# UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, 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, 2008

# OR

# [   ]  TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934For the Transition
Period From ___ to ___

# Commission File Number
0-25424

SEMITOOL, INC.(Exact Name of
Registrant as Specified in Its Charter)

|Montana                                                         |  | 81-0384392                          
|--------------------------------------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of
 Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

Semitool, Inc.655 West Reserve Drive,
Kalispell, Montana 59901(406) 752-2107(Address, including zip
code, and telephone number, includingarea
code, of registrants principal executive offices)

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

|Title of Each Class        |  | Name of Each Exchange on Which Registered
|-------------------------- |  | -----------------------------------------
|Common Stock, no par value |  | NASDAQ Global Select Market              

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

Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.   Yes [   ]   No [ X ]

Indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of the
Act.   Yes  [   ]   No [ X ]

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.  [   ]

Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or
a smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of
the Exchange Act. (Check one):

|                               |                          |                              |                                 
|------------------------------ | ------------------------ | ---------------------------- | --------------------------------
|Large accelerated filer  [   ] | Accelerated filer  [ X ] | Non-accelerated filer  [   ] | Smaller reporting company  [   ]

Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
   Yes [   ]   No [ X ]

The  approximate  aggregate  market
value of the voting stock held by  non-affiliates  of the  registrant on March 31, 2008
(based on the last reported sale price on the NASDAQ Global Select Market as of such
date) was $187,570,323.

The number of shares of the
registrant's Common Stock, no par value, outstanding as of December 4, 2008 was
32,722,926.

# 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 March 5,
2009.

---

# SEMITOOL, INC.

# Index to Annual Report
on Form 10-KYear Ended September 30, 2008

PART I

|                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                            
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -----------------------------------------------------------
|ITEM 1.
       
       
ITEM 1A.
ITEM 1B.
ITEM 2.
       
ITEM 3.
       
ITEM 4. | INTRODUCTION - FORWARD-LOOKING STATEMENTS          BUSINESS                                           
                                                   EXECUTIVE OFFICERS OF THE REGISTRANT               RISK FACTORS                                       UNRESOLVED STAFF COMMENTS                          PROPERTIES                                         
                                                   LEGAL PROCEEDINGS                                  
                                                   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS | PAGE
   3
   4
    
  11
  11
  18
  19
    
  19
    
  19

PART II

|                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                             
|----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------
|ITEM 5. 
        
        
ITEM 6. 
        
ITEM 7. 
        
ITEM 7A.
        
ITEM 8. 
        
ITEM 9. 
        
ITEM 9A.
        
ITEM 9B. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
  ISSUER PURCHASES OF EQUITY SECURITIES 
                                                                                          SELECTED FINANCIAL DATA                                                                   
                                                                                          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS     
                                                                                          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                
                                                                                          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                               
                                                                                          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL  DISCLOSURE      
                                                                                          CONTROLS AND PROCEDURES                                                                   
                                                                                          OTHER INFORMATION | 20
  
21
  
22
  
33
  
34
  
60
  
60
  
60

PART III

|                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                     
|-------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------
|ITEM 10.
        
ITEM 11.
        
ITEM 12.
ITEM 13.
ITEM 14. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                       
                                                                                              EXECUTIVE COMPENSATION                                                                        
                                                                                              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED  SHAREHOLDER MATTERSCERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                     PRINCIPAL ACCOUNTING FEES AND SERVICES | 61
  
61
  
61
61
61

PART IV

|         |                                                      |      
|-------- | ---------------------------------------------------- | -----
|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSIGNATURES | 62
65

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# PART I

# Introduction —
Forward-Looking Statements

Statements
contained in this Annual Report on Form 10-K which are not purely historical facts are
forward-looking statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934. These
forward-looking statements are based on management's estimates, projections and
assumptions that underlie such statements at the time they are made.  Forward-looking
statements in the discussion of our business, properties and legal matters include,
without limitation, statements regarding:

- trends in the semiconductor industry that are driving growth for our products, including the adoption of
     single-wafer 300mm processing, adoption of copper as an interconnect material, spray processing supplanting
     immersion technologies and the continued expansion of the wafer level packaging market;
- Semitool's solutions and strategies for electrochemical deposition, surface preparation and wafer level
     packaging, including our intent to continue investing in research and development to maintain and expand our
     position as a technology leader in those markets;
- our plan to develop new technologies, including porous silicon, 3-D packaging, wafer thinning and solar market
     applications for our processes and equipment, to enable us to enter emerging markets and provide innovative
     solutions;
- our plan to leverage our Raider platform with both our current and potential new customers and in new markets
     and our expectation that revenue from our Raider platform will continue to account for a significant portion
     of our revenue;
- our plan to enhance our relationships with our major customers and identify opportunities to develop similar
     relationships with other semiconductor device manufacturers;
- our intent to match our sales and support organization to market opportunities in Asia, and the potential for
     growth in those markets;
- the performance and acceptance of our products, including the continued technological improvement of our tools
     and the success of our Raider platform;
- manufacturing strategy, including our vertical manufacturing structure and manufacturing strategies for
     increasing performance reliability and yields while reducing the cost of ownership of our tools;
- competition, including our ability to compete favorably with companies significantly larger than we are;
- our efforts to protect our intellectual property portfolio and intent to continue to file patent applications
     to protect that intellectual property;
- the adequacy of our existing manufacturing facilities;
- the ability to maintain our worldwide sales, service and customer support organizations;
- the impact of litigation on our business, including patent disputes; and
- the impact of the recent turmoil in the world's economies on our business.

Other
forward-looking statements made below under the heading Managements Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere include
statements relating to:

- accounting policies and estimates and the effects of new accounting standards;
- research and development expenses, including expected fluctuations in such expenses in absolute dollar amounts
     and as a percentage of net sales, and our expectation of continued funding of research and development to
     attain technology leadership in our industry;
- estimates of capital expenditures and the sufficiency of funds and sources of financing to make expected
     capital expenditures through fiscal 2009;
- the sufficiency of funds and the ability to finance activities, including sources of liquidity and the
     availability of the funds for borrowing under the debt covenants contained in our revolving credit line;
- our expectation that existing debt financing arrangements and cash flows generated from operating activities
     will be sufficient to fund operations and planned capital expenditures through fiscal 2009; and
- our estimated effective tax rate.

Management
cautions that forward-looking statements are subject to risks and uncertainties that could
cause our actual results to differ materially from those projected in such forward-looking
statements. These risks and uncertainties are detailed under the heading Risk
Factors (refer to Part I, Item 1A) and elsewhere in this Annual Report on Form 10-K.
We undertake no obligation to update forward-looking statements to reflect subsequent
events, changed circumstances, or the occurrence of unanticipated events.

3

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# Item 1. Business

# Overview

We
design, manufacture, install and service highly-engineered equipment for use in the
fabrication of semiconductor devices. Our products are focused on the wet chemical process
steps in integrated circuit, or IC, manufacturing and include systems for wafer surface
preparation and electrochemical deposition, or ECD, applications. Our surface preparation
systems are designed for Front End of Line (FEOL), Back End of Line (BEOL) and wafer level
packaging of ICs processes. Our single-wafer FEOL surface preparation systems are used for
photoresist stripping, post etch and pre-diffusion cleans. Our BEOL surface preparation
systems are used for polymer removal and packaging applications. Our ECD systems are used
to plate copper and other metals, which are used for the ICs internal wiring, or
interconnects; to plate solder and lead free solder bumps for wafer level packaging
applications; and to plate other metals for various semiconductor and related
applications. Also, our surface preparation systems are used for cleaning and etching
processes for wafer level packaging. Our primary product for all of these processes is the
Raider platform, which is a multi-chamber single-wafer tool. Our products address critical
applications within the semiconductor manufacturing process, and help enable our customers
to manufacture more advanced semiconductor devices that feature higher levels of
performance. The fabrication of semiconductor devices typically requires several hundred
manufacturing steps, with the number of steps continuing to increase for advanced devices.
Due to the breadth of our product portfolio and advanced technology capabilities, our
solutions address over 150 of these manufacturing steps.

Semitool,
Inc., a Montana corporation, was founded in 1979 and is headquartered in Kalispell,
Montana. Our mailing address is 655 West Reserve Drive, Kalispell, MT 59901 and our
telephone number is 406-752-2107. Additional information about the Company is available on
our website at http://www.semitool.com. On our Investor Relations page on our website, we
post the following filings as soon as practicable after they are electronically filed with
or furnished to the Securities and Exchange Commission (SEC): our annual report on Form
10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and any
amendments to those reports filed or furnished pursuant to Sections 13(a) or 15(d) of the
Securities Exchange Act of 1934. All such filings on our own Investor Relations web page
are available to be viewed free of charge. Information contained on our website is not
part of this annual report on Form 10-K or our other filings with the Securities and
Exchange Commission. Our Form 10-K and other filings also are available at the Securities
and Exchange Commissions website at http://www.sec.gov. Any materials the Company
files with the SEC may be read and copied at the SECs Public Reference Room at 100 F
Street, NE, Washington, DC 20549. Information on the operation of the Public Reference
Room is available by calling the SEC at 1-800-SEC-0330.

# Industry Background

Growth
in the semiconductor industry is driven by the global demand for semiconductor devices
that are incorporated in an ever increasing array of electronic devices such as personal
computers, network servers, digital televisions, audio systems including MP3 players,
video game players, cellular phones, GPS devices and digital cameras to name a few. The
market for semiconductor equipment used to fabricate semiconductor devices has also
experienced significant growth, driven by greater demand for, and increasingly higher
performance of, semiconductor devices. Though subject to a high degree of cyclicality due
to periods of excess supply or demand for semiconductor equipment, semiconductor devices
and semiconductor fab capacity utilization, the market for semiconductor equipment is
characterized by rapid technological development and product innovation. As a result, to
meet new technological advancements, semiconductor device manufacturers may purchase new
semiconductor equipment despite the timing of the market cycle.

# Semiconductor
Manufacturing Process Overview

Semiconductor
devices can consist of over a billion microscopic transistors and other components that
electronically store information and allow the execution of instructions used to operate
electronic devices. Fabrication of ICs involves hundreds of complex and repetitive process
steps, involving an array of sophisticated manufacturing equipment, chemical media, and
materials. The fabrication process includes, among others, the deposition of multiple
layers of dielectric or insulating films and electrically conducting metal films. After
the deposition of each film layer, the fabrication process continues with repeated
cleaning, stripping and etching processes to prepare the surface for the next process.
When completed, the wafer may contain several hundred ICs, which, traditionally, are then
separated by a dicing process. The ICs are then packaged by connecting them to pins using
metal wire contacts and encapsulated in a polymer plastic case. In an effort to reduce the
size of packaged ICs, some manufacturers are using newer wafer level packaging techniques,
which allow for attaching each IC to its package prior to dicing the wafer. Once diced,
the packaged semiconductor device can then be used in electronic products, such as
cellular phones or other electronic devices.

Cleaning,
stripping, etching or otherwise preparing the wafer surface are steps repeated throughout
the semiconductor fabrication process as well as in the wafer level packaging process.
These processes are important, since the integrity of the next process depends on the
effectiveness of prior cleaning, stripping, or etching steps. Immersion and spray are two
fundamental means by which surface preparation wet process steps are performed. Immersion
processes, or wet benches, are a series of chemical baths in which wafers are immersed.
The wafers are transported from a wet chemical tank to another tank by robots or human
operators. In contrast, spray delivery systems subject wafers to sequential spray
applications of chemicals inside an enclosed process chamber, where the chemical is
brought to the wafers which are spinning on axis. Spray systems can be configured to
process wafers in a batch or single wafer mode. Single-wafer processor systems can provide
a combination of spray and immersion processes.

4

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An
ICs interconnect wiring provides the means for electronic data to flow and interface
with external devices between the ICs transistors and external devices.
Interconnects are formed by the deposition of metal film layers, such as copper, into
trenches and vias on the surface of a wafer. The deposition step occurs numerous times
throughout the manufacturing process, with advanced ICs possessing seven or more metal
film layers. As device dimensions continue to shrink, the connections between transistors
add noticeably more delay to IC processing speeds, due to the intrinsic resistance and
capacitance of the interconnect material. Copper is the material of choice in such
situations and practically all 300mm fabs use copper plating equipment. However, copper,
unlike aluminum, is difficult to handle and must be kept from direct contact with the
silicon wafer as it will diffuse into the silicon. This will ruin the devices on the wafer
and could potentially contaminate an entire fab. As a result, copper-based manufacturing
requires more critical surface preparation steps and special processing techniques to
provide complete isolation of the copper material.

# Trends in Semiconductor
Manufacturing

There
are several key trends in the semiconductor manufacturing industry driving growth in
demand for wafer surface preparation, ECD and other advanced semiconductor equipment:

Smaller
Device Features for Lower Cost and Higher Performance. Semiconductor devices have
historically followed Moores Law which states that approximately every two years the
amount of transistors on a device doubles giving it twice the power in the same space. The
inexorable goal of creating more advanced electronics applications drives the
industrys transition to smaller device features, enabling lower cost, as more ICs
can be fabricated on each wafer. As the industry moves to 45 nanometer feature sizes and
below, the IC fabrication process becomes significantly more complex, requiring more
stringent manufacturing specifications and lower acceptable margins of error. In
particular, the fabrication process becomes more susceptible to ever smaller particles,
requiring the use of more advanced surface preparation equipment to reach acceptable
yields. Also, manufacturing smaller IC interconnects often requires the use of equipment
specifically designed for copper processing.

New
Materials to Fabricate More Advanced Semiconductor Devices. The need to fabricate
increasingly advanced semiconductor devices has led to more complex manufacturing
processes that use new materials, such as low-k dielectrics and copper to form an
ICs interconnect wiring. The use of copper, in particular, presents significant
processing challenges to prevent copper contamination which reduces yield even when
measured in parts per billion. To address these challenges, specialized processes have
been developed to provide better isolation of copper materials on the wafer, including
dual-damascene, barrier layer formation, and new cleaning processes to remove unwanted
copper. These complex processes require the use of computer automated equipment for the
precise deposition of copper material. Additionally, the introduction of new materials
requires a higher number of surface preparation steps to provide high yields.

Move
to Single-Wafer Processing Technologies for Enhanced Surface Preparation.The industry
shift toward smaller device dimensions, new materials and 300mm wafer processing has
driven the need for more advanced surface preparation technologies and process equipment.
In particular, 300mm is causing a move to single-wafer processing as the process can be
controlled more precisely compared to wet bench technology. For example, single-wafer
spray processing is increasingly being used instead of wet benches due to its greater
process control, reduced footprint, reduced manufacturing cycle time, reduced chemical
consumption and now greater throughput. Fab BEOL processes, where the interconnect wiring
is placed on the wafer, have already made the transition from being primarily batch
processes to single-wafer processes. FEOL processes, which fabricate the devices
transistors, are starting to transition from batch to single wafer.

Wafer
Level and Other Advanced Packaging Enable Smaller Portable Products.New packaging
technologies, including wafer level packaging, are being developed by the industry for the
manufacture of smaller portable products such as GPS devices, MP3 players and mobile
phones to name a few. Advanced packaging is an enabling technology for the semiconductor
industry, as it allows the integration of more computing and information processing power
in a smaller space than conventional packaging technology. Advanced packaging uses
fabrication processes similar to IC fabrication and includes, among others, ECD for
connective solder or gold bumps, photoresist stripping and under-bump metal etching. The
packaging method allows for more efficient 3-D device mounting, or chip stacking, to
further reduce the devices footprint.

Emerging
Need for 3D Chipstacking Driven by the Demand for Smaller Portable Devices. The desire
for smaller, lighter and more power efficient devices has led to the need for thinning
devices and then stacking them in the same package. The devices are electronically
connected to provide an integrated, multi-functional device in a small footprint.

5

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# Semitools Solution

We
are a leading provider of wet chemical processing equipment, targeting wafer surface
preparation and ECD plating applications for all areas of wafer fabrication, including
device packaging. As the semiconductor manufacturing process increases in complexity and
production parameters become even more stringent, semiconductor manufacturers increasingly
rely upon manufacturers of semiconductor equipment to achieve improved process control,
provide a smaller equipment footprint and lower the cost of ownership of their
manufacturing processes. Our solutions address critical applications within the
semiconductor manufacturing process, and enable our customers to manufacture more advanced
semiconductor devices that feature higher levels of performance. Key elements of our
solution include:

Technology
Leadership. We are able to leverage our extensive expertise in wet chemical processing
and nearly 30 years of experience building and supporting production-proven semiconductor
manufacturing equipment. We utilize advanced modeling techniques in the design of our
process chambers to address an increasingly complex manufacturing process. We have a
strong intellectual property portfolio with 372 U.S. patents issued and approximately 148
U.S. patents pending.

Comprehensive
Product Portfolio.We provide a broad suite of advanced, highly-engineered, innovative
processing chambers that include surface preparation and ECD equipment. These chambers are
incorporated into our single-wafer platform and into our batch processing tools. We design
a variety of chambers to optimize performance of each of the different processes.

Raider
Platform.Our Raider platform is a high-precision, multi-chamber, single-wafer
platform that supports surface preparation and ECD applications. Our proprietary platform
is configured in a linear design, coupled with our own robotic technology, allowing for up
to 14 interchangeable process chambers. The Raider platform also features no-teach robotic
technology which results in reduced installation and maintenance costs.

Vertically-Integrated
Manufacturing and Design Capabilities.Our manufacturing operations are selectively
vertically-integrated to include metals and plastics fabrication and finishing
capabilities, component manufacturing and final product test and assembly and extensive
product development capabilities. Our facilities feature high-volume manufacturing lines
that provide short lead time delivery of our products. In addition, we perform product
development and prototyping internally. This strategy reduces our products time to
market and helps lower our design and manufacturing costs.

# Strategy

Our
objective is to be the leading worldwide provider of wet chemical processing equipment,
targeting wafer surface preparation and ECD applications. To achieve this goal, we are
pursuing the following strategies:

Target
Innovative, High-Margin, High-Growth Opportunities with Differentiated Products.Our
strategy is to be the first to enter new, high-growth markets with differentiated
products. This has provided us with early market and technology leadership and enabled us
to achieve strong gross margins. For example, we were among the first to target the
rapidly-growing wafer level packaging and ECD markets and will continue to do so as we
develop processes and equipment for 3D chipstacking.

Maintain
and Expand Technology Leadership. We intend to continue investing in research and
development to maintain and expand our position as a technology leader in surface
preparation and ECD applications. Our goal is to deliver leading-edge technical innovation
to our customers by focusing on performance, improved system reliability, high throughput,
yield enhancement and a low cost of ownership. We plan to develop new technologies, such
as porous silicon and solar applications, to enable us to enter emerging markets and
provide innovative solutions to meet customer needs.

Leverage
our Raider Platform to Further Penetrate New Customer and Market Opportunities.Our
Raider platform features proprietary surface preparation, ECD, and wafer handling
technologies. We continue to enhance the capabilities of our Raider platform and thus
broaden its customer appeal by expanding its portfolio of wet chemical processing
capabilities. We plan to leverage the platform with both our current and potential new
customers, in our existing markets, as well as in new markets. New Raider developments
will strive to provide a throughput advantage with a reduced footprint compared to batch
processing technology.

Integrate
Design and Manufacturing Expertise. Our strategy is one of close integration of design
and manufacturing, coupled with selective vertical manufacturing to achieve innovative
solutions, cost and quality advantages and to reduce the time to market for new products
and product enhancements. We believe that the close coordination of our engineering and
manufacturing teams provides us with an advantage in developing new products as well as
improving the design of our current products to increase performance, reliability and
manufacturing yields while reducing costs. Additionally, our control over selective
critical components reduces our dependence on component suppliers.

6

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Leverage
Strategic Relationships. For over 29 years, we have focused on satisfying the needs of
worldwide semiconductor device manufacturers and establishing long-term relationships with
our customers. We work with select customers and other suppliers to the semiconductor
equipment industry at the concept and design stages to identify and respond to customer
requests for current and future generations of products. These close working relationships
allow us to understand and address the performance and cost expectations of our customers.
We plan to enhance our relationships with our major customers and identify opportunities
to develop similar relationships with additional semiconductor device manufacturers.

Asian
Market Presence.During the past several years we have expanded our presence in Asia.
We currently have sales organizations in Singapore, Japan, Taiwan, Korea and China, and
long-term, we intend to match our sales and applications support organization to market
opportunities in that region. We believe that the Asia region has the potential for
additional significant long-term growth. Our sales, marketing and service strategy is to
expand our installed base of equipment with existing and potential new customers in this
region.

# Technology

We
are a leader in the design, development and manufacturing of advanced, wet chemical
processing equipment. We leverage our years of experience in designing and manufacturing
production-proven semiconductor manufacturing equipment to deliver solutions that enable
the fabrication of increasingly higher performance semiconductor devices. We have several
key technological core competencies, including advanced computational modeling, and have
assembled a development team with extensive engineering and modeling expertise to
capitalize on these competencies.

Our
surface preparation systems incorporate our innovative cleaning technology, such as our
HiDRIS cleaning chamber used to remove high dose ion implant photoresist from the surface
of the wafer. We have also developed porous silicon chambers for use in nano-technology
mems devices and solar applications.

For
electroplating applications, we leverage our advanced modeling techniques in the design of
our proprietary copper pellet anode assemblies and membrane technology to provide low cost
copper to the flash and memory device markets. Our multiple anode assemblies enable
radially controlled current density during the electroplating process, leading to a more
controllable process for depositing copper film on the surface of a wafer allowing the
optimal match of the copper film to the planarization characteristics of the downstream
CMP process step.

# Products

Our
broad product suite of innovative processing systems leverages our core wet chemical
processing expertise and our years of experience in manufacturing and supporting
production-proven semiconductor manufacturing equipment. Our primary wet chemical
processing solutions are multi-chamber single-wafer and batch cleaning, stripping and
etching equipment and single-wafer plating equipment, primarily for the deposition of
copper, lead or lead-free solder. We operate in one segment with net sales of $238.6
million, $215.2 million and $243.2 million for fiscal 2008, 2007 and 2006, respectively.

# Surface Preparation
Products

Our
multi-chamber, single-wafer processing systems for wet cleaning, stripping and etching are
designed with a linear arrangement of the processing chambers for high volume production
and, like our ECD chambers, utilize the Raider platform. The platform modularity reduces
downtime and increases wafer throughput providing the customer with an overall lower cost
of ownership. These systems are available to accommodate 200mm and 300mm wafer sizes.
Selling prices for these single-wafer surface preparation products range from
approximately $1.0 million to $4.4 million.

Our
batch systems for wet cleaning, stripping and etching applications include semi- and
fully-automated systems and use our proprietary spray technology to deliver chemicals,
deionized water and gases to the wafer surface in an enclosed chamber. The wafers are
rotated, on axis, and are showered by a sequenced spray of chemicals followed by heated
nitrogen gas to dry the wafers. This technology enables precise and uniform application of
process chemicals and enhances process reliability and cost effectiveness through reduced
particle contamination and process cycle time. Our cost-effective ozone and deionized
water-based cleaning process, called HydrOzone, is available on selected systems. This
environmentally friendly process can replace traditional processes using sulfuric acid and
other hazardous chemicals resulting in lower costs, reduced process cycle time, reduced
water consumption, and can minimize chemical disposal costs. These systems are available
to accommodate 150mm, 200mm and 300mm wafer sizes in up to 50 wafer batches. Selling
prices for these systems range from approximately $20,000 to $2.9 million.

7

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# RAIDER SP

Our
Raider platform is a multi-chamber, single-wafer platform that provides a high degree of
control over surface preparation applications. Our proprietary platform is configured in a
linear design, coupled with our robotic technology, allowing for up to 14 interchangeable
process chambers. The flexibility of its linear design makes it one of the most versatile
wet cleaning, stripping and etching platforms in the industry. The tool can be equipped
with our proprietary Capsule chambers, which allows side-selectable processing. In
addition, the system can also be equipped with spray, immersion, megasonic, or vapor
process chambers. Applications include wafer backside, bevel-edge clean for removal of
unwanted copper and other contaminates, post-etch polymer removal, critical pre-deposition
cleans, metal etching and FEOL cleans. The Raider SP is available to accommodate 200mm and
300mm wafer sizes.

