<PAGE>
 
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                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 ------------

                                 FORM 10-K/A-1

                                 ------------

(Mark One)
              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                     For the fiscal year ended June 30, 1996
                                      OR
            [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
          For the transition period from               to            

                        Commission file number: 0-20470

                       INTEGRATED PROCESS EQUIPMENT CORP.
             (Exact name of registrant as specified in its charter)

<TABLE>
 <S>                                            <C>
               DELAWARE                               77-0296222
     (State or other jurisdiction                  (I.R.S. Employer
   of incorporation or organization)            Identification Number)

     911 BERN COURT, SAN JOSE, CA                        95112
 (Address of principal executive office)               (Zip Code)
</TABLE>

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

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

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

                    COMMON STOCK, $.01 PAR VALUE PER SHARE
                               (Title of Class)

     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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]

     The aggregate market value of the voting stock of the issuer held by non-
affiliates of the issuer on June 28, 1996 was approximately $291.5 million,
based upon the closing price of such stock on June 28, 1996.

     As of September 11, 1996, 14,238,645 shares of Common Stock and 521,650
shares of Class A Common Stock of the registrant were outstanding.  The Common
Stock and Class A Common Stock are essentially identical, except that the Class
A Common Stock has four votes per share and the Common Stock has one vote per
share.  See Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters."

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                                       1
<PAGE>
 
                                  PART I

ITEM 1.   BUSINESS

THE COMPANY

    Integrated Process Equipment Corp. ("IPEC" or the "Company") is the leading
supplier of chemical mechanical planarization ("CMP") systems used in the
manufacturing of semiconductors. The CMP process is deployed to uniformly
planarize the surface of a silicon wafer which enables semiconductor
manufacturers to improve yields when making advanced semiconductors designed
with multiple metal layers and line widths (or "geometries") at or below 0.5
micron. IPEC's CMP systems are used for volume manufacturing of advanced
microprocessors, such as Intel's Pentium, Digital Equipment's Alpha, and the
IBM/Motorola Power PC, as well as advanced memory products, such as Dynamic
Random Access Memory ("DRAMs") produced by Siemens, IBM and Micron.

    Strategic acquisitions have played an important role in the development of
IPEC's integrated CMP solution. In 1985, Westech Systems, Inc. ("Westech" or
"IPEC Planar Phoenix"), together with a major semiconductor manufacturer,
pioneered the use of CMP during wafer processing. IPEC acquired Westech in the
first half of fiscal 1994. In November 1994 the Company acquired Athens Corp
("Athens" or "IPEC Clean"), which provides systems that precisely mix and
dispense chemicals used in the semiconductor manufacturing process, proprietary
acid reprocessing systems, stand alone post-CMP cleaning systems, and deionized
("DI") water reclaim systems. In October 1995 IPEC acquired GAARD Automation
Inc. ("GAARD" or "IPEC Planar Portland"), which offers an advanced high
throughput CMP system. In December 1995 the Company acquired the Precision
Materials Operation of Hughes Danbury Optical Systems, Inc. ("HDOS" or "IPEC
Precision"), which designs, manufactures and sells metrology systems that will
be used for on-line CMP measurement in IPEC's CMP processing bays and for other
applications. IPEC Precision also designs, manufactures and sells equipment
based on proprietary plasma-assisted chemical etching used in producing
semiconductor wafers.

    The Company has reorganized its business into three divisions.  IPEC Planar,
the Company's CMP division, consists of the Company's IPEC Planar Phoenix
subsidiary and its IPEC Planar Portland subsidiary, IPEC Clean consists of the
subsidiary previously named Athens, and IPEC Precision consists of the Precision
Materials Operation acquired from HDOS.

    This report contains 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, which are subject to the "safe harbor" created
by that section. These forward-looking statements include, but are not limited
to, statements concerning the size of the CMP polisher market; product
introduction and development; consolidation of subsidiary operating functions;
industry acceptance of products; dependence on major customers; competition;
relocation of operations; strategy; future revenue; operating margins, expenses
and income; dividends; accounting standards; and access to equity or debt
financing. The Company's actual future results could differ materially from
those projected in the forward-looking statements. Some factors which could
cause future actual results to differ materially from the Company's recent
results or those projected in the forward-looking statements are described in
"Risk Factors."

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<PAGE>
 
INDUSTRY BACKGROUND

    The growth of the CMP market is driven by end-users demand for continually
more complex, higher performance integrated circuits ("ICs") at reduced cost per
function.  CMP enables semiconductor manufacturers to develop advanced
semiconductor designs with more layers of metal and finer geometries.  At the
same time, CMP reduces the cost to manufacture these more advanced ICs by
increasing yields.  CMP helps facilitate the migration from four and six inch
diameter semiconductor wafers to eight inch wafers, which significantly improves
yields.  CMP enables the development of smaller ICs on larger wafer sizes which
increases the value of each wafer to a semiconductor manufacturer.

    The average of estimates by Dataquest and VLSI Research indicate that the
CMP polisher market will be approximately $266 million in 1996.  These estimates
exclude related segments such as cleaners, slurry delivery and reprocessing
systems, DI water reprocessing systems and metrology.  According to Dataquest
and VLSI Research, the CMP polisher market is projected to generate
approximately $1 billion of revenue in 2001.

    Demand for semiconductors continues to experience rapid growth, driven
largely by the growth of existing computer and communications markets and the
emergence of new segments in these markets, such as multimedia, portable
computing and wireless communications. The increase in semiconductor demand has
been fueled by the industry's ability to supply more complex, higher performance
ICs, while continuing to reduce cost per function. The production of these more
complex and higher performance ICs requires more advanced and expensive wafer
fabrication equipment. Today's advanced wafer fabrication facility ("wafer fab")
costs in excess of $1 billion to construct, with more than two-thirds of this
cost allocated to equipment. According to VLSI Research, as of June 1996 there
were approximately 90 wafer fabrication facilities under construction or
expansion.

    In order to meet the demand for increasingly sophisticated devices,
semiconductor manufacturers have capitalized on advances in semiconductor
equipment technology to produce increasingly complex ICs at lower cost.
Semiconductor manufacturers use circuit designs with more layers of metal and
finer line width (or "geometry") to produce ICs, which can provide more
functionality, operate at higher speeds, occupy less space and consume less
power.  For example, in 1989, the Intel 386 microprocessor was produced with two
layers of metal and 0.8 micron line widths, and 4-megabit DRAMs were produced
using two metal layers and line widths of 1.0 micron.  Today's Pentium
microprocessor is produced with four metal layers at 0.5 micron line widths, and
64-megabit DRAMs will be produced at 0.35 micron geometries using three metal
layers.  In addition, over the past five years, manufacturers of ICs have
migrated from semiconductor wafers of four to six inches in diameter to eight
inch wafers to increase the number of integrated circuits per wafer.
Improvements in IC design and increased wafer sizes have increased the value of
each wafer to a semiconductor manufacturer, which has resulted in greater
emphasis on wafer processing equipment that reduces risk of damage to each
wafer.  The Company believes that mainstream semiconductor production for high
performance microprocessors and memory devices will require three or more layers
of metal, line widths at or below 0.35 micron, and wafer diameters of eight
inches or more.

    The production of advanced semiconductor wafers typically includes
alternating steps of deposition, etching and cleaning, where multiple layers of
highly complex circuit designs are built on the wafer substrate.  These steps
are repeated numerous times in order to layer different materials and imprint
various features on the wafer.  Deposition and etching processes create an
uneven topography on the wafer surface.  At line widths at or below 0.5 micron,
topographical variations can prevent precise resolution during photolithography,
which leads to wafer defects and reduced yields.  In addition, for complex
devices with multiple layers of metal, the etching 

                                       3
<PAGE>
 
process typically leaves metal residues that can produce short circuits when
other metal layers are deposited. A technique called planarization creates a
flat surface before the deposition of the next layer by removing excess
insulating (or dielectric) material and metal residues. As complex ICs are
produced with multiple layers of metal and at line widths at or below 0.5
micron, manufacturers now find that planarization is increasingly necessary
after each deposition or etching step to achieve adequate yields and revenue per
wafer.

    Traditional planarization techniques deposit additional dielectric material
to fill gaps and etch the dielectric layer to remove bumps, or apply a glass-
like material to fill gaps.  These two methods achieve a relatively smooth
surface for only a small area of the wafer.  However, these traditional
techniques have not proven effective for achieving adequate planarity across an
entire wafer to allow consistent imaging of devices with geometries at or below
0.5 micron.

    IPEC is the leading supplier of CMP systems, which produce uniformly flat
wafers in order to enable semiconductor manufacturers to improve yields when
making advanced semiconductors designed with multiple metal layers and
geometries at or below 0.5 micron. CMP polishes a wafer with a moving pad
containing an abrasive chemical slurry. IPEC's CMP equipment precisely regulates
not only the pad's position, motion and pressure, but also the chemical
composition of the slurry, and increases the precision with which
photolithography can imprint the next layer of circuit diagrams and reduces
defects due to metal residues projecting from one layer into the next. IPEC's
CMP systems are used for volume manufacturing of advanced microprocessors, such
as Intel's Pentium, Digital Equipment's Alpha, and the IBM/Motorola Power PC, as
well as advanced memory products, such as DRAMs produced by IBM, Micron and
Siemens.

PRODUCTS

    The Company believes that semiconductor manufacturers will increasingly seek
integrated CMP solutions to achieve operating efficiencies and lower the cost of
CMP.  IPEC expects to deliver in fiscal 1997 complete CMP processing bays, which
include systems for wafer polishing and cleaning; slurry and chemical
distribution; and DI water reclaim and slurry recycling, along with on-line
metrology.

    CMP Polishing Systems

    IPEC's CMP techniques derive from the Company's expertise in manufacturing
wafer polishing equipment.  CMP was originally used to polish optical lenses and
was later adapted by semiconductor manufacturers to polish raw silicon wafers
prior to wafer processing.  In 1985, IPEC Planar Phoenix, together with a major
semiconductor manufacturer, pioneered the use of CMP for a planarization step
during wafer processing.  The Company's core CMP technologies include precise
mechanical controls for wafer and pad positioning, movement and pressure; wet
chemistry and fluid dynamics related to slurry composition, particle size,
temperature and flow; pad reconditioning; electrical design in a wet chemistry
environment; and control software with a graphical user interface.

    The Company's current CMP systems are automated tools for uniformly
planarizing oxide and metal wafers from four to eight inches in diameter.  The
systems are designed to perform planarizing applications requiring process
flexibility with repeatable results.  IPEC's CMP products feature automatic
cassette loading and unloading, two-step planarizing and temperature, pressure
and surface speed control.  Planarization in the Company's CMP systems is
achieved by pressure and three relative wafer motions: the wafer chuck rotates
about its center, the arm supporting the wafer chuck oscillates and the
polishing plate (which has a polishing pad 

                                       4
<PAGE>
 
laminated to its surface) rotates. This combination of pressure and motion
ensures uniform material removal and flatness across the entire wafer surface
and from wafer to wafer.

