances as a note payable to
shareholder.  The note bore interest at the federal funds short-term rate. Total
interest  expense  relating to this note for the year ended  September  30, 1994
approximated  $301,000.  In June 1994, the note payable totaling  $9,300,000 was
converted into common stock of Semitherm (see Note 12).

Semitool purchased raw materials approximating $651,000,  $570,000, and $179,000
for the years ended  September  30, 1996,  1995 and 1994,  respectively,  from a
company owned by Mr. Thompson.


9.    Commitments and Contingencies:

The Company has various  operating  lease  agreements  for  equipment and office
space that expire through the year 2013.  Total rent expense for the years ended
September 30, 1996, 1995 and 1994,  exclusive of amounts paid to a related party
as described in Note 8, was  approximately  $950,000,  $648,000,  and  $592,000,
respectively.  At  September  30,  1996,  future  rental  payments  under  these
agreements  and the  aircraft  leases  described  in Note 8 are as  follows  (in
thousands):

                   Year Ending
                   September 30,                    Total

                       1997                         2,310
                       1998                         1,852
                       1999                         1,422
                       2000                           697
                       2001                            60
                    Thereafter                        397
                                                 --------
                                                 $  6,738
                                                 ========

A purported  class action  lawsuit  brought by a Company  shareholder  was filed
February 26, 1996, in the Montana  Eleventh  Judicial  District Court,  Flathead
County,  Kalispell,  Montana against the Company and certain of its officers and
directors. The complaint includes allegations that the Company issued misleading
statements  concerning  its business and  prospects.  The suit seeks  injunctive
relief,  damages, costs and other relief as the court may find appropriate.  The
Company  believes  the  lawsuit to be without  merit and  intends to contest the
action  vigorously.  However,  given the  inherent  uncertainty  of  litigation,
insurance issues,  and the early stages of discovery,  there can be no assurance
that the ultimate outcome will be in the Company's favor or that if the ultimate
outcome is not in the  Company's  favor that such an outcome,  the  diversion of
management's attention, and any costs associated with the lawsuit, will not have
a material  adverse  effect on the Company's  financial  condition or results of
operations.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


10.   Concentration of Credit Risk and Foreign Operations:

At  September  30, 1996 and 1995,  the trade  receivables  of the  Company  were
primarily  from   companies  in  the   semiconductor   industry,   and  included
approximately  $20.5  million  and  $9.5  million,   respectively,   of  foreign
receivables.  Accordingly,  the Company is exposed to  concentrations  of credit
risk.  The Company  routinely  assesses the financial  strength of its customers
and, as a consequence,  believes that its trade accounts  receivable credit risk
exposure is limited.

For the years ended September 30, 1996, 1995 and 1994, consolidated sales to one
major customer  represented  3.1%, 13.1% and 8.6% of total  consolidated  sales,
respectively.

Summarized data for the Company's foreign  operations  (principally  Europe) for
the years ended September 30, 1996, 1995 and 1994 are as follows (in thousands):

                                                  1996         1995        1994

    Net sales - unaffiliated customers      $   49,197   $  38,091   $   14,740
    Income (loss) from operations                  332       1,677         (304)
    Identifiable assets                         23,472      13,232        4,702

Export sales from the Company's  United  States  operations  were  approximately
$27.2 million  (16%),  $13.7 million (11%) and $10.3 million (17%) for the years
ended September 30, 1996, 1995 and 1994, respectively.


11.   Preferred Stock:

The Board of Directors has the authority to issue preferred stock of Semitool in
one  or  more  series  and  to  fix  the  rights,  privileges,  preferences  and
restrictions  granted to or imposed upon any unissued shares of preferred stock,
without further vote or action by the common shareholders.


12.   Redemption of Semitherm Common Stock:

In June 1994,  the  shareholders  of  Semitherm  entered  into a  reorganization
agreement which resulted in the redemption of all minority  shareholders' common
stock  leaving all  remaining  outstanding  common stock of  Semitherm  owned by
Raymon F. Thompson. The agreement also included the conversion of Mr. Thompson's
note payable due from Semitherm  aggregating  $9.3 million into 46,500 shares of
common stock. The 3,000 shares of common stock held by the minority shareholders
were redeemed and retired by Semitherm at a value of $200 per share  aggregating
$600,000.  The  agreement  included an  additional  payment of  $150,000  upon a
successful public offering of a combined Semitherm and Semitool entity which was
disbursed in 1995.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


13.   Transactions Associated with the Offering:

The consolidated balance sheet at September 30, 1995 reflects the acquisition of
both Semitherm and the Combined Group of Semitool European Companies for 692,031
shares of Semitool  common  stock and cash of $206,000,  respectively.  As these
entities were under common control and the historical  financial statements have
been presented on a combined basis, the Semitherm  acquisition was accounted for
as if it were a  pooling-of-interests,  and the cash payment for the acquisition
of the Combined  Group of Semitool  European  Companies  was  accounted for as a
dividend.  The  consolidated  balance  sheet  also  reflects a  distribution  of
accumulated  S  corporation  earnings  through  January  31,  1995  (the date of
termination of S corporation  status) of approximately  $8.7 million,  which had
been  distributed as of September 30, 1995 and the contribution of the remaining
S corporation retained earnings to common stock with the change to C corporation
status.

In February  1995,  the Company  completed  its initial  public  stock  offering
through the sale of  4,241,815  shares of its common  stock.  As a result of the
Offering,  the Company  received net proceeds of  approximately  $33.4  million.
Approximately  $9.4 million and $8.7  million of the net  proceeds  were used to
repay debt of the Company and make  distributions  of dividends to shareholders,
respectively.  Also, in connection with the completion of the Company's  initial
public  offering,  payments  for  technology  rights to Mr.  Raymon F.  Thompson
described in Note 8 ceased.


14.   Unaudited Pro Forma Statements of Income Information:

The following pro forma information reflects the effects of certain transactions
that occurred as a result of the Offering which are more completely described in
Notes 7 and 13.

The  consolidated  pro forma  statements of income for the years ended September
30, 1995 and 1994  present  the pro forma  effects on the  historical  financial
information  to  eliminate  the cost of  technology  rights and to  recognize  a
provision for income taxes at statutory rates applied to pro forma income before
income taxes, net of actual research and development  credits  generated in each
fiscal year. These  adjustments have been made as if they occurred at October 1,
1993.

15.   Fair Value of Financial Instruments:

The Company has estimated the fair value of its financial  instruments including
cash and cash  equivalents,  payable to  shareholder,  note  payable to bank and
long-term  debt.  The fair value  estimates are made at a discrete point in time
based on  relevant  market  information  and  information  about  the  financial
instruments.  Fair value  estimates  are based on  judgments  regarding  current
economic conditions,  risk characteristics of various financial  instruments and
other   factors.   These   estimates  are   subjective  in  nature  and  involve
uncertainties  and matters of  significant  judgment and,  therefore,  cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates. Accordingly, the estimates are not necessarily indicative of what the
Company could realize in a current market exchange.



<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


15.   Fair Value of Financial Instruments, Continued:

The following  methods and  assumptions  were used to estimate the fair value of
each  class of  financial  instruments  at  September  30,  1996 for which it is
practicable to estimate that value.

Cash and Cash  Equivalents  - The  carrying  value of cash and cash  equivalents
approximates fair value due to the nature of the cash investments.

Payable  to  Shareholder  -  The  carrying  value  of  the  shareholder  payable
approximates fair value.

Note  Payable  to  Bank  - The  carrying  value  of the  note  payable  to  bank
approximates  fair  value  due to the  fact  that the  terms  of the  note  were
renegotiated in September 1996.

Long-Term  Debt - The fair  value of notes  payable  is based on the  discounted
value of  contractual  cash flows using a discount  rate which the Company could
currently obtain for debt with similar  remaining  maturities.  At September 30,
1996, the fair value of the notes payable  approximates  $3,412,000  compared to
the carrying value of approximately $4,011,000.



<PAGE>





                                  Exhibit Index


Exhibit No.                                 Description

2.1           Asset Purchase Agreement and Plan of Reorganization, dated as of
               February 19, 1996 between the Company and Semy Engineering,
               Inc. (1)
3.1           Restated Articles of Incorporation of the Company (2)
3.2           By-laws of the Company dated August 1, 1979 and related
               amendments to these By-laws (2)
10.1          Form of Semitool, Inc. S Corporation Termination, Tax Allocation
               and Indemnification Agreement between the Company and its
               current shareholders (2)
10.2          Form of Indemnification Agreement between the Company and
               each of its officers and directors (2)
10.3          Form of Semitool, Inc. 1994 Stock Option Plan (2)
10.4          Form of Agreement and Plan of Merger between the Company and
               Semitherm, Inc. (2)
10.5          Aircraft Lease Agreement, dated September 9, 1994, between the
               Company and Mr. Thompson (2)
10.6          Aircraft Lease Agreement, dated November 1, 1994, between the
               Company and Mr. Thompson (2)
10.7          Agreement, dated June 7, 1983, between the Company and Entech (2)
10.8          Form of Agreement of Cancellation of Sale Agreement between
               the Company and Mr. Thompson (2)
10.9          Agreement of Sale of Centrifugal Wafer Processor Invention, dated
               August 1, 1979, between the Company and Mr. Thompson (2)
10.10         Articles of Merger, dated September 1, 1993, of Semitool, Inc., a
               California corporation, with and into the Company (2)
10.11         Agreement, dated June 1994, among Robert G. Massey, Donald W,
              Heidt, Steven R. Thompson, Semitherm, Inc., Semitherm Partnership,
               Mr. Thompson and the Company (2)
10.12         Agreement  between the Company and the Semitool European
               Companies (2)
10.13         Aircraft Lease Agreement, dated April 1, 1996, between the Company
               and Mr. Thompson (3)
10.14         Business Loan Agreement, dated September 30, 1996, between the 
               Company and the Bank of America NW, N.A. doing business as
               Seafirst Bank (3)
10.15         Promissory Note, dated September 30, 1996, between the Company and
               the Bank of America NW, N.A. doing business as Seafirst Bank (3)
11.1          Statement Re Computation of Pro Forma per share Earnings (3)
21.1          Subsidiaries of Registrant (3)
27.1          Financial data schedule (3)

(1) Incorporated herein by reference to the identically numbered exhibits to the
Company's Current Report on Form 8-K, date of report February 29, 1996.

(2) Incorporated herein by reference to the identically numbered exhibits to the
Company's Registration  Statement on Form S-1 (File No. 33-87548),  which became
effective on February 2, 1995.

(3) Filed herewith.




<PAGE>


REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE

Board of Directors and Shareholders
Semitool, Inc.

Our report on the consolidated financial statements of Semitool, Inc. is 
included elsewhere in this Form 10-K.  In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed under Item 14(a) of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when 
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be 
included therein.

                                            Coopers & Lybrand L.L.P.