# SPECTRUM

The
Spectrum is an advanced automated batch processing system for cleaning, stripping and
etching applications. Its compact modular design features high throughput, flexible
process formats and precise control for low cost of ownership. In addition to our
proprietary spray processing modules, the Spectrum can be equipped with immersion and
surface tension gradient dry capabilities. It can be configured to use either corrosives,
solvents or our proprietary HydrOzone-based processes for polymer removal, photoresist
strip and critical cleaning applications. The Spectrum is available to accommodate both
200mm and 300mm wafer sizes.

# Spray Acid Tool (SAT),
Spray Solvent Tool (SST), Spin Rinser/Dryer (SRD), SCEPTER

The
SAT and SST are manually loaded semi-automated systems for performing sequential
processing of 25 wafers per spray process chamber. They are designed for wafer
processing using high purity acidic, alkaline and solvent based chemistries to achieve a
wide array of cleaning, stripping and etching applications. These systems can be equipped
with up to three 200mm process chambers and are ideal for medium to low production volumes
and research and development activity. The SRD is a high efficiency cleaning system
utilizing deionized water to remove water-soluble contaminants, chemical residue and
particulate matter. It is available to accommodate wafer sizes up to 300mm in diameter.
The Scepter series is an advancement of these semi-automated products that offers double
the productivity of the 25 wafer capacity tools by processing 50 wafers at a time in
nearly the same system footprint. The Scepter can process wafer sizes up to 200mm in
diameter.

# Electrochemical
Deposition Systems

Our
single-wafer ECD systems incorporate proprietary electroplating technology on a
multi-chamber Raider platform typically populated with 10 to 12 chambers. ECD applications
include copper interconnect for logic and memory ICs, gold bumps for high speed
communication ICs, lead and lead-free solder bumps for advanced wafer level packaging and
through silicon via plating for 3-D chipstacking applications. Our leading single-wafer
design is modular, with process chambers arranged in a linear orientation, providing
flexibility in system configuration. These systems generally include a combination of ECD
and surface preparation process chambers to address a customers specific
application. These systems are available to accommodate wafer diameters from 100mm to
300mm and can be scaled for customers capacity requirements. Selling prices of these
typically range from approximately $700,000 to $4.4 million.

# RAIDER ECD

The
Raider ECD is an automated, single-wafer processor for high volume ECD. The specific
configuration of its multiple processing chambers determines which semiconductor IC and
advanced packaging markets the Raider ECD serves. For copper interconnect, several process
steps can be integrated onto a single system such as ECD seed layer enhancement, ECD
plating fill, wafer backside clean, bevel-edge clean, film thickness metrology and rapid
thermal anneal. Our proprietary concentric anode chamber design, coupled with our
model-based plating controller, allows the user to optimize plating profiles for
downstream operations such as better matching of film characteristics to planarization
(CMP) equipment, resulting in yield CMP improvements and reducing expensive CMP costs. Our
cleaning chambers, which are also used in our Raider SP, are integrated into the tool for
bevel-edge and backside copper cleaning to eliminate copper contamination. The modularity
of the platform provides our customers with the flexibility to configure the chamber mix
to meet their specific needs. Additionally, our Advanced Chemical Management System, or
ACMS, an automated electroplating bath control unit, can be fully integrated with the
Raider ECD systems. The ACMS maintains the desired chemical balance in the plating baths
by automatically analyzing and replenishing the chemical constituents using our
proprietary technology and typically services two ECD systems. The primary applications
for the Raider ECD are copper, gold, nickel, platinum and solder depositions. It is
available to accommodate 200mm and 300mm wafer sizes.

8

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# Customers, Sales and
Marketing

Our
customers include leading global semiconductor manufacturers. The following is a
representative list of our largest customers in fiscal 2008:

|                                                                                                                                                                                                                                                            |                                                                                                                                                                                                                  |                                                                                                                                                                
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
|Advanced Micro Devices            
Advanced Semiconductor Engineering
Amkor                             
Anadigics                         
Atotech                           
Freescale Semiconductor           
Inotera                           
Micron | Qimonda                     
Samsung                     
Seagate                     
Showa Denka                 
Silicon Precision Industries
Skyworks                    
STMicroelectronics          
Sumco | Taiwan Semiconductor Mfg. Co.
TECH Semiconductor
Texas Instruments
Toshiba
Triquint Semiconductor
United Microelectronics Corporation
Win Semiconductor
Winbond

Our
top ten customers accounted for 56.0%, 67.8% and 54.0% of net sales in fiscal 2008, 2007
and 2006, respectively. Seagate and Amkor accounted for 11.6% and 10.4%, respectively, of
net sales in fiscal 2008. Advanced Micro Devices accounted for 23.8% and 13.8% of net
sales in fiscal 2007 and 2006, respectively. Micron/IM Flash accounted for 10.2% of net
sales in fiscal 2007.

International
sales, primarily in Europe and Asia, including Japan, accounted for approximately 71.4%,
62.5 % and 62.5% of net sales for fiscal 2008, 2007 and 2006, respectively. We have direct
sales and customer support organizations located in the United States, Europe, Japan,
Singapore, Korea, Taiwan and China, and for some products, we utilize on a selective basis
both independent representatives and distributors.

Field
service personnel and process engineers located in the United States, Europe, Japan, Korea
and throughout Southeast Asia provide warranty service, post-warranty service and
equipment installation. We also provide service and maintenance training, as well as
process application training for our customers personnel, on a fee basis. Spare
parts inventories are maintained in outsourced locations throughout the world, which
allows us to offer same day or overnight delivery in many instances.

# Backlog and Deferred
Revenue

Consolidated
orders backlog was $54.5 million as of September 30, 2008 and $58.9 million as of
September 30, 2007. We include in backlog those customer orders for which we have written
customer authorization and for which shipment is scheduled within the next 12 months.
Orders are subject to cancellation or rescheduling by customers with limited or no
cancellation fees. During periods of downturns in the semiconductor industry, we have
experienced significant customer cancellations and requested delays in delivery.

Our
deferred revenue primarily relates to equipment shipped to customers that has not been
accepted by the customer. Revenue on those shipments is recognized as sales when
acceptance is received. As of September 30, 2008, deferred revenue was $13.6 million.

As
a result of systems ordered and shipped in the same quarter, possible changes in customer
delivery dates, cancellations and shipment delays, and acceptances of shipped equipment
carried in deferred revenue, the backlog at any particular date and the orders bookings
for any particular period are not necessarily indicative of actual revenue for any
succeeding period.

# Manufacturing

Most
of our manufacturing is conducted at our facilities located near Kalispell, Montana. Our
manufacturing operations are selectively vertically integrated to include metals and
plastics fabrication and finishing capabilities, component parts and final product
assembly, and extensive product development capabilities. Manufacturing personnel work
closely with product development engineers to enhance manufacturability and facilitate the
transition from prototype to full-scale production. Our high-volume manufacturing lines
provide responsive lead time delivery of our products. Component and product prototyping
typically is performed internally, reducing the time to market for new products and
product enhancements.

In
fiscal 2006, we increased our manufacturing capacity with the purchase of a 72,000 square
foot facility near Kalispell. This building contains our fabrication departments and
provides more space for the assembly area in our main facility. In fiscal 2006, we also
completed our facility in Salzburg, Austria which has space for light manufacturing and a
repair facility. In fiscal 2007, we completed a 10,000 square foot expansion of a
refurbishing facility at our Rhetech subsidiary.

# Research and Development
(R&D)

We
believe that timely development of products is necessary to remain competitive in an
equipment market characterized by rapid technological change and product innovation. We
devote significant resources to programs directed at developing new and enhanced products,
as well as new applications for existing products. We maintain extensive demonstration and
process development laboratories at our facilities in Montana, including three lab areas
for demonstrating, testing and developing products. Research and development personnel
work directly with customers, vendors, and research institutes to develop new processes
and to design and evaluate new equipment.

9

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Research
and development, which is expensed as incurred, was approximately $30.4 million, $27.1
million and $24.5 million in fiscal 2008, 2007 and 2006, respectively. As a percentage of
our net sales, these expenses represented approximately 12.8%, 12.6% and 10.1% in each of
these fiscal years, respectively. Our surface preparation R&D efforts were focused on
FEOL cleaning applications, wafer edge cleaning processes and related equipment. ECD
R&D focused on the development of a new processing chamber capable of plating copper
for devices at the 32 nanometer node and below, deep via applications, direct-on-barrier
plating, thin seed layer enhancement processes, porous silicon processes and related
equipment.

# Competition

The
semiconductor equipment industry is an intensively competitive market place marked by
constant technological change. Significant competitive factors in the semiconductor
equipment and related markets in which we compete include: system performance, quality and
reliability, cost of using our equipment, ability to ship products to meet customer
schedules, timeliness and quality of technical support service, our success in developing
new and enhanced products, pricing and payment terms. We face substantial competition from
established companies, some of which have greater financial, marketing, technical and
other resources, broader and integrated product lines, more extensive customer support
capabilities, larger sales organizations and greater installed customer bases. Our primary
competitor in ECD is Novellus Systems, Inc. In wet surface preparation applications, our
competition includes Dainippon Screen Manufacturing Co., LAM Research, Inc. and Tokyo
Electron, Ltd.

We
believe that we compete favorably with these manufacturers. We may also face competition
from new market entrants.

# Patents and Other
Intellectual Property

The
semiconductor industry in general is very active in pursuing patent applications for both
equipment and processes used in the manufacture of semiconductor devices. Patents are
considered important to the protection of intellectual property resulting from a
companys research and development programs and are viewed as a means of gaining
market advantages over competitors because the industry often differentiates competitors
on the basis of technological criteria.

We
place a strong emphasis on the innovative features of our products and, where available,
we generally seek patent protection for those features. We currently hold 372 U.S.
patents, some with pending foreign counterparts, have approximately 148 U.S. patent
applications pending and intend to file additional patent applications, as we deem
appropriate. We have had an active patent program since the Companys inception;
consequently, the duration of our patent portfolio is staggered due to various initial
filing dates for individual patents. Our patent portfolio is not dominated by any
particular patents. We consider the strength of the overall portfolio to be more important
than the strength of any particular patent. In fact, many patents are part of our
patent families and it is difficult, if not impossible, to make any assessment
regarding the materiality of one patent in that family over another.
Even if a patent is not used offensively to prevent a competitor from practicing the same art,
it may still provide a deterrent against a competitors potential patent infringement
claim against us.

# Employees

As
of September 30, 2008, we had 1,294 full-time and temporary employees worldwide. Our
employees are not represented by a labor union, and we have never experienced a work
stoppage or strike. We consider our employee relations to be good. Since the end of the
fiscal year we have reduced our headcount to 1,155 employees.

# Environmental Matters

We
are subject to a variety of governmental regulations related to the discharge or disposal
of toxic, volatile or otherwise hazardous waste. Our compliance with federal, state and
local provisions regulating the discharge of materials into the environment, and the
remedial actions we have taken with respect to environmental regulations, have not had,
and are not expected to have, a material effect on our business, financial condition,
results of operations and cash flows.

10

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# Executive Officers of the
Registrant

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

|Name                                                                                                                                                                                       | Age               | Position                                                                                                                                                                                                         
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Raymon F. Thompson (1)
          Larry E. Murphy (2)   
          Timothy C. Dodkin (3) 
          Larry A. Viano (4)    
          James L. Wright (5)   
          Richard C. Hegger (6) | 67
49
59
54
45
52 | Chairman of the Board and Chief Executive Officer
President and Chief Operating Officer
Executive Vice President
Vice President, Chief Financial Officer
Vice President, Manufacturing
General Counsel, Secretary

---

(1)Raymon F. Thompson founded Semitool in 1979 and serves as our Chairman and
          Chief Executive Officer. In 1979, Mr. Thompson designed, patented and
          introduced the first on-axis spin rinser/dryer for the semiconductor industry.

(2)  
          Larry E. Murphyjoined us in May 2004 as our Chief Operating Officer and
          has served as our President since April 2005. Prior to joining us,
          Mr. Murphy worked for 15 years at Tosoh SMD, Inc., a U.S. subsidiary of
          Tosoh Corporation headquartered in Tokyo, Japan. Mr. Murphy was Tosoh
          SMDs President and Chief Executive Officer, as well as Chairman of their
          Taiwanese, Korean and Singapore subsidiaries. Previously at Tosoh SMD, he held
          several executive positions, including Chief Operating Officer, Vice President
          of Sales and Marketing and Global Sales Manager.

(3)Timothy C. Dodkinhas been employed by us since 1985 and has served on our
          Board of Directors since 1998. Mr. Dodkin has held a number of
          sales-related positions including Senior Vice President, Global Sales and
          Marketing and, since June 2003, has served as Executive Vice President. Prior to
          joining us, Mr. Dodkin worked at Cambridge Instruments, a semiconductor
          equipment manufacturer, for ten years in national and international sales.

(4)Larry A. Viano joined us in 1985 and has held various positions with the
          Company since then. Mr. Viano has served as our Vice President, Chief
          Financial Officer since May 2003. He also serves as our Principal Accounting
          Officer.

(5)  
          James L. Wright joined us in 2003 as our Director of Operations and has
          served as our Vice President of Manufacturing since March 2006. Prior to joining
          us, Mr. Wright worked for eight years at Applied Materials as a Senior
          Operations Manager for the Copper, PVD and Systems Division.

(6)  
          Richard C. Hegger joined us in 2000 as our General Counsel and has served
          as our Secretary since February 2005. Prior to joining the Company,
          Mr. Hegger worked for a major international law firm and specialized in
          corporate transactions. He is a graduate of Columbia University School of Law
          and a member of the bars of Montana, New York and Missouri.

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

# Item 1A. Risk Factors

Set forth below are risks and
uncertainties that could negatively impact our business, financial condition, results of
operations and cash flows, and could cause actual results to differ materially from the
results contemplated by the forward-looking statements contained in this Annual Report on
Form 10-K. These risks and uncertainties could also cause our stock price to decline.

We have incurred significant net
losses in the past, our future revenues are inherently unpredictable, and we may be unable
to maintain profitability.

We have incurred significant net
losses in the past. Our operating results for future periods are subject to numerous
uncertainties, and we cannot assure that we will be able to maintain the profitability
that we achieved in the past five fiscal years. It is possible that in future quarters our
operating results will decrease from the previous quarter or fall below the expectations
of securities analysts and investors. In this event, the trading price of our common stock
could significantly decline.

11

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Our quarterly operating results
have varied in the past and will continue to vary significantly in the future, causing
volatility in our stock price.

Our quarterly operating results have
varied significantly in the past and will continue to do so in the future, which will
continue to cause our common stock price to fluctuate in the future. Some of the factors
that may influence our operating results and subject our common stock to price and volume
fluctuations include:

- changes in customer demand for our systems, which is influenced by economic conditions, technological
  developments in the semiconductor industry, and the announcement or release of enhancements to existing products
  or new product offerings by our competitors;
- demand for products that use semiconductors;
- market acceptance of our systems and changes in our product offerings;
- size and timing of orders from customers;
- customer cancellations or delays in orders, shipments, and installations;
- customer delays or rejections of final acceptance of our shipments;
- changes in average selling price and product mix;
- failure to ship an anticipated number of systems in the quarter;
- product development costs, including research, development, engineering and marketing expenses associated with
  our introduction of new products and product enhancements;
- sudden changes in component prices or availability;
- manufacturing inefficiencies caused by uneven or unpredictable order patterns, reducing our gross margins;
- costs associated with protecting our intellectual property;
- level of our fixed expenses relative to our net sales; and
- fluctuating costs associated with our international organization and international sales, including currency
  exchange rate fluctuations.

During any quarter, a significant
portion of our net sales may be derived from the sale of a relatively small number of high
priced systems. The selling prices of our systems range from under $20,000 to in excess of
$4.4 million. Accordingly, a small change in the number and/or mix of tools we sell may
cause significant changes in our operating results.

Variations in the amount of time it
takes for our customers to accept our systems may cause our operating results to
fluctuate. Securities and Exchange Commission Staff Accounting Bulletin 104
(SAB 104) Revenue Recognition provides guidance on the recognition of
revenue for sales that involve contractual customer acceptance provisions and product
installation commitments. Timing of revenue recognition from the sale of new systems,
sales to new customers and installation services is subject to the length of time required
to achieve customer acceptance after shipment, which could cause our operating results to
vary from period to period.

In light of these factors and the
cyclical nature of the semiconductor industry, we expect to continue to experience
significant fluctuations in quarterly and annual operating results. Moreover, many of our
expenses are fixed in the short-term which, together with the need for continued
investment in research and development, marketing and customer support, limits our ability
to reduce expenses quickly in response to declines in sales. As a result, net sales could
decline and harm our business, financial condition, results of operations and cash flows,
which could cause our operating results to be below the public market analysts or
investors expectations and the market price of our stock could decline.

Cyclicality in the semiconductor
industry and the semiconductor equipment industry has historically led to substantial
variations in demand for our products and consequently our operating results, and will
continue to do so.

Our operating results are subject to
significant variation due to the cyclical nature of the semiconductor industrys
business cycles, the timing, length and volatility of which are difficult to predict. Our
business depends upon the capital spending of semiconductor manufacturers, which, in turn,
depends upon the current and anticipated market demand for semiconductors and products
using semiconductors. The semiconductor industry has historically been cyclical because of
sudden changes in demand for semiconductors and manufacturing capacity, including capacity
utilizing the latest technology. The rate of changes in demand, including end-user demand,
is accelerating, and the effect of these changes on us is occurring sooner, exacerbating
the volatility of these cycles. These changes have affected the timing and amounts of
customers capital equipment purchases and investments in new technology, and
continue to affect our net sales, gross margin and results of operations.

During downturns, the semiconductor
equipment industry typically experiences a more pronounced percentage decrease in revenues
than the semiconductor industry. A prolonged downturn can seriously affect our net sales,
gross margin and results of operations. In addition, during downturns, it is critical to
appropriately align our cost structure with prevailing market conditions, to minimize the
effect of such downturns on our operations, and in particular, to continue to maintain our
core research and development programs. If we are unable to align our cost structure in
response to such downturns on a timely basis, or if such implementation has an adverse
impact on our business, then our financial condition, results of operations and cash flows
may be negatively affected to an even larger extent during industry downturns.

12

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Conversely, during an upturn or
periods of increasing demand for semiconductor manufacturing equipment, we may not have
sufficient manufacturing capacity and inventory to meet customer demand. During an upturn
we would be unable to predict the sustainability of a recovery, if any, and/or the
industrys rate of growth in such a recovery, both of which will be affected by many
factors. If we are unable to effectively manage our resources and production capacity
during an industry upturn, there could be a material adverse effect on our business,
financial condition, results of operations and cash flows.

We have experienced periods of
rapid growth and decline in operating levels, and if we are not able to successfully
manage these significant fluctuations, our business, financial condition and results of
operations could be significantly harmed.

We have experienced periods of
significant growth and decline in net sales. Our net sales increased approximately 11.0%
from $215.2 million in fiscal 2007 to $238.6 million in fiscal 2008 and decreased 11.5%
from approximately $243.2 million in fiscal 2006 to approximately $215.2 million in fiscal
2007. However, there have been periods of even more significant declines in net sales; for
example, our net sales decreased 51.8% from approximately $256.5 million for fiscal
2001 to approximately $123.7 million for fiscal 2002. In addition, our consolidated
orders backlog decreased 30.9% from approximately $85.3 million at September 30,
2006 to $58.9 million at September 30, 2007. If we are unable to effectively manage
periods of rapid decline or sales growth, our business, financial condition, results of
operations and cash flows could be significantly harmed.

Our deferred revenue and orders
backlog may not result in future net sales.

Revenue recognition guidance requires
that revenue and the associated profit from the sale of newly introduced systems, systems
sales into new customer environments and substantive installation obligations that are
subject to contractual customer acceptance provisions are deferred until the customer has
acknowledged their acceptance of the system. If the system does not meet the agreed
specifications and the customer refuses to accept the system, the deferred revenue and
associated deferred profit will not be realized and we may be required to refund any cash
payments previously received from the customer, which may harm our business, financial
condition, results of operations and cash flows.

Order backlog does not necessarily
include all sales needed to achieve net revenue expectations for a subsequent period. We
schedule the production of our systems based in part upon order backlog. Due to possible
customer changes in delivery schedules and cancellations of orders, our backlog at any
particular date is not necessarily indicative of actual sales for any succeeding period.
In addition, while we evaluate each customer order to determine qualification for
inclusion in backlog, there can be no assurance that amounts included in backlog will
ultimately result in future sales. A reduction in backlog during any particular period, or
the failure of our backlog to result in future sales, could harm our business, financial
condition, results of operations and cash flows. For
example, in the fourth quarter of fiscal 2008, we experienced an abnormally high amount of
customer cancellations, which may continue to be a greater risk during the current
economic crisis impacting the world economy.

Our continued high spending levels
on research and development and the need to maintain a high level of customer service and
support may, under certain circumstances, harm our results of operations.

In order to remain competitive, we
must maintain a high level of investment in research and development, marketing and
customer service while controlling operating expenses.

Our industry is characterized by the
need for continued investment in research and development as well as a high level of
worldwide customer service and support. As a result of our need to maintain spending
levels in these areas, our operating results could be materially harmed if our net sales
fall below expectations. In addition, because of our emphasis on research and development
and technological innovation, our operating costs may increase further in the future,
which could have a negative impact on our results of operations and cash flow in any given
period.

There can be no assurance that we will
have sufficient resources to continue to make a high level of investment in research and
development, marketing and customer service while controlling operating expenses or that
our products will continue to be viewed as competitive as a result of technological
advances by competitors or changes in semiconductor processing technology. Such
competitive pressures may necessitate significant price reductions by us or result in lost
orders, which could harm our business, financial condition, results of operations and cash
flows.

We depend on our key customers with
which we do not have long-term contracts. Any loss, cancellation, reduction or delay in
purchases by, or failure to collect receivables from, these customers could harm our
business.

Typically, we do not have long-term
contracts with our customers. As a result, our agreements with our customers do not
provide any assurance of future sales. Sales are made pursuant to purchase orders, which
can be cancelled or delayed by our customers at any time. Our customers are not required
to make minimum purchases from us, or make purchases at any particular time; our customers
are free to purchase products from our competitors; and our customers can stop purchasing
our products at any time without penalty.

In addition, customer cancellations
and requests for delayed deliveries can create a material adverse effect on our business,
financial condition, results of operations and cash flows. During the recent economic
turmoil affecting the worlds economies, we have experienced a significantly higher
amount of customer cancellations and requests for delays in delivery. While in some cases
we have contractual protections against such cancellations or requests for delayed
shipments, there is no assurance that we can collect amounts due under those provisions.

13

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Our ten largest customers accounted
for approximately 56.0%, 67.8% and 54.0% of net sales in fiscal 2008, 2007 and 2006,
respectively. There are a limited number of large companies operating in the highly
concentrated, capital intensive semiconductor industry. Accordingly, we expect that we
will continue to depend on a relatively small number of large companies for a significant
portion of our net sales. Although the composition of the group of largest customers may
change from year to year, the loss of, or a significant curtailment of purchases by, one
or more of our key customers or the delay or cancellation of a large order could cause our
net sales to decline significantly, which would harm our business, financial condition,
results of operations and cash flows. Similarly, delays in payments by large customers
could have a significant impact on our cash flows.

Intense competition in the markets
in which we operate may adversely affect our market share and reduce demand for our
products.

We face substantial competition from
established competitors, some of which have:

- greater financial, marketing, technical and other resources;
- broader and integrated product lines;
- more extensive customer support capabilities; and
- larger sales organizations and customer bases.

We may also face competition from new
market entrants. Our ability to compete successfully in the future depends on a number of
factors, including:

- system performance, quality and reliability;
- upfront price and maintenance costs of using our products;
- ability to ship products on time to meet customers' demands;
- timeliness and quality of technical support service; and
- our success in developing new and enhanced products.

Due to intense competitive conditions
in the semiconductor equipment industry, we have from time to time selectively reduced
prices on our systems in order to protect our market share, and competitive pressures may
necessitate further price reductions. Periodically, our competitors announce the
introduction of new products or lower prices which can affect our customers
decisions to purchase our systems, the prices we can charge for our systems and the level
of discounts we grant our customers.