    Wafer carrier and platen rotation speeds are programmable to allow control
of wafer rotation speed during the planarizing operation.  The rotation speeds
work in tandem with programmable arm oscillation and chemical slurry supply.
System operation is controlled from a centrally located programmable control
panel.  A number of process programs can be stored in memory to allow quick
selection of stored process parameters for different wafer sizes, materials or
processes.  While the system normally operates automatically, with the computer
program controlling all operating variables, the system also allows for manual
control.

    The Company currently manufactures three families of wafer planarization
systems, the Avanti 372M, the Avanti 472 and the AvantGaard 676.  The Company is
developing its next generation Avanti 672 system. The Company's CMP systems are
configured to match varying customer requirements and offer different throughput
levels and ease of use.  IPEC's CMP systems range in price from $475,000 to
$1,800,000 depending on configuration and options.  Through June 30, 1996, the
Company had sold 569 CMP systems.  In fiscal 1995 and 1996, sales of the
Company's CMP stand alone polishing systems accounted for approximately 69% and
67%, respectively, of the Company's total revenue.

    The Avanti 372M Automatic Wafer Planarization System, introduced in 1992, is
a fully automated, single side, single wafer planarization system for polishing
oxide and metal layers on silicon wafers from four to eight inches in diameter.
In addition to the planarization of oxide layers, the system polishes layers of
metal interconnects including tungsten, aluminum, and copper.

    The Avanti 472 Automatic Wafer Planarization System, introduced in March
1994, offers higher throughput and improved ergonomics over the 372M, as well as
an improved pad conditioner system.  These improvements, together with increased
reliability, resulted in a lower processing cost per wafer compared to the 372M.

    The Avanti 672 Automatic Wafer Planarization System, to be introduced in the
second half of calendar 1996 is designed to integrate wafer CMP and cleaning,
significantly increase wafer throughput, and occupy significantly less clean
room space than standalone CMP equipment and post-CMP cleaners.  The Avanti 672
planarizes wafers up to 12 inches in diameter.  See Risk Factors--Product
Concentration; Dependence on New Products and Technologies.

    The AvantGaard 676 Wafer Planarization System was acquired in October 1995
through the acquisition of GAARD at which time the tool was being sold to only
one customer.  IPEC introduced the AvantGaard 676 to the open market in April
1996.  The AvantGaard 676 is a four head, one wafer at a time, metal
planarization system that uses an orbital polishing motion.  This is a high
throughput system capable of processing up to 40 wafers per hour, and it offers
the industry's smallest footprint.

    Clustered CMP Polisher/Cleaner System

    The Company offers the Avanti 4100, 4720 and 4721 clustered CMP
polisher/cleaner system series designed so that a cassette of wafers can be
placed on the planarizer load station and picked up from the cleaner unload
station after processing is completed.  The system includes an in-line water-
driven track for wafer transport between the two units.  The planarization and
cleaning modules can be matched to minimize clean room space requirements.  The
integrated cluster can also be contained in a mini-environment.  In fiscal 1995
and 1996 

                                       5
<PAGE>
 
sales of the clustered CMP polisher/cleaner systems represented approximately 7%
and 1%, respectively, of the Company's revenue.

    Stand Alone CMP Cleaners

    The Company offers several cleaning products which serve a variety of
integrated circuit fabrication needs. The Avanti 3800 automatic, double sided
wafer cleaner is capable of processing wafers from 6 to 8 inches in diameter,
utilizing two brushes and two cleaning stations after which the wafer passes
into a spin rinse dryer, all within a closed dust free environment. The Avanti
6000 and 8000 systems utilize wet cleaning processes for photoresist removal and
related cleaning in the pre- and post-metal application stages of fabrication.
The Company also offers a post-CMP cleaner brush, the Avanti 9000, which is
designed to scrub wafers and then clean them using a proprietary megasonic
process to remove particles and ionic contaminants. In fiscal 1995 and 1996
sales of the Company's CMP cleaning products represented approximately 0% and
1%, respectively, of the Company's revenue.

    Exxflow CMP Water Recovery System

    The Company offers a post-CMP water recovery system which reduces the amount
of waste water generated by a semiconductor fabrication facility.  This system
recovers up to 95% of the water used in CMP and other applications and enables
manufacturers to reprocess the water for further use in the manufacturing cycle.
The Company acted as distributor for this equipment during fiscal 1996, but has
subsequently entered into an exclusive agreement to manufacture and sell these
systems starting in fiscal 1997.  Revenue from the sale of the Exxflow CMP Water
Recovery System represented approximately 0% and 2% in fiscal years 1995 and
1996, respectively, of the Company's revenue.

    Chemical Distribution Systems

    The Company's chemical distribution and dispensing systems consist of
separate modules which may be assembled and configured in a variety of ways into
a system designed to satisfy a customer's specific requirements in a cost-
effective manner.  A typical system may contain storage, pumping, mixing,
testing, distribution and dispensing modules.  The primary systems currently
available include a bulk chemical distribution system; an automated mixing
system, which mixes chemicals to create a homogeneous solution and accurately
dispenses the mixture at the point of use; and an acid pumping system.  In
fiscal 1995 and 1996, chemical distribution systems represented approximately 2%
and 4%, respectively, of the Company's revenue.

    Wet Chemical Reprocessors

    The Company designs, manufactures and sells a full line of systems designed
to re-use and purify wet chemicals used to etch and clean semiconductor wafers.
The Company's current product line consists primarily of sulfuric acid
reprocessors and precision distribution and dispensing systems which transport
reprocessed ultra-pure chemicals throughout the semiconductor manufacturing
process.  The Company added this product to its product line in the November
1994 acquisition of Athens.  In fiscal 1995 and 1996, sales of the Company's wet
chemical reprocessing systems represented 7% and 11%, respectively, of the
Company's revenue.

                                       6
<PAGE>
 
    SOI-200 Wafer Thinning System

    The Company's proprietary wafer thinning system, acquired in December 1995
through the acquisition of the Precision Materials Operation of  HDOS, is used
to etch thin-bonded silicon on insulator ("SOI") wafers to high levels of
precision and uniformity.  This system uses a noncontact, low energy etch
technique and incorporated thin film mapper to attain SOI dimensions which the
Company believes cannot be achieved economically with conventional etching
technologies.  In fiscal 1995 and 1996 sales of the SOI-200 Wafer Thinning
System represented approximately 0% and 2%, respectively, of the Company's
revenue. The system has been sold to date to only two customers.

CUSTOMERS

    The Company sells its products to leading semiconductor manufacturers
located throughout the United States, Asia and Europe. The Company shipped
products during fiscal 1996 to the following representative customers: AMD,
Cypress Semiconductor, Fujitsu, IBM, Intel, LSI Logic, Micron, Motorola, NEC,
Samsung, Siemens, Texas Instruments, and TSMC. Intel and IBM represented 17% and
45%, respectively, of the Company's fiscal 1994 revenue. Intel, IBM and Motorola
represented 18%, 20% and 14%, respectively, of the Company's fiscal 1995
revenue. Intel represented 29% of the Company's fiscal 1996 revenue. The loss of
a major customer or any reduction in orders by such a customer would have a
material adverse effect on the Company. The Company's future success depends in
part upon its ability to obtain orders from new customers and increase orders
from existing customers. See "Risk Factors--Dependence on Major Customers."

MARKETING, SALES AND SUPPORT

    IPEC Planar Phoenix, IPEC Planar Portland, IPEC Clean and IPEC Precision
market products in the United States through independent sales forces.  At July
31, 1996, IPEC Planar Phoenix employed 23, IPEC Planar Portland employed one,
IPEC Clean employed 19 and IPEC Precision employed eight direct sales and
support personnel.  Each subsidiarys direct sales force develops orders,
coordinates distribution, demonstrates equipment and provides applications
support.  The Company is in the process of consolidating the marketing, sales
and support functions of IPEC Planar Portland, IPEC Planar Phoenix and IPEC
Clean.

    The Company markets its products internationally through independent
distributors in Europe, Israel and Asia.  In Japan, Tokyo Electron Limited,
sells and distributes some of the Company's CMP products pursuant to a marketing
agreement.  Sumitomo Corporation holds the right to manufacture and market
certain acid reprocessing products in Japan.  The Company's primary distributor
in Europe is Teltec.  The Company also has several nonexclusive distributors in
Europe.  Sales outside the United States during fiscal 1995 and 1996 represented
approximately 24% and 34%, respectively, of the Company's revenue.  See "Risk
Factors--International Sales."

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<PAGE>
 
MANUFACTURING

    IPEC manufactures CMP polishing systems in Phoenix, Arizona; cleaning and
acid and deionized water and chemical distribution reprocessing products in
Oceanside, California.  Management intends to move bulk chemical distribution
and cleaning systems operations to its Phoenix location in fiscal 1997.  The
Company manufactures a majority of the more complex plastic and metal components
of its CMP products using both numerically controlled and manually operated
plastic and metal fabrication equipment.  IPEC purchases other components from
third parties, and assembles and tests products configured by customers for
particular orders.  The Company's manufacturing strategy emphasizes increased
outsourcing of components and subassemblies.  The standard warranty for the
Company's products is one year for parts and labor.

    The Company relies on a limited number of independent manufacturers to
provide certain components in assemblies made to the Company's specifications
and use in the Company's products. In the event that the Company's
subcontractors were to experience financial, operational, production or quality
assurance difficulties that resulted in the reduction or interruption of supply
to the Company, the Company's business, financial condition and results of
operations would be materially adversely affected. In addition, the Company
purchases certain key components from sole or single source vendors for which
alternative sources are not currently available. The inability to develop
alternative sources for these single or sole source components or to obtain
sufficient quantities of these components can result in delays or reductions in
product shipments, which could adversely affect the Company's business,
financial condition and result of operations. Any prolonged inability to obtain
adequate amounts of fully functional components or any other circumstances that
would require the Company to seek alternative sources of supply would have a
material adverse effect on the Company's business, financial condition and
results of operations and could damage the Company's relationship with its
customers.

    The Company's manufacturing operations produce limited amounts of hazardous
wastes and require environmental operating permits.  The Company is also subject
to governmental regulations related to the discharge or disposal of toxic or
otherwise hazardous chemicals used in the manufacturing process.  Failure to
obtain required permits or to comply with environmental regulations could result
in fines or cessation of operations.  Future environmental regulations could
require the Company to acquire equipment or to incur other expenses.  See "Risk
Factors--Product Liability and Environmental Regulations."

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<PAGE>
 
RESEARCH AND DEVELOPMENT

    The semiconductor capital equipment market generally, and in particular the
CMP market in which the Company competes, is characterized by rapid
technological development and product innovation. The Company's ongoing research
and development efforts are currently focused on product and process
development, automation, improved reliability, machine control software, safety,
man-machine interfaces, maintainability and metrology. Current product
development efforts include the Avanti 672 CMP system as well as slurry
reprocessing, plasma assisted chemical etch and thin film thickness measurement
systems. In order to respond to developing technologies in the semiconductor
manufacturing industry, the Company intends to maintain its internal development
efforts and to seek cooperative research and product development relationships
with other technology companies and government agencies. The Company has entered
into joint process technology development programs with Lam Research Corporation
and Tokyo Electron Limited to develop integrated process solutions for next-
generation production applications. As of July 31, 1996, the Company had
approximately 212 full-time employees dedicating their efforts to equipment
design engineering, process support and research and development. Research and
development expenditures for fiscal 1995 and 1996 were $7.3 million and $19.9
million, respectively.