Spokane, Washington
November 1, 1996

<PAGE>



<TABLE>
<CAPTION>

                                SCHEDULE II ---- VALUATION AND QUALIFYING ACCOUNTS
                                                (Amounts in Thousands)

                                                                                       Additions
                                                                                ------------------------
                                                                   Balance        Charged       Charged                      Balance
                                                                     at          to Costs          to                         at End
                                                                  Beginning         and          Other                          of
                                                                 of Period       Expenses       Accounts        Deductions    Period
                                                                                
<S>                                                                  <C>            <C>            <C>           <C>            <C>
Year ended September 30, 1996: 
Deducted from asset accounts:
  Allowance for doubtful accounts ........................           $213           $ 20           $--           $--            $233
  Allowance for inventory obsolescence ...................            817             31            --            300            548
Year ended September 30, 1995: 
Deducted from asset accounts:
  Allowance for doubtful accounts ........................             81            132            --            --             213
  Allowance for inventory obsolescence ...................            267            550            --            --             817
Year ended September 30, 1994: 
Deducted from asset accounts:
  Allowance for doubtful accounts ........................             63             18            --            --              81
  Allowance for inventory obsolescence ...................            --             267            --            --             267

</TABLE>



<PAGE>

<TABLE>
<CAPTION>

                                                                                                       Exhibit 11.1
                                                  Semitool, Inc.
                             STATEMENT RE COMPUTATION OF PRO FORMA PER SHARE EARNINGS
                               (Amounts in Thousands, Except for Per Share Amounts)

<S>                                                                                                        <C>  
Shares outstanding at September 30, 1994                                                                      8,657
Additional common shares issued for the acquisition of Semitherm, Inc.                                          692
Additional  shares  that  are  assumed  to be  issued  in the  offering  to fund
 shareholder distributions in excess of net income for the 12 months
 ended February 2, 1995 (1)                                                                                     597
                                                                                                            -------
Shares used in pro forma calculation for the year ended September 30, 1994                                    9,946
                                                                                                            =======



Weighted average shares outstanding at September 30, 1995                                                    12,349
Additional shares that are assumed to be issued in the offering to fund shareholder distributions
in excess of net income for the 12 months ended
 February 2, 1995 (2)                                                                                           214
                                                                                                            -------
Shares used in pro forma calculation for the year ended September 30, 1995                                   12,563
                                                                                                            =======



Weighted average shares outstanding at September 30, 1996                                                    13,858
                                                                                                            -------
Shares used in pro forma calculation for the year ended September 30, 1996                                   13,858
                                                                                                            =======

(1)  Computed as follows in  accordance  with Staff  Accounting  Bulletin  Topic
     1.B.3:
    Shareholder distributions                                                                               $ 8,340
    Less historical income for the 12 months ended February 2, 1995                                           3,172
                                                                                                            -------
    Distributions in excess of net income                                                                   $ 5,168
                                                                                                            =======
    Shares assumed to be issued at the $8.67 per share Offering price
     to fund distributions in excess of net income                                                              597
                                                                                                            =======


(2) Computed as follows in accordance with Staff Accounting Bulletin
    Topic 1.B.3:
    Shares assumed to be issued September 30, 1994 at at the $8.67
     per share Offering price to fund distributions in excess of
     net income (See (1) above)                                                                                 597
    Less adjustment to reflect outstanding distributive shares included in
     weighted average shares outstanding for the period February 3, 1995
     to September 30, 1995                                                                                       83
                                                                                                            -------
    Additional shares that are assumed to be outstanding for the period
     September 30, 1994 to February 2, 1995                                                                     214
                                                                                                            =======
</TABLE>




<PAGE>




                                                                   Exhibit 10.13
                                 AIRCRAFT LEASE


LEASE between RAYMON F. THOMPSON,  of Kalispell,  Montana, as the "LESSOR",  and
SEMITOOL,  INC., a Montana  corporation,  with the  principal  place of business
place of business at 655 West Reserve Drive,  Kalispell,  Montana 59901,  as the
"LESSEE".  In consideration of the promises and covenants hereinafter set forth,
IT IS HEREBY AGREED AS FOLLOWS:

1.  Lease.  Lessor  leases  to  the  Lessee  the  following-described   AIRCRAFT
("AIRCRAFT"):

                MAKE AND MODEL:                    Dessault-Breguet Falcon 50
                SERIAL NUMBER:                               175
               REGISTRATION NUMBER:               N 3330 MC (to become N 200 RT)

2. Term. The term of this Lease shall be four (4) years,  commencing on April 1,
1996, and ending March 30, 2000 ("LEASE TERM").

3. Rental and Jet Engine Reserve. Rental of the AIRCRAFT shall be at the rate of
SEVENTY-FOUR  THOUSAND AND 00/100 DOLLARS ($74,000.00) per month, payable by the
Lessee to the  Lessor on or before the first day of each  monthly  period of the
LEASE TERM.  All rental  payments  shall be paid at the place  designated by the
Lessor.

In addition to the above-enumerated rental payments, the Lessee shall pay to the
Lessor the hourly MSP rate of $118.71 per hour per engine  ($356.13 per hour for
all three engines), as a jet engine overhead,  replacement and jet engine repair
reserve.  The parties  hereto  mutually  recognize  that the jet engines on this
AIRCRAFT  have a finite  period of time before  major repair and overall work is
necessary, and this reserve, provided for herein, shall be paid by the Lessee to
the Lessor in order to provide for sufficient funds to the Lessor to pay for the
cost of such jet  engine  overhead,  replacement  and  repair  costs as such are
needed.

4.  Lessee's  Covenants.  The Lessee  covenants and agrees for the LEASE TERM as
follows:

(a) Conforming  Use. To use the AIRCRAFT only for the purposes and in the manner
set forth in any  application  for  insurance  executed in  connection  with the
leased  AIRCRAFT,  to abide by and conform to, and cause  others to abide by and
to,  all laws,  ordinances,  orders,  rules and  regulations,  national,  state,
municipal,  or otherwise,  now existing or hereafter enacted,  controlling or in
any way affecting the operation,  use or occupancy of the AIRCRAFT or the use of
any airport premises by the AIRCRAFT.

(b) No lien or assignment.  To keep safely, and use carefully, the AIRCRAFT, and
not to sell, or assign or dispose of the AIRCRAFT,  or of any interest  therein,
or of any part thereof,  or equipment necessary thereto, or suffer or permit any
charge,  lien,  or  encumbrance  of any nature  upon the  AIRCRAFT,  or any part
thereof,  or lend or rent the  same,  or remove or  permit  the  AIRCRAFT  to be
removed  from its  designated  home airport for periods in excess of thirty (30)
days,  designating the contemplated location of the AIRCRAFT,  and not to remove
permanently  the AIRCRAFT  from its  designated  home airport  without the prior
written consent of the Lessor.

(c)  Sublease.  Upon written  approval of the Lessor,  the Lessee shall have the
right to sublease the AIRCRAFT, provided, however, the AIRCRAFT is maintained in
conformance with all applicable  rules and regulations  pertaining to the use to
which the AIRCRAFT shall be subjected.

(d) Taxes. To pay all taxes,  assessments,  and charges imposed by any national,
state, municipal, or other public or airport authority on the AIRCRAFT or on its
use during the term of this Lease and until  re-delivery  of the AIRCRAFT to the
Lessor;  and to save the Lessor free and harmless  therefrom,  and reimburse the
Lessor on a pro rata basis for any such taxes or charges  payable  subsequent to
the terms of this Lease.

(e)  Maintenance.  To maintain and keep the AIRCRAFT and all its  components  in
good order and  repair,  in  accordance  with the  requirements  of the  Federal
Aviation Agency, or any other governmental  authority having  jurisdiction,  and
within  reasonable  time  replace  in or on the  AIRCRAFT  any  and  all  parts,
equipment, appliances,  instruments, or accessories which may be worn out, lost,
destroyed,  confiscated, or otherwise rendered unsatisfactory or unavailable for
use in or on the  AIRCRAFT,  which  replacement  shall be (1) in good  operating
condition and have a value,  utility,  and quality, at least equal to that which
the  property  replaced  originally  had,  and (2) at the  time  affixed  to the
AIRCRAFT and made  subject to this Lease,  owned by the Lessee free and clear of
all liens and  encumbrances,  it being understood that the Lessee shall have the
same  protection  as the  Lessor  under  the  standard  warranty  clause  of the
manufacturer  of the AIRCRAFT the terms and  provisions of said  warranty  being
incorporated herein; perform all major overhaul on the AIRCRAFT, whenever deemed
necessary  and as may be required by the  Federal  Aviation  Agency or any other
governmental  authority  during the term of this Lease,  and all engine overhaul
and inspection and maintenance service.

(f)  Indemnification.  To be  responsible  and  liable to the  Lessor  for,  and
indemnify  the Lessor  against,  all damage to the AIRCRAFT  which occurs in any
manner  from  any  cause  or  causes  during  the  term of this  Lease  or until
re-delivery  of the  AIRCRAFT to the Lessor,  and to  indemnify  and save Lessor
harmless from and against all claims, cost, expenses,  damages, and liabilities,
including  personal  injury,  death, or property damage claims arising or in any
manner  occasioned by the  operation or use of the AIRCRAFT,  during the term of
this Lease or until re-delivery of the AIRCRAFT to the Lessor.

(g) Insurance. To keep the AIRCRAFT insured, at Lessee's expense, with companies
acceptable  to the Lessor,  for such  amounts and  against  such  hazards as the
Lessor may require, including, but not limited to, hull damage and liability for
personal  injuries,  death or property  damages,  arising  from or in any manner
occasioned  by the  acts or  negligence  of the  Lessee  or  others  in  custody
operation or use of AIRCRAFT, with losses under the hull damage policies payable
to the Lessor, in terms satisfactory to the Lessor and deliver the policies,  or
evidence  of  insurance  satisfactory  to the  Lessor,  to Lessor  with  premium
receipts. The Lessee hereby appoints Lessors as the Lessee's attorney-in-fact to
make proof of loss,  and claim for,  receive  payment of, and execute or endorse
all  documents,  checks or drafts for hull  damage or return  premium  under the
insurance policies.

(h) Licensed Pilotage. To permit the AIRCRAFT to be operated only by a currently
certificated pilot having at least the minimum total pilot hours required by the
applicable insurance.

(i) Lessor's Right of Inspection.  To permit the Lessor,  or its duly authorized
agent or representative,  to inspect the AIRCRAFT at any reasonable time, either
on the land or aloft,  and to furnish any information in respect to the AIRCRAFT
and its use that the Lessor may reasonably request.

(j) Delivery Upon  Termination.  To return,  upon demand,  at the  expiration or
earlier termination of the Lease term, the AIRCRAFT to the Lessor, at such place
as may be designated as when received,  excepting  only for reasonable  wear and
tear,  and  damage by any cause  covered  by  collectible  insurance;  provided,
however,  that the  designated  place  shall not be more than 150 miles from the
home airport at the outset of this Lease.

(k) Further  Assurances.  To execute and deliver to the Lessor any additional or
supplemental  instruments  or  documents  as may be  requested  by the Lessor in
connection with the AIRCRAFT of this Lease.