Moreover, there has been significant
merger and acquisition activity among our competitors and potential competitors. These
combinations may provide our competitors and potential competitors with a competitive
advantage over us by enabling them to more rapidly expand their product offerings and
service capabilities to meet a broader range of customer needs. Many of our customers and
potential customers are relatively large companies that require global support and service
for their semiconductor manufacturing equipment. Our larger competitors have more
extensive infrastructures, which could place us at a disadvantage when competing for the
business of global semiconductor device manufacturers.

We expect our competitors to continue
to improve the design and performance of their products. We cannot assure you that our
competitors will not develop enhancements to, or future generations of, competitive
products that will offer superior price, performance and/or cost of ownership features, or
that new processes or technologies will not emerge that render our products less
competitive or obsolete.

As a result of the substantial
investment required to evaluate and select capital equipment and integrate it into a
production line, we believe that once a manufacturer has selected certain capital
equipment from a particular vendor, there is a tendency for the manufacturer to rely 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, we may
be at a competitive disadvantage for a protracted period of time with respect to a
particular customer if that customer utilizes a competitors manufacturing equipment.

Our Raider platform accounts for a
substantial portion of current and anticipated sales.

We have leveraged our Raider platform
to address both surface preparation and ECD applications. In fiscal year 2008, the Raider
platform accounted for approximately 81% of our tool revenues. We expect that revenue from
our Raider platform will continue to account for a significant portion of our revenue.
Accordingly, if the Raider platform were adversely affected by its own performance, price
or total cost of ownership, or the availability, functionality and price of competing
products and technologies, that could have a material adverse impact on our business,
financial condition, results of operations and cash flows.

14

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Rapid technological change could
make our products and inventories obsolete or unmarketable for specific applications.

We operate in an industry that is
subject to evolving industry standards, rapid technological changes, rapid changes in
customer demands and the rapid introduction of new, higher performance systems with
shorter product life cycles. For example, recent trends in semiconductor manufacturing
include the move toward smaller device features to lower cost and improve performance, the
use of new materials, such as copper, to achieve higher speed and performance of an
integrated circuit, and the migration to 300mm diameter wafers from 200mm diameter wafers
to increase productivity and reduce costs. As a result of these and other trends in our
industry, we expect to continue to make significant investments in research and
development. Although, historically, we have had adequate funds from operations to devote
to research and development, there can be no assurance that we will have funds available,
and in sufficient quantities, in the future for such research and development activities.

Introductions of new products by us or
our competitors could adversely affect sales of our existing products and may cause these
existing products and related inventories to become obsolete or unmarketable, or otherwise
cause our customers to defer or cancel orders for existing products. We may be unable to
develop and introduce new products or enhancements to our existing products on a timely
basis or in a manner which satisfies customer needs or achieves widespread market
acceptance. Any significant delay in releasing new systems could adversely affect our
reputation, give a competitor a first-to-market advantage or allow a competitor to achieve
greater market share. These effects of rapid technological change could harm our business,
financial condition, results of operations and cash flows.

Our results of operations may
suffer if we do not effectively manage our inventories or are required to write down our
inventories due to changing market demands for our products.

To achieve commercial success with our
products, we need to manage our inventory of component parts and finished goods
effectively to meet changing customer product and volume requirements. Some of our
products and supplies, have in the past and may in the future, become obsolete, while in
inventory, due to rapidly changing customer specifications or slowdowns in demand for
existing products ahead of new product introductions by us or our competitors. If we are
not successfully able to manage our inventory, including our spare parts inventory, we may
need to write off unsaleable or obsolete inventory, which would adversely affect our
results of operations. For example, in the fourth quarter of fiscal 2007, we wrote down
inventory by approximately $3.0 million primarily due to product enhancements that
changed the usage of certain component parts, making them obsolete. We have pursued a
vertically integrated manufacturing model and therefore a significant portion of our
supply chain is manufactured by Semitool. Consequently, we may be more exposed to having
significantly greater inventory on hand than competing companies which rely more heavily
on outsourced supply chains.

Our dependence on key suppliers
could delay shipments and increase our costs.

Some components and subassemblies
included in our products are obtained from a single source or a limited group of
suppliers. The loss of, or disruption in, shipments from these sole or limited source
suppliers could, in the short-term, adversely affect our business and results of
operations. Further, a significant increase in the price of one or more of these
components could harm our business, financial condition, results of operations and cash
flows.

# Our future success
depends on international sales.

Our net sales attributable to
customers outside the United States as a percentage of our total net sales were
approximately 71.4% in fiscal 2008 and 62.5% in both fiscal 2007 and 2006. We expect net
sales outside the United States to continue to represent a significant portion of our
future net sales. Sales to customers outside the United States are subject to various
risks, including:

- exposure to currency fluctuations and related derivatives used to hedge such fluctuations;
- exposure of foreign accounts to currency exchange translations;
- political and economic instability, including terrorism;
- unexpected changes in regulatory requirements;
- tariffs and other market barriers;
- potentially adverse tax consequences;
- outbreaks of hostilities, particularly in Israel, Korea, Taiwan or China;
- difficulties in managing foreign sales representatives and distributors; and
- difficulties in staffing and managing foreign branch operations.

A substantial portion of our
international sales are denominated in U.S. dollars. Therefore, if the U.S. dollar rises
in value in relation to foreign currencies, our systems will become more expensive to
customers outside the United States and less competitive with systems produced by
competitors outside the United States. Such conditions could negatively impact our
international sales.

Although we endeavor to meet technical
standards established by foreign standards setting organizations, there can be no
assurance that we will be able to comply with changes in foreign standards in the future.

15

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Variations in the amount of time it
takes for us to sell our systems may cause fluctuations in our operating results, which
could cause our stock price to decline.

Variations in the length of our sales
cycles could cause our net sales, and thus our business, financial condition, results of
operations and cash flows, to fluctuate widely from period to period. This variation could
cause our stock price to decline. Our customers generally take a long time to evaluate
many of our products before committing to a purchase. We expend significant resources
educating and providing information to our prospective customers regarding the uses and
benefits of our systems. The length of time it takes us to make a sale depends upon many
factors, including:

- the efforts of our sales force and our independent sales representatives and distributors;
- the complexity of our customers' fabrication processes;
- the internal technical capabilities and sophistication of the customer; and
- capital spending by our customers.

Because of the number of factors
influencing the sales cycle, the period between our initial contact with a potential
customer and the time when we recognize revenue from our customer, if ever, varies widely
in length. Our sales cycle typically ranges from one month to two years. Occasionally our
sales cycle can be even longer, particularly with our international customers and new
technologies. The subsequent build cycle, or the time it takes us to build a product to
customer specifications after receiving an order, typically ranges from one to six months.
During these cycles, we commit substantial resources to our sales efforts in advance of
receiving any revenue, and we may never receive any revenue from a customer despite our
sales efforts.

When a customer purchases one of our
systems, that customer often evaluates the performance of the system for a lengthy period
before considering the purchase of more systems. The number of additional products a
customer may purchase from us, if any, depends on many factors, including the
customers capacity requirements. The period between a customers initial
purchase and subsequent purchases, if any, often varies from two to twelve months or
longer, and variations in length of this period could cause further fluctuations in our
business, financial condition, results of operations, cash flows, and possibly our stock
price.

If we deliver systems with defects,
our credibility may be harmed, sales and market acceptance of our systems may decrease and
we may incur liabilities associated with those defects.

Our systems are complex and sometimes
have contained errors, defects and software bugs when introduced. If we deliver systems
with errors, defects or software bugs, our credibility and the market acceptance and sales
of our systems could be harmed. Further, if our systems contain errors, defects or
software bugs, we may be required to expend significant capital and resources to alleviate
such problems. Defects could also lead to commercial and/or product liability as a result
of lawsuits against us or against our customers. We have agreed to product liability
indemnities. Our product and commercial liability insurance policies currently provide
only limited coverage per claim. In the event of a successful product liability and/or
commercial claim, we could be obligated to pay damages that may not be covered by
insurance or that are significantly in excess of our insurance limits.

Failure of our products to gain
market acceptance would adversely affect our financial condition and our ability to
provide customer service and support.

We believe that our growth prospects
depend upon our ability to gain customer acceptance of our products and technology. Market
acceptance of 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 our 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 we will be successful in obtaining broad market acceptance of our
systems and technology.

We expect to spend a significant
amount of time and resources to develop new products and refine existing products. In
light of the long product development cycles inherent in our industry, these expenditures
will be made well in advance of the prospect of deriving revenue from the sale of any new
systems. Our ability to commercially introduce and successfully market any new products is
subject to a wide variety of challenges during this development cycle, including start up
delays, design defects and other matters that could delay the introduction of these
systems to the marketplace. As a result, if we do not achieve market acceptance of new
products, we may not be able to realize sufficient sales of our systems in order to recoup
research and development expenditures. The failure of any of our new products to achieve
market acceptance would harm our business, financial condition, results of operations and
cash flows.

16

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We manufacture substantially all of
our equipment at two facilities and any prolonged disruption in the operations of either
facility could have a material adverse effect on our net sales.

We manufacture substantially all of
our equipment in our manufacturing facilities located near Kalispell, Montana. Our
manufacturing processes are highly complex and require sophisticated and costly equipment
and a specially designed facility. As a result, any prolonged disruption in the operations
of either of our manufacturing facilities, whether due to technical or labor difficulties,
destruction or damage as a result of a fire or any other reason, could seriously harm our
ability to satisfy our customer order deadlines. If we cannot provide timely delivery of
our systems, our business, financial condition, results of operations and cash flows would
be adversely affected to a significant extent.

If we require additional capital in
the future, it may not be available, or if available, may not be on terms acceptable to
us.

We believe that our existing balances
of cash, cash equivalents, cash flows from operations and cash available from a revolving
credit facility we renewed in the second quarter of fiscal 2008 will be sufficient to meet
our cash needs for working capital and capital expenditures for at least the next
12 months. We may, however, require additional financing to fund our operations in
the future. Although we expect existing debt financing arrangements and cash flows
generated from operating activities to be sufficient to fund operations at the current and
projected levels in the future, there is no assurance that our operating plan will be
achieved. We
may need to take actions to reduce costs, seek alternative financing arrangements or
pursue additional placement of our common stock.

A significant contraction in the
capital markets, particularly in the technology sector, may make it difficult for us to
raise additional capital in the future, if and when it is required, especially if we are
unable to maintain profitability. If adequate capital is not available to us as required,
or is not available on favorable terms, our shareholders may be subject to significant
dilution in their ownership if we raise additional funds through the issuance of equity
securities, or we could be required to significantly reduce or restructure our business
operations.

The above mentioned revolving credit
facility provides for up to $30 million in borrowings. There is no assurance that this
facility will be sufficient to meet our cash needs. In addition, the credit facility
contains financial covenants which must be met for the availability of funds. There is no
assurance that the company will in the future be able to meet the requirements of these
covenants so that the funds are available for borrowing.

Compliance with environmental
regulations may be very costly, and the failure to comply could result in liabilities,
fines and cessation of our business.

We are subject to a variety of
governmental regulations related to the discharge or disposal of toxic, volatile or
otherwise hazardous chemicals. Current or future regulations could require us to purchase
expensive equipment or to incur other substantial expenses to comply with environmental
regulations. Any failure by us to control the use of, or adequately restrict the discharge
or disposal of, hazardous substances could subject us to future liabilities, result in
fines being imposed on us, or result in the suspension of production or cessation of our
manufacturing operations.

If the protection of our
proprietary rights is inadequate, our business could be harmed.

We place a strong emphasis on the
technically innovative features of our products and, where available, we generally seek
patent protection for those features. We currently hold 372 U.S. patents, some with
pending foreign counterparts, have approximately 148 U.S. patent applications pending
and intend to file additional patent applications, as we deem appropriate. There can be no
assurance that patents will issue from any of our pending applications or that existing or
future patents will be sufficiently broad to protect our technology. While we attempt to
protect our intellectual property rights through patents, copyrights and non-disclosure
agreements, there can be no assurance that we will be able to protect our technology, or
that competitors will not be able to develop similar technology independently. In
addition, the laws of certain foreign countries do not protect our intellectual property
to the same extent as the laws of the United States. Furthermore, certain types of
intellectual property are country-specific; for example, U.S. patents provide protection
in the U.S. but generally do not provide protection outside the U.S. Moreover, there can
be no assurance that our existing or future patents will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide meaningful competitive
advantages to us. In any of such events, our business, financial condition, results of
operations and cash flows could be harmed.

There has been substantial litigation
regarding patent and other intellectual property rights in semiconductor-related
industries. Although we are not aware of any potential infringement by our products of any
patents or proprietary rights of others, further commercialization of our technology could
provoke claims of infringement from third parties.

In addition, we rely on trade secret
protection for our technology, in part through confidentiality agreements with our
employees, consultants and third parties. These agreements could be breached and we may
not have adequate remedies for any such breach. In any case, others may come to know about
or determine our trade secrets through a variety of methods.

17

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Now and in the future, litigation may
be necessary to enforce patents issued to us, to protect trade secrets or know-how owned
by us or to defend us 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 cause us to accrue substantial cost or divert our management or resources, which by
itself could have a material adverse effect on our financial condition, results of
operations and cash flows. Further, adverse determinations in such litigation could result
in our loss of proprietary rights, subject us to significant liabilities and damages to
third parties, require us to seek licenses from third parties or prevent us from
manufacturing or selling our products, any of which could harm our business, financial
condition, results of operations and cash flows.

Our efforts to protect our
intellectual property may be less effective in some foreign countries where intellectual
property rights are not as well protected as in the United States.

In fiscal 2008, approximately 71.4% of
our net sales were derived from sales in foreign countries, including certain countries in
Asia such as Singapore, Taiwan, Japan, China and Korea. The laws of some foreign countries
do not protect our proprietary rights to as great an extent as do the laws of the United
States, and many U.S. companies have encountered substantial problems in protecting their
proprietary rights against infringement in such countries, some of which are countries in
which we have sold and continue to sell systems. For example, in many countries other than
the U.S., the public disclosure of an invention prior to the filing of a patent
application for the invention would invalidate the ability of a company to obtain a
patent. Similarly, in contrast to the United States where the contents of patent
applications may remain confidential during the patent prosecution process in certain
cases, the contents of a patent application may be published before a patent is granted,
which provides competitors an advanced view of the contents of applications prior to the
establishment of patent rights. For these and other reasons, we also have not filed patent
applications in these countries to the same extent that we file in the U.S. There is a
risk that our means of protecting our proprietary rights may not be adequate in these
countries. Our competitors in these countries may independently develop similar technology
or duplicate our systems. If we fail to adequately protect our intellectual property in
these countries, it would be easier for our competitors to sell competing products in
those countries.

Anti-takeover provisions in our
charter documents could adversely affect the rights of the holders of our common stock.

Our Articles of Incorporation
authorize our 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
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.
We have no present plans to issue any preferred stock in order to deter a takeover and/or
adopt additional anti-takeover measures. If such actions are taken in the future, they may
make a change of control difficult, even if a change of control would be beneficial to our
shareholders.

Any anti-takeover provisions,
including any issuance of preferred stock, could have the effect of discouraging a third
party from making a tender offer or otherwise attempting to gain control of us. In
addition, these provisions could limit the price that investors might be willing to pay in
the future for shares of our common stock.

We must attract and retain key
personnel to help direct and support our future growth. Competition for such personnel in
our industry can be high.

Our success depends to a significant
degree upon the continued contributions of our key management, engineering, sales and
marketing, customer support, finance and manufacturing personnel. The loss of any of these
key personnel, particularly our Chairman and Chief Executive Officer, Raymon F. Thompson,
or our President and Chief Operating Officer, Larry E. Murphy, could harm our business and
operating results. We do not have key person life insurance on any of our executives.
Further, to support future growth, we will need to attract and retain additional qualified
employees. The pool of qualified applicants is limited and it can be difficult to hire and
relocate personnel from other areas. Competition for such personnel can be intense, and we
may not be successful in attracting and retaining qualified senior executives and other
employees.

# Item 1B. Unresolved Staff
Comments

None.

18

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# Item 2. Properties

We own two manufacturing facilities
located on sites near Kalispell, Montana with approximately 251,000 square feet in the
aggregate. Additionally, we own two manufacturing facilities located in Libby, Montana
housing approximately 20,000 square feet in the aggregate.
          We also own a facility located in Coopersburg, Pennsylvania, which serves as a
          manufacturing facility for our Rhetech, Inc. subsidiary, which we expanded by
          10,000 square feet in fiscal 2007 for a total of 32,000 square feet. We
          constructed and own a 29,000 square-foot production and office building in
          Salzburg, Austria. We believe that our existing manufacturing facilities will be
          adequate to meet our requirements for the foreseeable future and that suitable
          additional or substitute space will be available as needed. We own an office
          building in Cambridge, UK, which serves as our European headquarters for sales
          and customer support. We also lease 13 other smaller facilities worldwide, which
          are used as sales and customer service centers.

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

# Item 3. Legal Proceedings

We are involved in legal proceedings
that arise in the ordinary course of our business, including employment related
litigation. Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on our business, financial condition,
results of operations or cash flows.

# 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.

19

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# PART II

# Item 5. Market for
Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities

Our Common Stock is traded under the
symbol SMTL on the NASDAQ Global Select Market. The approximate number of
shareholders of record at December 4, 2008 was 116 and the reported last sale price on
that date of our common stock on the NASDAQ Global Select Market was $3.43. The high and
low sales prices for our common stock reported by the NASDAQ Global Select Market are
shown below.

|               | Common Stock Price Range
Fiscal Year
Ended September 30, | 
|-------------- | -------------------------------------------------------- | 
|
|
|First Quarter  |                                                          | 
|Second Quarter |                                                          | 
|Third Quarter  |                                                          | 
|Fourth Quarter |                                                          | 

Since our initial public offering of
common stock in February of 1995, we have never declared or paid any cash dividend and we
have no intent to do so in the near future.

# STOCK PERFORMANCE GRAPH

The following graph compares the
percentage change in the cumulative total shareholder return on the Companys Common
Stock from September 30, 2003 through the end of the Companys fiscal year ended
September 30, 2008, with the percentage change in the cumulative total return for the
NASDAQ Composite Index and the RDG Semiconductor Composite Index. The comparison assumes
an investment of $100 on September 30, 2003 in the Companys Common Stock and in each
of the foregoing indices and assumes reinvestment of dividends. The stock performance
shown on the graph below is not necessarily indicative of future price performance.



20

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# Item 6. Selected
Financial Data

This summary should be read in
conjunction with the consolidated financial statements and related notes included
elsewhere in this Annual Report on Form 10-K.

# Summary Consolidated
Financial Information(in thousands, except
per share data)

|                                                 | Year Ended September 30, | 
|------------------------------------------------ | ------------------------ | 
|
|Statement of Operations Data:                    |                          | 
|Net sales                                        |                          | 
|Gross profit (1)                                 |                          | 
|Income from operations                           |                          | 
|Net income                                       |                          | 
|Diluted earnings per share                       |                          | 
|Balance Sheet Data:                              |                          | 
|Cash, cash equivalents and marketable securities |                          | 
|Working capital (1)                              |                          | 
|Total assets                                     |                          | 
|Short-term debt                                  |                          | 
|Long-term debt and capital leases                |                          | 
|Shareholders' equity (2)                         |                          | 

|(1) | In
the fourth quarter of fiscal 2007, we wrote down inventory by approximately
               $3.0 million primarily due to product enhancements that changed the usage
of                certain component parts, making them obsolete.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | In
conjunction with an equity offering of common stock in December 2005, the
               Company issued three million shares of common stock resulting in
approximately                $28.0 million in net cash proceeds.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

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

# Overview

We design, manufacture, install and
service highly-engineered equipment for use in the fabrication of semiconductor devices.
Our products are focused on the wet chemical process steps in integrated circuit, or IC,
manufacturing and include systems for wafer surface preparation and electrochemical
deposition, or ECD, applications. Our surface preparation systems are designed for Front
End of Line (FEOL), Back End of Line (BEOL) and wafer level packaging of ICs processes.
Our single-wafer FEOL surface preparation systems are used for photoresist stripping, post
etch and pre-diffusion cleans. Our BEOL surface preparation systems are used for polymer
removal and packaging applications. Our ECD systems are used to plate copper and other
metals, which are used for the ICs internal wiring, or interconnects; to plate
solder and lead free solder bumps for wafer level packaging applications; and to plate
other metals for various semiconductor and related applications. Also, our surface
preparation systems are used for cleaning and etching processes for wafer level packaging.
Our primary product for all of these processes is the Raider platform, which is a
multi-chamber single-wafer tool. Our products address critical applications within the
semiconductor manufacturing process, and help enable our customers to manufacture more
advanced semiconductor devices that feature higher levels of performance. The fabrication
of semiconductor devices typically requires several hundred manufacturing steps, with the
number of steps continuing to increase for advanced devices. Due to the breadth of our
product portfolio and advanced technology capabilities, our solutions address over 150 of
these manufacturing steps.

There are several key trends in the
semiconductor manufacturing industry driving growth in demand for wafer surface
preparation, ECD and other advanced semiconductor equipment:

- smaller device features for lower cost and higher performance;
- new materials to fabricate more advanced semiconductor devices;
- move to single-wafer processing technologies for enhanced surface preparation;
- wafer level and other advanced packaging to enable smaller portable products; and
- emerging need for 3D chipstacking driven by the demand for smaller portable devices.

As the semiconductor manufacturing
process increases in complexity and production parameters become even more stringent,
semiconductor manufacturers increasingly rely upon manufacturers of semiconductor
equipment to achieve improved process control, provide a smaller equipment footprint and
lower the cost of ownership of their manufacturing processes.  Key elements of our
solution include technological leadership, a comprehensive product portfolio, including
our Raider platform and vertically-integrated manufacturing and design capabilities.

# Key Performance Indicators

Our management focuses on revenues,
gross margin, operating expenses and profitability in managing our business.  In addition
to these financial measures found in our consolidated financial statements, we also use
bookings, backlog, shipments, deferred revenue and shipment-based results of operations.
 Bookings are firm orders for which we have received written customer authorization in
the fiscal period.  Backlog is the balance of undelivered orders at the end of a fiscal
period. In order to be included in bookings or backlog, an order must be scheduled to
ship within the next 12 months.  Backlog and forecasted orders drive our production
schedule. Shipments measure how well we have met our production plan and are viewed as a
primary measure of factory output.  Deferred revenue primarily represents tool shipments
for which we are awaiting final customer acceptance.

A summary of key factors that
impacted our financial performance during fiscal year 2008 includes:

- Although the semiconductor industry experienced a downturn in fiscal 2008, our business grew as we penetrated
     key customers in Asia and North America.  Even though capital spending slowed among several major device
     manufacturers, demand remained strong for wafer-level packaging and copper plating for memory applications.
     In the first quarter of fiscal 2009, there were severe disruptions in the world economies which we expect to
     negatively impact us going forward.
- Our fiscal 2008 bookings were $232.7 million and include $149.0 million in bookings for our Raider platform.
     Fourth quarter fiscal 2008 net bookings were $35.5 million and were negatively impacted by the cancellation of
     a large order related to a proposed gallium arsenide fab in China that was halted.  Our consolidated orders
     backlog of $54.5 million and deferred revenue of $13.6 million resulted in a revenue backlog of $68.1 million
     at September 30, 2008.
- Shipments in fiscal 2008 were $237.0 million including $155.8 million from Raider shipments.
- Net income was $6.0 million, or 2.5%, on net sales of $238.6 million in fiscal 2008 compared with net income
     of $5.2 million, or 2.4%, on net sales of $215.2 million in fiscal 2007.
- Our gross margin increased to 49.2% of net sales, up from 47.2% in fiscal 2007.
- Cash and cash equivalents, including restricted cash and marketable securities were $12.8 million at September
     30, 2008, a decrease of $3.3 million from $16.1 million at September 30, 2007.