INTELLECTUAL PROPERTY RIGHTS

    The Company holds a number of United States and foreign patents or patent
applications covering various aspects of its products.  The two initial patents
relating to the Company's planarization systems products expire in 1997.  In
1993, the technology covered by these patents currently forming the basis of the
CMP process and used in the Company's primary products was acquired from, and
licensed on a royalty-free basis to a competitor pursuant to a settlement
arrangement in which the Company also incurred settlement obligations
aggregating $1.4 million, of which $175,000 was outstanding at June 30, 1996.
The Company has a policy of seeking patents on inventions governing new products
and processes developed as part of its ongoing research, engineering and
manufacturing activities.  However, patents do not necessarily provide
protection against competitors since competitors may be able to design around or
successfully challenge Company patents.  While the Company believes its patents
are of value, the Company believes its success will depend more upon
engineering, marketing, service and manufacturing skills than on patents.  In
addition, other companies and inventors may receive patents that contain claims
applicable to the Company's products and processes.  The sale of the Company's
products covered by such patents could require licenses that may not be
available on acceptable terms.  From time to time the Company has been notified
that it may be in violation of certain patents and the Company has in at least
one instance agreed to pay the patent holder royalties to settle claims of
infringement.  Other patent infringement claims may be asserted, and licenses
may not be available on reasonable terms or at all.  The Company may  negotiate
licenses or purchase of the patents where it is considered appropriate.

    In the future the Company may receive notice of claims of infringement of
other parties proprietary rights, and there can be no assurance that a claim for
infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations.  If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.  If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or 

                                       9
<PAGE>
 
know-how owned by the Company, to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
proprietary rights of others. The Company also relies on trade secrets and
proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others.

    The Company also relies on trade secrets to protect its proprietary
technology.  There can be no assurance that information will be kept
confidential, that contractual secrecy obligations will be honored, or that
others will not independently develop similar or superior technology.  To the
extent that consultants, employees or third parties apply technological
information independently developed by them or by others, disputes may arise as
to the proprietary rights to such information, which disputes may be resolved
against the Company.

    The Company manufactures the AvantGaard 676 under a license from a volume
manufacturer of advanced microprocessors.  The Company has escrowed technical
data sufficient to permit such manufacturer to manufacture the Company's
AvantGaard 676, for release if the Company does not meet certain criteria
regarding product or spare part delivery schedules to the manufacturer.  If the
data is released from escrow, the manufacturer could manufacture the AvantGaard
676 or have the AvantGaard 676 manufactured by others for its use.  The escrow
terminates in October 1998.

    In July 1990 the Company and MTC Co. Ltd. ("MTC"), a Japanese manufacturer
and seller of semiconductor equipment, agreed to joint development and
commercialization of a single wafer wet processing system for wafer fabrication.
The Company obtained the right to resulting technology. The Company has the
right to manufacture the system developed with MTC in North America and Europe
in exchange for a 6% royalty on stand alone wet modules and on that portion of
integrated systems which incorporate wet modules.

    The Company has licensed Sumitomo Corporation to manufacture and sell in
Japan certain of the Company's acid reprocessor products.

COMPETITION

    The semiconductor equipment industry is an intensely competitive market. In
particular, the Company believes that domestic and international competition in
the markets for CMP equipment, clustered CMP/cleaner systems and chemical
reprocessing systems will increase in the future. The principal competitive
factors in the semiconductor equipment industry are the equipment's performance,
reliability, repeatability and cost of ownership, and the supplier's customer
service and support, size and financial resources and relationships with
suppliers and customers. To date, the Company has encountered limited
competition in the CMP system market. The Company expects capital equipment
manufacturers not currently involved in the development of CMP systems to
develop products for this market. Applied Materials Inc. has recently begun to
offer a CMP system that competes directly with the Company's CMP product
offerings. Applied Materials Inc. and other current and potential competitors
have substantially greater financial resources and name recognition and more
extensive engineering, manufacturing, marketing and customer service and support
capabilities than the Company. The Company is aware of a number of companies in
Asia attempting to market acid reprocessing systems similar to those sold by the
Company. The Company expects its current competitors to continue to improve the
design and performance of their existing products and processes, and to
introduce new products and processes with improved price and performance
characteristics. New product introductions or product announcements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products. The

                                       10
<PAGE>
 
Company believes that to remain competitive, it will require significant
financial resources to improve its products, maintain customer service and
support centers and invest in product and process research and development. No
assurances can be given that the Company will continue to compete successfully
at present or even reduced levels in the United States or worldwide.

    The Asian market for semiconductor equipment, particularly in Japan,
represents a substantial percentage of the worldwide market, is technologically
advanced and has been historically difficult for foreign enterprises to enter.
In recent years Japanese semiconductor manufacturers have begun to build
fabrication facilities and license their technology outside of Japan.  A
licensee outside Japan operating a wafer fabrication facility under license from
a Japanese corporation may have an incentive to acquire semiconductor
manufacturing equipment from the licensor or its affiliate.  Japanese
corporations are attempting to develop new processes and modify existing
techniques such as spin-on glass as alternatives to CMP.  These technologies, if
developed, may represent additional competition for the Company's products,
particularly in Asia.  The Company believes it must continue to invest
substantial resources to develop Asian markets.  The Company distributes its CMP
products through distributors in Asia and has limited experience in selling its
products directly in these countries.  See "Risk Factors--Asian Market."

BACKLOG

    The Company includes in its backlog only those customer orders for systems
for which it has accepted purchase orders and assigned shipment dates within the
following twelve months.  Industry practice allows the customer to cancel or
reschedule orders prior to shipment without penalties.  Accordingly, the
Company's backlog at a particular date may not necessarily be representative of
actual sales for any succeeding period due to orders received for product to be
shipped in the same quarter, possible changes in system delivery schedules,
cancellation of orders and potential delays in system shipments.  As of June 30,
1996 the Company's order backlog was approximately $49.6 million compared to
$53.7 million at June 30, 1995.

EMPLOYEES

    At July 31, 1996, the Company had approximately 1,042 employees, of whom 120
were in administrative positions, 212 were in engineering and research and
development, 53 in marketing and sales, 191 in field service and support, and
most of the remaining employees were involved in direct manufacturing and
manufacturing support activities.  The Company also utilizes contract employees
to supplement key work centers during peak loads.  No employee of the Company is
currently represented by a labor union.  Management considers its employee
relations to be good.  The Company believes that the future success of the
Company is dependent to a significant degree on its being able to continue to
attract and retain skilled personnel.


ITEM 2.   PROPERTIES

    The Company purchased a 110,000 square foot shell building in Phoenix,
Arizona for $7.1 million in the first quarter of fiscal 1996.  Improvements were
made to this building including the addition of a 40,000 square foot mezzanine
at a cost of approximately $11 million.  The building also has a state of the
art Class 10 / Class 100 clean room that it uses mainly for process development.
The production and administrative functions were moved to this location in the
third quarter of fiscal 1996. The Company also owns another building in Phoenix,
Arizona totaling approximately 25,000 square feet and leases an additional
14,000 square feet in Phoenix that it uses primarily for storage.  The Company
leases additional facilities in various parts of the country.  They consist 

                                       11
<PAGE>
 
of a 46,000 square foot facility in Tempe, Arizona that is used for subassembly
manufacturing, a 28,000 square foot facility, including a 1,000 square foot
Class 10,000 clean room in Tempe, Arizona that it uses for engineering and
research and development, a 27,500 square foot facility in Oceanside, California
that it uses primarily for manufacturing and research and development, a 22,000
square foot facility in Oceanside, California that it uses for manufacturing, a
7,000 square foot facility in Oceanside, California including a 600 square foot
clean room that it uses for research and development, a 37,500 square foot
facility in Bethel, Connecticut that it uses for manufacturing and research and
development and a 20,000 square foot facility in Portland, Oregon that it also
uses for manufacturing and research and development. The company also leases
facilities in Burlington Vermont, Austin, Texas and Garland, Texas. The Company
is attempting to raise additional cash amounting to approximately $8 million by
entering into a sale/leaseback transaction for its Phoenix facility. It is not
certain at this time whether this transaction will occur.


ITEM 3. LEGAL PROCEEDINGS

     Not applicable.


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

     Not applicable.

                                       12
<PAGE>
 
                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     The Company's Common Stock is traded on the Nasdaq National Market System
under the symbol IPEC.  The following table sets forth for the periods indicated
the high and low sale price for the Common Stock.

<TABLE>
<CAPTION>
                                                    HIGH            LOW
<S>                                                <C>            <C> 
FISCAL YEAR 1996
  4th Quarter..................................... $35            $17 3/4
  3rd Quarter.....................................  27 3/4         16 3/4
  2nd Quarter.....................................  40 1/4         23
  1st Quarter.....................................  56 1/2         31 1/2
 
FISCAL YEAR 1995
  4th Quarter..................................... $38 1/4        $20
  3rd Quarter.....................................  22 1/2         13 5/8
  2nd Quarter.....................................  18 7/8         13 1/4
  1st Quarter.....................................  15              8 1/8
 
FISCAL YEAR 1994
  4th Quarter..................................... $11 1/2        $ 7
  3rd Quarter.....................................  10 3/4          8 1/2
  2nd Quarter.....................................  13 1/2          8 3/4
  1st Quarter.....................................  12 1/4          7 1/2
</TABLE>

     As of September 11, 1996, there were 230 holders of record of Common Stock
and 3 holders of record of Class A Common Stock.

DIVIDEND POLICY

     The Company has not paid any cash dividends on its Common Stock since its
inception and does not anticipate paying cash dividends on its Common Stock in
the foreseeable future.  The terms of the Series B Preferred Stock prevent the
Company from paying dividends on the Common Stock unless the Company has paid
all dividends due to the holders of the Series B Preferred Stock.  In fiscal
1994 the Company paid cash dividends on its Series A Preferred Stock in the
amount of $41,000.  In fiscal 1995, the Company recorded dividends on its Series
B Preferred Stock in the amount of $377,000 and paid dividends on its Series B
Preferred Stock in the amount of $79,000.  In fiscal 1996, the Company recorded
dividends on its Series B Preferred Stock in the amount of $579,000 and paid
dividends on its Series B Preferred Stock in the amount of $439,000.  The
Preferred Stock was issued in conjunction with the Westech acquisition.