5.  Assignment  of Warranty.  The Lessor hereby  assigns to the Lessee,  for and
during the Lease term,  any  warranty of the  manufacturer,  express or implied,
issued on or  relating  to the  AIRCRAFT,  and hereby  authorizes  the Lessee to
obtain the customary  service  furnished by the  manufacturer in connection with
any warranty,  at Lessee's expense.  The Lessee acknowledges and agrees that the
AIRCRAFT is of a size,  design,  capacity,  and a  manufacturer  selected by the
Lessee and suitable for its purposes.

6. No Implied  Representations or Warranties.  The parties  acknowledge that the
Lessor is not a  manufacturer  or  engaged  in the sale or  distribution  of the
AIRCRAFT.  IT IS FURTHER  AGREED  THAT UNDER NO  CIRCUMSTANCES  SHALL  LESSOR BE
LIABLE FOR ANY COSTS, LOSS EXPENSE, DAMAGES, SPECIAL DAMAGES, INCIDENTAL DAMAGES
OR  CONSEQUENTIAL  DAMAGES  ARISING FROM THE USE OF THE AIRCRAFT,  WHETHER BASED
UPON WARRANTY, CONTRACT, NEGLIGENCE OR STRICT LIABILITY.

7.  Risk of Loss.  All  risks of loss or damage  of the  AIRCRAFT  leased,  from
whatever  cause,  hereby are assumed by the Lessee during the entire LEASE TERM,
and if the  AIRCRAFT is damaged,  and is capable of being  repaired,  the Lessee
shall  have the  option of  either  repairing  same or  replacing  same,  at the
Lessee's cost.

8.  Irrevocability.  This Lease is irrevocable for its full LEASE TERM and until
the aggregate rentals have been paid by the Lessee.  Rent shall not abate during
the LEASE TERM  because the  Lessee's  right to  possession  of the AIRCRAFT has
terminated, or for any other reason whatsoever.

9. Lessor's Assumption of Lessee's Obligations. In the event the Lessee fails to
use,  preserve,  and maintain  the  AIRCRAFT,  discharge  all taxes,  liens,  or
charges,  pay all costs and expenses or procure and maintain  insurance,  in the
manner  above  provided,  the  Lessor,  at its  option,  may do so, and all such
advances by the Lessor  shall be added to the unpaid  balance of the rentals due
under  this  Lease and shall be  repayable  by the  Lessee to Lessor on  demand,
together  with interest  thereon at the rate of Twelve  Percent (12%) per annum,
until the unpaid  balance  shall have been repaid in full.  The Lessor may enter
upon any premises where the AIRCRAFT is located,  for the purpose of inspection,
and may remove the  AIRCRAFT  forthwith,  without  notice to Lessee,  if, in the
opinion of the Lessor, the AIRCRAFT is being improperly used or maintained.

10. Repossession Upon Default. If the Lessee shall fail to pay any rental or any
other amounts payable pursuant to this Lease,  when the same is due and payable,
or if the Lessee  shall  breach any other  provision  of this  Lease,  or if the
Lessee  becomes  insolvent,  or files a voluntary,  or has filed  against him an
involuntary,  proceeding in bankruptcy for either  discharge of  indebtedness or
other  protection  from creditors or if a receiver is appointed for the Lessee's
property or an  arrangement is made with or committee is formed for the Lessee's
creditors,  then the  Lessor,  at its  option,  and in  addition  to and without
prejudice to any other remedies, may take possession of and remove the AIRCRAFT,
and all equipment, instruments, accessories, and repairs thereon, which shall be
considered a component part of the AIRCRAFT,  and in removing the AIRCRAFT,  the
Lessor may, if permitted by law, use any of the Lessee's  licenses in respect to
the AIRCRAFT,  and/or the Lessor may terminate this Lease. The re-taking of such
possession, however, shall not constitute a termination of this Lease unless the
Lessor so notifies Lessee in writing.  The Lessor, at its option,  may (a) lease
the  repossessed  AIRCRAFT,  or any part  thereof,  to any third party upon such
terms and conditions as Lessor may determine,  or, (b) sell the AIRCRAFT, or any
part thereof,  at public or private sale. The total proceeds,  less the Lessor's
expenses incurred in connection  therewith,  including  attorneys' fees, of such
sale or sales,  shall be  applied to the total  unpaid  rental.  Any  deficiency
thereafter shall be paid by the Lessor.

11. Time of Essence. Time is of the essence of this Lease.

12. No Passage of Title.  This Agreement is, and is intended to be a Lease,  and
the  Lessee  does  not  acquire  by this  Lease  any  right,  title,  or  amount
whatsoever,  legal or equitable,  in the AIRCRAFT or to the proceeds of the sale
of the AIRCRAFT, except its interest as the Lessee under this Lease.

13. Miscellaneous.

(a) The Lessor  warrants  that, if Lessee  performs its  obligations  under this
Lease, the Lessee shall peaceably and quietly hold, possess and use the AIRCRAFT
during the entire Lease term, free of any interference or hindrance.

(b) The  relationship  between  the Lessor and Lessee is only that of Lessor and
Lessee. The Lessee shall never at any time during the term of this lease for any
purpose  whatsoever  be or become the agent of the Lessor,  and the Lessor shall
not be responsible for the acts or omissions of the Lessee or its agents.

(c) The  Lessor's  rights  and  remedies  with  respect  to any of the terms and
conditions of this Lease shall be cumulative and not exclusive,  and shall be in
addition to all other rights and remedies in its favor.

(d) The Lessor's  failure to strictly  enforce any provision of this Lease shall
not be  construed  as a waiver  thereof or as  excusing  the Lessee from past or
future performance obligations.

14. Mortagee's  Interest.  Lessee hereby acknowledges and agrees that this Lease
and all right,  title and interest of Lessee in, to and under this Lease are now
and shall at all times continue to be unconditionally subject and subordinate in
each  and  every  respect  to the  lien  of  MetLife  Capital  Corporation  (the
"Mortgagee") in the AIRCRAFT,  as said lien may be amended,  modified or renewed
from time to time.

15.  Separability.  The invalidity of any portion of this Lease shall not affect
the remaining valid portions thereof.

16.  Performance as Acceptance.  Any use or possession of the AIRCRAFT by Lessee
prior to the formal execution of this lease agreement, but during the LEASE TERM
shall  constitute  acceptance of this Lease by performance and subject Lessee to
all terms, conditions, convenants, warranties and obligations of this Lease.

17. Entire  Agreement.  This Lease  constitutes the entire agreement between the
parties hereto,  and any change or modification to this Lease must be in writing
and signed by the parties hereto.

THERE SHALL BE two executed originals of this agreement,  one for the Lessee and
one for the Lessor, each of which shall be an original.

IN WITNESS  WHEREOF,  the Lessee and  Lessor  have duly  executed  this Lease at
Kalispell,  Flathead  County,  Montana,  to be Effective  commencing on April 1,
1996.


LESSEE:                                                 LESSOR:

SEMITOOL, INC.                                          RAYMON F. THOMPSON


/s/ John W. Sullivan                                    /s/ R. Thompson
---------------------                                ----------------------
  John W. Sullivan                                     Raymon F. Thompson
Vice President-Finance                                   Individually



<PAGE>



FORM 3082 1/87    WP:kh 9/96

                                                                   Exhibit 10.14

            Bank of America NW, N.A. doing business as Seafirst Bank
                             BUSINESS LOAN AGREEMENT

This  Seafirst   Business   Loan   Agreement   ("Agreement")   is  made  between
Seattle-First  National  Bank  ("Bank") and  Semitool,  Inc.  ("Borrower")  with
respect to the following:
                                                               Part A
I. Line of Credit: Subject to the terms of this Agreement,  Bank will make loans
to Borrower under a [X] revolving [ ] non- revolving line of credit as follows:

(a) Total Amount Available:  $10,000,000.00 [ ] Subject to the provisions of any
accounts  receivable  and/or  inventory  borrowing plan required  herein;  it is
expressly  understood  that  collateral  ineligible  for  borrowing  purposes is
determined solely by Bank.
[ ] Subject to(describe) ________N/A_____________.

(b) Availability  period:  May 20, 1996 through December 31, 1997 . However,  if
loans are made and/or new promissory  notes  executed after the last date,  such
advances  will be subject to the terms of this  Agreement  until  repaid in full
unless a written statement signed by the Bank and Borrower  provides  otherwise,
or a  replacement  loan  agreement  is executed.  The making of such  additional
advances  alone,  however,  does not constitute a commitment by the bank to make
any further advances or extend the availability period.

(c) Interest Rate Options:
1) Prime - Bank publicly  announced  prime rate adjusted on the date of any Bank
prime  rate  change.  2) LIBOR - At the  option of  Borrower,  loans  within the
approved line of credit may be available, in minimum amounts of $250,000 or more
for specific  periods of time ranging from 30 days to 180 days,  at LIBOR + 2.0%
per annum.  Any LIBOR  borrowings  shall be requested at least two business days
prior to  funding.  LIBOR  borrowings  shall be  based on the  British  Bankers'
Association Interest Settlement Rate (BBAIRS),  page 3750 on Telerate. The LIBOR
rate shall be adjusted  for  reserves,  deposit  insurance,  assessments  and/or
taxes.  Borrowing periods for the LIBOR rate option may be for 30, 60, 90 or 180
days.  Under the LIBOR  rate  option,  any  advance  which is  prepaid  prior to
maturity  may be subject to a  prepayment  penalty as  described  in Exhibit 1 -
Prepayment Fees.

(d)  Interest  Rate Basis:  All  interest  will be  calculated  at the per annum
interest  rate based on 360-day  year and  applied to the actual  number of days
elapsed.

(e)  Repayment:  At the times and in amounts  as set forth in  note(s)  required
under Part B Article 1 of this Agreement.

(f) Loan Fee: $ N/A payable on N/A .

(g) Fee on  Unutilized  Portion of Line:  On June 30, 1996 , and every  _quarter
thereafter, Borrower shall pay a fee based upon the average daily unused portion
of the line of credit.  This fee will be  calculated  as follows:  1/4 of 1% per
annum on the unused portion of the commitment.

(h) Other fee(s) identify):
_______N/A____________________.

(i)  Collateral.  This  revolving  line of credit shall be secured by a security
interest, which is hereby granted, in favor of Bank on the following collateral:
N/A
Also, collateral securing other loans with Bank may secure this loan.

II. Line of Credit #TBA: Subject to the terms of this Agreement,  Bank will make
loans to Borrower  under a [ X]  revolving [ ]  non-revolving  line of credit as
follows:

(a) Total Amount Available:  $15,000,000.00 [ ] Subject to the provisions of any
accounts  receivable  and/or  inventory  borrowing plan required  herein;  it is
expressly  understood  that  collateral  ineligible  for  borrowing  purposes is
determined solely by Bank.
[ ] Subject to(describe): ________N/A___________.

(b) Availability period: October 1, 1996 through December 31, 1998 . However, if
loans are made and/or new promissory  notes  executed after the last date,  such
advances  will be subject to the terms of this  Agreement  until  repaid in full
unless a written statement signed by the Bank and Borrower  provides  otherwise,
or a  replacement  loan  agreement  is executed.  The making of such  additional
advances  alone,  however,  does not constitute a commitment by the bank to make
any further advances or extend the availability period.