22

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# Results of Operations

The following table sets forth our
consolidated results of operations for the periods indicated as a percentage of net sales:

|                                    | Year Ended September 30, | 
|----------------------------------- | ------------------------ | 
|
|Net sales                           |                          | 
|Cost of sales                       |                          | 
|                                    |                          | 
|Gross profit                        |                          | 
|                                    |                          | 
|Operating expenses:                 |                          | 
|Selling, general and administrative |                          | 
|Research and development            |                          | 
|Downsizing costs                    |                          | 
|Gain on sale of building            |                          | 
|                                    |                          | 
|Total operating expenses            |                          | 
|                                    |                          | 
|Income from operations              |                          | 
|Other income (expense)              |                          | 
|                                    |                          | 
|Income before income taxes          |                          | 
|Income tax provision (benefit)      |                          | 
|                                    |                          | 
|Net income                          |                          | 
|                                    |                          | 

# Fiscal 2008 Compared with
Fiscal 2007 and Fiscal 2006

# Net Sales

|                                                            | Year Ended September 30, | 
|----------------------------------------------------------- | ------------------------ | 
|
|
|Net Sales                                                   |                          | 
|By Product Line:                                            |                          | 
|Semiconductor equipment                                     |                          | 
|License fees                                                |                          | 
|By Geographical Distribution, percentage of net tool sales: |                          | 
|North America                                               |                          | 
|Europe                                                      |                          | 
|Asia, including Japan                                       |                          | 

Net sales consist of revenues from
sales of semiconductor equipment, spare parts and service and license fees. Our revenue
recognition policy provides that revenue from sales of semiconductor equipment may be
recognizable upon shipment if the tool incorporates proven technology (existing
tool) and is shipped to a customer environment in which we have already successfully
installed and gained acceptance of our products and the revenue recognition criteria in
SEC Staff Accounting Bulletin (SAB) 104, Revenue Recognition have been met.
Alternatively, revenue will be deferred and only recognized upon final customer acceptance
for tools that are new technology products (new tools) or where an existing
tool is sold into a new customer environment. Revenue for elements other than equipment,
such as installation revenue, is included in tool acceptance revenue. License fee revenue
represents royalties generated from our anode technology.

Our products are highly customized.
Each customer has specific technical requirements for the performance of the equipment in
the fabrication of semiconductor devices. Consequently, the specific terms of the
acceptance provisions are negotiated with each customer on a tool-specific basis in order
to reflect the technical specifications that will be used to determine whether the tool
passes the applicable acceptance tests. These acceptance specifications are lengthy,
technically complex and vary greatly from customer to customer and product to product.

We have a proven track recording of
obtaining customer acceptances within a reasonable timeframe. In the rare event when
acceptance does not occur because the customer does not believe that the tool has met the
applicable technical specifications, the parties treat the matter as a contractual issue
that needs to be resolved before the customer accepts the equipment. That resolution can
take many different forms, including re-testing the equipment, making technical
modifications to resolve the disagreement or extending the warranty to accommodate a
delayed acceptance. Whether or not a customer may have any further remedy where a
resolution cannot be agreed between the parties, including any right of return of the
equipment, would be a question of contract interpretation that ultimately would have to be
adjudicated in accordance with applicable law.

23

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Net sales increased $23.4 million, or
approximately 11% in fiscal 2008 as compared with fiscal 2007 levels. Despite the downturn
in the semiconductor industry, our business activity levels increased in the second
quarter of fiscal 2008 and those higher levels continued through the duration of the
fiscal year with average quarterly revenues of approximately $63 million per quarter in
the last three quarters of the fiscal year. Revenues from Raiders for wafer level
packaging applications improved more than 90% from fiscal 2007 levels as customers made
capacity purchases and we penetrated key customers in Asia and North America. Spending for
ECD Raiders for copper interconnect declined 64% in fiscal 2008 from fiscal 2007 levels
and revenue from our BEOL surface preparation Raiders declined 38% as customers for those
applications cut back their capital spending. Sales of our single-wafer surface
preparation Raiders for FEOL applications more than doubled as the industry continued to
benefit from the move away from batch processing to single-wafer processing to enable
cleaning applications for sub-nanometer structures. The revenue contribution from spare
parts, service and from our Rhetech subsidiary continues to range from between 20% to 25%
of our net sales.

We expect net sales to decline in the
first quarter of fiscal 2009 due to the overall decline in the worldwide economy.

Net sales declined 11.5% or $28.0
million to $215.2 million for fiscal 2007 as compared to $243.2 million in fiscal 2006.
Business activity levels declined and we experienced a slow down in our bookings in the
first three quarters of fiscal 2007. Revenues for ECD Raiders for copper interconnect
applications increased by over 70% as compared with fiscal 2006 levels while revenues from
our wafer level packaging applications decreased by approximately 23%. Revenues for our
single-wafer surface preparation Raiders for FEOL applications increased approximately 23%
while revenues for BEOL cleans applications declined approximately 38% from prior year
levels. FEOL tools benefited from the transition away from batch processing to
single-wafer processing to more closely control cleaning processes of smaller geometry
devices whereas BEOL applications for current industry standard 300mm wafer fabs had
previously made the transition to single-wafer and were affected by the overall decline in
semiconductor industry business levels. Overall, revenues from our Raider platform
contributed just more than 60% to our fiscal 2007 revenues and while Raider revenue
declined in absolute dollars, the decline is the equivalent of two or three tools.
Revenues from automated and manual batch tools, used primarily for cleaning applications
declined by approximately $14 million when compared with fiscal 2006 levels as
single-wafer processing continues to supplant batch processing in 300mm fabs. The revenue
contribution from spare parts, service and from our Rhetech subsidiary was proportionate
with fiscal 2006 levels.

Geographically, our sales mix shifted
toward Asia in fiscal 2008 after being weighted toward North America and Europe in fiscal
2007. Asian tool sales increased 28.4 percentage points in fiscal 2008 contributing 54.5%
to total tool sales in fiscal 2008 as we penetrated key customers in FEOL cleans and wafer
level packaging markets. European tool sales declined 20.6 percentage points, contributing
22.9% to total tool sales, as one of our key customers in Europe cut back capital spending
in fiscal 2008. North American tool sales declined 7.8 percentage points in fiscal 2008 as
compared with fiscal 2007 and contributed 22.6% to total tool sales.

# Gross Profit

|                        | Year Ended September 30, | 
|----------------------- | ------------------------ | 
|
|
|Gross profit            |                          | 
|Percentage of net sales |                          | 

Gross profit increased $15.9 million
in absolute dollars or 15.7% in fiscal 2008 as compared to fiscal 2007. Gross profit
decreased $11.4 million or 10.1% in fiscal 2007 compared to fiscal 2006 gross profit.

Gross profit increased in absolute
dollars in fiscal 2008 because of higher sales volumes. On a percentage basis, gross
margin improved two percentage points. Tool margins declined slightly year-over-year but
contributed approximately one percentage point to the margin increase because of higher
sales volumes. Warranty and installation expense decreased in fiscal 2008, contributing
approximately one percentage point to the margin increase. Margins improved on wafer level
packaging tools primarily due to a higher percentage of installation revenue than in
fiscal 2007 but declined on BEOL Raiders due to product mix and on copper interconnect
tools. Geographically, margins improved in North America but declined slightly in Asia,
primarily due to product mix.

Gross profit decreased in absolute
dollars in fiscal 2007 because of lower sales volumes but improved by 0.8 percentage
points from fiscal 2006. Margins improved a combined three percentage points on tool
revenues, spare parts and service revenues and on sales from our Rhetech subsidiary. Our
tool margins improved on copper interconnect, FEOL and BEOL tools. Margin improvements
were realized in both North America and Asia. Installation revenues contributed more to
overall revenue in both absolute dollars and on a percentage basis. Warranty and
installation expense decreased in fiscal 2007 as compared with fiscal 2006, contributing
approximately one percentage point to the margin increase. These margin improvements were
partially offset by increased obsolescence and inventory reserve charges in the fourth
quarter related to product enhancements on our Raider tool line that rendered certain
component parts obsolete.

24

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# Selling, General and
Administrative

|                                    | Year Ended September 30, | 
|----------------------------------- | ------------------------ | 
|
|
|Selling, general and administrative |                          | 
|Percentage of net sales             |                          | 

Selling, general and administrative
(SG&A) expenses include employment costs for sales, marketing, customer support and
administrative personnel as well as travel, communications, professional fees and expenses
related to sales and service offices at our global locations. SG&A expenses increased
$5.2 million in fiscal 2008 as compared to fiscal 2007 and decreased $1.9 million in
fiscal 2007 as compared with fiscal 2006.

Employment costs and travel expense
increased approximately $4.4 million in fiscal 2008 as compared with fiscal 2007. In
fiscal 2008, we increased our service support staff in Asia to better support our
increasing Asian customer base. Employment costs in certain of these regions are typically
higher than in the United States. Travel expense related to supporting our Asian customers
also increased year-over-year. Commission expense increased approximately $1.5 million in
the annual comparison related to increased revenues in fiscal 2008.

In April 2007, in response to a
slowdown in the semiconductor industry, we implemented a plan to align our cost structure
with our business outlook for the remainder of the fiscal year. The plan consisted
primarily of a seven percent reduction in our worldwide work force, management pay cuts,
mandatory leave and reduced overtime. As a result, travel, aircraft and general business
costs decreased over the course of the fiscal 2007. Employment costs increased $2.4
million over fiscal 2006 levels primarily related to expenses incurred prior to the
implementation of the cost alignment plan in the second half of fiscal 2007. Employment
costs decreased $1.9 million in the second half of fiscal 2007. Commission expense
declined $2.8 million in fiscal 2007 related to our transition to a direct marketing and
sales force in Taiwan and China. Professional fees also declined in fiscal 2007 as
compared with fiscal 2006 as fiscal 2006 professional fees included certain duplicate
expenses related to the change in our external auditors.

# Research and Development

|                         | Year Ended September 30, | 
|------------------------ | ------------------------ | 
|
|
|Research and development |                          | 
|Percentage of net sales  |                          | 

Research and Development (R&D)
expense consists of salaries, project materials, laboratory costs, consulting fees and
other costs associated with our product development efforts. R&D expense increased
$3.4 million in fiscal 2008 as compared with fiscal 2007. R&D expense increased $2.6
million in fiscal 2007 as compared with fiscal 2006.

Employment costs increased
approximately 16% in fiscal 2008 as compared with fiscal 2007 as we increased our staff to
improve our wafer process engineering capabilities for our customers and due to merit
increases, stock-based compensation and recruiting costs. Depreciation expense increased
by approximately $700,000 as we updated our demonstration laboratories with new technology
tools to support our customers development efforts. Other expenses increased because
of developmental work being completed at our Austrian facility to develop Cintillio, a
batch tool designed for electroless plating applications. We continued to work on a number
of leading edge projects including on-going development of porous silicon for the solar
industry, FEOL cleaning applications, wafer edge cleaning processes, deep via and through
silicon via applications and others.

Increasing $1.7 million, prototype
expense was the primary driver in the $2.6 million increase in R&D expense in fiscal
2007 as compared with fiscal 2006. Our surface preparation R&D efforts were focused on
FEOL cleaning applications, wafer edge cleaning processes and related equipment. ECD
R&D focused on the development of a new processing chamber capable of plating copper
for devices at the 32 nanometer node and below, deep via applications, direct-on-barrier
plating, thin seed layer enhancement processes, porous silicon processes and related
equipment. R&D projects also included a single-wafer copper annealing process. Travel
expense increased in fiscal 2007 related to increased process support for our tools.

Our research and development expense
has fluctuated from period to period in the past. We expect 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 fluctuations in the level of net sales in a given period.
We expect to continue to fund R&D expenditures with a multi-year perspective and are
committed to technology leadership in our sector of the semiconductor equipment industry.

25

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# Downsizing Costs

|                        | Year Ended September 30, | 
|----------------------- | ------------------------ | 
|
|
|Downsizing costs        |                          | 
|Percentage of net sales |                          | 

In April 2007, we announced and
implemented a plan to align our cost structure with then current business activity levels.
The cost reduction plan consisted primarily of a seven percent reduction in our worldwide
work force, management pay cuts, mandatory leave and reduced overtime. Severance costs of
$677,000 were reported as a separate component of operating expenses in our fiscal third
quarter. All costs related to the downsizing plan were fully incurred in the third
quarter. Net of the downsizing costs, we saved approximately $5 million in employment,
travel and general business expenses in the second half of fiscal 2007 as compared with
spending in the first half of fiscal 2007.

In November 2008,we took actions to
align our cost structure with forecasted business activity levels. The cost reduction
measures consist primarily of layoffs, management pay cuts, reduced sales commissions and
overtime and a company-wide shutdown over the holidays. Severance costs will be reported
as a separate component of operating expenses in the first quarter of fiscal 2009. We are
continuing to evaluate cost-saving measures to further reduce our expenses.

# Gain on Sale of Building

|                         | Year Ended September 30, | 
|------------------------ | ------------------------ | 
|
|
|Gain on sale of building |                          | 
|Percentage of net sales  |                          | 

We sold a manufacturing facility
located near Kalispell, Montana during the first quarter of fiscal 2007 for approximately
$1.9 million and recognized a gain on the sale of approximately $648,000.

# Other Income (Expense)

|                             | Year Ended September 30, | 
|---------------------------- | ------------------------ | 
|
|
|Interest income              |                          | 
|Interest expense             |                          | 
|Foreign exchange gain (loss) |                          | 
|Other                        |                          | 
|                             |                          | 
|Total other income (expense) |                          | 
|                             |                          | 

In the fourth quarter of fiscal 2008,
based on an analysis that considered general economic conditions and company-specific
conditions, we determined that the one million shares acquired as an investment security
in exchange for certain thermal assets in the first quarter of fiscal 2008, had
experienced an Other-than-temporary impairment under the guidance of Statement of
Financial Accounting Standards (SFAS) No. 115 Accounting for Investments in Certain
Debt and Equity Securities (SFAS No. 115). Accordingly, we revised our cost basis in
the investment by writing off $900,000 to Other expense. This was partially offset by
recycling income from our Kalispell facilities and rental income from a portion of our
Cambridge facility. Interest income declined to $240,000 from $352,000 in fiscal 2007 and
from $493,000 in fiscal 2006 because of lower investment levels. Interest expense
decreased to $488,000 in fiscal 2008 because of lower bank interest rates and decreased
use of our line of credit. Interest expense increased to $649,000 in fiscal 2007 because
we used our line of credit more in fiscal 2007 than in fiscal 2006.

26

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We reported a foreign exchange loss of
$414,000 in fiscal 2008 as compared to an exchange gain of $233,000 in fiscal 2007 and an
exchange loss of $148,000 in fiscal 2006 related to foreign exchange gains and losses on
unhedged intercompany sales with our Japanese, Korean, Austrian and other subsidiaries.
Beginning in April 2007, due to a change in how we conduct business and following an
evaluation of the scope of our operations and business practices, we concluded that the
Euro is the currency of the primary economic environment in which Semitool Austria
operates and, consequently, changed the functional currency for Semitool Austria to the
Euro. Semitool Austria invoices its customers in Euros and its financing and operating
activities are denominated in the Euro. Accordingly, from April 1, 2007, all assets and
liabilities of Semitool Austria are translated at period-end exchange rates and all
revenues and expenses are re-measured at average rates prevailing during the period.
Translation adjustments are reported as a separate component of accumulated other
comprehensive loss.

# Income Taxes

|                               | Year Ended September 30, | 
|------------------------------ | ------------------------ | 
|
|
|Income tax provision (benefit) |                          | 
|Effective tax rate             |                          | 

Our estimated effective tax rate for
fiscal 2008 is 33% as compared to a benefit of 57% as of September 30, 2007. Our fiscal
year 2008 tax rate is higher than in fiscal 2007 due to the expiration of the Federal
Research and Experimentation Credit (R&E Credit) on December 31, 2007 and the
additional benefits realized in fiscal year 2007 as described below. The R&E Credit
was extended on October 3, 2008 and accordingly no benefit was realized in fiscal year
2008 for the portion attributable to calendar year 2008. This portion of the R&E
Credit will be realized in the first quarter of fiscal 2009. We estimate that the
additional net discrete tax benefit will be between $500,000 and $750,000.

Our estimated effective tax rate for
fiscal 2007 was a benefit of 57% as compared to the effective tax rate for fiscal 2006 of
33%. The fiscal year 2007 tax rate was lower than in fiscal 2006 based on a combination of
the extension of the R&E Credit in fiscal 2007 for fiscal 2006, the current year
estimated R&E Credit and the decline in our net income before taxes from $14.7 million
in fiscal 2006 to $3.3 million in fiscal 2007. The effective rate was also impacted by
additional Montana R&D credits realized in excess of prior estimates and a tax benefit
realized in the United Kingdom for an exchange loss incurred translating statutory
financial statements from the Great Britain Pound to the U.S. dollar.

Our future effective tax rate is based
on our continued investments in research and development programs qualifying for the
Credit and our expectations of earnings from operations in jurisdictions with lower tax
rates throughout the world.

Effective October 1, 2007, we adopted
the provisions of Financial Accounting Standards Board (FASB) Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement
109 (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring tax
positions accounted for in accordance with SFAS No. 109, Accounting for Income
Taxes. The first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or litigation
processes, if any. The second step is to measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon ultimate settlement.

As a result of the implementation of
FIN 48, we increased our estimated net unrecognized tax benefits and accounted for the
increase as a cumulative effect of a change in accounting principle that resulted in a
$671,000 decrease to our beginning retained earnings. Total unrecognized tax benefits at
October 1, 2007, if recognized, would impact our tax rate. We anticipate that the amount
of unrecognized tax benefits could change in the next twelve months but do not expect
those changes to have a significant impact on our results of operations or financial
position.

During fiscal 2008, the total amount
of unrecognized tax benefits was as follows:

|                                                                | Year Ended
September 30, 2008 | 
|--------------------------------------------------------------- | ----------------------------- | 
|
|October 1, 2007 (after adoption of FIN 48)                      |                               | 
|Year-to-date net changes for unrecognized benefits and interest |                               | 
|                                                                |                               | 
|September 30, 2008                                              |                               | 
|                                                                |                               | 

As of September 30, 2008, we are
potentially subject to U.S. federal income tax examinations for the fiscal tax years 2005
through 2007 and to non-U.S. income tax examinations for fiscal tax years 2002 through
2007. In addition, we are potentially subject to state income tax examinations for fiscal
tax years 2004 through 2007. Although they have not been assessed, under the guidance of
FIN 48, we include potential interest and penalties related to unrecognized tax benefits
within our provision for taxes. As of the date of adoption of FIN 48, we had $283,000 of
accrued potential interest and penalties related to unrecognized tax benefits. The accrued
potential interest and penalties related to unrecognized tax benefits decreased
approximately $170,000 in the year ended September 30, 2008.

27

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# Backlog and Deferred
Revenue

|                                      | Year Ended September 30, | 
|------------------------------------- | ------------------------ | 
|
|
|Backlog                               |                          | 
|Percentage change in backlog          |                          | 
|year over year                        |                          | 
|Deferred revenue                      |                          | 
|Percentage change in deferred revenue |                          | 
|year over year                        |                          | 

Approximately 73% of our backlog at
September 30, 2008 was for Raider tools. Deferred revenue decreased $1.8 million at
September 30, 2008 as compared with September 30, 2007 primarily because deferrals of
Raider shipments into new customer environments decreased. Shipments into new customer
environments require full deferral of tool revenue until final customer acceptance in
accordance with our revenue recognition policy. Current deferrals include all or a part of
30 Raiders as compared with 17 Raiders at September 30, 2007 and 23 Raiders at September
30, 2006.

We include in backlog those customer
orders for which we have written customer authorization and for which shipment is
scheduled within the next 12 months. Orders are subject to cancellation or rescheduling by
customers with limited or no cancellation fees. As the result of systems ordered and
shipped in the same quarter, possible changes in customer delivery dates, cancellations
and shipment delays and acceptances of shipped equipment carried in deferred revenue, the
backlog at any particular date and the bookings for any particular period are not
necessarily indicative of actual revenue for any succeeding period. In particular, during
periods of downturns in the semiconductor industry we have experienced customer
cancellations and requested delays in delivery.

Deferred profit included in current
liabilities is derived from deferred revenue, which primarily relates to equipment shipped
to customers that has not been accepted by the customer, less the deferred cost of sales,
including warranty and installation, and commission expenses. Deferred revenue is not
included in orders backlog. The components of deferred profit are as follows:

|                                                         | Year Ended September 30, | 
|-------------------------------------------------------- | ------------------------ | 
|
|
|Deferred revenue                                         |                          | 
|Deferred cost of sales - manufacturing costs             |                          | 
|Deferred cost of sales - warranty and installation costs |                          | 
|Deferred SG&A expense - commissions                      |                          | 
|                                                         |                          | 
|Deferred profit                                          |                          | 

# Stock-Based Compensation

Effective the beginning of fiscal
2006, we adopted SFAS No. 123(R), Share-Based Payment, and elected to adopt
the modified prospective application method. SFAS No. 123(R) requires us to use a
fair-value based method to account for stock-based compensation. Stock-based
compensation cost is measured at the grant date, based on the fair value of the award and
is recognized as expense over the employees requisite service period. The fair value
of each stock option grant is estimated using the Black-Scholes option pricing model. This
model was developed for use in estimating the value of publicly traded options that have
no vesting restrictions and are fully transferable. Our employee stock options have
characteristics that differ from those of publicly traded options.

Total compensation cost recorded in
fiscal 2008, 2007 and 2006 was $1.8 million, $1.1 million and $1.4 million, respectively,
or $1.2 million, $1.1 million and $940,000 after tax, respectively, in each period, an
impact of approximately $0.04, $0.03 and $0.03 per basic and diluted share. Through fiscal
2005, we accounted for our stock option plans using the intrinsic value method under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25).

28

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# Liquidity and Capital
Resources

Operating Activities.Cash used by
operating activities was $4.8 million in fiscal 2008. The primary uses of cash in fiscal
2008 were to support inventory growth of $16.2 million and a $15.3 million increase in
trade receivables. The inventory growth was primarily related to an increase in the number
of demo tools placed with customers for evaluation. The increase in trade receivables was
primarily related to a $17.1 million increase in shipments, the timing of those shipments
and the timing of customer payments in fiscal 2008. In October and early November 2008, we
collected approximately $36 million in trade receivables. The primary sources of cash
included net income of $6.0 million, non-cash operating activities, including depreciation
and stock-based compensation, of $11.5 million and a $5.4 million decrease in accounts
payable as our inventory spending levels decreased in response to lower fourth quarter
bookings.

Operations provided $2.9 million in
cash during fiscal 2007. The primary use of cash in fiscal 2007 was a $10.4 million
decrease in accounts payable as our payables declined due to lower business activity
levels compared to fiscal 2006. As a result of the inventory reduction plan implemented in
the third quarter as well as a write off of obsolete inventory in the fourth quarter,
inventories declined by $6.6 million. Customer advances decreased $2.9 million as we
shipped the tools underlying those advances. Income taxes payable and payroll related
liabilities decreased $5.0 million. The primary sources of cash from operations during
fiscal 2007 were net income of $5.2 million and non-cash components of net income
including $10.7 million in depreciation and amortization expense offset by a $2.3 million
decrease in deferred income taxes.

Investing Activities. Fiscal
2008 investing activities included $5.1 million in purchases of factory and laboratory
equipment and the acquisition of land adjacent to our Salzburg, Austria facility.
Additionally, we invested $6.2 million in our development and demonstration laboratories
by transferring finished goods inventory to property, plant and equipment. We also
invested approximately $790,000 in our patent portfolio.

Investing activities in fiscal 2007
included $8.7 million in purchases of factory and laboratory equipment, other property and
the expansion and remodeling of our Rhetech subsidiary facility. Additionally we invested
$5.7 million in our development and demonstration laboratories by transferring finished
goods inventory to property, plant and equipment. These investments in our equipment and
facilities were partially offset by proceeds from the sale of property, plant and
equipment, primarily a manufacturing facility located near Kalispell, Montana, which we
sold for approximately $1.9 million. We also invested a net amount of $1.1 million in our
patent portfolio.

Financing Activities.Financing
activities in fiscal 2008 provided $6.0 million in cash and consisted primarily of $1.6
million in borrowings under long-term debt to purchase land adjacent to our Salzburg,
Austria facility and a net $3.2 million draw on our revolving line of credit. Stock option
exercises provided $2.1 million in fiscal 2008. Offsetting these sources of cash, we
repaid $1.2 million on our long-term debt.