                                      13
<PAGE>
 
ITEM 6.   SELECTED FINANCIAL DATA

     The following selected historical financial data have been derived from the
Financial Statements of the Company, which have been audited by KPMG Peat
Marwick LLP and Richard A. Eisner & Company, LLP, whose reports appear elsewhere
herein.  The information presented below should be read in conjunction with the
Company's Consolidated Financial Statements, Notes to the Consolidated Financial
Statements and discussions of the historical financial data included elsewhere
in this Form 10-K.  See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                      YEAR ENDED JUNE 30,
                                                  ------------------------------------------------------------
                                                  1996/(1)/     1995/(2)/     1994/(3)/     1993        1992
                                                  ---------     ---------     ---------    -------     -------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                <C>           <C>           <C>         <C>         <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
  Revenue........................................  $184,500      $ 88,385      $31,158     $ 1,438     $   259
  Cost of goods sold.............................   109,719        50,776       22,738         943          --
                                                   --------      --------      -------     -------     -------
  Gross margin...................................  $ 74,781      $ 37,609      $ 8,420     $   495     $   259

  Operating expenses:
  Research and development.......................    19,871         7,330        2,453       1,446         527
  Purchased research and development.............    36,961         8,485        1,107          --          --
  Selling, general and administrative............    35,436        20,458        9,403       1,381         726
                                                   --------      --------      -------     -------     -------
  Total operating expenses.......................    92,268        36,273       12,963       2,827       1,253
                                                   --------      --------      -------     -------     -------
  Operating income (loss)........................   (17,487)        1,336       (4,543)     (2,332)       (994)
  Interest income and other income, net..........     2,200           398           10          57          10
  Interest expense...............................    (2,149)       (1,059)      (5,197)       (324)        (17)
                                                   --------      --------      -------     -------     -------
  Income (loss) before income taxes..............   (17,436)          675       (9,730)     (2,599)     (1,001)
  Income tax (expense) benefit...................     6,779           (76)         830          --          --
                                                   --------      --------      -------     -------     -------
  Net income (loss)..............................   (10,657)          599       (8,900)     (2,599)     (1,001)
  Cumulative dividend on Preferred Stock.........      (579)         (377)        (118)        (38)        (38)
                                                   --------      --------      -------     -------     -------
  Net income (loss) attributable to Common
    Stockholders.................................  $(11,236)     $    222      $(9,018)    $(2,637)    $(1,039)
                                                   --------      --------      -------     -------     -------
  Net income (loss) per share of Common Stock....    $(0.78)        $0.02       $(3.26)     $(2.12)     $(1.96)
                                                   --------      --------      -------     -------     -------
  Shares used in per share calculation...........    14,434/(4)/    9,865        2,763       1,243         530
</TABLE>

                                      14
<PAGE>
 
<TABLE>
<CAPTION>
                                                                              JUNE 30,
                                                  ------------------------------------------------------------
                                                   1996/(3)/    1995/(2)/     1994/(3)/      1993        1992
                                                  ----------    ---------     ---------    -------     -------
                                                                          (IN THOUSANDS)
<S>                                                <C>           <C>           <C>         <C>         <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash and cash equivalents......................  $ 11,681      $ 66,007      $   979     $ 1,108     $   587
  Working capital................................    53,700        98,144       15,707       1,406        (816)
  Total assets...................................   191,684       157,977       41,466       1,981       1,678
  Current portion of long-term debt..............     2,124         4,772          979          --          --
  Long-term debt, less current portion...........    22,841         1,748        9,249          --          --
  Total stockholders' equity.....................   128,337       130,120       19,575       1,616        (608)
</TABLE>

(1)  Includes results of operations of GAARD and HDOS after their acquisition by
     the Company in October 1995 and December 1995, respectively.
(2)  Includes results of operations of Athens after its acquisition by the
     Company in November 1994.
(3)  Includes results of operations of Westech after its acquisition by the
     Company in September 1993.
(4)  Excludes 819,687 shares of Common Stock issuable upon the conversion of
     outstanding Series B Preferred Stock, 613,740 shares of Common Stock
     issuable upon the exercise of warrants and 3,087,699 shares of Common Stock
     issuable upon the exercise of options.

                                      15
<PAGE>
 
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

OVERVIEW

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

     In September 1993, IPEC completed its acquisition of Westech and in 
November 1994, the Company acquired approximately 94% of the outstanding common 
stock of Athens. The Company acquired the remaining outstanding common stock of
Athens in the first quarter of fiscal 1996. The Company consummated two
significant acquisitions during its second quarter of fiscal 1996. On October
30, 1995, the Company acquired all of the stock of GAARD for approximately $31.5
million. On December 29, 1995, the Company's newly formed subsidiary, IPEC
Precision, Inc., acquired the Precision Materials Operation of HDOS for
approximately $22.6 million. All of the aforementioned acquisitions have been
accounted for as purchases.

     In connection with the acquisitions in the second quarter of fiscal 1996,
the Company reorganized its business into three divisions.  IPEC Planar, the
Company's CMP division, consists of the Company's IPEC Planar Phoenix operation,
formerly named Westech and the IPEC Planar Portland operation, formerly named
GAARD.  IPEC Clean consists of the former Athens operation and produces on site
wet ultra high purity chemical reprocessing systems, chemical distribution
systems and cleaning systems that can be marketed as stand alone products or
clustered with Planar's CMP systems.  Management intends to move bulk chemical
distribution and cleaning systems operations to its Phoenix location in fiscal
1997.  IPEC Precision consists of the Precision Materials Operation acquired
from HDOS and is engaged in manufacturing of advanced plasma assisted chemical
etching equipment and metrology equipment for use primarily in manufacturing of
silicon wafers and semiconductor devices.

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

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

     IPEC incurred a net loss of $10.7 million in fiscal 1996 compared to net
income of $0.6 million in fiscal 1995 and a net loss amounting to $8.9 million
in fiscal 1994.  Purchased research and development charges related to
acquisitions have amounted to approximately $37.0 million, $8.5 million and $1.1
million in fiscal 1996, 1995 and 1994, respectively.  Additionally, the Company
incurred a charge amounting to approximately $4.3 million in fiscal 1994 for
debt discount and deferred financing fees attributable to warrants issued in
connection with a $5 million bridge loan which was repaid from the proceeds of a
public offering.  Due to a number of factors discussed below which affect
operating performance, results in any one period are not necessarily indicative
of future results.

                                      16
<PAGE>
 
RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, selected items
of the Company's consolidated statements of operations expressed as a percentage
of total revenue:

<TABLE>
<CAPTION>
                                                YEAR ENDED JUNE 30,
                                                1996    1995    1994
     <S>                                        <C>     <C>     <C>
     Revenue..................................  100%    100%    100%
     Cost of goods sold.......................   59      57      73
     Gross margin.............................   41      43      27
     Operating expenses:
       Research and development...............   11       8       8
       Purchased research and development.....   20      10       4
       Selling, general and administrative....   19      23      30
       Total operating expenses...............   50      41      42
     Operating income (loss)..................   (9)      2     (15)
     Interest income and other income, net....    1      .5       0
     Interest expense.........................   (1)     (1)    (17)
     Income (loss) before income taxes........   (9)     .8     (31)
     Income tax (expense) benefit.............    4     (.1)      3
     Net income (loss)........................   (6)     .7     (29)
</TABLE>

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

     Revenue for the year ended June 30, 1996 was $184.5 million compared to
$88.4 million for the year ended June 30, 1995.  This increase is attributable
to sales of $40.1 million of CMP equipment and the addition, from November 1,
1995, of revenue derived from sales by IPEC Planar Portland of $28.4 million.
In addition, the Company recorded increased levels of revenue from IPEC Clean
during its first full year of IPEC ownership of $23.9 million.  Revenue from
foreign sales represented approximately 34% and 24% of total revenue in fiscal
1996 and 1995, respectively.  Due to the industry wide slowdown, the Company
believes that its revenue for the first quarter of fiscal 1997 will be
approximately 25% below the fourth quarter fiscal 1996 revenue of $48 million.

     Cost of goods sold as a percentage of revenue amounted to 59% and 57% in
fiscal 1996 and 1995, respectively.  The cost of goods sold was higher as a
percentage of revenue in fiscal 1996 due in part to the increased level of
international sales, where the Company typically sells indirectly through
distributors.  This was partially offset by improvements in manufacturing
processes.  Also, during fiscal 1996, volume purchase agreement sales from IPEC
Planar Portland and IPEC Precision's initial sales to customers lowered margins
by approximately 1%.  Since IPEC Precision is commencing operations and its
customer base is new, it is expected that its gross margin percentage will
continue to be lower than margins attained for the Company's CMP tools.  In
addition, IPEC Clean's increased installation and warranty costs and under
utilized capacity resulted in lower than anticipated gross margins.  Although
the Company has margin improvement plans in place, margins are affected by a
number of factors, such as product mix, material cost and the level of
international sales.  During the Company's planned transition to direct field
service, distributor discounts are expected to negatively impact gross margins.
Due to these factors, there is no assurance that margins will improve in the
near future.

                                      17
<PAGE>
 
     Research and development expense increased from $7.3 million in fiscal 1995
to $19.9 million in fiscal 1996.  Research and development expense as a
percentage of total revenue increased from 8% in fiscal 1995 to 11% in fiscal
1996.  Approximately $9.3 million of the increased research and development
costs resulted primarily from costs incurred to develop the Company's Avanti 672
and Avant GAARD 676 CMP tools.  Additional costs amounting to $1.6 million were
also incurred at IPEC Precision, which resulted from the development of plasma
assisted chemical etching and metrology technologies.  The Company incurred one-
time purchased research and development charges amounting to $37 million in
fiscal 1996 related to acquisitions of IPEC Planar Portland and IPEC Precision
and $8.5 million in fiscal 1995 related to the acquisition of IPEC Clean.
Quarterly research and development expense in fiscal 1997 is expected to remain
consistent with fourth quarter 1996 levels of approximately $6.0 million on an
absolute dollar basis, inclusive of estimated cost to complete purchased
research and development projects.

     Selling, general and administrative expenses increased to $35.4 million, or
19% of revenue, in fiscal 1996 from $20.5 million, or 23% of revenue, in fiscal
1995.  The absolute dollar increase is primarily due to the growth of the
Company which has resulted in the addition of personnel, additional sales
commissions and additional depreciation and amortization resulting from recent
acquisitions and the Company's new Planar Phoenix facility.  The percentage
decrease is primarily due to greater levels of revenue.  Quarterly selling,
general and administrative expense in fiscal 1997 is expected to remain
consistent with fourth quarter 1996 levels of approximately $9.3 million on an
absolute dollar basis.

     The operating loss for fiscal 1996 totaled $17.5 million compared to
operating income of $1.3 million in fiscal 1995.  The loss in fiscal 1996 was
principally attributable to $37.0 million of purchased research and development
charges related to the acquisitions of IPEC Planar Portland and IPEC Precision
and increased research and development expenditures.  Charges related to the
IPEC Clean acquisition in fiscal 1995 totaled $8.5 million.  Excluding
acquisition charges, operating income would have been $19.5 million and $9.8
million in fiscal 1996 and 1995, respectively.

     Interest expense increased from $1.1 million in fiscal 1995 to $2.1 million
in fiscal 1996 as a result of higher borrowing levels.  Debt financing occurred
during fiscal 1996 to acquire IPEC Precision and for the construction of a new
manufacturing facility in Phoenix.  A substantial portion of the Company's
financing was consolidated with a $10 million term loan and a $30 million
revolving loan facility agreement with a bank in the fourth quarter of fiscal
1996.  Interest income increased from $0.4 million in fiscal 1995 to $1.8
million in fiscal 1996 as a result of higher levels of invested cash,
particularly in the first and second quarters of fiscal 1996.  Higher cash
balances in fiscal 1996 resulted from the exercise of the Company's Class B
warrants in late fiscal 1995 resulting in net proceeds of $63.2 million.