(c) Interest Rate Options:
1) Prime - Bank publicly  announced  prime rate adjusted on the date of any Bank
prime  rate  change.  2) LIBOR - At the  option of  Borrower,  loans  within the
approved line of credit may be available, in minimum amounts of $500,000 or more
for specific  periods of time ranging from 30 days to 180 days,  at LIBOR + 2.0%
per annum.  Any LIBOR  borrowings  shall be requested at least two business days
prior to  funding.  LIBOR  borrowings  shall be  based on the  British  Bankers'
Association Interest Settlement Rate (BBAIRS),  page 3750 on Telerate. The LIBOR
rate shall be adjusted  for  reserves,  deposit  insurance,  assessments  and/or
taxes.  Borrowing periods for the LIBOR rate option may be for 30, 60, 90 or 180
days.  Under the LIBOR  rate  option,  any  advance  which is  prepaid  prior to
maturity  may be subject to a  prepayment  penalty as  described  in Exhibit 1 -
Prepayment  Fees.  3) Fixed Rate - At the option of  Borrower,  loans within the
approved facility may be available in one-year increments,  up to five years, as
agreed to between  Bank and  Borrower at the time of funding.  Any "Fixed  Rate"
borrowings  shall be requested  at least two business  days prior to funding and
shall be adjusted for reserves,  deposit  insurance,  assessments  and/or taxes.
Under the Fixed Rate option,  any advance which is prepaid prior to maturity may
be subject to a prepayment penalty.

(d)  Interest  Rate Basis.  All  interest  will be  calculated  at the per annum
interest  rate based on 360-day  year and  applied to the actual  number of days
elapsed.

(e)  Repayment:  At the times and in amounts  as set forth in  note(s)  required
under Part B Article 1 of this  Agreement.  Interest  only  payments will be due
monthly until December 31, 1998 with the then outstanding  balance  repayable in
monthly  principal and interest  payments fully  amortized over 5 years,  not to
extend beyond December 31, 2003. Payments shall be paid monthly on the first day
of each month by automatic deduction from borrower's Checking Account #13629803.




(f) Loan Fee: $ N/A payable on N/A .

(g) Fee on Unutilized Portion of Line: On December 31, 1996 , and every _quarter
thereafter, Borrower shall pay a fee based upon the average daily unused portion
of the line of credit.  This fee will be  calculated  as follows:  1/8 of 1% per
annum.

(h) Other fee(s) identify):
____N/A___________.

(i)  Collateral.  This  revolving  line of credit shall be secured by a security
interest, which is hereby granted, in favor of Bank on the following collateral:
N/A
Also, collateral securing other loans with Bank may secure this loan.



<PAGE>







            Bank of America NW, N.A. doing business as Seafirst Bank
                             BUSINESS LOAN AGREEMENT

                                     Part B

1.     Promissory Note(s). All loans shall be evidenced by promissory notes in a
       form and substance satisfactory to Bank.

2.     Conditions  to  Availability  of  Loan/Line  of  Credit.  Before  Bank is
       obligated to disburse/make  any advance,  or at any time thereafter which
       Bank  deems  necessary  and  appropriate,  Bank must  receive  all of the
       following,  each of which must be in form and substance  satisfactory  to
       Bank ("loan documents"):

        2.1     Original, executed promissory note(s);
        2.2 Original  executed  security  agreement(s)  and/or  deed(s) of trust
        covering  the  collateral  described  in  Part  A;  2.3  All  collateral
        described in Part A in which Bank wishes to have a  possessory  security
        interest;  2.4  Financing  statement(s)  executed by Borrower;  2.5 Such
        evidence that Bank may deem appropriate that the security  interests and
        liens in favor of Bank are valid,
                enforceable, and prior to the rights and interests of others ex-
                cept those consented to in writing by Bank;
       +2.6     The following guaranty(ies) in favor of the Bank: N/A
       +2.7     Subordination agreement(s) in favor of Bank executed by:  N/A
        2.8     Evidence  that  the  execution,  delivery,  and  performance  by
                Borrower of this  Agreement  and the  execution,  delivery,  and
                performance by Borrower and any corporate guarantor or corporate
                subordinating  creditor of any instrument or agreement  required
                under this Agreement, as appropriate, have been duly authorized;
        2.9     Any other  document  which is deemed by the Bank to be  required
                from  time to time to  evidence  loans or to effect  the
                provisions of this Agreement;
        2.10    If requested by Bank, a written legal opinion expressed to Bank,
                of counsel for  Borrower as to the matters set forth in sections
                3.1 and 3.2, and to the best of such counsel's  knowledge  after
                reasonable investigation, the matters set forth in sections 3.3,
                3.5,  3.6,  3.7,  3.8 and  such  other  matters  as the Bank may
                reasonably request;
        2.11    Pay or reimburse Bank for any out-of-pocket expenses expended in
                making or  administering  the  loans  made  hereunder  including
                without limitation attorney's fees (including allocated costs of
                in-house counsel);
       +2.12    Other (describe):  N/A

3.     Representations and Warranties. Borrower represents and warrants to Bank,
       except as Borrower has  disclosed  to Bank in writing,  as of the date of
       this  Agreement  and  hereafter  so long as  credit  granted  under  this
       Agreement  is  available  and until  full and final  payment  of all sums
       outstanding under this Agreement and promissory notes that:

       +3.1     Borrower is duly organized and existing under the laws of the 
                state of its organization as a:
                                       General          Limited
                _X_Corporation   ___ Partnership   ___ Partnership
                               Sole
                         ___ Proprietorship ___ dba
                Borrower is properly licensed and in good standing in each state
                in which  Borrower is doing  business and Borrower has qualified
                under,  and complied  with,  where  required,  the fictitious or
                trade name  statutes  of each state in which  Borrower  is doing
                business,  and Borrower has  obtained all  necessary  government
                approvals for its business activities; the execution,  delivery,
                and  performance  of this  Agreement  and such  notes  and other
                instruments  required herein are within Borrower's powers,  have
                been duly authorized, and, as to Borrower and any guarantor, are
                not in conflict with the terms of any charter,  bylaw,  or other
                organization papers of Borrower, and this Agreement,  such notes
                and the loan  documents are valid and  enforceable  according to
                their terms;
        3.2     The execution,  delivery, and performance of this Agreement, the
                loan  documents  and any other  instruments  are not in conflict
                with any law or any indenture, agreement or undertaking to which
                Borrower is a party or by which Borrower is bound or affected;
        3.3     Borrower  has  title to each of the  properties  and  assets  as
                reflected in its financial  statements (except such assets which
                have been sold or otherwise  disposed of in the ordinary  course
                of  business),  and no assets or  revenues of the  Borrower  are
                subject to any lien  except as  required  or  permitted  by this
                Agreement,  disclosed in its  financial  statements or otherwise
                previously disclosed to Bank in writing;
        3.4     All  financial  information,   statements  as  to  ownership  of
                Borrower and all other statements submitted by Borrower to Bank,
                whether  previously  or in the future,  are and will be true and
                correct in all material  respects  upon  submission  and are and
                will be complete upon submission  insofar as may be necessary to
                give Bank a true and accurate  knowledge  of the subject  matter
                thereof;
        3.5     Borrower  has filed all tax  returns  and reports as required by
                law  to  be  filed  and  has  paid  all  taxes  and  assessments
                applicable to Borrower or to its properties  which are presently
                due and payable, except those being contested in good faith;
        3.6     There are no proceedings, litigation or claims (including unpaid
                taxes)  against  Borrower  pending or, to the  knowledge  of the
                Borrower, threatened, before any court or government agency, and
                no other event has  occurred  which may have a material  adverse
                effect on Borrower's financial condition;
        3.7     There is no event  which is, or with  notice or lapse of time,  
                or both,  would be, an Event of  Default  (as  defined  in
                Section 7) under this Agreement;
        3.8     Borrower has exercised  due  diligence in inspecting  Borrower's
                properties for hazardous wastes and hazardous substances. Except
                as otherwise  previously  disclosed and  acknowledged to Bank in
                writing:  (a)  during  the  period of  Borrower's  ownership  of
                Borrower's  properties,  there  has  been  no  use,  generation,
                manufacture, storage, treatment, disposal, release or threatened
                release of any  hazardous  waste or  hazardous  substance by any
                person in, on, under or about any of Borrower's properties;  (b)
                Borrower has no actual or constructive  knowledge that there has
                been  any  use,  generation,  manufacture,  storage,  treatment,
                disposal,  release or threatened  release of any hazardous waste
                or hazardous  substance by any person in, on, under or about any
                of  Borrower's  properties by any prior owner or occupant of any
                of  Borrower's  properties;  and (c)  Borrower  has no actual or
                constructive  notice of any actual or  threatened  litigation or
                claims of any kind by any person  relating to such matters.  The
                terms "hazardous waste(s)," hazardous substance(s)," "disposal,"
                "release,"  and  "threatened  release" as used in this Agreement
                shall have the same  meanings as set forth in the  Comprehensive
                Environmental Response, Compensation, and Liability Act of 1980,
                as amended,  42 U.S.C.  Section  9601,  et seq.,  the  Superfund
                Amendments and Re authorization Act of 1986, as amended, Pub. L.
                No.  99-499,  the  Hazardous  Materials  Transportation  Act, as
                amended,  49  U.S.  C.  Section  1801,  et  seq.,  the  Resource
                Conservation  and Recovery  Act, as amended,  49 U.S.C.  Section
                6901, et seq., or other  applicable state or federal laws, rules
                or regulations adopted pursuant to any of the foregoing.
       +3.9     Each chief  place of  business  of  Borrower,  and the office or
                offices where Borrower  keeps its records  concerning any of the
                collateral, is located at:

4.     Affirmative  Covenants.  So long as credit  granted under this  Agreement
       is available and until full and final payment of all sums
       outstanding under this Agreement and promissory note(s) Borrower will:

       +4.1     Use the proceeds of the loans covered by this  Agreement only in
                connection with Borrower's  business  activities and exclusively
                for the following  purposes:  To finance normal  short-term cash
                operating needs.
       +4.2     Maintain current assets in an amount at least equal to N/A times
                current  liabilities,  and not less than N/A. Current assets and
                current  liabilities  shall be  determined  in  accordance  with
                generally   accepted   accounting   principles   and  practices,
                consistently  applied.  Maintain  trading assets in an amount at
                least equal to 1.4 times trading liabilities. Trading assets are
                defined as trade  accounts  receivable  (less  allowance for bad
                debt) plus  inventory.  Trading  liabilities  are defined as all
                accounts  payable,  related party payables and outstanding  bank
                operating line debt.
       +4.3     Maintain a tangible net worth of at least  $60,000,000  plus 50%
                of net income  (excluding  losses)  measured on an annual
                basis at fiscal year-end and not permit Borrower's total indebt-
                edness  which is not subordinated in a manner  satisfactory
                to Bank to exceed 1.00 times  Borrower's  tangible net worth.  
                "Tangible  net worth" means the excess of total assets over
                total liabilities,  excluding,  however,  from the determination
                of total assets (a) all assets which should be classified
                as intangible  assets such as goodwill,  patents,  trademarks,  
                copyrights,  franchises,  and deferred charges  (including
                unamortized  debt discount and research and development  costs),
               (b) treasury stock,  (c) cash held in a sinking or other
                similar fund  established  for the purpose of  redemption  or 
                other  retirement  of capital  stock, (d) to the extent not
                already deducted from total assets, reserves for depreciation,  
                depletion,  obsolescence or amortization of properties and
                other reserves or  appropriations  of retained  earnings  which 
                have been or should be established in connection  with the
                business  conducted  by the  relevant  corporation,  and (e) any
                revaluation  or other  write-up  in book value of assets
                subsequent to the fiscal year of such corporation last ended at 
                the date of this Agreement;