Financing activities in fiscal 2007
provided cash of $3.6 million and consisted primarily of $1.6 million in borrowings under
long-term debt for our Rhetech subsidiary expansion and remodeling project and $4.9
million in new long-term debt used to finance the acquisition, remodeling and equipping of
a manufacturing facility located near Kalispell, Montana. The $4.9 million financing with
First Interstate Bank is under a value-added loan program sponsored by the Montana Board
of Investments (MBOI). The MBOI participation in 75% of the loan carries an interest rate
of 2.5% for the first five years and 6.5% for the second five years of a ten-year term.
The 25% of the loan financed by First Interstate Bank has a 7.75% interest rate over the
ten-year term. Stock option exercises also provided $1.2 million in fiscal 2007.
Offsetting these sources of cash, we repaid short-term borrowings of $3.1 million on our
revolving line of credit in fiscal 2007. There were no advances outstanding on the
revolving credit line as of September 30, 2007.

Off-Balance Sheet Arrangements.We do not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance or special purpose
entities, which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purposes. As such, we are not
exposed to the types of financing, liquidity, market or credit risks that could arise if
we had engaged in such relationships.

The following commitments as of
September 30, 2008, incurred in the normal course of business, have been included in the
consolidated financial statements with the exception of purchase order commitments and
operating lease obligations, which are properly excluded under accounting principles
generally accepted in the United States of America. They are disclosed in the following
table in order to provide a consolidated picture of our financial position and liquidity.

|                           | Payments Due by Period | 
|-------------------------- | ---------------------- | 
|
|
|Long-term debt             |                        | 
|Operating leases           |                        | 
|Purchase order commitments |                        | 
|                           |                        | 
|Total commitments          |                        | 
|                           |                        | 

29

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We have agreements with limited
liability companies wholly-owned by Mr. Raymon F. Thompson, our chairman and chief
executive officer, to lease aircraft and an aircraft hangar. Under these agreements, rent
expense was approximately $2,389,200 for the year ended September 30, 2008, $2,839,200 for
the year ended September 30, 2007 and $3,289,200 for the year ended September 30, 2006.
The current rental rate is approximately $199,100 per month for both the aircraft and the
hangar; the lease terms are month-to-month and therefore are not included in the above
table. The terms of the lease agreements were based on comparable information on lease
rates received from independent aircraft leasing dealers and finance entities for similar
aircraft. We believe that these lease agreements are on terms no less favorable to us than
could have been obtained from an unaffiliated party.

As of September 30, 2008, our
principal sources of liquidity consisted of approximately $11.6 million of cash and cash
equivalents and $26.8 million available under our $30.0 million revolving line of credit.
The credit facility is with Wells Fargo and bears interest at the banks prime
lending rate, 5.0% as of September 30, 2008, or at our option, LIBOR plus 2.25%, or 6.3%
as of that date. During the second quarter of fiscal 2008, we amended the credit agreement
with Wells Fargo, extending the expiration date of the credit facility and redefining two
of the financial covenants. The revolving credit line now expires on March 1, 2010. The
credit agreement has various restrictive covenants including a prohibition against
pledging real, fixed or intangible assets during the term of the agreement and the
maintenance of various financial covenants. If we were to default on the credit agreement
or if there were a materially adverse change in our financial condition, the bank could
accelerate payment of any advances outstanding under the credit agreement. In addition,
the availability of funds requires compliance with certain financial covenants, including
a maximum borrowing limit based on a Funded Debt to Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA) ratio which replaces a profitability covenant, and
a maximum borrowing limit based on trade receivables. We currently are in compliance with
our debt covenants; however, there is no assurance that in the future we will be able to
maintain compliance with these covenants so as to ensure availability of the line.

We believe that we have sufficient
cash and cash equivalents, along with funds expected to be generated from operations and
amounts available under our credit facility to meet operating expenses and planned capital
expenditures through fiscal 2009 and into the foreseeable future. We estimate capital
expenditures will be between $1.0 million and $3.0 million during the next twelve months.
If additional financial resources are required in the future, we may need to issue
additional common stock or other financial instruments whichever management deems
advisable. There can be no assurance that in the future we will be able to issue
additional common stock or other financial instruments on acceptable terms.

# Critical Accounting
Policies and Estimates

The preparation of consolidated
financial statements in conformity with accounting principles generally accepted in the
United States of America requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, we evaluate our estimates, including those
related to revenue recognition, inventories, warranty obligations, bad debts, investments,
intangible assets, income taxes, financing operations, employee benefits, contingencies
and litigation. We base our estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.

We believe the following critical
accounting policies and estimates affect our more significant judgments and estimates used
in the preparation of our consolidated financial statements.

30

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Revenue Recognition.Revenue
recognition is significant because revenue is a key component of our results of
operations. We recognize revenue under the guidance for Staff Accounting Bulletin No. 104
(SAB 104), Revenue Recognition. Under this method, revenue is recognized only
when persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the sellers price is fixed or determinable and collectability is
reasonably assured. Our product sales generally contain substantive customer acceptance
provisions. Sales of new products to new or existing customers are not recognized until
customer acceptance. Likewise, sales of existing products to new customer environments are
not recognized until customer acceptance. If multiple elements exist, sales of existing
products into existing customer environments are treated as such in accordance with
Emerging Issues Task Force Issue No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables. The amount of revenue recognized in multiple element
arrangements is the lesser of the fair value of the equipment or the contracted amount
that was due or payable upon title transfer. The revenue for elements other than equipment
is recorded in deferred profit and is recognized when the remaining goods and/or services
are delivered or performed. Revenue related to service is recognized upon completion of
performance of the service or ratably over the life of the related service contract. Spare
parts sales are recognized upon shipment when title and risk of loss pass to the customer.
Unearned revenue from service contract agreements is included in Customer Advances in the
current liabilities section of the Consolidated Balance Sheets.

In addition, the timing of certain
expenses, such as cost of sales, including installation and warranty, and commission
expenses coincides with the recognition of the related revenues. We follow specific
guidelines in measuring revenue; however, certain judgments such as the definition of a
new customer environment and new acceptance criteria or if installation is perfunctory may
be required in the application of our revenue recognition policy.

Inventories.Inventories
are valued at the lower of cost or market on a first-in,           first-out basis.
Accordingly, we write down the carrying value of inventories           for estimated
obsolescence and future marketability. On a quarterly basis, we           compare
historical and projected sales and usage of raw materials and parts and           our
assumptions about future use of raw materials, parts and finished goods with
          our forecast, market demand and industry conditions to determine potential
          obsolescence or whether the inventory on hand represents excess quantities. As
a           result of our analysis, we record reserves impacting Cost of Sales, if
          appropriate. These reserves are subject to management judgment and if actual
          future use, demand or market conditions are less favorable than those projected
          by us, additional inventory valuation write-downs may be required.

Warranty Obligations.We
provide for the estimated cost of equipment warranties when the related revenue is
recognized. We track individual warranties on a tool-by-tool basis and develop estimated
rates by equipment class based on this history. The rates are used to estimate the
warranty accrual for a given specific piece of equipment. These rates are revised
periodically to reflect current cost trends due to the current life cycle of that product
class. The warranty accrual is reduced by actual costs of providing the warranty or if a
balance is remaining at the end of the warranty period, then that amount is also written
off. Warranty accrual expense impacts primarily Cost of Sales. While we engage in
extensive product quality programs and processes, including actively monitoring and
evaluating the quality of our component suppliers, our warranty obligation is affected by
product failure rates, material usage and service delivery costs incurred in correcting a
product failure. Should actual product failure rates, material usage or service delivery
costs differ from our estimates, revisions to the estimated warranty liability would be
required.

Allowance for Doubtful Accounts.We maintain allowances for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. We record expense as a component of
Selling, General and Administrative within the Consolidated Statements of Income. If the
financial condition of our customers were to deteriorate, due to the cyclicality of the
industries we serve or for other reasons, resulting in an impairment of their ability to
make payments, additional allowances and expense may be required. Likewise, if we are
successfully able to collect on an amount presumed to be uncollectible, the allowance for
doubtful accounts and the related expense may be reduced. In general, it takes longer to
collect payment in the capital equipment industry than in certain other industries. Days
Sales Outstanding (DSO) of peer companies in our industry ranges between approximately 50
and 115 days.

Deferred Tax Assets.We make
estimates to determine the amount of our deferred tax assets that we believe is more
likely than not to be realized. We consider future taxable income and ongoing prudent tax
planning strategies in assessing the need for a valuation allowance; however, should we
determine that we will not be able to realize all or part of our net deferred tax asset in
the future, a decrease in the deferred tax asset would negatively impact our results of
operations, particularly the income tax provision, in the period such determination was
made.

Stock-Based Compensation.In
fiscal 2006, we adopted SFAS No. 123(R) using the modified prospective application method
and began accounting for stock-based compensation using a fair-value based recognition
method. Under the provisions of SFAS No. 123(R), stock-based compensation cost is
estimated at the grant date based on the fair-value of the award and is recognized as
expense ratably over the requisite service period of the award. Determining the
appropriate fair-value model and calculating the fair value of stock-based awards requires
considerable judgment, including estimating stock price volatility, expected option life
and forfeiture rates. We develop our estimates based on historical data and market
information which can change significantly over time. A
small change in the estimates used can have a relatively large change in the estimated
valuation.

31

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We use the Black-Scholes option
valuation model to value employee stock options, consistent with the provisions of SFAS
No. 123(R) and SAB No. 107, including stock-based compensation (determined under a fair
value method as prescribed by SFAS No. 123). We estimate stock price volatility based on a
blended rate of historical volatility and the implied volatility derived from traded
options on our stock. Estimated option life and forfeiture rate assumptions are derived
from historical data. For stock-based compensation awards with graded vesting that were
granted after fiscal 2005, we recognize compensation expense using the straight-line
amortization method. As of September 30, 2008, $1.2 million of total unrecognized
compensation cost related to non-vested stock option awards is expected to be recognized
over a weighted average period of 1.1 years.

# Litigation

We are involved in legal proceedings
that arise in the ordinary course of our business, including employment related
litigation. Although there can be no assurance as to the ultimate disposition of these
matters, it is the opinion of management, based upon the information available at this
time, that the currently expected outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on our business, financial condition,
results of operations or cash flows.

# New Accounting
Pronouncements

In September 2006, the FASB issued
SFAS No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 clarifies
the definition of fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements. In February 2008, the FASB issued FASB Staff Position
(FSP) FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and
Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (FSP 157-1). FSP 157-1 amends SFAS
No. 157 to remove certain leasing transactions from its scope. In February 2008, the FASB
also issued FSP FAS No. 157-2 Effective Date of FASB Statement
No. 157 (FSP 157-2) delaying the effective date of SFAS No. 157 for one
year for all non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis (at
least annually). In October 2008, the FASB issued FSP FAS 157-3, Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active (FSP
157-3), which clarifies the application of SFAS No. 157 in a market that is not active and
provides an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007 and interim periods within
those fiscal years. FSP 157-2 is effective for fiscal years beginning after November 15,
2008 and interim periods within those fiscal years for items falling within the scope of
FSP 157-2. FSP 157-3 is effective upon issuance. Accordingly, we will adopt SFAS No. 157
in the first quarter of fiscal 2009. We are currently evaluating the impact this statement
will have on our results of operations and financial condition.

In May 2008, the FASB issued SFAS No.
162, The Hierarchy of Generally Accepted Accounting Principles (SFAS No. 162).
SFAS No. 162 identifies the sources of accounting principles and the framework for
selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally accepted
accounting principles in the United States of America. SFAS No. 162 will become effective
60 days following the SECs approval of the Public Company Accounting Oversight Board
(PCAOB) amendments to AU Section 411, The Meaning of Present Fairly in Conformity
with Generally Accepted Accounting Principles. We do not expect the adoption of SFAS
No. 162 to materially impact our results of operations or financial condition.

In April 2008, the FASB issued FSP FAS
142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3). This
FSP amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset under SFAS
No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). The intent of
this FSP is to improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to measure the fair
value of the asset under SFAS No. 141 (revised 2007), Business Combinations
(SFAS No. 141). FSP 142-3 is effective for fiscal years beginning after December 15, 2008
and for interim periods within those years with early adoption prohibited. Accordingly, we
will adopt FSP 142-3 in fiscal 2010. FSP 142-3 will only impact us if we acquire assets
accounted for under SFAS No. 142.

In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities 
an amendment of SFAS No. 133 (SFAS No. 161). This statement changes the
disclosure requirements for derivative instruments and hedging activities. SFAS
No. 161 requires us to provide enhanced disclosures about (a) how and why we use
derivative instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, and its related interpretations, and (c) how derivative
instruments and related hedged items affect our financial position, financial performance,
and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application encouraged.
SFAS No. 161 encourages, but does not require, comparative disclosures for earlier periods
at initial adoption. Accordingly, we will adopt SFAS No. 161 in our interim period
beginning January 1, 2009. We are currently evaluating the potential impact of
adoption of SFAS No. 161 on our consolidated financial statement disclosures.

32

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In December 2007, the FASB issued SFAS
No. 141 (revised 2007), Business Combinations (SFAS No. 141(R)) which
replaces SFAS No 141. The statement retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way assets and
liabilities are recognized in purchase accounting. It also changes the recognition of
assets acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. SFAS No. 141(R) applies prospectively
to business combinations for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after December 15, 2008 and early
adoption is prohibited. Accordingly, we will adopt SFAS No. 141(R) in the first quarter of
our fiscal 2010. SFAS No. 141(R) will only impact us if we are involved in a business
combination.

In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities 
Including an amendment of FASB Statement No. 115.  SFAS No. 159 allows
entities to choose, at specified election dates, to measure eligible financial instruments
and certain other items at fair value that are not otherwise required to be so measured.
If a company elects the fair value option for an eligible item, changes in that
items fair value in subsequent reporting periods must be recognized in current
earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007.
Accordingly we will adopt SFAS 159 in fiscal 2009. We are currently evaluating the impact
of adopting SFAS 159 on our results of operations and financial condition.

# Item 7A. Quantitative and
Qualitative Disclosures About Market Risk

# Market Risks

Market risks relating to our
operations result primarily from changes in interest rate and changes in foreign currency
exchange rates.

As of September 30, 2008, we had
approximately $11.6 million in long-term debt and $3.2 million in short-term debt. As of
September 30, 2007, we had approximately $11.2 million in long-term debt. Our long-term
debt bears interest at a fixed rate. As a result, changes in the fixed rate interest
market would change the estimated fair value of the fixed rate long-term debt. Our
short-term debt bears interest at the banks prime lending rate, 5.0% as of September
30, 2008, or at our option, LIBOR plus 2.25%, or 6.3% as of that date. We believe that a
10% change in the long-term or the short-term interest rates would not have a material
effect on our business, financial condition, results of operations or cash flows. See Note
8  Long-Term Debt and Capital Leases.

All of our international operations
are subject to inherent risks in conducting business abroad, including fluctuation in the
relative value of currencies. We manage this risk and attempt to reduce such exposure
through an economic hedge using short-term forward exchange contracts. At September 30,
2008, we held forward contracts to sell Japanese Yen with a total face value of $5.5
million and a total market value of $5.6 million and a total unrealized future loss of
approximately $100,000. At September 30, 2007, we held forward contracts to sell Japanese
Yen with a total face value of $4.8 million and a total market value of $4.9 million and a
total unrealized future loss of approximately $100,000. The impact of movements in
currency exchange rates on forward contracts is offset to the extent of receivables
denominated in Japanese Yen. The effect of a 10% change in foreign exchange rates on
hedged transactions involving Japanese Yen forward exchange contracts and the underlying
transactions would not be material to our financial condition, results of operations or
cash flows. We do not hold or issue derivative financial instruments for trading or
speculative purposes.

33

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# Item 8. Financial
Statements and Supplementary Data

SEMITOOL, INC.CONSOLIDATED BALANCE
SHEETSSeptember 30, 2008 and
2007(Amounts in Thousands,
Except Share Amounts)

|                                                                                 | 2008 |  | 2007 |        
|-------------------------------------------------------------------------------- | ---- |  | ---- | -------
|
|Current assets:                                                                  |      |  |      |        
|Cash and cash equivalents                                                        |      |  | $    | 11,624 
|Restricted cash                                                                  |      |  |      | 817    
|Marketable securities                                                            |      |  |      | 380    
|Trade receivables, less allowance for doubtful accounts of $259 and $259         |      | 
|in 2008 and 2007                                                                 |      |  |      | 73,695 
|Inventories                                                                      |      |  |      | 88,773 
|Income tax refund receivable                                                     |      |  |      | 472    
|Prepaid expenses and other current assets                                        |      |  |      | 4,371  
|Deferred income taxes                                                            |      |  |      | 14,175 
|                                                                                 |      |  |      |        
|Total current assets                                                             |      |  |      | 194,307
|Property, plant and equipment, net                                               |      |  |      | 49,909 
|Intangibles, less accumulated amortization of $4,341 and $3,279 in 2008 and 2007 |      |  |      | 7,861  
|Other assets                                                                     |      |  |      | 735    
|                                                                                 |      |  |      |        
|Total assets                                                                     |      |  | $    | 252,812
|                                                                                 |      |  |      |        

|LIABILITIES AND SHAREHOLDERS' EQUITY                                     |  | 
|------------------------------------------------------------------------ |  | 
|Current liabilities:                                                     |  | 
|Accounts payable                                                         |  | 
|Note payable to bank                                                     |  | 
|Accrued commissions                                                      |  | 
|Accrued warranty                                                         |  | 
|Accrued payroll and related benefits                                     |  | 
|Income taxes payable                                                     |  | 
|Other accrued liabilities                                                |  | 
|Customer advances                                                        |  | 
|Deferred profit                                                          |  | 
|Long-term debt and capital leases, due within one year                   |  | 
|                                                                         |  | 
|Total current liabilities                                                |  | 
|Long-term debt and capital leases, due after one year                    |  | 
|Deferred and long-term income taxes                                      |  | 
|                                                                         |  | 
|Total liabilities                                                        |  | 
|                                                                         |  | 
|Commitments and contingencies                                            |  | 
|Shareholders' equity:                                                    |  | 
|Preferred stock, no par value, 5,000,000 shares authorized,              |  | 
|no shares issued and outstanding                                         |  | 
|Common stock, no par value, 75,000,000 shares authorized,                |  | 
|32,719,276 and 32,107,457 shares issued and outstanding in 2008 and 2007 |  | 
|Retained earnings                                                        |  | 
|Accumulated other comprehensive loss                                     |  | 
|                                                                         |  | 
|Total shareholders' equity                                               |  | 
|                                                                         |  | 
|Total liabilities and shareholders' equity                               |  | 
|                                                                         |  | 

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

34

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SEMITOOL, INC.CONSOLIDATED STATEMENTS
OF INCOMEFor the years ended
September 30, 2008, 2007 and 2006Amounts in Thousands,
Except Per Share Amounts)

|                                            | 2008 |  | 2007 |         | 2006 |  
|------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|Net sales                                   |      |  | $    | 238,604 |      | $
|Cost of sales                               |      |  |      | 121,209 |      |  
|                                            |      |  |      |         |      |  
|Gross profit                                |      |  |      | 117,395 |      |  
|                                            |      |  |      |         |      |  
|Operating expenses:                         |      | 
|Selling, general and administrative         |      |  |      | 76,929  |      |  
|Research and development                    |      |  |      | 30,440  |      |  
|Downsizing costs                            |      |  |      | --      |      |  
|Gain on sale of building                    |      |  |      | --      |      |  
|                                            |      |  |      |         |      |  
|Total operating expenses                    |      |  |      | 107,369 |      |  
|                                            |      |  |      |         |      |  
|Income from operations                      |      |  |      | 10,026  |      |  
|                                            |      |  |      |         |      |  
|Other income (expense):                     |      | 
|Interest income                             |      |  |      | 240     |      |  
|Interest expense                            |      |  |      | (488    | )    |  
|Other, net                                  |      |  |      | (795    | )    |  
|                                            |      |  |      |         |      |  
|Total other income (expense)                |      |  |      | (1,043  | )    |  
|                                            |      |  |      |         |      |  
|Income before income taxes                  |      |  |      | 8,983   |      |  
|Income tax provision (benefit)              |      |  |      | 2,946   |      |  
|                                            |      |  |      |         |      |  
|Net income                                  |      |  | $    | 6,037   |      | $
|                                            |      |  |      |         |      |  
|Earnings per share:                         |      | 
|Basic                                       |      |  | $    | 0.19    |      | $
|                                            |      |  |      |         |      |  
|Diluted                                     |      |  | $    | 0.19    |      | $
|                                            |      |  |      |         |      |  
|Weighted average common shares outstanding: |      | 
|Basic                                       |      |  |      | 32,347  |      |  
|Diluted                                     |      |  |      | 32,534  |      |  

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

35

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SEMITOOL, INC.CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS EQUITYFor the years ended
September 30, 2008, 2007 and 2006(Amounts in Thousands)

|                                        | Common Stock |  |  |        | 
|--------------------------------------- | ------------ |  |  | ------ | 
|
|Balance September 30, 2005              |              |  |  | 28,733 | 
|Net income                              |              |  |  | --     | 
|Issuance of common stock under          |              | 
|employee compensation plans             |              |  |  | 192    | 
|Proceeds from stock offering            |              |  |  | 3,000  | 
|Income tax effect of stock option       |              | 
|transactions                            |              |  |  | --     | 
|Compensation expense recognized under   |              | 
|employee stock incentive plans          |              |  |  | --     | 
|Other comprehensive income (loss)       |              |  |  | --     | 
|                                        |              |  |  |        | 
|Balance September 30, 2006              |              |  |  | 31,925 | 
|Net income                              |              |  |  | --     | 
|Issuance of common stock under          |              | 
|employee compensation plans             |              |  |  | 182    | 
|Income tax effect of stock option       |              | 
|transactions                            |              |  |  | --     | 
|Compensation expense recognized under   |              | 
|employee stock incentive plans          |              |  |  | --     | 
|Other comprehensive income (loss)       |              |  |  | --     | 
|                                        |              |  |  |        | 
|Balance September 30, 2007              |              |  |  | 32,107 | 
|Net income                              |              |  |  | --     | 
|Cumulative effect of adoption of FIN 48 |              |  |  | --     | 
|Issuance of common stock under          |              | 
|employee compensation plans             |              |  |  | 612    | 
|Income tax effect of stock option       |              | 
|transactions                            |              |  |  | --     | 
|Compensation expense recognized under   |              | 
|employee stock incentive plans          |              |  |  | --     | 
|Other comprehensive income (loss)       |              |  |  | --     | 
|                                        |              |  |  |        | 
|Balance September 30, 2008              |              |  |  | 32,719 | 
|                                        |              |  |  |        | 