     As a result of the above factors, the Company's loss before income taxes
amounted to $17.4 million in fiscal 1996 compared to net income of $0.7 million
in fiscal 1995.  Due to the Company's ability to utilize net operating loss
carryforwards in fiscal 1995, the effective tax expense rate was 11%.  Since
these net operating loss carryforwards were fully utilized in fiscal 1995, the
Company's effective tax benefit rate was 39% in fiscal 1996.

     The holders of the Series B Preferred Stock are entitled to an annual
cumulative dividend of $5.59 per share accruing from September 3, 1993, payable
on each December 31 and June 30, beginning on June 30, 1994, June 30, 1995 and
June 30, 1996 for the Series B-1, B-2 and B-3 Preferred Stock, respectively.
The Company recorded dividends payable amounting to $579,000 and $377,000 in
fiscal 1996 and 1995, respectively.

                                      18
<PAGE>
 
     Net loss per share was $0.78 in fiscal 1996 compared to net income per
share of $0.02 in fiscal 1995. The weighted average number of common shares
outstanding has increased to 14.4 million shares in fiscal 1996 compared to 9.9
million shares in fiscal 1995. This increase results primarily from warrant
calls during fiscal 1995 and shares issued in connection with the Athens
acquisition. Since the Class B warrant call occurred in the fourth quarter of
fiscal 1995, the weighted average number of shares of common stock outstanding
was not fully affected until fiscal 1996.

FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

     Revenue for the year ended June 30, 1995 was $88.4 million compared to
$31.2 million for the year ended June 30, 1994. Increased sales of CMP systems
contributed $38.0 million to this increase. Fiscal 1995 revenues included $13.2
million revenues generated by Athens since its acquisition by the Company in the
second quarter of fiscal 1995. Fiscal 1995 revenues also included $6 million in
Westech revenues. Westech was acquired by the Company in the first quarter of
fiscal 1994. Revenue from foreign sales represented 24% of total fiscal 1995
sales.

     The Company has restated cost of goods sold for fiscal 1994 and 1995 in
accordance with industry accounting practices, which moved some engineering
expenses from cost of goods sold to research and development and selling,
general and administrative expenses.  After this restatement, cost of goods sold
as a percentage of sales was 57% in fiscal 1995 compared to 73.0% in fiscal
1994.  The percentage decrease of 16% represents improvement in operating
efficiencies in both sub-assembly manufacturing and final product assembly, a
reduction in labor hours, improved material procurement practices and increased
product reliability.  The 183% increase in revenue over fiscal 1994 also had a
significant impact on operating efficiencies.  The acquisition of Westech
occurred in fiscal 1994 and resulted in operating inefficiencies inherent in the
transitional phases of merging IPEC and Westech.  Additionally, during fiscal
1994 there was a $1.3 million inventory write-off.

     Research and development increased 192% in fiscal 1995, from $2.5 million
in fiscal 1994 to $7.3 million in fiscal 1995, primarily due to the development
of new products and processes, both by Westech and Athens, amounting to $2.9
million and $1.9 million, respectively. Research and development represented 8%
of sales in fiscal 1995. In addition, the Company purchased $8.5 million of
research and development in the Athens acquisition, which represents 10% of
sales in fiscal 1995.

     Selling, general and administrative expenses increased to $20.5 million in
fiscal 1995, compared to $9.4 million in fiscal 1994.  This increase is
predominantly due to the growth of the Company resulting in the addition of
senior level personnel, the legal, accounting and consulting expenses of
financing activities, and sales commissions.

     Operating income in fiscal 1995 totaled $1.3 million compared to a loss of
$4.5 million in fiscal 1994. During fiscal 1994, the Company experienced
substantially higher labor, material and engineering and manufacturing support
costs as part of its start-up and initial production of the Avanti 472 product
line.  While these costs were also high in fiscal 1995, such costs had decreased
as a percentage of revenue in fiscal 1995 from 81% to 65%.  However, the $8.5
million of research and development purchased in the Athens acquisition reduced
the Company's operating income in fiscal 1995.

     Debt discount and deferred financing fees of $4.3 million are included in
interest expense in fiscal 1994.  These fees were attributable to a $5 million
bridge loan and a $2 million credit line, which were repaid in fiscal 1994.

                                      19
<PAGE>
 
     Income before taxes was $675,000 in fiscal 1995, compared to a loss before
taxes of $9.7 million in fiscal 1994.  After recognizing tax benefits
attributable to the reversal of the valuation allowance for deferred tax assets,
recognizing tax benefits attributable to the exercise of stock options,
utilization of federal and state research and development credits and the non-
deductible expenses related to intangible assets acquired in the Athens
acquisition, the Company recognized a tax provision for fiscal 1995 of $76,000
compared to a tax benefit of $830,000 in fiscal 1994.  The net income in fiscal
1995 was $599,000 compared to a net loss of $8.9 million in fiscal 1994 as a
result of the factors discussed herein.

     Due to the Company's ability to utilize net operating losses, its effective
tax rates have been 11% and (9)% in fiscal 1995 and 1994, respectively.

     The holders of the Series B Preferred Stock are entitled to an annual
cumulative dividend of $5.59 per share accruing from September 3, 1993, payable
on each December 31 and June 30, beginning on June 30, 1994, June 30, 1995 and
June 30, 1996 for the Series B-1, B-2 and B-3 Preferred, respectively.  The
Company recorded dividends payable of $377,000 in fiscal 1995 to the Series B
Preferred stockholders.

     Net income per share was $0.02 in fiscal 1995 compared to a net loss of
$3.26 per share in fiscal 1994.  The weighted average number of shares of common
stock outstanding has increased to 9.9 million at June 30, 1995 compared to 2.8
million at June 30, 1994.  This increase is the result of several factors
including new option grants, earn outs based on revenue growth and the Class A
and Class B Warrant calls.  Because the majority of these factors occurred in
the fourth quarter of fiscal 1995, the weighted average number of shares of
common stock outstanding in fiscal 1995 does not reflect the full impact of
these factors.

LIQUIDITY AND CAPITAL RESOURCES

     In fiscal 1996, cash and cash equivalents decreased by $54.3 million,  The
Company generated $12.9 million of cash from operating activities in fiscal
1996. The Company used $62.0 million of cash for investing activities in fiscal
1996.  Investments for the acquisition of IPEC Planar Portland and IPEC
Precision used $12.0 million and $11.5 million of cash, respectively.  Purchases
of property and equipment amounted to $38.3 million.  A significant amount of
the Company's capital expenditures resulted from the construction of a new
manufacturing facility in Phoenix, Arizona.

     The Company entered into a loan agreement with a bank in April 1996.  Under
the terms of the agreement, the Company received a $10 million term loan and a
$30 million revolving loan facility to provide working capital and for general
corporate purposes.  Proceeds from the loan agreement were utilized to pay $16
million of debt incurred in connection with the acquisition of IPEC Precision.
Issuance of common stock during fiscal 1996 also provided $5.4 million of cash
in conjunction with the exercise of warrants and options.

     The Company's principal sources of liquidity include cash and cash
equivalents amounting to $11.7 million at June 30, 1996.  At June 30, 1996, $9.8
million was outstanding under the revolving loan facility.  It is estimated that
an additional $12.3 million was available under the revolving loan facility for
borrowings at June 30, 1996 based on eligible accounts receivable which can be
used to collateralize such borrowings.  The terms of the loan agreement include
various covenants as defined by the loan agreement, which require the Company to
maintain certain financial ratios, limit the amount of dividends that can be
paid to common stockholders and limit acquisitions of treasury stock.  The
Company was in compliance with these covenants as of June 30, 1996.  In
addition, the Company is attempting to raise additional cash amounting to
approximately $8 

                                      20
<PAGE>
 
million by entering into a sale/leaseback transaction for its Phoenix facility.
It is not certain at this time whether this transaction will occur.

     The Company believes that its cash and cash equivalents will need to be
supplemented by additional equity or debt financing to fund anticipated or
additional expansion and to finance the Company's operations and capital
investment needs through fiscal 1997.  The timing or amount of such capital
requirements cannot be precisely determined and will depend on a number of
factors, including demand for the Company's products, product mix, changes in
semiconductor industry conditions and competitive factors.  There can be no
assurance that such additional financing will be available when needed or if
available, will be on satisfactory terms.  The Company's ability to finance its
operations at the current level and to fund working capital requirements will be
adversely impacted if it is unable to complete an equity or debt financing
during the first half of fiscal 1997.  Furthermore, the failure to obtain
additional financing when needed on satisfactory terms would hinder the
Company's ability to make continued capital investments, which could materially
adversely affect the Company's results of operations.  See "Risk Factors--Future
Capital Needs."

RECENTLY ISSUED ACCOUNTING STANDARDS

     In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company will adopt SFAS No. 121 in the first quarter of the fiscal year ended
June 30, 1997 and, based on current circumstances, does not believe the effect
of adoption will be material to the consolidated financial statements.

     In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation."  SFAS No. 123 is effective for
transactions entered into in fiscal years beginning after December 15, 1995.
The Company will not be adopting the recognition and measurement criteria of
SFAS No. 123 and thus, the impact of SFAS No. 123 on the Company's consolidated
financial statements will not be material.

RISK FACTORS

     Investors in the Company should be aware of the following risks and
uncertainties that could materially and adversely affect the Company and the
market for the Company's securities.

     History of Losses.  Prior to the Company's acquisition of Westech in fiscal
1994, the Company did not have significant revenue.  The Company had a net loss
in fiscal 1994 and fiscal 1996 and at June 30, 1996 had an accumulated deficit
of $23.5 million.  For the year ended June 30, 1996, the Company had a net loss
of $10.7 million on revenue of $184.5 million.  During fiscal 1996 the Company
produced net income only in the first, third and fourth fiscal quarters.
Operating results for future periods are subject to numerous uncertainties, and
there can be no assurance that the Company will be profitable in fiscal 1997 or
sustain profitability on a quarterly basis.  See "MD&A--Results of Operations."

     Fluctuations in Operating Results.  The Company's operating results are
subject to quarterly fluctuations due to a variety of factors, including
industry-wide changes in the demand for semiconductors or for 

                                      21
<PAGE>
 
semiconductor production equipment; delayed or postponed orders; acceptance of
the Company's products; the gain or loss of significant customers; competitive
pressures; availability and costs of components from the Company's suppliers;
the timing of product announcements and introductions by the Company, its
customers or its competitors; the timing and structure of acquisitions; changes
in the mix of products sold; the level of international sales, which have lower
margins than domestic sales; delayed or canceled construction of wafer
fabrication facilities by customers; research and development expenses
associated with new product introductions; market acceptance of new or enhanced
versions of the Company's and its customers' products; and the timing of
significant shipments. For example, the Company's results of operations for the
fiscal quarter ended March 31, 1994 were adversely impacted as a result of a
delay in product shipments caused by the engineering redesign of its 372M CMP
product. In the second quarter of fiscal 1995, the Company had a loss due to the
write-offs associated with the Athens acquisition. In the second quarter of
fiscal 1996, the Company had a loss due to nonrecurring charges associated with
the GAARD and HDOS acquisitions. Due to the industry-wide slowdown, the Company
believes that its revenue for the first quarter of fiscal 1997 will be
approximately 25% below the fourth quarter of fiscal 1996. The Company cannot
assure that it will be able to anticipate or respond timely to changes in any of
the factors listed above, which could adversely affect operating results in one
or more fiscal quarters.