       +4.4     Upon request  Borrower agrees to insure and to furnish Bank with
                evidence  of  insurance  covering  the life of  Borrower  (if an
                individual)  or the lives of designated  partners or officers of
                Borrower (if a partnership or corporation) in the amounts stated
                below.  Borrower  shall  take  such  actions  as are  reasonably
                requested by Bank,  such as assigning the insurance  policies to
                Bank or naming Bank as  beneficiary  and obtaining the insurer's
                acknowledgment  thereof,  to  provide  that in the  event of the
                death of any of the named  insureds the policy  proceeds will be
                applied to payment of Borrower's obligations owing to Bank;

                Name:   N/A             Amount:   N/A

       +4.5     Promptly give written  notice to Bank of: (a) all litigation and
                claims made or threatened affecting Borrower where the amount is
                $250,000 or more;  (b) any  substantial  dispute which may exist
                between  Borrower and any  governmental  regulatory  body or law
                enforcement  authority;  (c) any  Event of  Default  under  this
                Agreement or any other agreement with Bank or any other creditor
                or any event which become an Event of Default; and (d) any other
                matter which has resulted or might result in a material  adverse
                change in Borrower's financial condition or operations;
       +4.6     Borrower shall as soon as available,  but in any event within 90
                days  following  the end of each  Borrower's  fiscal  years  and
                within 45 days  following  the end of each  quarter  provide  to
                Bank,  in  a  form  satisfactory  to  Bank  (including   audited
                statements  if  required  at any time by Bank),  such  financial
                statements  and  other  information   respecting  the  financial
                condition  and  operations  of Borrower  as Bank may  reasonably
                request;
        4.7     Borrower  will  maintain in effect  insurance  with  responsible
                insurance companies in such amounts and against such risks as is
                customarily  maintained by persons engaged in businesses similar
                to that of Borrower and all policies  covering property given as
                security for the loans shall have loss payable  clauses in favor
                of Bank.  Borrower  agrees to deliver to Bank such  evidence  of
                insurance as Bank may reasonably require and, within thirty (30)
                days after notice from Bank, to obtain such additional insurance
                with an insurer satisfactory to the Bank;
        4.8     Borrower will pay all indebtedness  taxes and other  obligations
                for which  the  Borrower  is  liable  or to which its  income or
                property is subject before they shall become delinquent,  except
                any which is being contested by the Borrower in good faith;
        4.9     Borrower  will  continue  to conduct its  business as  presently
                constituted,   and  will   maintain  and  preserve  all  rights,
                privileges  and  franchises  now  enjoyed,   conduct  Borrower's
                business in an orderly, efficient and customary manner, keep all
                Borrowers  properties in good working order and  condition,  and
                from  time  to  time  make  all  needed  repairs,   renewals  or
                replacements  so that the  efficiency of  Borrower's  properties
                shall be fully maintained and preserved;
        4.10    Borrower will maintain adequate books,  accounts and records and
                prepare  all   financial   statements   required   hereunder  in
                accordance  with generally  accepted  accounting  principles and
                practices  consistently  applied,  and in  compliance  with  the
                regulations   of  any   governmental   regulatory   body  having
                jurisdiction over Borrower or Borrower's business;
        4.11    Borrower  will permit  representatives  of Bank to examine  and 
                make  copies of the books and  records of Borrower  and to
                examine the collateral of the Borrower at reasonable times;
        4.12    Borrower will perform,  on request of Bank,  such acts as may be
                necessary or advisable to perfect any lien or security  interest
                provided  for herein or  otherwise  carry out the intent of this
                Agreement;
        4.13    Borrower  will comply  with all  applicable  federal,  state and
                municipal laws,  ordinances,  rules and regulations  relating to
                its properties,  charters, businesses and operations,  including
                compliance  with all  minimum  funding  and  other  requirements
                related to any of Borrower's employee benefit plans;
        4.14    Borrower  will  permit  representatives  of Bank to  enter  onto
                Borrower's  properties to inspect and test Borrower's properties
                as  Bank,  in its  sole  discretion,  may  deem  appropriate  to
                determine  Borrower's   compliance  with  section  5.8  of  this
                Agreement; provided however, that any such inspections and tests
                shall be for Bank's sole  benefit and shall not be  construed to
                create any  responsibility  or  liability on the part of Bank to
                Borrower or to any third party.

5.     Negative  Covenants. So long as credit  granted  under this  Agreement is
       available  and until full and final  payment of all sums
       outstanding under this Agreement and promissory note(s):

       +5.1     Borrower  will not,  during any fiscal year,  expend or incur in
                the aggregate more than $ N/A for fixed assets,  nor more than $
                N/A for any  single  fixed  asset  whether or not  payable  that
                fiscal year or later under any purchase agreement or lease;
        5.2     Borrower will not,  without the prior  written  consent of Bank,
                purchase or lease under an agreement for acquisition,  incur any
                other  indebtedness  for borrowed money,  mortgage,  assign,  or
                otherwise encumber any of Borrower's assets, nor sell,  transfer
                or otherwise  hypothecate any such assets except in the ordinary
                course  of  business.  Borrower  shall  not  guaranty,  endorse,
                co-sign,  or otherwise  become  liable upon the  obligations  of
                others, except by the endorsement of negotiable  instruments for
                deposit or  collection in the ordinary  course of business.  For
                purposes of this  paragraph,  the sale or assignment of accounts
                receivable,  or the  granting  of a security  interest  therein,
                shall be deemed  the  incurring  of  indebtedness  for  borrowed
                money;
       +5.3     The  total  of   salaries,   withdrawals,   or  other  forms  of
                compensation,  whether  paid in cash or  otherwise,  by Borrower
                shall  not  exceed  the   following   amounts  for  the  persons
                indicated,  nor will amounts in excess of such limits be paid to
                any other person:

                Name:  ________N/A_____________________________
                Monthly/Yearly Amount: $ __________N/A____________

        5.4     Borrower  will not  liquidate  or  dissolve  or  enter  into any
                consolidation,  merger, pool, joint venture,  syndicate or other
                combination,  or sell, lease, or dispose of Borrower's  business
                assets as a whole or such as in the opinion of Bank constitute a
                substantial portion of Borrower's business or assets;
        5.5     Borrower will not engage in any business activities or operation
                substantially  different  from or unrelated to present
                business activities or operations; and
        5.6     Borrower, and Borrower's tenants,  contractors,  agents or other
                parties authorized to use any of Borrower's properties, will not
                use, generate, manufacture, store, treat, dispose of, or release
                any  hazardous  substance  or  hazardous  waste in, on, under or
                about  any  of  Borrower's  properties,   except  as  previously
                disclosed to Bank in writing as provided in section 3.8; and any
                such  activity  shall  be  conducted  in  compliance   with  all
                applicable  federal,  state  and  local  laws,  regulations  and
                ordinances,  including  without  limitation  those  described in
                section 3.8.
        5.7     Borrower will not engage in any business activities or operation
                substantially  different  from or unrelated to present
                business activities or operations; and
        5.8     Borrower, and Borrower's tenants,  contractors,  agents or other
                parties authorized to use any of Borrower's properties, will not
                use, generate, manufacture, store, treat, dispose of, or release
                any  hazardous  substance  or  hazardous  waste in, on, under or
                about  any  of  Borrower's  properties,   except  as  previously
                disclosed to Bank in writing as provided in section 3.8; and any
                such  activity  shall  be  conducted  in  compliance   with  all
                applicable  federal,  state  and  local  laws,  regulations  and
                ordinances,  including  without  limitation  those  described in
                section 3.8.

6.     Waiver, Release and Indemnification.  Borrower hereby:
       (a)  releases  and  waives  any  claims  against  Bank for  indemnity  or
       contribution  in the event  Borrower  becomes liable for cleanup or other
       costs  under  any  of  the  applicable  federal,  state  or  local  laws,
       regulations or ordinances,  including without  limitation those described
       in section 3.8, and (b) agrees to indemnify  and hold Bank  harmless from
       and against any and all claims, losses,  liabilities,  damages, penalties
       and  expenses  which Bank may  directly or  indirectly  sustain or suffer
       resulting  from a breach  of (i) any of  Borrower's  representations  and
       warranties  with respect to  hazardous  wastes and  hazardous  substances
       contained in section 3.8, or (ii)  section  5.8. The  provisions  of this
       section  6  shall  survive  the  full  and  final  payment  of  all  sums
       outstanding  under this Agreement and  promissory  notes and shall not be
       affected by Bank's  acquisition  of any interest in any of the Borrower's
       properties, whether by foreclosure or otherwise.

7.     Events of Default. The occurrence of any of the following events ("Events
       of Default")  shall terminate any and all obligations on the part of Bank
       to make or continue  the loan and/or line of credit and, at the option of
       Bank, shall make all sums of interest and principal outstanding under the
       loan and/or line of credit immediately due and payable, without notice of
       default,  presentment  or demand  for  payment,  protest or notice of non
       payment  or  dishonor,  or  other  notices  or  demands  of any  kind  or
       character, all of which are waived by Borrower, and Bank may proceed with
       collection of such  obligations and enforcement and realization  upon all
       security which it may hold and to the enforcement of all rights hereunder
       or at law:

        7.1     The Borrower  shall fail to pay when due any amount  payable by 
                it hereunder on any loans or notes  executed in connection
                herewith;
        7.2     Borrower  shall fail to comply with the  provisions of any other
                covenant,  obligation or term of this  Agreement for a period of
                fifteen  (15) days after the earlier of written  notice  thereof
                shall have been given to the Borrower by Bank or Borrower or any
                Guarantor  has knowledge of an Event of Default or an event that
                can become an Event of Default;
        7.3     Borrower  shall  fail to pay when due any other  obligation  for
                borrowed  money,  or to perform any term or covenant on its part
                to be performed under any agreement  relating to such obligation
                or any such other debt shall be  declared  to be due and payable
                and such  failure  shall  continue  after the  applicable  grace
                period;
        7.4     Any   representation  or  warranty  made  by  Borrower  in  this
                Agreement or in any other  statement to Bank shall prove to have
                been false or misleading in any material respect when made;
        7.5     Borrower makes an assignment for the benefit of creditors, files
                a petition in bankruptcy,  is adjudicated insolvent or bankrupt,
                petitions to any court for a receiver or trustee for Borrower or
                any substantial  part of its property,  commences any proceeding
                relating to the  arrangement,  readjustment,  reorganization  or
                liquidation under any bankruptcy or similar laws, or if there is
                commenced  against  Borrower any such  proceedings  which remain
                undismissed  for a period of thirty (30) days or, if Borrower by
                any act  indicates  its  consent  or  acquiescence  in any  such
                proceeding or the appointment of any such trustee or receiver;
       +7.6     Any judgment  attaches against Borrower or any of its properties
                for an  amount  in  excess of  $100,000  which  remains  unpaid,
                unstayed on appeal,  unbonded,  or  undismissed  for a period of
                thirty (30) days;
        7.7     Loss  of  any   required   government   approvals,   and/or  any
                governmental  regulatory  authority  takes or institutes  action
                which, in the opinion of Bank, will adversely affect  Borrower's
                condition,  operations  or ability to repay the loan and/or line
                of credit;
        7.8     Failure of Bank to have a legal,  valid and  binding  first lien
                on, or a valid and enforceable prior perfected security interest
                in,  any  property  covered  by any deed of  trust  or  security
                agreement required under this Agreement;
        7.9     Borrower dies, becomes incompetent, or ceases to exist as a 
                going concern;
        7.10    Occurrence  of  an  extraordinary  situation  which  gives  Bank
                reasonable  grounds to believe that Borrower may not, or will be
                unable  to,  perform  its  obligations  under  this or any other
                agreement between Bank and Borrower; or
        7.11    Any of the preceding  events occur with respect to any guarantor
                of  credit  under  this  Agreement,  or such  guarantor  dies or
                becomes  incompetent,  unless the obligations  arising under the
                guaranty  and  related  agreements  have  been   unconditionally
                assumed by the  guarantor's  estate in a manner  satisfactory to
                Bank.

8.  Successors;  Waivers.  Notwithstanding  the  Events of Default  above,  this
Agreement  shall be binding  upon and inure to the benefit of Borrower and Bank,
their respective successors and assigns, except that Borrower may not assign its
rights  hereunder.  No consent or waiver under this Agreement shall be effective
unless in writing and signed by the Bank and shall not waive or affect any other
default,  whether  prior  or  subsequent  thereto,  and  whether  of the same or
different  type. No delay or omission on the part of the Bank in exercising  any
right shall operate as a waiver of such right or any other right.

9.     Arbitration.

9.1 At the request of either Bank or Borrower any  controversy  or claim between
the Bank and  Borrower,  arising from or relating to this  Agreement or any Loan
Document  executed in connection with this Agreement or arising from any alleged
tort shall be settled by  arbitration  in King  County,  Washington.  The United
States  Arbitration Act will apply to the arbitration  proceedings which will be
administered by the American Arbitration  Association under its commercial rules
of arbitration  except that unless the amount of the claim(s)  being  arbitrated
exceeds  $5,000,000  there shall be only one arbitrator.  Any  controversy  over
whether  an  issue  is  arbitrable  shall be  determined  by the  arbitrator(s).
Judgment  upon  the  arbitration  award  may  be  entered  in any  court  having
jurisdiction.  The institution and maintenance of any action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of either party,  including  plaintiff,  to submit the  controversy or
claim to  arbitration  if such  action for  judicial  relief is  contested.  For
purposes  of the  application  of the  statute of  limitations  the filing of an
arbitration  as provided  herein is the  equivalent  of filing a lawsuit and the
arbitrator(s) will have the authority to decide whether any claim or controversy
is barred by the statute of  limitations,  and if so, to dismiss the arbitration
on that basis. The parties consent to the joinder in the arbitration proceedings
of any guarantor,  hypothecator or other party having an interest related to the
claim or controversy being  arbitrated.  9.2  Notwithstanding  the provisions of
Section 9.1, no controversy  or claim shall be submitted to arbitration  without
the  consent of all  parties  if at the time of the  proposed  submission,  such
controversy  or claim  arises from or relates to an  obligation  secured by real
property;  9.3 No  provision  of this  Section  9 shall  limit  the right of the
Borrower or the Bank to exercise self-help remedies such as setoff,  foreclosure
or sale of any  collateral,  or obtaining any ancillary  provisional  or interim
remedies  from a court of  competent  jurisdiction  before,  after or during the
pendency of any arbitration proceeding. The exercise of any such remedy does not
waive  the right of  either  party to  request  arbitration.  At  Bank's  option
foreclosure under any deed of trust may be accomplished by exercise of the power
of sale under the deed of trust or judicial foreclosure as a mortgage.

10.  Collection  Activities,  Lawsuits and Governing Law. Borrower agrees to pay
Bank all  costs  and  expenses  (including  reasonable  attorney's  fees and the
allocated cost for in-house legal  services  incurred by Bank),  to enforce this
Agreement,  any notes or any Loan Documents pursuant to this Agreement,  whether
or not  suit is  instituted.  If  suit is  instituted  by Bank to  enforce  this
Agreement  or  any  of  these  documents,  Borrower  consents  to  the  personal
jurisdiction of the Courts of the State of Washington and Federal Courts located
in the State of Washington. Borrower further consents to the venue of this suit,
being laid in King County, Washington. This Agreement and any notes and security
agreements  entered  into  pursuant  to this  Agreement  shall be  construed  in
accordance with the laws of the State of Washington.

+11.  Additional  Provisions.  Borrower agrees to the additional  provisions set
forth immediately  following this Section 11 or on any "Exhibit N/A" attached to
and hereby  incorporated  into  Agreement.  This  Agreement  supersedes all oral
negotiations or agreements between Bank and Borrower with respect to the subject
matter  hereof and  constitutes  the entire  understanding  and Agreement of the
matters set forth in this Agreement.

11.1 If any provision of this Agreement is held to be invalid or  unenforceable,
then  (a) such  provision  shall  be  deemed  modified  if  possible,  or if not
possible,  such provision shall be deemed stricken, and (b) all other provisions
shall remain in full force and effect.  11.2 If the  imposition of or any change
in any law, rule, or regulation  guideline or the  interpretation or application
of  any  thereof  by any  court  of  administrative  or  governmental  authority
(including  any request or policy  whether or not having the force of law) shall
impose or modify  any  taxes  (except  U.S.  federal,  state or local  income or
franchise  taxes  imposed  on  Bank),  reserve  requirements,  capital  adequacy
requirements or other obligations which would: (a) increase the cost to Bank for
extending or maintaining any loans and/or line of credit to which this Agreement
relates, (b) reduce the amounts payable to Bank under this Agreement, such notes
and other  instruments,  or (c) reduce the rate of return on Bank's capital as a
consequence of Bank's obligations with respect to any loan and/or line of credit
to  which  this  Agreement  relates,  then  Borrower  agrees  to pay  Bank  such
additional amounts as will compensate Bank therefor,  within five (5) days after
Bank's written demand for such payment,  which demand shall be accompanied by an
explanation of such imposition or charge and a calculation in reasonable  detail
of  the  additional   amounts  payable  by  Borrower,   which   explanation  and
calculations  shall be conclusive,  absent  manifest  error.  11.3 Bank may sell
participations  in or  assign  this loan in whole or in part  without  notice to
Borrower  and Bank may  provide  information  regarding  the  Borrower  and this
Agreement to any prospective participant or assignee. If a participation is sold
or the loan is assigned the purchaser will have the right of set off against the
Borrower and may enforce its interest in the Loan  irrespective of any claims or
defenses the Borrower may have against the Bank. 11.4 Not permit Borrower's debt
coverage ratio to fall below 1.50 (measured quarterly based upon the immediately
preceding four quarters financial results), and computed as follows:

           Debt Net Income + Depreciation + Amortization - Coverage =
           Maint. CAPEX ($3,000,000) - Dividends
           ------------------------------------------------
           Ratio Current Portion Long-Term Debt

12.  Notices.  Any  notices  shall be given in writing to the  opposite  party's
signature below or as that party may otherwise specify in writing.

13. ORAL  AGREEMENTS OR ORAL  COMMITMENTS TO LOAN MONEY,  EXTEND  CREDIT,  OR TO
FORBEAR FROM ENFORCING  REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

14. Additional Provisions: Borrower agrees to the additional provisions, if any,
set forth  immediately  following this section or on an attachment hereto titled
"Exhibit N/A".
14.1 So long as any amounts or  obligations of any type are owing by Borrower to
Bank, or Bank is committed to lend to Borrower:  (a) Borrower shall not, without
the  prior  written  consent  of Bank,  create  or  permit  to exist any lien or
encumbrance upon, or transfer any interest in, any of its accounts receivable or
inventory, other than sales of inventory in the ordinary course of business; (b)
Borrower  to provide  Loan  Agreement  Compliance  Certificates  on a  quarterly
basis.; and (c) If at any time the principal amount outstanding under Borrower's
revolving  line of credit  from Bank  exceeds  the sum of (i) 50% of  Borrower's
accounts  receivable  plus (ii) 25% of the value  (based on the lower of cost or
market) of Borrower's  inventory,  then,  upon request by Bank,  Borrower  shall
grant  to  Bank a  security  interest  in all of  its  accounts  receivable  and
inventory to secure all  obligations  of Borrower  under the  revolving  line of
credit, pursuant to a security agreement and UCC filings in form satisfactory to
Bank.



This  Business  Loan  Agreement  (Parts  A and B)  executed  by the  parties  on
September 30, 1996.  Borrower  acknowledges having read all of the provisions of
this Agreement and Borrower agrees to its terms.

SEAFIRST BANK       ________Spokane & Eastern______________________
                               (Branch/Office)

By:  _/s/Joe Poole___Title:  Vice President
         Joe Poole

Address:  P.O. Box 1446                       City,State, Zip: Spokane, WA 99210

Phone:  __(509) 353-1475                     Fax:  ___(509) 353-1492_________

                               SEMITOOL, INC.
        ------------------------------------------------------------
                              (Borrower Name)

By:  /s/Raymon F. Thompson___Title:   President
      Raymon F. Thompson

Address:  655 West Reserve Drive       City,State, Zip: Kalispell, MT  59901

Phone:  (406) 752-2107                         Fax:    (406) 752-5522
<PAGE>



                                                                   Exhibit 10.15

                          Promissory Note (SEMITOOL, INC)
                                  
                             DUE: December 31, 1998

                                 PROMISSORY NOTE

                                  SEMITOOL, INC

 $15,000,000.00             Dated: September 30, 1996
                               Seattle, Washington

SEMITOOL, INC, a Montana corporation ("Maker")  unconditionally  promises to pay
to the order of Bank of America  NW,  N.A.,  doing  business  as  SEAFIRST  BANK
("Bank"),  at its  Spokane & Eastern  Commercial  Team 56  office,  on or before
December 31, 1998, in immediately  available funds, the principal sum of Fifteen
Million and  no/100ths  Dollars  ($15,000,000.00),  or such lesser sum as may be
advanced  hereunder.  Maker  further  agrees to pay interest on the daily unpaid
principal  balance,  in arrears on the 1st day of each month,  beginning the 1st
day of November, 1996, in accordance with the terms, conditions, and definitions
of Exhibit A attached,  which are incorporated  herein. Also incorporated herein
is Exhibit 1 attached hereto, regarding prepayment fees.