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

36

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SEMITOOL, INC.CONSOLIDATED STATEMENTS
OF CASH FLOWSFor the years ended
September 30, 2008, 2007 and 2006(Amounts in Thousands)

|                                                                   | 2008 |  | 2007 |         | 2006 |  
|------------------------------------------------------------------ | ---- |  | ---- | ------- | ---- | -
|Operating activities:                                              |      |  |      |         |      |  
|Net income                                                         |      |  | $    | 6,037   |      | $
|Adjustments to reconcile net income to net                         |      | 
|cash provided by (used in) operating activities:                   |      | 
|(Gain) loss on disposition of assets                               |      |  |      | 329     |      |  
|Depreciation and amortization                                      |      |  |      | 11,341  |      |  
|Deferred income taxes                                              |      |  |      | (650    | )    |  
|Income tax benefit received on the exercise of stock-based awards  |      |  |      | --      |      |  
|Stock-based compensation                                           |      |  |      | 1,782   |      |  
|Marketable securities acquired in sales transaction                |      |  |      | (1,280  | )    |  
|Change in:                                                         |      | 
|Restricted cash                                                    |      |  |      | (817    | )    |  
|Trade receivables                                                  |      |  |      | (15,345 | )    |  
|Inventories                                                        |      |  |      | (16,206 | )    |  
|Income tax refund receivable                                       |      |  |      | (472    | )    |  
|Prepaid expenses and other current assets                          |      |  |      | (785    | )    |  
|Other assets                                                       |      |  |      | 141     |      |  
|Accounts payable                                                   |      |  |      | 5,395   |      |  
|Accrued commissions                                                |      |  |      | 397     |      |  
|Accrued warranty                                                   |      |  |      | 1,994   |      |  
|Accrued payroll and related benefits                               |      |  |      | 1,088   |      |  
|Income taxes payable                                               |      |  |      | 3,902   |      |  
|Other accrued liabilities                                          |      |  |      | (393    | )    |  
|Customer advances                                                  |      |  |      | (52     | )    |  
|Deferred profit                                                    |      |  |      | (1,165  | )    |  
|                                                                   |      |  |      |         |      |  
|Net cash provided by (used in) operating activities                |      |  |      | (4,759  | )    |  
|                                                                   |      |  |      |         |      |  
|Investing activities:                                              |      | 
|Proceeds from sale and maturities of marketable securities         |      |  |      | --      |      |  
|Purchases of property, plant and equipment                         |      |  |      | (5,060  | )    |  
|Increases in intangible assets                                     |      |  |      | (787    | )    |  
|Proceeds from sale of property, plant and equipment                |      |  |      | 9       |      |  
|                                                                   |      |  |      |         |      |  
|Net cash used in investing activities                              |      |  |      | (5,838  | )    |  
|                                                                   |      |  |      |         |      |  
|Financing activities:                                              |      | 
|Net proceeds from stock offering                                   |      |  |      | --      |      |  
|Proceeds from exercise of stock options                            |      |  |      | 2,061   |      |  
|Excess tax benefits received on the exercise of stock-based awards |      |  |      | 235     |      |  
|Borrowings under line of credit and short-term debt                |      |  |      | 25,286  |      |  
|Repayments of line of credit and short-term debt                   |      |  |      | (22,071 | )    |  
|Borrowings under long-term debt                                    |      |  |      | 1,648   |      |  
|Repayments of long-term debt and capital leases                    |      |  |      | (1,155  | )    |  
|                                                                   |      |  |      |         |      |  
|Net cash provided by financing activities                          |      |  |      | 6,004   |      |  
|                                                                   |      |  |      |         |      |  
|Effect of exchange rate changes on cash and cash equivalents       |      |  |      | 127     |      |  
|                                                                   |      |  |      |         |      |  
|Net increase (decrease) in cash and cash equivalents               |      |  |      | (4,466  | )    |  
|Cash and cash equivalents at beginning of year                     |      |  |      | 16,090  |      |  
|                                                                   |      |  |      |         |      |  
|Cash and cash equivalents at end of year                           |      |  | $    | 11,624  |      | $
|                                                                   |      |  |      |         |      |  

37

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SEMITOOL, INC.CONSOLIDATED STATEMENTS
OF CASH FLOWS, CONTINUEDFor the years ended
September 30, 2008, 2007 and 2006(Amounts in Thousands)

|                                                                       | 2008 |  | 2007 |       | 2006 |  
|---------------------------------------------------------------------- | ---- |  | ---- | ----- | ---- | -
|Supplemental disclosures of cash flow information:                     |      |  |      |       |      |  
|Cash paid (received) during the year for:                              |      | 
|Interest, net of amounts capitalized                                   |      |  | $    | 490   |      | $
|Income taxes                                                           |      |  |      | (366  | )    |  
|Supplemental disclosures of non-cash financing and investing activity: |      | 
|Inventory transferred to equipment                                     |      |  | $    | 6,175 |      | $
|Other-than-temporary impairment of marketable securities               |      |  |      | 900   |      |  
|Inventory acquired in sales transaction                                |      |  |      | 370   |      |  
|Assets acquired by incurring debt and capital leases                   |      |  |      | --    |      |  
|Intangible assets acquired with the sale of products                   |      |  |      | --    |      |  

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

38

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SEMITOOL, INC.CONSOLIDATED STATEMENTS
OF COMPREHENSIVE INCOMEFor the years ended
September 30, 2008, 2007 and 2006(Amounts in Thousands)

|                                         | 2008 |  | 2007 |       | 2006 |  
|---------------------------------------- | ---- |  | ---- | ----- | ---- | -
|Net income                               |      |  | $    | 6,037 |      | $
|Net gain (loss) on cash flow hedges      |      |  |      | 22    |      |  
|Foreign currency translation adjustments |      |  |      | 38    |      |  
|                                         |      |  |      |       |      |  
|Total comprehensive income               |      |  | $    | 6,097 |      | $
|                                         |      |  |      |       |      |  

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

39

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# SEMITOOL, INC.NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1.    Company
Organization and Summary of Significant Accounting Policies:

| | Semitool,
Inc. (Semitool or the Company) designs, manufactures, installs and services
highly-engineered equipment for use in the fabrication of semiconductor devices. Semitools
products are focused on the wet chemical process steps in integrated circuit, or IC,
manufacturing and include systems for wafer surface preparation and electrochemical
deposition, or ECD, applications. The Companys surface preparation systems are
designed for Front End of Line (FEOL), Back End of Line (BEOL) and wafer level packaging
of ICs processes. Semitools single-wafer FEOL surface preparation systems are used
for photoresist stripping, post etch and pre-diffusion cleans. The Companys BEOL
surface preparation systems are used for polymer removal and packaging applications.
Semitools ECD systems are used to plate copper and other metals, which are used for
the ICs internal wiring, or interconnects; to plate solder and lead free solder
bumps for wafer level packaging applications; and to plate other metals for various
semiconductor and related applications. Also, the Companys surface preparation
systems are used for cleaning and etching processes for wafer level packaging. Semitools
primary product for all of these processes is the Raider platform, which is a
multi-chamber single-wafer tool. The Companys products address critical
applications within the semiconductor manufacturing process, and help enable Semitools
customers to manufacture more advanced semiconductor devices that feature higher levels
of performance. The fabrication of semiconductor devices typically requires several
hundred manufacturing steps, with the number of steps continuing to increase for advanced
devices.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Significant
accounting policies followed by the Company are:
| | ------------------------------------------------------------

| | Principles
of Consolidation
| | ---------------------------

| | The
consolidated financial statements include the accounts of Semitool and its wholly-owned
subsidiaries: Semitool Austria GmbH, Semitool Europe Ltd., (United Kingdom); Semitool
Halbleitertechnik Vertriebs GmbH, (Germany); Semitool France SARL; Semitool Israel Ltd.;
Semitool Italia SRL; Semitool Japan Inc.; Semitool Korea, Inc.; Semitool (Philippines)
Inc.; Semitool (Asia) Pte Ltd., (Singapore); Semitool Semiconductor Equipment Technology
(Shanghai) Co., LTD.; Semitool (Taiwan) Inc.; and Rhetech, Inc.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
significant intercompany accounts and transactions are eliminated in consolidation.
| | ---------------------------------------------------------------------------------------

| | Estimates
| | ---------

| | The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to revenue recognition, bad
debts, inventories, investments, intangible assets, income taxes, financing operations,
warranty obligations, employee benefits, contingencies and litigation. The Company bases
its estimates on historical experience and on various other assumptions that are believed
to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
Equivalents
| | ----------------

| | The
Company considers all highly liquid investments with original or purchased maturities of
three months or less to be cash equivalents. The Company invests its cash and cash
equivalents in deposits with major financial institutions, which, at times, exceed
federally insured limits. The Company has not experienced any losses on its cash and cash
equivalents.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Trade
Receivables and Allowance for Doubtful Accounts
| | -----------------------------------------------------

| | Trade
receivables are recorded at the invoice amount and do not bear interest. Past due
accounts are determined based on contractual terms. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its customers to
make required payments based on its experience and knowledge of the current financial
condition of its customers.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

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| | Derivatives
| | -----------

| | The
Company uses derivative instruments to manage some of its exposures to foreign currency
risks. The objective for holding derivatives is to minimize these risks using the most
effective methods to eliminate or reduce the impact of these exposures. The Company uses
cash flow hedge accounting in accordance with Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting For Derivative Instruments and Hedging Activities(SFAS
No. 133) to account for hedges. At the inception of the hedge, the hedging relationship
to a forecasted transaction, the risk management objective and the strategy for
undertaking the hedge is documented. Quarterly, forward rates are used to evaluate
hedging effectiveness. For effective hedges, unrealized gains and losses are included in
accumulated other comprehensive income (loss) (OCI). If the derivative no longer meets
hedge accounting criteria, or the terms of the hedged item change so the derivative no
longer qualifies for hedge accounting, the derivative is marked-to-market. Any amounts in
OCI relating to a derivative that no longer qualifies for hedge accounting are
transferred out of OCI and reported in earnings during the period in which hedge
accounting no longer applies. At maturity or termination the gain or loss on the
derivative is calculated and reported in earnings.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Certain
forecasted transactions and assets are exposed to foreign currency risk. The Company
monitors foreign currency exposures regularly to maximize the overall effectiveness of
the foreign currency hedge positions. The only currency hedged is the Japanese Yen.
Forward contracts used to hedge forecasted international sales on credit for up to 18
months in the future are designated as cash flow hedging instruments. Derivative gains
and losses included in OCI are reclassified when forecasted transactions become
receivables. During the fiscal years ended September 30, 2008 and 2007, the amount
transferred from OCI to Other income (expense) was not material. The Company estimates
that all $160,000 of net derivative losses, currently reported as a separate component of
OCI, will be reclassified into earnings within the next 12 months.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | All
derivatives, whether designated in hedging relationships or not, are recorded on the
balance sheet at fair value. If the derivative is designated a fair value hedge, the
changes in the fair value of the derivative and of the hedged item attributable to the
hedged risk are recognized in earnings. If the derivative is designated as a cash flow
hedge, the effective portions of changes in the fair value of the derivative are recorded
in OCI and are recognized in earnings when the cash flow hedge ceases.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Ineffective
portions of changes in the fair value of cash flow hedges are recognized in earnings.
Hedge ineffectiveness, determined in accordance with SFAS No. 133, had no impact on
earnings for the fiscal years ended September 30, 2008, 2007 and 2006.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Inventories
| | -----------

| | Inventories
are carried at the lower of first-in, first-out (FIFO) cost or market. The Company
periodically reviews its inventories to identify excess and obsolete inventories and to
record such inventories at net realizable values. It is reasonably possible that the
Companys estimates of net realizable values could be revised in the near term due
to technological and other changes.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Property,
Plant and Equipment
| | -----------------------------

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

|                                                                                                                                   |                                                                                                                                                        
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Buildings and improvements
Machinery and equipment   
Furniture and fixtures    
Vehicles and aircraft     
Leasehold improvements | 10-40 years
                         2-5 years
                         3-7 years
                        5-10 years
The useful life of the improvement

| | 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 when incurred. When
items are disposed, the related costs and accumulated depreciation are removed from the
accounts and any gain or loss is recognized.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-Lived
Assets
| | -----------------

| | The
Company evaluates the carrying value of its long-lived assets whenever events or changes
in circumstances indicate that the carrying value of the asset may be impaired in
accordance with the provisions of SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. An impairment loss is recognized when estimated
future cash flows expected to result from the use of the asset including disposition, are
less than the carrying value of the asset.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Intangible
Assets
| | -----------------

| | Intangible
assets primarily include legal costs associated with obtaining patents. The cost of
granted patents is amortized on a straight-line basis over the lesser of the estimated
economic life or seven years.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41

---

| | Revenue
Recognition
| | -------------------

| | In
December 1999, the staff of the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB
101), which has been subsequently updated by Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104). Under this method, revenue is recognized only when
persuasive evidence of an arrangement exists, delivery has occurred or services have been
rendered, the sellers price is fixed or determinable and collectability is
reasonably assured. The Companys product sales generally contain substantive
customer acceptance provisions. Sales of new products to new or existing customers are
not recognized until customer acceptance. Likewise, sales of existing products to new
customer environments are not recognized until customer acceptance. If multiple elements
exist, sales of existing products into existing customer environments are treated as such
in accordance with Emerging Issues Task Force Issue No. 00-21, Accounting for
Revenue Arrangements with Multiple Deliverables. The amount of revenue recognized
in multiple element arrangements is the lesser of the fair value of the equipment or the
contracted amount that was due or payable upon title transfer. The revenue for elements
other than equipment is recorded in deferred profit and is recognized when the remaining
goods and/or services are delivered or performed. Revenue related to service is
recognized upon completion of performance of the service or ratably over the life of the
related service contract. Spare parts sales are recognized upon shipment when title and
risk of loss pass to the customer.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Deferred
profit included in current liabilities is derived from deferred revenue, which primarily
relates to equipment shipped to customers that has not been accepted by the customer,
less the deferred cost of sales, including warranty and installation, and commission
expenses.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Semitools
shipping terms are customarily FOB Semitool shipping point or equivalent terms. All
sales, use, value added, excise or other taxes imposed by a governmental authority on
customer sales are presented on a net basis, that is, excluded from revenues.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Warranty
Obligations
| | --------------------

| | The
Companys obligations for warranty are accrued concurrently with the revenue
recognized on the related equipment. The Company makes provisions for its warranty
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 obligations, including
changing product designs and specifications, the ultimate amount incurred for warranty
costs could change in the near term from the Companys current estimate.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Foreign
Currency
| | ----------------

| | The
functional currency for most of the Companys foreign subsidiaries is the U.S.
dollar. For these foreign operations, realized gains and losses from foreign currency
transactions and unrealized gains and losses from re-measurement of the financial
statements of the foreign operations into the functional currency are included in the
Consolidated Statements of Income.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Semitool
Japan uses the Yen as its functional currency and invoices its customers in Yen. All
assets and liabilities of Semitool Japan are translated at period-end exchange rates and
all revenues and expenses are re-measured at average rates prevailing during the period.
Translation adjustments are reported as a separate component of OCI. Transaction gains
and losses are included in the Consolidated Statements of Income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Beginning
in April 2007, due to a change in how the Company conducts business and following an
evaluation of the scope of its operations and business practices, the Company concluded
that the Euro is the currency of the primary economic environment in which Semitool
Austria operates and consequently, changed the functional currency for Semitool Austria
to the Euro. Semitool Austria invoices its customers in Euros and its financing and
operating activities are denominated in the Euro. Accordingly, from April 1, 2007, all
assets and liabilities of Semitool Austria are translated at period-end exchange rates
and all revenues and expenses are re-measured at average rates prevailing during the
period. Translation adjustments are reported as a separate component of OCI. Transaction
gains and losses are included in the Consolidated Statements of Income.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Transaction
gains of $156,000, $625,000 and $33,000 in fiscal 2008, 2007 and 2006 related to cash
flow hedges and their underlying receivables are included in Other income (expense) in
the Consolidated Statements of Income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Advertising
Costs
| | -----------------

| | We
expense advertising costs as incurred. Advertising costs were not material in all of the
periods presented in the Consolidated Statements of Income.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------

| | Research
and Development Costs
| | ------------------------------

| | Research
and Development (R&D) expense consists of salaries, project materials, laboratory
costs, consulting fees and other costs associated with product development efforts. Costs
of research and development are expensed as incurred.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

42

---

| | Stock-Based
Compensation
| | ------------------------

| | Effective
October 1, 2005, the Company adopted the provisions of SFAS No. 123(R), Share-Based
Payment. SFAS No. 123(R) establishes accounting for stock-based awards exchanged
for employee services. Accordingly, stock-based compensation cost is measured at grant
date, based on the fair value of the award and is recognized as expense, amortized on a
straight-line basis, over the requisite service period of the individual grants, which
generally equals the vesting period.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company elected to adopt the modified prospective application method as provided by SFAS
No. 123(R). As a result, the Companys Consolidated Statements of Income as of
September 30, 2008, 2007 and 2006 reflect compensation cost for new stock awards granted
under the stock incentive plans during fiscal 2008, 2007 and 2006 and the nonvested
portion of stock options granted prior to October 1, 2005 which vested during fiscal
2008, 2007 and 2006. Total compensation cost recorded in fiscal 2008, 2007 and 2006,
respectively, was $1.8 million, $1.1 million and $1.4 million pre-tax, or $1.2 million,
$1.1 million and $940,000 after tax, an impact of approximately $0.04, $0.03 and $0.03
per basic and diluted share.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company elected to adopt the alternative transition method provided in the FASB Staff
Position (FSP) No. FAS 123(R)-3, Transition Election Related to Accounting for Tax
Effects of Share-Based Payment Awards for calculating the tax effects of
stock-based compensation pursuant to SFAS No. 123(R). The alternative transition method
includes computational guidance to establish the beginning balance of the additional
paid-in capital pool (APIC Pool) related to the tax effects of employee stock-based
compensation awards that are vested and outstanding upon adoption of SFAS No. 123(R).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Computation
of Earnings Per Share
| | ---------------------------------

| | The
computation of basic and diluted earnings per share is based on the following (in
thousands):
| | -------------------------------------------------------------------------------------------------

|                                           | 2008 |  | 2007 |        | 2006 |  
|------------------------------------------ | ---- |  | ---- | ------ | ---- | -
|Numerator:                                 |      |  |      |        |      |  
|Net income used for basic and diluted      |      | 
|earnings per share                         |      |  | $    | 6,037  |      | $
|                                           |      |  |      |        |      |  
|Denominator:                               |      | 
|Weighted average common shares used for    |      | 
|basic earnings per share                   |      |  |      | 32,347 |      |  
|Effects of dilutive stock options          |      |  |      | 187    |      |  
|                                           |      |  |      |        |      |  
|Denominator for diluted earnings per share |      |  |      | 32,534 |      |  
|                                           |      |  |      |        |      |  

| | Diluted
earnings per share excludes the effects of antidilutive stock options to purchase
903,113, 577,719 and 209,575 shares of common stock in fiscal 2008, 2007 and 2006,
respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | New
Accounting Pronouncements
| | -----------------------------

| | In
September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair Value Measurements (SFAS No. 157). SFAS No. 157 clarifies the definition
of fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS No. 157
applies under other accounting pronouncements that require or permit fair value
measurements. In February 2008, the FASB issued FSP FAS 157-1, Application of FASB
Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That
Address Fair Value Measurements for Purposes of Lease Classification or Measurement under
Statement 13 (FSP 157-1). FSP 157-1 amends SFAS No. 157 to remove certain leasing
transactions from its scope. In February 2008, the FASB also issued FSP FAS No. 157-2
Effective Date of FASB Statement No. 157 (FSP 157-2) delaying the
effective date of SFAS No. 157 for one year for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). In October 2008, the
FASB issued FSP FAS 157-3, Determining the Fair Value of a Financial Asset When the
Market for That Asset Is Not Active (FSP 157-3), which clarifies the application of
SFAS No. 157 in a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the market for
that financial asset is not active. SFAS No. 157 is effective for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. FSP 157-2 is
effective for fiscal years beginning after November 15, 2008 and interim periods within
those fiscal years for items falling within the scope of FSP 157-2. FSP 157-3 is
effective upon issuance. Accordingly, the Company will adopt SFAS No. 157 in the first
quarter of fiscal 2009. The Company is currently evaluating the impact this statement
will have on its results of operations and financial condition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

43

---

| | In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS No. 162). SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles in the United States of America.
SFAS No. 162 will become effective 60 days following the SECs approval of the
Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411, The
Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The
Company does not expect the adoption of SFAS No. 162 to materially impact its results of
operations or financial condition.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
April 2008, the FASB issued FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). The intent of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS No. 142
and the period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141). FSP 142-3
is effective for fiscal years beginning after December 15, 2008 and for interim periods
within those years with early adoption prohibited. Accordingly, the Company will adopt
FSP 142-3 in fiscal 2010. FSP 142-3 will only impact the Company if it acquires assets
accounted for under SFAS No. 142.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of SFAS No. 133 (SFAS
No. 161). This statement changes the disclosure requirements for derivative instruments
and hedging activities. SFAS No. 161 requires the Company to provide enhanced
disclosures about (a) how and why it uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS No. 133
and its related interpretations, and (c) how derivative instruments and related
hedged items affect the Companys financial position, financial performance, and
cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years
and interim periods beginning after November 15, 2008, with early application encouraged.
SFAS No. 161 encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. Accordingly, the Company will adopt SFAS No. 161 in its
interim period beginning January 1, 2009. The Company is currently evaluating the
potential impact of adoption of SFAS No. 161 on its consolidated financial statement
disclosures.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business
Combinations (SFAS No. 141(R)) which replaces SFAS No 141. The statement retains
the purchase method of accounting for acquisitions, but requires a number of changes,
including changes in the way assets and liabilities are recognized in purchase
accounting. It also changes the recognition of assets acquired and liabilities assumed
arising from contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related costs as
incurred. SFAS No. 141(R) applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008 and early adoption is prohibited. Accordingly,
the Company will adopt SFAS No. 141(R) in the first quarter of fiscal 2010. SFAS No.
141(R) will only impact the Company if it is involved in a business combination.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities  Including an amendment of FASB Statement No. 115. SFAS
No. 159 allows entities to choose, at specified election dates, to measure eligible
financial instruments and certain other items at fair value that are not otherwise
required to be so measured. If a company elects the fair value option for an eligible
item, changes in that items fair value in subsequent reporting periods must be
recognized in current earnings. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. Accordingly the Company will adopt SFAS 159 in fiscal 2009. The
Company is currently evaluating the impact of adopting SFAS 159 on its results of
operations and financial condition.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2.    Restricted
Cash:

| | Restricted
cash consists primarily of customer advance payments held under bank guarantees until
certain contractual requirements are met.
| | ------------------------------------------------------------------------------------------------------------------------------------------

3.    Marketable
Securities:

| | Marketable
securities consists of one million shares of common stock acquired in a sales
transaction. The shares have not been registered under the Securities Act of 1933, as
amended. The shares have registration rights requiring the registration with the SEC no
later than 15 months after the date of the transaction. In originally valuing the stock,
the Company took into consideration marketability discounts. The Company recognized $1.3
million in revenue on the transaction in fiscal 2008. As of the second quarter of fiscal
2008, the shares were subject to reporting under SFAS No. 115 Accounting for
Certain Investments in Debt and Equity Securities (SFAS No. 115). The shares are
classified as Available-for-sale securities and are marked to market in OCI every
quarter.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

44

---

| | For
individual securities defined as Available-for-sale, SFAS No. 115 requires the Company to
determine whether any decline in the fair value of the security is Other-than-temporary.
If a decline in the fair value of a security is determined to be Other-than-temporary
then the cost basis of the security must be written down to the current fair value and
the adjustment must be recorded as a component of earnings. Many factors go into the
determination of whether a decline in value of a given security represents a temporary or
Other-than-temporary loss. In the fourth quarter of fiscal 2008, based on general market
conditions and company-specific factors, the Company concluded that the decline in value
of the securities was Other-than-temporary and recorded a $900,000 loss in Other, net.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Marketable
securities classified as Available-for-sale as of September 30, 2008 consist of the
following (in thousands)
| | -----------------------------------------------------------------------------------------------------------------------

|                | Cost |  | Gross
Unrealized
Gain |     | Gross
Unrealized
Loss |   | Estimated
Fair Value | 
|--------------- | ---- |  | --------------------- | --- | --------------------- | - | -------------------- | 
|Equity security |      |  | $                     | 380 |                       | $ | --                   | 

| | The
Company did not hold any marketable securities as of September 30, 2007. There is no
contractual maturity date for the equity investment held by the Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

4.    Inventories:

| | Inventories
at September 30, 2008 and 2007 are summarized as follows (in thousands):
| | ------------------------------------------------------------------------------------

|                        | 2008 |  | 2007 |       
|----------------------- | ---- |  | ---- | ------
|Parts and raw materials |      |  | $    | 44,762
|Work-in-process         |      |  |      | 27,100
|Finished goods          |      |  |      | 16,911
|                        |      |  |      |       
|                        |      |  | $    | 88,773
|                        |      |  |      |       