     The Company derives most of its revenue from the sale of products in a
price range from $100,000 to $1,300,000 per unit, and a clustered system of its
products can be priced as high as $2,500,000. As a result, the timing of
individual shipments can have a significant impact on the Company's results of
operations for a particular period. The Company has previously experienced order
and delivery delays and cancellations which caused the Company to miss its
quarterly revenue and profit projections and there can be no assurance that the
Company can avoid such order and delivery delays in the future. IPEC Clean does
not have significant backlog, and bookings in any quarter may vary. Significant
shipments by IPEC Precision are not expected before the third quarter of fiscal
1997. A significant portion of the Company's operating expenses are relatively
fixed in nature and planned expenditures are based in part on anticipated
orders. Ongoing expenditures for product development and engineering make it
difficult to reduce expenses in a particular quarter if the Company's sales
goals for the quarter are not met. Any inability to adjust spending quickly
enough to compensate for any revenue shortfall would magnify the adverse impact
of the revenue shortfall on the Company's results of operations. Results of
operations in any period should not be considered indicative of the results to
be expected for future periods. There can be no assurance that the Company will
be profitable in any future period. Fluctuations in operating results may also
result in fluctuations in the price of the Company's Common Stock. See "MD&A--
Results of Operations."

     Recent Acquisitions. The growth in the Company's revenue is attributable to
the acquisition of IPEC Planar Phoenix during fiscal 1994 and its subsequent
growth in fiscal 1995 and the acquisition of IPEC Clean during fiscal 1995 as
well as growth in IPEC Planar Phoenix's business during fiscal 1995 and 1996.
The Company acquired both IPEC Planar Portland and IPEC Precision in the second
fiscal quarter of 1996. IPEC Planar Phoenix's earnings fluctuated substantially
prior to its acquisition by the Company, and IPEC Clean was not profitable for
any fiscal year prior to its acquisition by the Company. IPEC Clean was
unprofitable for the portion of fiscal year 1995 that is included in the
Company's results of operations and for fiscal 1996. IPEC Precision has not
operated profitably prior or subsequent to its acquisition by the Company and
there can be no assurance that IPEC Precision or IPEC Clean will operate
profitably in the future.

                                      22
<PAGE>
 
     Each of these acquisitions represented the addition of new products to the
Company, which has caused changes in the allocation of management resources,
marketing strategies and production systems.  The Company's expansion through
acquisitions has resulted in significantly higher operating expenses,
particularly because the Company's strategy has been to initially operate each
acquired business independently, resulting in separate marketing, customer
support and administrative functions.  The Company is currently in the process
of consolidating these functions at IPEC Clean, IPEC Planar Phoenix and IPEC
Planar Portland.  The Company's ability to manage its acquired businesses
effectively will depend on its ability to hire additional management and
technical personnel and to continue to improve the operating, financial and
management systems and controls in each of its operating units.  There can be no
assurance that the Company will be able to continue to improve the revenue or
operating results of these acquired businesses or other companies which the
Company may acquire in the future.

     The IPEC Planar Portland and IPEC Precision acquisitions in the second
quarter of fiscal 1996 increased expenses, including interest expense in the
second half of fiscal 1996, and are expected to increase research and
development and selling general and administrative expenses by significant
amounts in fiscal 1997.

     Future Capital Needs.  In order to remain competitive, the Company must
continue to make ongoing significant investments in capital equipment, as well
as research and development.  The Company believes that its cash and cash
equivalents must be supplemented by cash generated by additional equity or debt
financing during the first half of fiscal 1997 to finance the Company's
operations and capital investment needs through fiscal 1997.  The timing or
amount of such capital requirements cannot be precisely determined and will
depend on a number of factors, including demand for the Company's products,
product mix, changes in semiconductor industry conditions and competitive
factors.  There can be no assurance that such additional financing will be
available when needed or if available, will be on satisfactory terms.  If the
Company raises capital through the issuance of debt, the Company's overall
leverage will increase substantially.  This increased leverage could adversely
affect the Company's future operations.  A significant portion of the Company's
cash flow from operations could be required for the payment of interest on, and
principal of, its indebtedness, and the Company's ability to obtain additional
financing for working capital, acquisitions or other purposes may be impaired.
An increase in leverage could increase the Company's vulnerability to industry
downturns and competitive pressures and make it more difficult for the Company
to take advantage of business opportunities that may arise in the future.  The
issuance of convertible debt or of equity would dilute the ownership interests
of current stockholders.  Debt would, and equity could, represent a senior claim
on the Company's assets relative to the Common Stock, may also bear other
economic benefits (such as dividend rights and anti-dilution protection) which
the Common Stock does not have, and may have voting rights which the Common
Stock does not have and which could restrict the Company's flexibility in
effecting certain transactions.  The Company's ability to finance its current
level of operations, including working capital requirements, will be adversely
impacted if it is unable to obtain new equity or debt financing.  Furthermore,
the failure to obtain additional financing when needed on satisfactory terms
would hinder the Company's ability to make continued capital investments, which
could materially adversely affect the Company's results of operations.

     Industry Acceptance of Products.  The CMP process is in an early stage of
implementation and has not yet been broadly adopted by semiconductor
manufacturers for volume production. Most major semiconductor manufacturers are
beginning to introduce the CMP process only for pilot line production of
integrated circuits with three or more metal layers and line widths at or less
than 0.5 micron.  Only a limited number of semiconductor manufacturers are
producing commercial quantities of integrated circuits with these
characteristics using CMP machines.  To date, the Company's products have been
used primarily in the manufacture of advanced semiconductor logic and memory
devices.  There can be no assurance that the CMP process will be 

                                      23
<PAGE>
 
broadly adopted or that alternative processes will not be used to achieve
planarity in the manufacture of advanced semiconductor devices. If the CMP
process is not accepted in the market, or if alternatives to the CMP process
emerge, or if other planarization technologies improve to serve the industry's
planarity requirements, then the Company's business, financial condition and
results of operations would be materially adversely affected.

     IPEC Clean's revenue prior to its acquisition primarily consisted of
chemical reprocessing systems and related products which were sold to a small
number of leading semiconductor manufacturers.  IPEC Clean's future results
depend largely upon broader acceptance of its chemical reprocessing systems,
upon acceptance of the Company as a provider of chemical distribution systems,
and upon successful integration of IPEC Clean's cleaners with the Company's CMP
products.  Similarly, IPEC Precision's products are based on technologies which
have not been adopted by the semiconductor manufacturing industry, and there can
be no assurance that customers will accept these products, or that these
products can be sold profitably or in volume.  The failure of the semiconductor
industry to accept the Company's systems and products would have a material
adverse effect on the Company's business, financial condition and results of
operations.

     Product Concentration; Dependence on New Products and Technologies.  In
fiscal 1996, the Company derived approximately 67% of its revenue from its
planarization systems and 11% of its revenue from its chemical reprocessors.  A
decline in sales of either of these products would adversely affect IPEC if the
Company has not created other products which at that time are producing
significant revenue.  Semiconductor manufacturing equipment and processes are
subject to rapid technological changes and product obsolescence.  The Company's
strategy depends in part on developing and introducing products which lower the
semiconductor manufacturer's cost of ownership, which involves a number of
factors, including product acquisition and operating expenses, throughput,
reliability, footprint and wafer yields.  The Company believes that its future
success will depend in part upon its ability to develop and enhance its existing
products and develop new products to meet such anticipated technological
changes.  The Company's future results are highly dependent on timely completion
and market acceptance of the Company's Avanti 672, which is designed to
integrate CMP processing and wafer cleaning in a single piece of equipment.
Additionally, the Company's future results may be dependent on the market
acceptance of the Company's AvantGaard 676, which is designed to be a high-
throughput metal CMP tool.  Semiconductor equipment companies often experience
delays in completing advanced products, particularly those which integrate
functions previously performed by separate equipment in the wafer fabrication
facility, and the Company cannot assure that the Avanti 672 will be completed as
scheduled for delivery in the second half of calendar 1996.  In addition, the
Company cannot assure that semiconductor manufacturers will purchase the Avanti
672 or AvantGaard 676, or any other product developed by the Company.  To the
extent products developed by the Company are based upon anticipated changes in
semiconductor production technologies, sales for such products may be adversely
affected if other technology becomes accepted in the industry.  If the Company
does not successfully introduce new products or enhanced versions of its current
products in a timely manner, the Company's sales would decline.  There can be no
assurance that the Company will be able to develop and introduce enhanced or new
products that satisfy customer needs and achieve market acceptance.

     Dependence on Major Customers.  A small number of customers account for a
significant percentage of the Company's sales volume and revenue.  In fiscal
1994, Intel and IBM represented 17% and 45%, respectively, of the Company's
revenue.  In fiscal 1995, Intel, IBM and Motorola represented 18%, 20% and 14%,
respectively, of the Company's revenue.  In fiscal 1996, Intel represented 29%
of the Company's revenue.  The Company anticipates that its revenue will
continue to depend on major customers, although the companies considered major
customers and the percentage of the Company's revenue represented by each major
customer may vary from quarter to quarter.  The loss of a major customer or any
material reduction in orders by such customers, including reductions due to
market or competitive conditions, would have a material adverse effect on 

                                      24
<PAGE>
 
the Company's business, financial condition and results of operations. The
Company's future success depends in part upon its ability to obtain orders from
new customers, as well as the financial condition of its customers and the
general economy. Sales of certain of the Company's products generally depend on
new facility construction projects and facility upgrades and there can be no
assurance that the Company's current customers will make significant purchases
of the Company's products in the future.

     Cyclicality of Semiconductor Industry.  The Company's business depends upon
capital expenditures by manufacturers of semiconductor devices, primarily for
the opening of new or expansion of existing fabrication facilities which, in
turn, depends upon the current and anticipated market demand for semiconductor
devices and products utilizing such devices.  The semiconductor industry is
highly cyclical and historically has experienced periods of oversupply,
resulting in significantly reduced demand for capital equipment.  Although the
semiconductor industry has experienced significant growth in recent years, which
has resulted in growth in the semiconductor capital equipment industry, there
can be no assurance that past growth in the semiconductor and semiconductor
capital equipment industries, or the resulting growth in the Company's business,
can be sustained in the future or that the recent downturn in the market will
not continue.  The Company's planned operations assume that a significant
portion of new orders will result from demand from semiconductor manufacturers
building or expanding fabrication facilities for advanced multi-level
semiconductor devices with design requirements of 0.5 micron and below, and
there can be no assurance that such demand will exist.  The Company's business,
financial condition and results of operations would be materially adversely
affected if semiconductor manufacturers do not increase their capacity to
produce these advanced semiconductor devices, or if there is a slowing of growth
or a decline in production by the semiconductor industry.