All advances under this Note, all conversions between the interest rate options,
and all payments of  principal  and interest may be reflected on a schedule or a
computer-generated  statement  which  shall  become a part  hereof.  All  unpaid
principal and accrued but unpaid  interest under this Note shall be paid in full
on December 31, 1998.

Bank is authorized to automatically debit each required  installment of interest
from Borrower's  checking account number 13629803 at Bank, or such other deposit
account at Bank as Borrower may authorize in the future.

If all or any portion of the principal  amount or any installment of interest is
not paid when due,  interest  shall accrue,  at the option of the holder of this
Note,  from the date of default at a floating  rate per annum three percent (3%)
above the Prime  Rate,  as the  Prime  Rate may vary from time to time,  and the
entire unpaid principal amount of this Note, together with all accrued interest,
shall become immediately due and payable at the option of the holder hereof.

Advances under this Note may be made by Bank at the oral or written request of  
any one acting  alone,  who are  authorized  to request  advances and direct the
disposition  of any such advances until written notice of the revocation of such
authority is received by Bank at its office  indicated  above.  Any such advance
shall be conclusively  presumed to have been made to or for the benefit of Maker
when made in accordance with such requests and directions, or when said advances
are deposited to the credit of an account of Maker with Bank,  regardless of the
fact that persons  other than those  authorized  under this  paragraph  may have
authority to draw against such account.

Maker hereby waives presentment, demand, protest, and notice of dishonor hereof.
Each party signing or endorsing this Note signs as maker and principal,  and not
as guarantor, surety, or accommodation party; and is estopped from asserting any
defense based on any capacity other than maker or principal.

This Note shall be governed by and construed in accordance  with the laws of the
State of Washington.

ORAL  AGREEMENTS OR ORAL  COMMITMENTS  TO LOAN MONEY,  TO EXTEND  CREDIT,  OR TO
FORBEAR FROM ENFORCING  REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.

                                                           SEMITOOL, INC



                                                        By:/s/Raymon F. Thompson

                                                        Its:President


<PAGE>



Page A-5
                    Promissory Note (SEMITOOL, INC/gl0930st)
                                    EXHIBIT A
                               INTEREST PROVISIONS


                                    ARTICLE 1

                                   Definitions
         All terms defined below shall have the meaning  indicated:  Acceptances
shall  mean  each of the  drafts  drawn by  Borrower  on Bank and  presented  by
Borrower to Bank for acceptance which shall:
 .1 Relate to the shipment or domestic  storage of goods; .2 Be dated the date of
such drawing; .3 Be payable in a multiple face amount of $100,000;
 .4 Not require  Bank to maintain  reserves  under  Regulation  D of the Board of
Governors of the Federal  Reserve  System in effect from time to time,  or under
any other  law or  regulation;  .5 Comply  with the  requirements  contained  in
paragraph  7 of Section 13 of the  Federal  Reserve  Act (12  U.S.C.  Sec.  372)
pertaining  to  the  creation,   discount,   and  subsequent  sale  of  bankers'
acceptances  by a member  bank;  and .6 Mature and be payable on a Business  Day
which  occurs not less than seven days and not more than 180 days after the date
the draft is drawn.  2 Adjusted LIBOR Rate shall mean for any day that per annum
rate equal to the sum of (a) a margin of 2.00%, (b) the Assessment Rate, and (c)
the quotient of (i) the LIBOR Rate as determined  for such day,  divided by (ii)
the Reserve Adjustment.  The Adjusted LIBOR Rate shall change with any change in
the LIBOR Rate on the first day of each  Interest  Period  and on the  effective
date of any  change in the  Assessment  Rate or Reserve  Adjustment.  3 Advances
shall mean the  disbursement  of loan proceeds under the Note.  Assessment  Rate
shall mean as of any day the minimum annual  percentage rate  established by the
Federal Deposit Insurance  Corporation (or any successor) for the assessment due
from members of the Bank  Insurance  Fund (or any  successor)  in effect for the
assessment  period during which said day occurs based on deposits  maintained at
such members' offices located outside of the United States. 5 Available  Amounts
shall mean  $15,000,000.00  less the outstanding  principal balance of the Note,
less the  aggregate  amount of  outstanding  Acceptances.  6 Bank shall mean the
holder of the Note.  Banker's  Acceptance Rate shall mean the rate equal to: (a)
The  competitive  bid rate  determined at Bank's sole  discretion  and quoted to
Borrower for the  discounting  of  Acceptances  eligible for discount by Federal
Reserve  Banks in an  amount  comparable  to and with the same  maturity  as the
commercial drafts or bills being presented for acceptance by Borrower to Bank as
of 9:30 a.m.,  Seattle  time, on the date such drafts or bills are presented for
acceptance  ("Bid  Rate");  multiplied by (b) The quotient of the number of days
each draft is outstanding until maturity divided by 360 days, as follows:
             (Bid  Rate) X  (Number  of Days  Outstanding  (PI)  360  days)  The
Banker's Acceptance Rate shall be rounded to the next higher 1/100th of 1%.
1 Borrower shall mean the maker of the Note.
2 Business Day shall mean any day other than a Saturday, Sunday, or other day on
which commercial banks in Seattle, Washington, are authorized or required by law
to close. 3 Commencement Date shall mean the first day of any Interest Period as
requested  by  Borrower.  4 Floating  Rate Loans  shall mean those  portions  of
principal of the Note  accruing  interest at the Floating  Rate. 5 Floating Rate
shall mean the Prime Rate plus 0.00% per annum. 6 Interest Period shall mean the
period  commencing  on the date of any advance at or  conversion  to an Adjusted
LIBOR Rate and ending on any date thereafter as selected by Borrower, subject to
the restrictions of Section 2.3. If any Interest Period would end on a day which
is not a  Business  Day,  the  Interest  Period  shall be  extended  to the next
succeeding  Business Day, unless the next  succeeding  Business Day falls in the
next  month,  in which  case the  Interest  Period  shall  be  shortened  to the
preceding  Business Day. 7 LIBOR Rate shall mean for any Interest Period the per
annum rate, calculated on the basis of actual number of days elapsed over a year
of 360 days, for U.S.  Dollar deposits for a period equal to the Interest Period
appearing on the display  designated as "Page 3750" on the Telerate  Service (or
such other page on that service or such other service  designated by the British
Banker's  Association for the display of that Association's  Interest Settlement
Rates for U.S. Dollar deposits) as of 11:00 a.m.,  London time, on the day which
is two London  Banking  Days prior to the first day of the Interest  Period.  If
there is no period equal to the Interest  Period on the display,  the LIBOR Rate
shall be determined by straight-line interpolation to the nearest month (or week
or day if  expressed  in weeks or days)  corresponding  to the  Interest  Period
between the two nearest  neighboring  periods on the display. 8 LIBOR Rate Loans
shall mean those  portions of  principal  of the Note  accruing  interest at the
Adjusted  LIBOR  Rate.  9 London  Banking  Day shall  mean any day other  than a
Saturday, Sunday, or other day on which commercial banks in London, England, are
authorized or required by law to close.  10 Note shall mean the promissory  note
to which this  exhibit  is  attached.  11 Prime  Rate  shall  mean the  floating
commercial loan reference rate of Bank,  publicly announced from time to time as
its "prime rate"  (calculated on the basis of actual number of days elapsed over
a year of 360 days),  with any change in the Prime Rate to be  effective  on the
date the "prime rate" changes.  12 Reserve  Adjustment  shall mean as of any day
the remainder of one minus that percentage (expressed as a decimal) which is the
highest of any such  percentages  established  by the Board of  Governors of the
Federal Reserve System (or any successor) for required  reserves  (including any
emergency,  marginal,  or supplemental  reserve  requirement)  regardless of the
aggregate  amount of deposits  with said member bank and without  benefit of any
possible credit, proration, exemptions, or offsets for time deposits established
at  offices  of  member  banks  located  outside  of the  United  States  or for
eurocurrency  liabilities,  if any. 13 Termination  Date shall mean December 31,
1998,  or such  earlier  date upon which Bank makes  demand for  payment in full
under the Note based on a default under the Note.



<PAGE>



                                    ARTICLE 2

                              Interest Rate Options
1 Interest Rates and Payment Date. The Note shall bear interest from the date of
Advance on the unpaid  principal  balance  outstanding  from time to time at the
Floating  Rate or Adjusted  LIBOR Rate as  selected by Borrower  and all accrued
interest  shall be  payable in arrears as  provided  in the Note.  2  Procedure.
Borrower  may,  on any London  Banking  Day two  London  Banking  Days  before a
Commencement  Date,  request  Bank to give an  Adjusted  LIBOR  Rate quote for a
specified loan amount and Interest Period.  Bank will then quote to Borrower the
available  Adjusted  LIBOR Rate.  Borrower shall have two hours from the time of
the quote to elect an Adjusted LIBOR Rate by giving Bank  irrevocable  notice of
such election.

1  Restrictions.  Each Interest Period shall be one month or two months or three
months or six  months or one year or any other  term  acceptable  to Bank in its
sole  discretion.  In no event  shall  an  Interest  Period  extend  beyond  the
Termination  Date. The minimum amount of a LIBOR Rate Loan shall be $500,000.  2
Prepayments.  If Borrower  prepays all or any portion of a LIBOR Rate Loan prior
to the end of an  Interest  Period,  there  shall be due at the time of any such
prepayment the Prepayment Fee,  determined in accordance with Form 51-6325 which
is attached as Exhibit 1 to the Note. 3 Reversion  to  Floating.  The Note shall
bear interest at the Floating Rate unless an Adjusted LIBOR Rate is specifically
selected.  At the  termination of any Interest Period each LIBOR Rate Loan shall
revert to a Floating Rate Loan unless  Borrower  directs  otherwise  pursuant to
Section 2.2. 4 Inability to Participate in Market.  If Bank in good faith cannot
participate  in the  Eurodollar  market  for  legal or  practical  reasons,  the
Adjusted LIBOR Rate shall cease to be an interest rate option. Bank shall notify
Borrower of and when it again becomes legal or practical to  participate  in the
Eurodollar  market,  at which time the Adjusted LIBOR Rate shall resume being an
interest rate option. 5 Costs. Borrower shall, as to LIBOR Rate Loans, reimburse
Bank for all costs,  taxes, and expenses,  and defend and hold Bank harmless for
any  liabilities,  which Bank may incur as a  consequence  of any changes in the
cost  of  participating  in,  or in  the  laws  or  regulations  affecting,  the
Eurodollar market, including any additional reserve requirements,  except to the
extent such costs are already  calculated  into the  Adjusted  LIBOR Rate.  This
covenant  shall  survive  the payment of the Note.  6 Basis of Quotes.  Borrower
acknowledges that Bank may or may not in any particular case actually match-fund
a  LIBOR  Rate  Loan.  FDIC  assessments,  and  Federal  Reserve  Board  reserve
requirements, if any are assessed, will be based on Bank's best estimates of its
marginal cost for each of these items.  Whether such estimates in fact represent
the actual cost to Bank for any particular  dollar or Eurodollar  deposit or any
LIBOR Rate Loan will  depend  upon how Bank  actually  chooses to fund the LIBOR
Rate Loan.  By  electing an Adjusted  LIBOR Rate,  Borrower  waives any right to
object to Bank's means of calculating  the Adjusted LIBOR Rate quote accepted by
Borrower.