5.    Property,
Plant and Equipment:

| | Property,
plant and equipment at September 30, 2008 and 2007 are summarized as follows (in
thousands):
| | ------------------------------------------------------------------------------------------------------

|                                               | 2008 |  | 2007 |        
|---------------------------------------------- | ---- |  | ---- | -------
|Buildings and improvements                     |      |  | $    | 32,463 
|Machinery and equipment                        |      |  |      | 48,712 
|Furniture, fixtures and leasehold improvements |      |  |      | 11,682 
|Vehicles and aircraft                          |      |  |      | 10,035 
|                                               |      |  |      |        
|                                               |      |  |      | 102,892
|Less accumulated depreciation and amortization |      |  |      | (60,430
|                                               |      |  |      |        
|                                               |      |  |      | 42,462 
|Land and land improvements                     |      |  |      | 7,447  
|                                               |      |  |      |        
|                                               |      |  | $    | 49,909 
|                                               |      |  |      |        

| | Depreciation
expense was $10,265,000, $9,785,000 and $8,904,000 for fiscal 2008, 2007 and 2006,
respectively.
| | -------------------------------------------------------------------------------------------------------------

45

---

6.    Intangible
Assets:

| | Amortization
expense for intangible assets was $1,074,000, $936,000 and $811,000 for fiscal 2008, 2007
and 2006, respectively. Based primarily on patent rights granted and recorded at
September 30, 2008, and assuming no subsequent impairment of the underlying assets, the
annual estimated amortization expense is expected to be as follows (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year EndingSeptember 30,                                                 | Total                                              
| | ------------------------------------------------------------------------ | ---------------------------------------------------
| | 2009      
2010      
2011      
2012      
2013      
       Thereafter | $1,052
     907
     686
     452
     344
     287

| | Accumulated
amortization was $4,341,000 and $3,279,000 at September 30, 2008 and 2007, respectively.
| | ----------------------------------------------------------------------------------------------------

7.    Note
Payable to Bank:

| | The
Company has a $30 million Credit Agreement, renewable annually, with a bank with an
expiration date of March 1, 2010. Borrowings are collateralized by certain assets of the
Company and bear interest at the banks prime lending rate, 5.0% as of September 30,
2008, or at the Companys option, LIBOR plus 2.25%, or 6.3% as of that date. The
agreement requires monthly interest payments only, until March 1, 2010, when the then
outstanding principal balance is due and payable in full. The original agreement provided
for a non-utilization fee payable quarterly at a rate of 0.30% per annum on the average
daily amount of the unused portion of the overall credit limit for each such year, and
the amended agreement provides for a non-refundable annual commitment fee equal to 0.10%
of the credit limit, commencing March 1, 2008. Additionally, the agreement contains
various restrictive financial and non-financial covenants. The financial covenants
include measurements of tangible net worth, total liabilities divided by tangible net
worth and a maximum borrowing limit based on a Funded Debt to Earnings before Interest,
Taxes, Depreciation and Amortization (EBITDA) ratio and a maximum borrowing limit based
upon total accounts receivable. The Company was in compliance with its debt covenants as
of September 30, 2008. At September 30, 2008, there was $3.2 million in advances
outstanding on the agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

46

---

8.    Long-Term
Debt and Capital Leases:

| | Long-term
debt and capital leases at September 30, 2008 and September 30, 2007 are summarized as
follows (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------

|                                                                    | 2008 |  | 2007 |       
|------------------------------------------------------------------- | ---- |  | ---- | ------
|Mortgage term note payable in monthly installments of               |      |  |      |       
|$23, including interest at a blended rate of 5.5%, maturing on      |      | 
|September 1, 2014. (A)                                              |      |  | $    | 1,328 
|Mortgage term note payable in monthly installments of $49,          |      | 
|including interest at a blended rate of 3.81% up to January 2012    |      | 
|when it will change to $53, including interest at a blended rate of |      | 
|6.81%, maturing on January 1, 2017. (B)                             |      |  |      | 4,206 
|Mortgage term note payable to the Pennsylvania Industrial           |      | 
|Development Authority (PIDA) in monthly installments of $6,         |      | 
|including interest at 4.25%, maturing on December 1, 2008. (C)      |      |  |      | 12    
|Mortgage term note payable to Sovereign Bank in monthly             |      | 
|installments of $15, including interest at 4.5%, maturing           |      | 
|August 15, 2021. (D)                                                |      |  |      | 1,705 
|Mortgage term note payable to the Raiffeisenbank Hallein            |      | 
|in monthly installments of EUR 25,                                  |      | 
|including interest at 3.5%, maturing on March 5, 2016. (E)          |      |  |      | 2,748 
|Capital lease obligation payable in monthly installments            |      | 
|of EUR 3 including interest at 4.25% with an original               |      | 
|maturity date of June 1, 2008.                                      |      |  |      | --    
|Mortgage term note payable to the Raiffeisenbank Hallein            |      | 
|in quarterly installments of EUR 14 plus interest at 5.75%,         |      | 
|maturing July 5, 2028. (F)                                          |      |  |      | 1,640 
|                                                                    |      |  |      |       
|                                                                    |      |  |      | 11,639
|Less current portion                                                |      |  |      | 1,222 
|                                                                    |      |  |      |       
|                                                                    |      |  | $    | 10,417
|                                                                    |      |  |      |       

|(A) | The mortgage
term note payable is collateralized by a first lien deed of trust on the Kalispell office
and manufacturing facility and by all fixtures and personal property of the Company
necessary for the operation of the facility. The Montana State Board of Investments
provided 80% of the financing with Bank of America providing the remaining 20%. The notes
are personally guaranteed by Raymon F. Thompson, the Companys Chairman and Chief
Executive Officer.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | The mortgage
term note payable is collateralized by a first lien deed of trust on the manufacturing
facility located at Birch Grove Road in Kalispell, Montana and by all fixtures and
personal property of the Company necessary for the operation of the facility. The Montana
State Board of Investments provided 75% of the financing with First Interstate Bank
providing the remaining 25%.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | The mortgage
term note payable to PIDA is collateralized by a first lien upon the premises in
Coopersburg, Pennsylvania upon which the Rhetech, Inc. office and manufacturing facility
resides. The net book value of assets pledged under the agreement was $4.4 million at
September 30, 2008 and $4.3 million at September 30, 2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(D) | The mortgage
term note payable to Sovereign Bank for the expansion of the Rhetech, Inc. manufacturing
facility is collateralized by a second lien upon the premises in Coopersburg,
Pennsylvania by Lehigh County Industrial Development Authority and guaranteed by
Semitool, Inc.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(E) | The mortgage term note payable to Raiffeisenbank Hallein is collateralized by a
          lien on the Salzburg, Austria premises.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(F) | The mortgage term note payable to Raiffeisenbank Hallein is collateralized by a
          second lien on the Salzburg, Austria premises. The loan agreement provides the
          option of converting the loan to a foreign currency. For loans converted to U.S.
          dollars, the interest rate is LIBOR, rounded to the nearest 1/8% + 0.875%. In
          September 2008, we converted the loan to U.S. dollars at an interest rate of
          3.625% and are currently making payments of $50,000 per quarter with the intent
          of settling the loan in 2018.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

---

| | Principal
maturities for long-term debt at September 30, 2008, are summarized as follows (in
thousands):
| | --------------------------------------------------------------------------------------------------------

| | Year EndingSeptember 30, |  | NotesPayable | 
| | ------------------------ |  | ------------ | 
| |                          |  | 2009         | 
| |                          |  | 2010         | 
| |                          |  | 2011         | 
| |                          |  | 2012         | 
| |                          |  | 2013         | 
| |                          |  | Thereafter   | 
| |                          |  |             
| |                          | 
| |                          |  |              | 
| |                          |  |             

9.    Accumulated
Other Comprehensive Loss:

| | The
Companys accumulated other comprehensive loss consists of unrealized losses on cash
flow hedges and foreign currency translation adjustments resulting from translating both
Semitool Japans financial statements from the Japanese Yen and Semitool Austrias
financial statements from the Euro, to the U.S. dollar.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Accumulated
other comprehensive loss at September 30, 2008 and 2007 consisted of the following
components (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------

|                                                                         | 2008 |  | 2007 |     
|------------------------------------------------------------------------ | ---- |  | ---- | ----
|Unrealized loss on derivative instruments qualifying as cash flow hedges |      |  | $    | (160
|Cumulative translation adjustments                                       |      |  |      | (272
|                                                                         |      |  |      |     
|                                                                         |      |  | $    | (432
|                                                                         |      |  |      |     

10.   Employee
Benefit and Stock-Based Compensation Plans:

| | Semitool
maintains a profit-sharing plan and trust under Section 401(k) of the Internal Revenue
Code. Under the terms of the plan, U.S. employees may make voluntary contributions to the
plan. Semitool contributes a matching amount equal to 50% of the employees
voluntary contribution for up to 5% of the employees compensation. Semitool may
also make non-matching contributions to the plan. Total contribution cost for this plan
was approximately $1.1 million, $1.1 million and $1.0 million for the years ended
September 30, 2008, 2007 and 2006, respectively.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Semitool
Europe Ltd. maintains a defined contribution pension agreement. This pension agreement is
open to all employees with more than three months of service. The employer and employee
contributions are invested in each individual members personal pension plan. The
employer has an obligation to make contributions at one-half of the contribution rate
paid by the employee, subject to a rate between 2.5% and 5.0% of the employees
salary. The total pension cost for this plan for the years ended September 30, 2008, 2007
and 2006 approximated $36,000, $40,000 and $38,000, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

| | In
February 2004, the Board of Directors adopted and the shareholders approved the 2004
Stock Option Plan (the 2004 Plan), replacing the expiring 1994 Stock Option Plan. Upon
approval of the 2007 Stock Incentive Plan (the 2007 Plan) in March 2007, the 2007 Plan
immediately replaced the 2004 Plan. Options that were granted under the 2004 Plan
generally become exercisable at a rate of 5% per quarter commencing three months after
the grant date and have a requisite service period of five years. The Company has granted
options that qualify as incentive stock options to employees (including officers and
employee directors) and nonqualified stock options to employees, directors and
consultants. The options generally have a ten-year term, unless earlier terminated by the
discontinuation of service by the grantee. Option exercises are settled with newly issued
common shares.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

---

| | The
total shares reserved for issuance under the 2007 Plan are 3,129,175 at September 30,
2008, which includes an initial 1,000,000 shares plus all shares that remained available
for grants of options under the 2004 Plan as of the date the 2007 Plan was approved plus
any shares that would otherwise return to the 2004 Plan as a result of forfeiture of
options previously granted under the 2004 Plan. The 2007 Plan provides for the grant of
various awards including stock options, stock appreciation rights and restricted stock
awards. As of September 30, 2008, only stock options and restricted stock awards have
been awarded under the 2007 Plan. The Company may grant options that qualify as incentive
stock options only to employees. Awards other than incentive stock options may be granted
to employees, directors and consultants. Restricted stock awards granted under the 2007
Plan generally vest at a rate of 20% per year with 20% vesting immediately upon issuance
and have a requisite service period of four years. Stock options granted under the 2007
Plan generally have a ten-year term, unless earlier terminated by the discontinuation of
service by the grantee. Stock option exercises and restricted stock are settled with
newly issued common shares.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-based
compensation expense recognized under SFAS No. 123(R) during the fiscal years ending
September 30, 2008, 2007 and 2006 was $1.8 million, $1.1 million and $1.4 million,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock
Options
| | -------------

| | The
fair value of each stock option grant is estimated on the date of grant using the
Black-Scholes option pricing model. Expected volatilities are based on a blended rate of
historical and implied volatilities from the traded options on the Companys stock.
The expected term of stock options granted is based on analyses of historical employee
termination rates, option exercises and other factors. The risk-free rates are based on
the U.S. Treasury yield in effect at the time of the grant. The assumptions used in the
Black-Scholes model are presented below:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    | 2008 |  | 2007 |      | 2006 | 
|----------------------------------- | ---- |  | ---- | ---- | ---- | 
|Expected stock price volatility     |      |  |      | 51.6 | %    | 
|Risk-free interest rate             |      |  |      | 4.4  | %    | 
|Dividend yield                      |      |  |      | 0.0  | %    | 
|Expected life of options (in years) |      |  |      | 5.1  |      | 

| | The
weighted average grant date fair values based on the Black-Scholes option pricing model
for stock options granted in fiscal 2008, 2007 and 2006 were $4.77, $5.58 and $4.86 per
share, respectively.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following summary shows stock option activity for the three years ended September 30,
2008:
| | -----------------------------------------------------------------------------------------------

|                               | 2008 |  | 2007 |           | 2006 | 
|------------------------------ | ---- |  | ---- | --------- | ---- | 
|
|Outstanding, beginning of year |      |  |      | 1,779,750 |      | 
|Granted                        |      |  |      | 5,000     |      | 
|Exercised                      |      |  |      | (354,719  | )    | 
|Forfeited                      |      |  |      | (28,175   | )    | 
|                               |      |  |      |           |      | 
|Outstanding, end of year       |      |  |      | 1,401,856 |      | 
|                               |      |  |      |           |      | 
|Exercisable, end of year       |      |  |      | 1,102,081 |      | 

| | As
of September 30, 2008, $1.2 million of total unrecognized compensation cost related to
non-vested stock options is expected to be recognized over a weighted average period of
1.1 years. The weighted average remaining contractual term for options outstanding and
exercisable at September 30, 2008 was 5.2 years and 4.6 years, respectively. The
aggregate intrinsic value for options outstanding and exercisable at September 30, 2008
was $1.2 million and $1.1 million, respectively. The total intrinsic value of stock
options exercised during fiscal 2008, 2007 and 2006 was $968,000, $900,000 and $1.0
million, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company granted a total of 5,000 stock options during fiscal 2008 with exercise prices
equal to the market price of the stock on the grant date. The weighted-average exercise
price and weighted-average fair market value of these awards were $9.49 and $4.77,
respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

49

---

| | The
Company granted a total of 62,000 stock options during fiscal 2007 with exercise prices
equal to the market price of the stock on the grant date. The weighted-average exercise
price and weighted-average fair market value of these awards were $11.05 and $5.58,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company granted a total of 142,500 stock options during fiscal 2006 with exercise prices
equal to the market price of the stock on the grant date. The weighted-average exercise
price and weighted-average fair market value of these awards were $8.78 and $4.86,
respectively.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
following table summarizes information about stock options outstanding at September 30,
2008:
| | -------------------------------------------------------------------------------------------------

|                        | Options Outstanding |  | Options Exercisable |          
|----------------------- | ------------------- |  | ------------------- | ---------
|
|
|$    3.28  -  $    4.88 |                     |  |                     | 219,141  
|$    6.95  -  $  10.27  |                     |  |                     | 972,090  
|$  10.50  -  $  14.19   |                     |  |                     | 192,125  
|$  15.88  -  $  19.25   |                     |  |                     | 18,500   
|                        |                     |  |                     |          
|                        |                     |  |                     | 1,401,856
|                        |                     |  |                     |          

| | The
exercise and sale of certain qualified options resulted in the treatment of those options
as nonqualified options for tax purposes. As a result, the Company received tax benefits
associated with those options of $235,000, $247,000 and $427,000 in fiscal 2008, 2007 and
2006, respectively, which were recorded as additional capital.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Restricted
Stock Awards
| | -----------------------

| | A
summary of the Companys restricted stock activity for fiscal 2008 is as follows:
| | -----------------------------------------------------------------------------------

|                                | Number of
Shares |  | Weighted
Average
Grant Date
Fair Value |        
|------------------------------- | ---------------- |  | -------------------------------------- | -------
|Nonvested at September 30, 2007 |                  |  |                                        | 12,250 
|Restricted stock granted        |                  |  |                                        | 271,700
|Restricted stock vested         |                  |  |                                        | (61,420
|Restricted stock forfeited      |                  |  |                                        | (17,840
|                                |                  |  |                                        |        
|Nonvested at September 30, 2008 |                  |  |                                        | 204,690
|                                |                  |  |                                        |        

| | The
fair value of the restricted stock was calculated based upon the fair market value of the
Companys stock at the date of the grant. As of September 30, 2008, $1.4 million of
total unrecognized compensation cost related to restricted stock awards is expected to be
recognized over a weighted average period of 1.7 years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

---

11.   Downsizing
Costs:

| | In
April 2007, the Company announced and implemented a plan to align its cost structure with
then current business activity levels. The cost reduction plan consisted primarily of a
seven percent reduction in the Companys worldwide work force, management pay cuts,
mandatory leave and reduced overtime. One-time involuntary termination costs of $677,000
were reported as a separate component of operating expenses in the Companys fiscal
third quarter. All costs related to the downsizing plan have been fully incurred and
paid. The Companys downsizing costs and the amount remaining to be paid are
summarized as follows (in thousands):
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                          | Year Ended
September 30, 2007 | 
|------------------------------------------------------------------------- | ----------------------------- | 
|Liability for one-time involuntary termination costs, beginning of period |                               | 
|One-time involuntary termination costs incurred during the period         |                               | 
|One-time involuntary termination costs paid during the period             |                               | 
|                                                                          |                               | 
|Liability for one-time involuntary termination costs, end of period       |                               | 
|                                                                          |                               | 

12.   Income
Taxes:

| | The
provision (benefit) for income taxes for the years ended September 30, 2008, 2007 and
2006 consists of the following (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------

|         | 2008 |  | 2007 |       | 2006 |  
|-------- | ---- |  | ---- | ----- | ---- | -
|Federal: |      |  |      |       |      |  
|Current  |      |  | $    | 1,901 |      | $
|Deferred |      |  |      | (256  | )    |  
|State:   |      | 
|Current  |      |  |      | 225   |      |  
|Deferred |      |  |      | (145  | )    |  
|Foreign: |      | 
|Current  |      |  |      | 1,507 |      |  
|Deferred |      |  |      | (286  | )    |  
|         |      |  |      |       |      |  
|         |      |  | $    | 2,946 |      | $
|         |      |  |      |       |      |  

| | Domestic
and foreign components of income (loss) before income taxes for the years ended September
30, 2008, 2007 and 2006 are as follows (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|         | 2008 |  | 2007 |       | 2006 |  
|-------- | ---- |  | ---- | ----- | ---- | -
|Domestic |      |  | $    | 7,592 |      | $
|Foreign  |      |  |      | 1,391 |      |  
|         |      |  |      |       |      |  
|         |      |  | $    | 8,983 |      | $
|         |      |  |      |       |      |  

51

---

| | The
components of the deferred tax assets and liabilities as of September 30, 2008 and 2007
are as follows (in thousands):
| | --------------------------------------------------------------------------------------------------------------------------

|                                 | 2008 |  | 2007 |       
|-------------------------------- | ---- |  | ---- | ------
|Deferred tax assets:             |      |  |      |       
|Accrued warranty                 |      |  | $    | 2,755 
|Net operating loss carryforwards |      |  |      | 280   
|Tax credit carryforwards         |      |  |      | 2,748 
|Deferred profit                  |      |  |      | 3,166 
|Other accrued liabilities        |      |  |      | 1,817 
|Inventories                      |      |  |      | 2,323 
|Equity compensation              |      |  |      | 587   
|Asset impairment                 |      |  |      | 342   
|Other                            |      |  |      | 157   
|                                 |      |  |      |       
|Deferred tax assets              |      |  |      | 14,175
|                                 |      |  |      |       
|Deferred tax liabilities:        |      | 
|Depreciation and amortization    |      |  |      | (3,023
|Other                            |      |  |      | --    
|                                 |      |  |      |       
|Deferred tax liabilities         |      |  |      | (3,023
|                                 |      |  |      |       
|Net deferred tax asset           |      |  | $    | 11,152
|                                 |      |  |      |       

| | Semitool
has net operating loss carryforwards of approximately $11 million in various states. The
Company estimates the tax effect of these net operating losses to be approximately
$222,000. The losses expire in fiscal years 2009 through 2024. Semitool has a Federal
Research Credit carryforward in the State of Montana of approximately $852,000, which
will expire by fiscal year 2024. Semitool has a Federal Research Credit carryforward of
approximately $748,000 which will expire by fiscal year 2024. The Company also has an
Alternative Minimum Tax credit carryforward of approximately $1.1 million that does not
expire and a Foreign Tax Credit carryforward of approximately $80,000 which will expire
by fiscal year 2019.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cumulative
undistributed earnings of foreign subsidiaries, for which no U.S. income or foreign
withholding taxes have been recorded, were approximately $20.5 million at September 30,
2008. Such earnings are expected to be reinvested indefinitely. Determination of the
amount of unrecognized deferred tax liability with respect to such earnings is not
practicable. The additional taxes payable on the earnings of foreign subsidiaries, if
remitted, would be substantially offset by U.S. tax credits for foreign taxes already
paid.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Semitool
has concluded that based on its history of taxable income and other sources of future
income, that it is more likely than not that all of the deferred tax assets will be
realized and that no valuation allowance is necessary at this time.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
differences between the consolidated provision (benefit) 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, 2008, 2007 and 2006 are as follows (in thousands):
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                   | 2008 |  | 2007 |       | 2006 |  
|-------------------------------------------------- | ---- |  | ---- | ----- | ---- | -
|Amount computed using the statutory rate           |      |  | $    | 3,144 |      | $
|Increase (decrease) in taxes resulting from:       |      | 
|State taxes, net of federal benefit                |      |  |      | (10   | )    |  
|Effect of foreign taxes/foreign exchange           |      |  |      | 309   |      |  
|Research and experimentation credit                |      |  |      | (386  | )    |  
|Meals and entertainment and other permanent items  |      |  |      | 686   |      |  
|Extraterritorial income exclusion                  |      |  |      | --    |      |  
|Incentive stock options                            |      |  |      | 272   |      |  
|Domestic production deduction                      |      |  |      | (262  | )    |  
|Subpart F income net of related foreign tax credit |      |  |      | (103  | )    |  
|Other, net                                         |      |  |      | (704  | )    |  
|                                                   |      |  |      |       |      |  
|                                                   |      |  | $    | 2,946 |      |  
|                                                   |      |  |      |       |      |  

52

---

| | The
Federal Research Credit (R&E Credit) expired on December 31, 2005. Because
legislation extending the R&E Credit was not signed into law by September 30, 2006,
one quarter of the full year R&E Credit was realized in fiscal year 2006. In fiscal
2007, the R&E Credit for the remaining three quarters from fiscal year 2006 was
recognized in addition to the full year R&E Credit for fiscal year 2007.
Additionally, one quarter of the R&E Credit was recognized in fiscal 2008 as the
extension expired again on December 31, 2007. Legislation extending the R&E Credit
again for calendar year 2008 was signed into law after September 30, 2008.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
October 1, 2007, the Company adopted the provisions of FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement 109 (FIN
48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109, Accounting for Income
Taxes. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not
that the position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as the
largest amount that is more than 50% likely of being realized upon ultimate settlement.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
a result of the implementation of FIN 48, the Company increased its estimate of net
unrecognized tax benefits and accounted for the increase as a cumulative effect of a
change in accounting principle that resulted in a $671,000 decrease to beginning retained
earnings. Total unrecognized tax benefits at October 1, 2007, if recognized, would impact
the Companys tax rate. The Company anticipates that the amount of unrecognized tax
benefits could change in the next twelve months but does not expect those changes to have
a significant impact on the results of operations or the financial position of the
Company.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | During
fiscal 2008, the total amount of unrecognized tax benefits was as follows:
| | ---------------------------------------------------------------------------------

|                                                 | Year Ended
September 30, 2008 | 
|------------------------------------------------ | ----------------------------- | 
|
|October 1, 2007 (after adoption of FIN 48)       |                               | 
|Prior year additions                             |                               | 
|Current year additions                           |                               | 
|Prior year reductions                            |                               | 
|Reductions due to lapse of statue of limitations |                               | 
|                                                 |                               | 
|September 30, 2008                               |                               | 
|                                                 |                               | 

| | As
of September 30, 2008, the Company is potentially subject to U.S. federal income tax
examinations for the fiscal tax years 2005 through 2007 and to non-U.S. income tax
examinations for fiscal tax years 2002 through 2007. In addition, the Company is
potentially subject to state income tax examinations for fiscal tax years 2004 through
2007. Although they have not been assessed, under the guidance of FIN 48, the Company
includes potential interest and penalties related to unrecognized tax benefits within its
provision for taxes. As of the date of adoption of FIN 48, the Company had $283,000 of
accrued potential interest and penalties related to unrecognized tax benefits. The
accrued potential interest and penalties related to unrecognized tax benefits decreased
approximately $170,000 in the year ended September 30, 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13.   Related
Party Transactions:

| | Semitool
has agreements with limited liability companies wholly-owned by Mr. Raymon F.
Thompson, the Companys chairman and chief executive officer, to lease aircraft and
an aircraft hangar. Under these agreements, rent expense was approximately $2,389,200 for
the year ended September 30, 2008, $2,839,200 for the year ended September 30, 2007 and
$3,289,200 for the year ended September 30, 2006. The rental rate for fiscal 2009 is
anticipated to be $199,100 per month for both the aircraft and the hangar; the lease
terms are month-to-month.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14.   Commitments
and Contingencies:

| | The
Company, in its Articles of Incorporation, has indemnified its officers and the members
of its Board of Directors to the extent permitted by law against any and all liabilities,
costs, expenses, amounts paid in settlement and damages incurred in such capacity as a
result of any lawsuit, or any judicial, administrative or investigative proceeding in
which the officers or directors are named.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