     Competition.  The semiconductor equipment industry is an intensely
competitive market.  The Company believes that domestic and international
competition in CMP polisher systems, clustered CMP polisher and cleaning
systems, and chemical reprocessing systems is likely to increase substantially.
The Company is aware of a number of companies currently marketing CMP systems
that directly compete with the Company's systems.  In addition, Applied
Materials, Inc. has recently begun to offer a CMP system which competes directly
with the Company's CMP product offerings.  Other capital equipment manufacturers
not currently involved in the development of CMP systems may also attempt to
enter and develop products for this market or to develop alternative
technologies which reduce the need for the Company's products.  The Company is
aware of several companies that market chemical reprocessing systems similar to
those sold by the Company.  The trend towards consolidation in the semiconductor
equipment industry has made it increasingly important to have the financial
resources necessary to compete effectively across a broad range of product
offerings, to fund customer service and support on a world-wide basis and to
invest in both product and process research and development.  Applied Materials,
Inc. and other current and potential competitors have substantially greater
financial resources, name recognition and more extensive engineering,
manufacturing, marketing and customer service and support capabilities than the
Company.  The Company expects its current competitors to continue to improve the
design and performance of their existing products and processes, and to
introduce new products and processes with improved price and performance
characteristics.  New product introductions or product announcements by the
Company's competitors could cause a decline in sales or loss of market
acceptance of the Company's existing products.  Moreover, increased competitive
pressure could lead to intensified price based competition, which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.

     International Sales.  International sales accounted for approximately 24%
and 34% of the Company's revenue in fiscal 1995 and 1996, respectively.
International sales carry lower gross margins than domestic sales.  The Company
expects that international sales will continue to account for a significant
portion of its revenue in future periods, and international sales at IPEC Planar
in the first quarter of fiscal 1997 are expected to be at 

                                      25
<PAGE>
 
levels lower than the fourth quarter of fiscal 1996 on a percentage of revenue
basis. International sales are subject to certain inherent risks including
tariffs, embargoes and other trade barriers, staffing and operating foreign
sales and service operations, managing distributors and collecting accounts
receivable. The Company is also subject to risks associated with regulations
relating to the import and export of high technology products. The export of the
Company's products to certain countries is limited by law. The Company cannot
predict whether quotas, duties, taxes or other charges or restrictions upon the
importation or exportation of the Company's products in the future will be
implemented by the United States or any other country. Fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country. While the Company's sales are currently
denominated only in U.S. dollars, future international activity may result in
foreign currency denominated sales. Gains and losses on the conversion to U.S.
dollars of accounts receivable and accounts payable arising from international
operations may contribute to fluctuations in the Company's results of
operations. There can be no assurance that any of these factors will not have a
material adverse effect on the Company's business, financial condition and
results of operations.

     Asian Market.  The Company believes that its future success will depend in
part upon continued acceptance of its products by Asian semiconductor
manufacturers.  This market segment is large, represents a substantial
percentage of the worldwide semiconductor manufacturing capacity, and is
difficult for foreign companies to penetrate.  Asian manufacturers may develop
alternative techniques, or may enhance existing techniques such as spin-on glass
and deposited glass, to achieve acceptable yields for DRAMs and other integrated
circuits involving three or more metal layers and line widths at or below 0.5
micron.  The Company believes that increased penetration of the Asian markets is
critical to its financial results and intends to continue to invest significant
resources in such markets in order to meet this objective.  The Company
currently sells its products in Asian countries through distributors and not
directly.  If the Company determines to develop a direct presence in these
markets, particularly Japan, such decision would require the allocation of
substantial management and financial resources, may adversely affect the
Company's relationship with its current distributors, and increases a number of
risks related to international sales as described above.  There can be no
assurance that the Company will achieve acceptance of its products in this
market.

     Dependence on Third Party Manufacturers and on Single Source Suppliers. The
Company relies on a limited number of independent manufacturers to provide
certain components in assemblies made to the Company's specifications and use in
the Company's products. In the event that the Company's subcontractors were to
experience financial, operational, production or quality assurance difficulties
that resulted in the reduction or interruption of supply to the Company, the
Company's business, financial condition and results of operations would be
materially adversely affected. In addition, the Company purchases certain key
components from sole or single source vendors for which alternative sources are
not currently available. For example, IPEC Clean requires high quality quartz
crystal, which the Company previously has had difficulties obtaining and is
currently in short supply. A shortage of quartz could have a material adverse
impact on the Company's business, financial condition or results of operations.
The inability to develop alternative sources for these single or sole source
components or to obtain sufficient quantities of these components can result in
delays or reductions in product shipments, which could adversely affect the
Company's business, financial condition and result of operations. Any prolonged
inability to obtain adequate amounts of fully functional components or any other
circumstances that would require the Company to seek alternative sources of
supply would have a material adverse effect on the Company's business, financial
condition and results of operations and could damage the Company's relationship
with its customers.

                                      26
<PAGE>
 
     Intellectual Property. The Company's success depends in significant part on
the proprietary nature of its technology. There can be no assurance that the
patents issued to the Company will provide the Company with meaningful
advantages, or that any patent issued to the Company will not be challenged. The
two initial patents relating to the Company's single wafer planarization system
products are scheduled to expire in 1997. In 1993, the technology covered by
these patents currently forming the basis of the CMP process and used in the
Company's primary products was licensed on a royalty-free basis to a competitor
pursuant to a settlement arrangement in which the Company also incurred
settlement obligations aggregating $1.4 million, of which $175,000 was
outstanding at June 30, 1996. The Company currently has no patents with respect
to its acid reprocessing technology outside the United States. To the extent
that a competitor of the Company is able to reproduce or otherwise capitalize on
the Company's technology prior to the issuance of a patent, it may be difficult
or impossible for the Company to obtain necessary intellectual property
protection in the United States or other countries where such competitor
conducts its operations. Moreover, the laws of foreign countries may not protect
the Company's intellectual property to the same extent as do the laws of the
United States. There can be no assurance that the steps taken by the Company to
protect its proprietary technology will be adequate or that its competitors will
not be able to develop similar or functionally equivalent technology. There has
been substantial litigation regarding patent and other intellectual property
rights in semiconductor related industries.

     In the future the Company may receive notice of claims of infringement of
other parties' proprietary rights, and there can be no assurance that a claim
for infringement, invalidity or indemnification will not be asserted against the
Company or that any such assertions will not have a material adverse effect on
the Company's business, financial condition and results of operations.  If any
Company equipment is found to infringe a patent, a court may grant an injunction
to prevent making, selling or using the equipment in the applicable country.
Irrespective of the validity or success of such claims, the Company could incur
significant costs with respect to the defense thereof, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.  If infringement claims are asserted against the Company,
the Company may seek to obtain a license of such third party's intellectual
property rights, which may not be available under reasonable terms or at all.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others and to determine the scope and
validity of proprietary rights of others.  The Company also relies on trade
secrets and proprietary technology that it seeks to protect, in part, through
confidentiality agreements with employees and other parties.  There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach or that the Company's trade secrets will not
otherwise become known to or independently developed by others.  The Company
also has entered into significant agreements that provide for the escrow,
licensing and royalty payment of the Company's technology to various third
parties.

     The Company also relies on trade secrets to protect its proprietary
technology.  There can be no assurance that information will be kept
confidential, that contractual secrecy obligations will be honored, or that
others will not independently develop similar or superior technology.  To the
extent that consultants, employees or third parties apply technological
information independently developed by them or by others, disputes may arise as
to the proprietary rights to such information, which disputes may be resolved
against the Company.

     The Company manufactures the AvantGaard 676 under a license from a volume
manufacturer of advanced microprocessors.  The Company has escrowed technical
data sufficient to permit such manufacturer to manufacture the Company's
AvantGaard 676, for release if the Company does not meet certain criteria
regarding product or spare part delivery schedules to the manufacturer.  If the
data is released from escrow, the manufacturer could manufacture the AvantGaard
676 or have the AvantGaard 676 manufactured by others for its use.  The escrow
terminates in October 1998.

                                      27
<PAGE>
 
     Future Acquisitions.  The Company's strategy is to obtain additional wafer
fabrication technologies and may involve, in part, acquisitions of products,
technologies or businesses from third parties.  In addition, the Company may
make additional acquisitions to obtain additional distribution capacity in
specified geographic markets.  Identifying and negotiating these acquisitions
may divert substantial management time. An acquisition could absorb substantial
cash resources, require the Company to incur or assume debt obligations, or
involve the issuance of additional Common Stock which could dilute the Company's
outstanding Common Stock.  An acquisition which is accounted for as a purchase,
like the acquisitions of Westech, Athens, GAARD or HDOS, could involve
significant one-time non-cash write-offs, or could involve the amortization of
goodwill over a number of years, which would adversely affect earnings in those
years.  Acquisitions outside the CMP area may be viewed by outside market
analysts as a diversion of the Company's focus on CMP.  For these and other
reasons, the market for the Company's stock may react positively or negatively
to the announcement of any acquisition.  An acquisition will continue to require
attention from the Company's management to integrate the acquired entity into
the Company's operations, may require the Company to develop expertise in a
semiconductor process equipment field outside CMP or other existing businesses
and may result in departures of management of the acquired entity.  An acquired
entity may have unknown liabilities, and its business may not achieve the
results anticipated at the time of the acquisition.  Any acquisitions that
adversely affect the operations of the Company may have an adverse impact on the
Company's stock price.

     Product Liability and Environmental Regulations.  The nature of the
Company's business exposes it to product liability claims, as well as the risk
that harmful substances will escape into the workplace and the environment and
cause damage or injuries.  For example, in June 1995 and again in July 1996, an
acid reprocessor malfunctioned and caused sulfuric acid to escape from its
quartz cylinder container.  In these instances no acid escaped from the
compartment containing the quartz cylinder and no damage to the manufacturing
facility resulted; however, there can be no assurance that the Company's
products will not malfunction in the future or that damage to a customer's
facilities will not result.  The Company and its customers are subject to
stringent federal, state and local regulations governing the storage, use,
discharge and disposal of toxic, volatile or otherwise hazardous chemicals used
in their manufacturing operations.  Current or future regulations could require
the Company or its customers to make substantial expenditures for preventive or
remedial action, reduction of chemical exposure or waste treatment or disposal.
To the extent that the Company's strategy to provide integrated on-site wet
chemical management services to its customers is successful, the Company faces
increased risks with respect to environmental and occupational health and safety
liabilities.

     Effect of Certain Anti-Takeover Provisions.  The Company's Certificate of
Incorporation authorizes the Company's Board of Directors to issue preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued shares of preferred
stock and to fix the number of shares constituting any series and the
designation of such series, without further vote or action by its stockholders.
The voting power held by the Company's officers and directors may give those
individuals substantial influence over any corporate action submitted to the
Company's shareholders.  Pursuant to Delaware corporate law, the approval of the
outstanding Preferred Stock may be required for certain corporate actions.  Any
series of Preferred Stock which the Company may issue in the future would
participate in these class voting rights and may have additional independent
rights to approve certain actions.  The Company is subject to Section 203 of the
Delaware General Corporate Law.  The voting power held by officers and
directors, outstanding rights to elect members of the Company's Board of
Directors, the voting rights of outstanding Preferred Stock and Preferred Stock
which may be issued in the future and the application of Delaware General
Corporate Law Section 203 could discourage certain types of transactions
involving an actual or potential change in control of the Company, including
transactions in which the holders of Common Stock who are not officers and
directors might 

                                      28
<PAGE>
 
otherwise receive a premium for their shares over then current prices, and may
limit the ability of such stockholders to cause or approve transactions which
they may deem to be in their best interests.