<PAGE>



                                    ARTICLE 3

                                    Advances
1  Revolving  Loan  Facility.  Bank  shall  until the  earlier  of demand or the
Termination  Date make  Advances to Borrower from time to time, to the extent of
the  Available  Amounts,  with the  aggregate  principal  amount at any one time
outstanding  not  to  exceed   $15,000,000.00   less  the  aggregate  amount  of
outstanding Acceptances. Borrower may borrow, prepay, and reborrow the principal
of the Note in whole or in part. 2 Procedure for  Advances.  Borrower may borrow
on any Business Day.  Borrower shall give Bank  irrevocable  notice  (written or
oral)  specifying  the amount to be borrowed and the requested  borrowing  date.
Bank must receive such notice on or before 11:30 a.m.,  Seattle time, on the day
borrowing  is  requested.  All  Advances  shall be  discretionary  to the extent
notification by Borrower is given subsequent to that time. 3 Commitment to Issue
Acceptances.  Bank shall until the earlier of the Termination  Date or demand on
the Note accept for payment drafts drawn on it by Borrower, to the extent of the
Available  Amount,  in such amounts as Borrower  may  request,  with the maximum
liabilities  thereunder at any one time outstanding not to exceed $15,000,000.00
less the outstanding  balance under the Note. 4 Manner of Creating  Acceptances.
Borrower  shall give Bank  telephonic  or written  notice of each request for an
Acceptance,  in form acceptable to Bank,  prior to 11:30 a.m.,  Seattle time, on
the Business Day the draft is presented to Bank for acceptance. The notice shall
specify: (a) the date of drawing, maturity date, and face amount of the draft to
be accepted;  (b) the description of the goods covered; (c) the date of shipment
and  arrival,  and point of  destination,  or place of storage;  and (d) that no
other  financing  has been  obtained  with  respect to the goods  covered by the
Acceptance.  1 Creation of  Acceptance.  On the Business Day  specified  for the
Acceptance,  Bank is  authorized  by Borrower to: (a) Complete a draft or drafts
with the  issuance  date,  face  amount,  and  maturity  date of such drawing as
specified by Borrower;  (b) Accept and discount the draft or drafts; and (c) Pay
to Borrower a purchase price equal to the face amount of such  Acceptance,  less
an amount  equal to the Banker's  Acceptance  Rate times the face amount of such
Acceptance  and less all usual and  customary  charges  in  connection  with the
creation and administration of acceptances.  The purchase price shall be paid by
depositing such amount in a deposit account  maintained by Borrower with Bank. 1
Payment  of  Acceptance.  Borrower  shall  pay  Bank  the  face  amount  of  all
Acceptances  by 2:30 p.m.,  Seattle time, on the date of maturity.  However,  if
Borrower  fails to do so, Bank may choose,  rather than make demand,  to make an
Advance  under the Note in the amount of the maturing  Acceptance  together with
all  charges  and  expenses  that  may be paid or  incurred  by  Bank  for  such
Acceptance,  whether or not  Borrower has  requested  an Advance,  and apply the
proceeds of such Advance to amounts due.


<PAGE>






2     Form 51-6325: Page 3 of 2
                                            Exhibit 1 -- PREPAYMENT FEES

If the principal balance of this note is prepaid in whole or in part, whether by
voluntary prepayment,  operation of law, acceleration or otherwise, a prepayment
fee, in addition to any  interest  earned,  will be  immediately  payable to the
holder of this note.

     The amount of the prepayment fee depends on the following:

(1) The amount by which interest  reference  rates as defined below have changed
between  the time the loan is  prepaid  and either a) the time the loan was made
for fixed rate loans,  or b) the time the interest rate last changed  (repriced)
for variable rate loans.
(2) A prepayment fee factor (see "Prepayment Fee Factor
Schedule" on reverse).
(3) The amount of principal prepaid.

If the proceeds from a CD or time deposit pledged to secure the loan are used to
prepay the loan resulting in payment of an early withdrawal  penalty for the CD,
a prepayment fee will not also be charged under the loan.

              Definition of Reference Rate for Variable Rate Loans

The  "Reference  Rate" used to represent  interest rate levels for variable rate
loans  shall be the index rate used to  determine  the rate on this loan  having
maturities  equivalent  to the  remaining  period to  interest  rate change date
(repricing)  of this loan  rounded  upward to the nearest  month.  The  "Initial
Reference  Rate" shall be the Reference Rate at the time of last repricing and a
new Initial Reference Rate shall be assigned at each subsequent  repricing.  The
"Final Reference Rate" shall be the Reference Rate at the time of prepayment.

                Definition of Reference Rate for Fixed Rate Loans



The "Reference Rate" used to represent  interest rate levels on fixed rate loans
shall be the bond  equivalent  yield of the average  U.S.  Treasury  rate having
maturities  equivalent to the remaining  period to maturity of this loan rounded
upward to the nearest month. The "Initial Reference Rate" shall be the Reference
Rate at the time the loan was made.  The  "Final  Reference  Rate"  shall be the
Reference Rate at time of prepayment.

The Reference  Rate shall be  interpolated  from the yields as displayed on Page
119 of the Dow Jones  Telerate  Service  (or such  other  page or service as may
replace that page or service for the purpose of displaying  rates  comparable to
said U.S. Treasury rates) on the day the loan was made (Initial  Reference Rate)
or the day of prepayment (Final Reference Rate).

An Initial  Reference  Rate of N/A % has been assigned to this loan to represent
interest rate levels at origination.

                          CALCULATION OF PREPAYMENT FEE

If the Initial Reference Rate is less than or equal to the Final Reference Rate,
there is no prepayment fee.

If the Initial  Reference  Rate is greater than the Final  Reference  Rate,  the
prepayment  fee shall be equal to the  difference  between the Initial and Final
Reference Rates (expressed as a decimal),  multiplied by the appropriate  factor
from the Prepayment Fee Factor  Schedule,  multiplied by the principal amount of
the loan being prepaid.


<PAGE>


                      Example of Prepayment Fee Calculation

Variable Rate Loan: A non-amortizing  6-month LIBOR based loan with principal of
$250,000 is fully  prepaid  with 3 months  remaining  until next  interest  rate
change date  (repricing).  An Initial Reference Rate of 7.0% was assigned to the
loan at last  repricing.  The Final Reference Rate (as determined by the 3-month
LIBOR index) is 6.5%. Rates therefore have dropped 0.5% since last repricing and
a prepayment  fee applies.  A prepayment  fee factor of 0.31 is determined  from
Table 3 below and the prepayment fee is computed as follows:

         Prepayment Fee = (0.07 ae 0.065) x (0.31) x ($250,000) = $387.50

Fixed Rate Loan:  An  amortizing  loan with  remaining  principal of $250,000 is
fully prepaid with 24 months remaining until maturity. An Initial Reference Rate
of 9.0% was  assigned  to the loan when the loan was made.  The Final  Reference
Rate (as  determined by the current  24-month U.S.  Treasury rate on Page 119 of
Telerate) is 7.5%. Rates therefore have dropped 1.5% since the loan was made and
a prepayment  fee applies.  A prepayment  fee factor of 1.3 is  determined  from
Table 1 below and the prepayment fee is computed as follows:

          Prepayment Fee = (0.09 ae 0.075) x (1.3) x ($250,000) = $4,875
<TABLE>
<CAPTION>

                         PREPAYMENT FEE FACTOR SCHEDULE

                                           TABLE I: FULLY AMORTIZING LOANS
Proportion of Remaining Principal                      Months Remaining To Maturity/Repricing1
Amount Being Prepaid
<S>                <C>    <C>     <C>    <C>    <C>    <C>     <C>    <C>     <C>    <C>     <C>    <C>    <C>
--------------------------------------------------------------------------------------------------------------------
                   0      3       6      9      12      24     36     48      60     84      120    240    360
--------------------------------------------------------------------------------------------------------------------
90-100%            0      .21     .36    .52    .67     1.3    1.9    2.5     3.1    4.3     5.9    10.3   13.1
60-89%             0      .24     .44    .63    .83     1.6    2.4    3.1     3.9    5.4     7.5    13.2   17.0
30-59%             0      .28     .53    .78    1.02    2.0    3.0    4.0     5.0    7.0     9.9    18.5   24,4
0-29%              0      .31     .63    .92    1.22    2.4    3.7    5.0     6.3    9.0     13.4   28.3   41.8


                                   TABLE II: PARTIALLY AMORTIZING (BALLOON) LOANS
Proportion of Remaining Principal                       Months Remaining To Maturity/Repricing1
Amount Being Prepaid
--------------------------------------------------------------------------------------------------------------------
                         0      3      6      9     12      24     36     48     60     84     120    240    360
--------------------------------------------------------------------------------------------------------------------
       90-100%           0     .26    .49    .71    .94    1.8     2.7    3.4    4.2    5.6    7.4   11.6    14.0
        60-89%           0     .30    .59    .86   1.15    2.2     3.3    4.3    5.3    7.1    9.4   15.0    18.1
        30-59%           0     .31    .63    .95   1.27    2.6     3.9    5.3    6.6    9.1   12.6   21.2    26.2
        0-29%            0     .31    .63    .95   1.27    2.6     4.0    5.4    7.0   10.2   15.7   33.4    46.0


                                   TABLE III: NONAMORTIZING (INTEREST ONLY) LOANS
Proportion of Remaining Principal                       Months Remaining To Maturity/Repricing1
Amount Being Prepaid
--------------------------------------------------------------------------------------------------------------------
                         0      3      6      9     12      24     36     48     60     84     120    240    360
--------------------------------------------------------------------------------------------------------------------
        0-100%           0     .31    .61    .91   1.21    2.3     3.4    4.4    5.3    6.9    8.9   13.0    14.8

</TABLE>

1  For   the   remaining   period   to   maturity/repricing   between   any  two
maturities/repricings  shown in the above  schedules,  interpolate  between  the
corresponding factors to the closest month.

The  holder  of this note is not  required  to  actually  reinvest  the  prepaid
principal in any U.S.  Government Treasury  Obligations,  or otherwise prove its
actual loss, as a condition to receiving a prepayment fee as calculated above.

<PAGE>
                                                            Exhibit 21.1

                           Subsidiaries of Registrant
  
     Name                                     Jurisdiction of Incorporation
--------------------------                    -----------------------------
Semitool Europe Ltd.                                 United Kingdom

Semitool Halbleitertechnik Vertriebs GmbH            Germany

Semitool France SARL                                 France

Samitool Italia SRL                                  Italy

Semitool KK, Japan                                   Japan

Semitool, Inc., Korea                                Korea

Semitool, Inc., FSC                                  Barbados

Semy Engineering, Inc.                               Delaware

Rhetech, Inc.                                        Delaware