53

---

| | The
Company has entered into agreements with customers that include limited intellectual
property indemnification obligations that are customary in the industry. These guarantees
generally require the Company to compensate the other party for certain damages and costs
incurred as a result of third party intellectual property claims arising from these
transactions. The nature of the intellectual property indemnification obligations
prevents the Company from making a reasonable estimate of the maximum potential amount it
could be required to pay to its customers. The Company has not made any indemnification
payments under such agreements and no amount has been accrued in the accompanying
condensed consolidated financial statements with respect to these indemnification
obligations.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Product
Warranties
| | ------------------

| | Obligations
for warranties are accrued concurrently with the revenue recognized on the related
equipment. Provisions for warranty obligations are made 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 warranty
obligations, including changing product designs and specifications, the ultimate amount
incurred for warranty costs could change in the near term from the Companys current
estimate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Changes
in the Companys accrued warranty liability for fiscal 2008, 2007 and 2006, were as
follows (in thousands):
| | -------------------------------------------------------------------------------------------------------------------

|                                                                | Year Ended September 30, | 
|--------------------------------------------------------------- | ------------------------ | 
|
|Accrued warranty balance, beginning of year                     |                          | 
|Accruals for new warranties issued during the year              |                          | 
|Expirations and changes in estimates to pre-existing warranties |                          | 
|Warranty labor and materials provided during the year           |                          | 
|                                                                |                          | 
|Accrued warranty balance, end of year                           |                          | 
|                                                                |                          | 

| | Operating
Leases
| | ----------------

| | The
Company has various non-cancelable operating lease agreements for equipment and office
space that expire through the year 2014. Total rent expense for the years ended September
30, 2008, 2007 and 2006, exclusive of amounts paid to a related party as described in
Note 13, was approximately $1.9 million, $1.9 million and $1.8 million, respectively. The
following table summarizes future minimum lease payments under all non-cancelable
operating leases with initial or remaining terms in excess of one year as of September
30, 2008 (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year EndingSeptember 30, |  | Total      | 
| | ------------------------ |  | ---------- | 
| |                          |  | 2009       | 
| |                          |  | 2010       | 
| |                          |  | 2011       | 
| |                          |  | 2012       | 
| |                          |  | 2013       | 
| |                          |  | Thereafter | 
| |                          |  |           
| |                          | 
| |                          |  |            | 
| |                          |  |           

| | Litigation
| | ----------

| | The
Company is involved in legal proceedings that arise in the ordinary course of its
business, including employment related litigation. Although there can be no assurance as
to the ultimate disposition of these matters, it is the opinion of management, based upon
the information available at this time, that the currently expected outcome of these
matters, individually or in the aggregate, will not have a material adverse effect on its
business, financial condition, results of operations or cash flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Periodically,
but not less than quarterly, the Company reviews the status of each significant matter
and assesses its potential financial exposure. If the potential loss from any legal
proceeding or claim is considered probable and the amount can be reasonably estimated,
the Company accrues a liability for the estimated loss. Significant judgment is required
in both the determination of probability and the determination as to whether an exposure
is reasonably estimable. Due to the uncertainties related to these matters, accruals are
based on the best information available at the time. As additional information becomes
available, the Company reassesses the potential liability related to its pending
litigation and claims and may revise its estimates. Although the Company has not made
such revisions, any future revisions could have a material impact on its results of
operations and financial condition.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

54

---

15.   ShareholdersEquity:

| | 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. At September 30, 2008 and 2007, no preferred shares were
outstanding.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

16.   Subsequent
Event:

| | In
November 2008, the Company took actions to align its cost structure with forecasted
business activity levels. The cost reduction measures consist primarily of layoffs,
management pay cuts, reduced sales commissions and overtime and a company-wide shutdown
over the holidays. Severance costs will be reported as a separate component of operating
expenses in the first quarter of fiscal 2009. The Company is continuing to evaluate
cost-saving measures to further reduce its expenses.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17.   Financial
Instruments and Certain Concentrations:

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

| | The
following methods and assumptions were used to estimate the fair value of each class of
financial instrument at September 30, 2008 and 2007 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | Restricted
cash  The carrying value of restricted cash approximates fair value due to the
nature of the restricted cash.
| | -------------------------------------------------------------------------------------------------------------------------

| | Marketable
securities  Marketable securities are marked-to-market to approximate fair value.
| | ---------------------------------------------------------------------------------------------

| | Note
payable to bank  The carrying value of the note payable to bank approximates fair
value due to the fact that the instrument bears a negotiated variable interest rate.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Long-term
debt  The fair value of notes payable is based on the discounted value of expected
cash flows using an estimated discount rate of 5.0% and 7.75% at September 30, 2008 and
2007, which the Company could currently obtain for debt with similar remaining maturities.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
estimated fair value of financial instruments at September 30, 2008 and 2007 consisted of
the following (in thousands):
| | ---------------------------------------------------------------------------------------------------------------------------

|                          | 2008 |  | 2007 |       
|------------------------- | ---- |  | ---- | ------
|
|Cash and cash equivalents |      |  | $    | 11,624
|Restricted cash           |      |  |      | 817   
|Marketable securities     |      |  |      | 380   
|Note payable to bank      |      |  |      | 3,215 
|Long-term debt            |      |  |      | 11,639

| | At
September 30, 2008 and 2007, trade receivables of the Company were from companies in
the semiconductor industry, and included approximately $60.6 million and $41.4 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 generally requires no collateral to secure trade receivables. The
Company may require advance payment or utilize irrevocable letters of credit to mitigate
credit risk when considered appropriate.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55

---

18.   Segments,
Geographic Location and Major Customers:

| | The
Company currently operates in one segment whose primary products perform wet processing.
The Companys current product offerings qualify for aggregation under SFAS No. 131,
Disclosure About Segments of an Enterprise and Related Information as its
products are manufactured and distributed in the same manner, have similar economic
characteristics and are sold to the same customer base.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Seagate
and Amkor accounted for 11.6% and 10.4%, respectively, of net sales in fiscal 2008.
Advanced Micro Devices accounted for 23.8% and 13.8% of net sales in fiscal 2007 and
2006, respectively. Micron/IM Flash accounted for 10.2% of net sales in fiscal 2007.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Net
sales information by geographic location based on shipment location for fiscal 2008, 2007
and 2006 is summarized as follows (in thousands):
| | -----------------------------------------------------------------------------------------------------------------------------------------------

|                                 | Year Ended September 30, | 
|-------------------------------- | ------------------------ | 
|
|Net sales, by customer location: |                          | 
|United States                    |                          | 
|Germany                          |                          | 
|Europe, excluding Germany        |                          | 
|Japan                            |                          | 
|Taiwan                           |                          | 
|Singapore                        |                          | 
|Korea                            |                          | 
|Asia other                       |                          | 
|                                 |                          | 
|                                 |                          | 
|                                 |                          | 

| | Property,
plant and equipment information by geographic location for fiscal 2008 and 2007 is
summarized as follows (in thousands):
| | ----------------------------------------------------------------------------------------------------------------------------------

|                                    | Year Ended September 30, | 
|----------------------------------- | ------------------------ | 
|
|Property, plant and equipment, net: |                          | 
|United States                       |                          | 
|United Kingdom                      |                          | 
|Austria                             |                          | 
|Other countries                     |                          | 
|                                    |                          | 
|                                    |                          | 
|                                    |                          | 

56

---

19.   Quarterly
Financial Data (Unaudited):

| | For
each quarter of fiscal 2008 and 2007 (in thousands, except for per share amounts):
| | --------------------------------------------------------------------------------------

|                                  | Year Ended September 30, 2008 | 
|--------------------------------- | ----------------------------- | 
|
|Net sales                         |                               | 
|Gross profit                      |                               | 
|Net income (loss)                 |                               | 
|Earnings (loss) per basic share   |                               | 
|Earnings (loss) per diluted share |                               | 

|                                  | Year Ended September 30, 2007 | 
|--------------------------------- | ----------------------------- | 
|
|Net sales                         |                               | 
|Gross profit (1)                  |                               | 
|Net income (loss)                 |                               | 
|Earnings (loss) per basic share   |                               | 
|Earnings (loss) per diluted share |                               | 

| | (1) 
In the fourth quarter of fiscal 2007, we wrote down inventory by approximately
          $3.0 million primarily due to product enhancements that changed the usage
          of certain component parts, making them obsolete.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

57

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors andShareholders
of Semitool, Inc.

We have audited the accompanying consolidated balance sheets of Semitool, Inc. (a Montana corporation)
and subsidiaries as of September 30, 2008 and 2007, and the related consolidated statements of income,
shareholders equity, cash flows, and comprehensive income for each of the three years in the period
ended September 30, 2008. Our audits of the basic financial statements included the financial statement
schedule listed in the index appearing under Item 15 (a)(2). These financial statements and financial
statement schedule are the responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Semitool, Inc. and subsidiaries as of September 30, 2008 and 2007, and the results
of their operations and their cash flows for each of the three years in the period ended September 30,
2008 in conformity with accounting principles generally accepted in the United States of America. Also
in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects, the information set
forth therein.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), Semitool Inc.s internal control over financial reporting as of
September 30, 2008, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) and our report dated December 12, 2008 expressed an unqualified opinion.

As discussed in Note 12 to the
consolidated financial statements, on October 1, 2007, the Company adopted Financial
Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes.

/s/ GRANT THORNTON LLP

Salt Lake City, UtahDecember
12, 2008

58

---

# REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and
Shareholders of Semitool, Inc.

We have audited Semitool, Inc. (a
Montana Corporation) and subsidiaries internal control over financial reporting as of
September 30, 2008, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Semitool, Inc. and subsidiariess management is responsible for
maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on Semitool, Inc. and subsidiaries internal
control over financial reporting based on our audit.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A companys internal control over
financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.

In our opinion, Semitool, Inc. and
subsidiaries maintained, in all material respects, effective internal control over
financial reporting as of September 30, 2008, based on criteria established in Internal
ControlIntegrated Framework issued by COSO.

We also have audited, in accordance
with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Semitool, Inc. and subsidiaries as of September 30, 2008
and 2007, and the related consolidated statements of income, shareholders equity
cash flows, and comprehensive income for each of the three years in the period ended
September 30, 2008 and our report dated December 12, 2008 expressed an unqualified
opinion.

/s/ GRANT THORNTON LLP

Salt Lake City, UtahDecember
12, 2008

59

---

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

None.

# Item 9A. Controls and
Procedures

|(a) | Evaluation
of Disclosure Controls and Procedures.As of the end of the                period
covered by this report, Semitool conducted an evaluation, under the
               supervision and with the participation of our principal executive officer
and                principal financial officer, of our disclosure controls and procedures
(as                defined in Rule 13a-15(e) under the Securities Exchange Act of
1934 (the                Exchange Act)). Based on this evaluation, our
principal executive                officer and principal financial officer concluded that
our disclosure controls                and procedures are effective to ensure that
information required to be disclosed                by us in reports that we file or
submit under the Exchange Act is recorded,                processed, summarized and
reported within the time periods specified in                Securities and Exchange
Commission rules and forms and such information is                accumulated and
communicated to management to allow timely decisions regarding                required
disclosure.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Managements
Report on Internal Control over Financial Reporting.The management of Semitool is
responsible for establishing and maintaining                adequate internal control
over financial reporting, as such term is defined in                Rule 13a-15(f)
under the Exchange Act. Semitools
internal control over financial reporting was designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
standards. Under the supervision and with the participation of management, including our
Chairman and Chief Executive Officer and Chief Financial Officer, we conducted an
assessment of the effectiveness of our internal control over financial reporting as of
September 30, 2008. In making this assessment, management used the criteria set forth by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control  Integrated Framework.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Based on
our assessment using the criteria set forth by COSO in Internal Control Integrated
Framework, management concluded that our internal control over financial reporting
was effective as of September 30, 2008.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Because of
its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The effectiveness
of the Companys internal control over financial reporting as of September 30,
2008 has been audited by Grant Thornton LLP, an independent registered public accounting
firm, as stated in its report, which appears herein.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Changes
in Internal Control over Financial Reporting.There have not been                any
changes in our internal control over financial reporting during our most
               recently completed fiscal quarter which have materially affected, or are
               reasonably likely to materially affect, our internal control over
financial                reporting.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 9B. Other Information

None.

60

---

# PART III

# Item 10. Directors,
Executive Officers and Corporate Governance

|(a) | The
information concerning our directors, our audit committee and our audit
               committee financial expert, is contained in our Proxy Statement to be
filed in                connection with our 2009 Annual Meeting of Shareholders and is
incorporated                herein by reference.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | For
information with respect to executive officers, see Part I, Item 1 of this
               Annual Report on Form 10-K, under Executive Officers of the
               Registrant.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | The
information concerning compliance with Section 16(a) of the Securities
               Exchange Act of 1934, as amended, required under this item is contained in
our                Proxy Statement to be filed in connection with our 2009 Annual Meeting
of                Shareholders under the caption Other Matters  Section 16(a)
               Beneficial Ownership Reporting Compliance and is incorporated herein
by                reference.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We have adopted a code of business
conduct for all of our employees and directors, including our principal executive officer,
other executive officers, principal financial officer and senior financial personnel. A
copy of our code of business conduct is available free of charge on our company website at
www.semitool.com. We intend to post on our website any material changes to, or
waivers from our code of business conduct, if any, within five business days of any such
event.

# Item 11. Executive
Compensation

The information concerning
compensation of executive officers and directors required under this item is contained in
our Proxy Statement to be filed in connection with our 2009 Annual Meeting of Shareholders
under the caption Executive Compensation and Other Information and is
incorporated herein by reference.

# Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters

The information concerning certain principal
holders of securities and security ownership of executive officers and directors required
under this item is contained in our Proxy Statement to be filed in connection with our
2009 Annual Meeting of Shareholders under the caption Security Ownership of Certain
Beneficial Owners and Management and is incorporated herein by reference.

# Equity Compensation Plans

The following table summarizes our
equity compensation plans as of September 30, 2008:

|                                      | Number of
securities to be
issued upon
exercise of
outstanding options |  | Weighted-average
exercise price
of outstanding
options |           | Number of securities
remaining available
for future issuance
under stock option
plans | 
|------------------------------------- | ---------------------------------------------------------------------- |  | ------------------------------------------------------ | --------- | ------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by |                                                                        |  |                                                        |           |                                                                                       | 
|shareholders                          |                                                                        |  |                                                        | 1,401,856 |                                                                                       | 

# Item 13. Certain
Relationships and Related Transactions, and Director Independence

The information concerning certain
relationships and related transactions required under this item is contained in our Proxy
Statement to be filed in connection with our 2009 Annual Meeting of Shareholders under the
caption Certain Transactions and is incorporated herein by reference.

# Item 14. Principal
Accounting Fees and Services

The information on principal
accounting fees and services required under this item is contained in our Proxy Statement
to be filed in connection with our 2009 Annual Meeting of Shareholders under the captions
Audit Fees and Non-Audit Fees and Policy on Audit Committee Pre-Approval
of Audit and Non-Audit Services of the Independent Registered Public Accounting Firm
and is incorporated herein by reference.

61

---

# PART IV

# Item 15.  Exhibits and
Financial Statement Schedules

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

|1. | Financial
Statements:
|-- | ---------------------

| | The financial
statements and reports of the independent registered public accounting firms listed below
are set forth under Item 8 of this Annual Report on Form 10-K and are incorporated herein
by reference:
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated Balance
Sheets     at September 30, 2008 and September
30, 2007
| | ----------------------------------------------------------------------------

| | Consolidated Statements
of Income     for the Years Ended September 30, 2008, September 30, 2007 and September 30,
2006
| | -----------------------------------------------------------------------------------------------------------------------

| | Consolidated Statements
of Changes in Shareholders' Equity     for the Years Ended September 30, 2008, September 30,
2007 and September 30, 2006
| | ------------------------------------------------------------------------------------------------------------------------------------------------

| | Consolidated Statements
of Cash Flows     for the Years Ended September 30, 2008,
September 30, 2007 and September 30, 2006
| | ---------------------------------------------------------------------------------------------------------------------------

| | Consolidated Statements
of Comprehensive Income     for the Years Ended September 30,
2008, September 30, 2007 and September 30, 2006
| | -------------------------------------------------------------------------------------------------------------------------------------

| | Notes to
Consolidated Financial Statements
| | ------------------------------------------

| | Reports of
Independent Registered Public Accounting Firm
| | --------------------------------------------------------

|2. | Financial
Statement Schedules:
|-- | ------------------------------

| | Schedule 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1      
3.8      
3.9      
3.2 (ii) 
10.1     
10.12    
10.2/10.3
         
10.4     
10.41    
10.42    
10.43    
10.44    
10.45    
         
10.46    
10.47    
         
10.48    

10.49    
10.5     
10.6     
10.7     
         
10.8     
10.9     
10.91    
10.92    
10.93    
10.94    
10.95 | Restated Articles of Incorporation of the Company   (1)
Amendment to the Restated Articles of Incorporation of the Company   (2)
Correction to the Amendment of the Restated Articles of Incorporation of the Company   (2)
Amended Bylaws of Semitool, Inc.  (3)
Semitool, Inc. 2004 Stock Option Plan   (3)  *
Agreement between the Company and the Semitool European Companies   (1)
Aircraft lease agreement, dated January 15, 2004, as amended by Amendment No 1, dated March 31,
  2004, between the Company and EAGLE I LLC   (3)
Aircraft lease agreement, dated March 31, 2004, between the Company and EAGLE II LLC   (3)
Employment Agreement between Larry A. Viano and the Company dated June 1, 2003   (4)  *
Employment Agreement between Timothy C. Dodkin and the Company dated June 30, 2003   (4)  *
Employment Agreement between Larry Murphy and the Company dated April 20, 2004   (5)  *
Aircraft lease agreement, dated August 22, 2004, between the Company and EAGLE III LLC   (6)
Credit Agreement, dated as of November 1, 2004, between the Company and Wells Fargo HSBC Trade
  Bank, N.A.  (6)
Loan Agreement, dated May 17, 2005, between Raiffeisenbank Hallein and Semitool Austria, GmbH   (7)
First Amendment to Credit Agreement between Wells Fargo HSBC Trade Bank, N.A. and the Company
  dated December 6, 2005   (8)
Executive Bonus Plan for Larry E. Murphy, President and Chief Operating Officer dated October 1, 2005  (9)
Loan Agreement, dated August 21, 2008, between Raiffeisenbank Hallein and Semitool Austria, GmbH
Supplemental Executive Health Plan dated February 15, 2006   (10)
Guaranty and Suretyship agreement dated August 15, 2006   (11)
Loan Agreement, dated August 15, 2006, between Sovereign Bank, Lehigh County Industrial Development
  Authority and Rhetech, Inc. (12)
Term Loan Agreement between First Interstate Bank and the Company dated December 29, 2006 (13)
Semitool 2007 Stock Incentive Plan (14)
Semitool 2007 Non-Qualified Stock Option Award Agreement (14)
Semitool 2007 Stock Option Award Agreement (14)
Semitool 2007 Restricted Stock Bonus Award Agreement (Non-Employee Directors) (14)
Semitool 2007 Restricted Stock Bonus Award Agreement  (14)
Amendment No. 3, dated June 5, 2007, to Aircraft Lease Agreement, dated January 15, 2004,
  between Eagle I, LLC and Semitool, Inc. (15)

62

---

|                                                                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|---------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.96
     
10.97
10.98
     
21.1 
23.1 
31.1 
31.2 
32.1 
     
32.2 | Second Amendment to Credit Agreement between Wells Fargo HSBC Trade Bank, N.A. and the
  Company dated September 1, 2007 (16)
Semitool 2007 Restricted Stock Unit Award Agreement (17)
Third Amendment to Credit Agreement between Wells Fargo HSBC Trade Bank, N.A. and the
  Company dated February 4, 2008 (18)
Subsidiaries of Registrant
Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
  Section 906 of the Sarbanes-Oxley Act of 2002

---

|(1) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report March 31, 2000.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report March 31, 2004.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report June 30, 2003.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Incorporated
herein by reference to Exhibit 10.1 to the Companys Quarterly                Report
on Form 10-Q, date of report June 30, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Annual Report on Form 10-K, date of report September 30, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report June 30, 2005.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report December 6, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Incorporated
herein by reference to Exhibit 10.1 to the Companys
Report on Form 8-K, date of report October 1, 2005.
|--- | ---------------------------------------------------------------------------------------------------------------------

|(10) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Report on Form 8-K, date of report February 15, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Report on Form 8-K, date of report August 15, 2006.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Annual Report on Form 10-K, date of report September 30, 2006.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Report on Form 8-K, date of report December 29, 2006.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report March 31, 2007.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Report on Form 8-K, date of report June 5, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Annual Report on Form 10-K, date of report September 30, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(17) | Incorporated
herein by reference to the identically numbered exhibit to the                Companys
Quarterly Report on Form 10-Q, date of report December 31, 2007.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(18) | Incorporated
herein by reference to Exhibit 10.97 to the Companys                Quarterly
Report on Form 10-Q, date of report March 31, 2008.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------

* Denotes a management contract or
compensatory plan or arrangement.

63

---

|(b) | Exhibits.
The Exhibits listed in Item 15(a)(3)(a) hereof are filed as                part of this
Annual Report on Form 10-K or are incorporated herein by reference.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Financial
Statement Schedules. See Item 15(a)(2) above.
|--- | -------------------------------------------------------

64

---

# 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 12, 2008 |  | SEMITOOL, INC.By: /s/ Raymon F. Thompson
Raymon F. ThompsonChairman of the Board and Chief Executive Officer(Principal Executive Officer)
|------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|Signature                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | Title                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |  | Date                                                                                                                                                             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|/s/Raymon F. Thompson

Raymon F. Thompson                 
                                   
                                   
/s/Larry A. Viano

Larry A. Viano                     
                                   
                                   
/s/Howard E. Bateman

Howard E. Bateman                  
/s/Donald P. Baumann

Donald P. Baumann                  
/s/Timothy C. Dodkin

Timothy C. Dodkin                  
/s/Daniel J. Eigeman

Daniel J. Eigeman                  
/s/Charles P. Grenier

Charles P. Grenier                 
/s/Steven C. Stahlberg

Steven C. Stahlberg                
/s/Steven R. Thompson

Steven R. Thompson |  | Chairman of the Board and                   
Chief Executive Officer
(Principal Executive Officer)
Vice President, Chief Financial Officer     
and Treasurer
(Principal Accounting and Financial Officer)
Director                                    
Director                                    
Director and Executive Vice President       
Director                                    
Director                                    
Director                                    
Director |  | December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008
December 12, 2008

65

---

SEMITOOL, INC.SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTSFor the years ended
September 30, 2008, 2007 and 2006(Amounts in Thousands)

|                                |  | Additions |   |       | 
|------------------------------- |  | --------- | - | ----- | 
|
|Year ended September 30, 2008:  |  |           |   |       | 
|Deducted from asset accounts:   |  |          
|Allowance for doubtful accounts |  |           | $ | 259   | 
|Inventory allowance             |  |           |   | 3,297 | 
|Year ended September 30, 2007:  |  |          
|Deducted from asset accounts:   |  |          
|Allowance for doubtful accounts |  |           |   | 269   | 
|Inventory allowance             |  |           |   | 2,850 | 
|Year ended September 30, 2006:  |  |          
|Deducted from asset accounts:   |  |          
|Allowance for doubtful accounts |  |           |   | 270   | 
|Inventory allowance             |  |           |   | 1,107 | 

66

---