     Dependence on Key Personnel. The Company's future success is dependent upon
its ability to attract and retain qualified management, technical, sales and
support personnel. The competition for such personnel is intense. The loss of
certain key people or the Company's inability to attract and retain new key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations.

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


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

     See Index to IPEC Financial Statements on page F-1.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE

     During fiscal 1996, the Company reviewed its relationship with its
independent accountants.  Following that review, the Company and its Audit
Committee decided to change its independent accountants. On March 26, 1996, the
Company engaged KPMG Peat Marwick LLP ("KPMG") to serve as the Company's
independent accountants, replacing Richard A. Eisner & Company, LLP, who had
previously served in that capacity.  Richard A. Eisner & Company, LLP has
reported on the Company's financial statements for the two fiscal years ended
June 30, 1995 and KPMG has reported on the Company's financial statements for
the fiscal year ended June 30, 1996.  Neither of the reports by either firm
contained either an adverse opinion or a disclaimer of opinion, or was qualified
or modified as to uncertainty, audit scope or accounting principles.  There were
no disagreements on any matters of accounting principle or practices, financial
statement disclosures, or auditing scope or procedure with Richard A. Eisner &
Company, LLP in connection with that firm's audits of fiscal 1994 and 1995 or
through March 26, 1996, or with KPMG in connection with that firm's audit of the
fiscal year ended June 30, 1996, which disagreements, if not resolved to the
auditing firm's satisfaction, would have caused them to make reference in such
firm's report on the subject matter of such disagreement.

                                      29
<PAGE>
 
                                  PART III

ITEM 10.  EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

     Information about the Company's directors required by this item will be
contained in the Company's Notice of 1996 Annual Meeting of Stockholders and
Proxy Statement, pursuant to Regulation 14A, to be filed with the Securities and
Exchange Commission within 120 days after June 30, 1996.  Such information is
incorporated herein by reference.  The following table sets forth certain
information concerning the Company's executive officers as of  June 30, 1996:

<TABLE>
<CAPTION>
       NAME                     AGE                    POSITION
<S>                             <C>   <C>
Sanjeev R. Chitre............    41   Chairman of Board of Directors and Chief
                                      Executive Officer
John S. Hodgson..............    45   Vice President, Chief Financial Officer,
                                      Treasurer and Secretary
Thomas C. McKee..............    48   President and Chief Operating Officer
</TABLE>

     SANJEEV R. CHITRE founded the Company and has been the Chairman of the
Board and Chief Executive Officer since its organization in October 1989. Mr.
Chitre was a Vice President of marketing and sales of Superwave Technology,
Inc., a manufacturer of automated in-line systems for the semiconductor
industry, from 1984 through 1989.

     JOHN S. HODGSON has been Vice President, Chief Financial Officer, Treasurer
and Secretary of the Company since July 1994. From 1985 to 1993, he served in
senior financial capacities for Dover Technologies, the electronics subsidiary
of Dover Corporation ("Dover"). In 1993, Mr. Hodgson was Vice President of
Finance of Dovatron International, Inc., a contract electronics manufacturer
that was spun out into a separate public company by Dover.

    THOMAS C. MCKEE has been IPEC's President and Chief Operating Officer since
October 1995 and was Westech's Chief Operating Officer from April 1994 to
October 1995. From November 1993 to April 1994 he was Executive Vice President
of Westech. Prior to joining IPEC, from 1991 to 1993 Mr. McKee was Vice
President of Sales of Nexxus Products Company, a manufacturer of hair and skin
care products. Mr. McKee has also served in various management and consulting
positions within the semiconductor capital equipment industry and was the
founder of Semiconductor Systems, Inc., a manufacturer of photolithography track
equipment that was sold to General Signal in 1983.

                                      30
<PAGE>
 
ITEM 11.  EXECUTIVE COMPENSATION

     In connection with the acquisition of Westech, in August 1993 the Company
entered into a ten year Consulting Agreement with Harold C. Baldauf, a director
of the Company, and his two sons.  Under the terms of the agreement, they are to
provide consulting services in the day-to-day operations of the Company's
business for up to 130 days in the aggregate during each calendar year.  They
are to be paid $150,000 per year to be divided among them in accordance with
their determination of the proportions of the consulting services provided by
each of them during the relevant period.  During the term of the agreement, Mr.
Baldauf and his two sons are prohibited from acting in any capacity in
connection with any entities which operate a business in competition with the
business of the Company or its affiliates.  The terms of the agreement were
determined through an arms-length negotiations conducted between the Company and
the consultants none of whom were affiliates of the Company at the time of the
negotiations.  However, because the agreement was negotiated in the context of
the Westech acquisition, the terms of the consulting arrangements may be more
favorable to Mr. Baldauf and his sons than an agreement the Company would
negotiate with a non-affiliate.

     Additional information required by this item will be contained in the
Company's Notice of  1996 Annual Meeting of Stockholders and Proxy Statement,
pursuant to Regulation 14A, to be filed with the Securities and Exchange
Commission within 120 days after June 30, 1996 and is incorporated herein by
reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required by this item will be contained in the Company's Notice
of 1996 Annual Meeting of Stockholders and Proxy Statement, pursuant to
Regulation 14A, to be filed with the Securities and Exchange Commission within
120 days after June 30, 1996 and is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required by this item will be contained in the Company's Notice of
1996 Annual Meeting of Stockholders and Proxy Statement, pursuant to Regulation
14A, to be filed with the Securities and Exchange Commission within 120 days
after June 30, 1996 and is incorporated herein by reference.

                                       31
<PAGE>
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Documents filed as part of this report:

     1.   Index to Consolidated Financial Statements
          ------------------------------------------

<TABLE>
<CAPTION>
                                                                      Page(s) in
                                                                      Form 10-K
                                                                      ----------
<S>                                                                   <C>
Independent Auditors' Report, KPMG Peat Marwick LLP                       F-2
Independent Auditors' Report, Richard A. Eisner & Company, LLP            F-3
Consolidated Balance Sheets as of June 30, 1996 and 1995                  F-4
Consolidated Statements of Operations for the years ended June 30,        F-5
  1996, 1995 and 1994                                                      
Consolidated Statements of Changes in Stockholders' Equity for the        F-6
  years ended June 30, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended June 30,        F-8
  1996, 1995 and 1994
Notes to Consolidated Financial Statements                               F-10
</TABLE>

     2.   Exhibits
          --------

     The following exhibits are filed as part of, or incorporated by reference 
into, this amendment:

                                       32
<PAGE>
 
<TABLE>
<CAPTION>
Exhibit                                Description
-------   ----------------------------------------------------------------------
<S>       <C>
 2.1      Stock Purchase Agreement among Integrated Process Equipment Corp.
          ("IPEC"), William Reiersgaard and GAARD Automation Inc. ("GAARD"),
          dated effective October 30, 1995. Incorporated by reference to Exhibit
          2.1 to the Company's Current Report on Form 8-K for reporting date
          October 30, 1995 and filed November 14, 1995 (File No. 0-20470)
          ("GAARD 8-K").

 2.2      Asset Purchase Agreement between IPEC and Hughes Danbury Optical
          Systems, Inc. ("HDOS"), dated effective December 29, 1995.
          Incorporated by reference to Exhibit 2.1 to the Company's Current
          Report on Form 8-K for reporting date December 29, 1995 and filed
          January 13, 1996 (File No. 0-20470) ("HDOS 8-K").

 3.1      Certificate of Incorporation, as amended. Incorporated by reference to
          Exhibit 3.1 to the Company's Annual Report on Form 10-KSB for the
          fiscal year ended June 30, 1993 (File No. 0-20470) (the "1993 Form 10-
          KSB").

 3.2      Amendment of Certificate of Incorporation, effective December 16,
          1993. Incorporated by reference to Exhibit 3.2 to Amendment No. 1,
          filed on December 30, 1993 ("SB-2 Amendment No. 1") to the
          Registrant's Registration Statement on Form SB-2 (Registration No. 33-
          70962) (the "SB-2 Registration Statement").

 3.3      By-Laws, as amended.  Incorporated by reference to Exhibit 3.3 to SB-2
          Amendment No. 1.

 3.4      Certificate of Amendment of the Certificate of Incorporation of the
          Company, filed with the State of Delaware on January 31, 1996,
          previously filed as Exhibit 3(i).1 to the Company's Quarterly Report
          on Form 10-Q for the third quarter ended March 31, 1996, incorporated
          herein by reference.

 4.1      Form of Class C Warrant issued by the Company.  Incorporated by
          reference to Exhibit 10.13 to IPO Amendment No. 1.

 4.2      Warrant Agreement dated June 29, 1992 among the Company, American
          Stock Transfer & Trust Company 
</TABLE>

                                       33
<PAGE>
 
<TABLE>
<S>       <C>
          (the "Warrant Agent") and D.H. Blair Investment Banking Corp.
          ("Blair"). Incorporated by reference to Exhibit 10.14 to IPO Amendment
          No. 1.

 4.3      Form of Warrant Agreement, dated as of August 13, 1992, between the
          Company, the Warrant Agent and Blair, including the form of warrants.
          Incorporated by reference to Exhibit 4.1 to IPO Amendment No. 1.

 4.4      Form of Warrant Agreement, dated as of July 23, 1993, between the
          Company, the Warrant Agent and Blair. Incorporated by reference to
          Exhibit 10.16 to the 1993 Form 10-KSB.

 4.5      Form of Warrant Agreement, dated as of January 26, 1994, between the
          Company, the Warrant Agent and Blair, including the form of Warrants.
          Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the SB-
          2 Registration Statement, filed on January 18, 1994 ("SB-2 Amendment
          No. 2").

 4.6      Form of Initial Public Offering Unit Purchase Option between the
          Company and Blair. Incorporated by reference to Exhibit 1.2 to
          Amendment No. 2 to the IPO Registration Statement, filed August 5,
          1993 ("IPO Amendment No. 2").

 4.7      Registration Agreement, dated as of November 22, 1994, by and among
          the Company and the Exchanging Shareholders. Incorporated by reference
          to Exhibit 10.2 to the 1994 Form 8-K.

 4.8      Registration Rights Agreement, dated as of September 9, 1994, between
          the Company and Kassner. Incorporated by reference to Exhibit 4.12 to
          the 1995 Form 10-K.

 4.9      Stockholders' Agreement, dated as of August 31, 1993 among the
          Company, Harold C. Baldauf ("HCB") and Janet A. Baldauf ("JAB").
          Incorporated by reference to Exhibit 10.22 to the 1993 Form 10-KSB.

 10.1     Licensing and Manufacturing Agreement, dated July 18, 1990, between
          the Registrant and MTC. Incorporated by reference to Exhibit 10.4 to
          the IPO Registration Statement.
</TABLE>

                                       34
<PAGE>
 
<TABLE>
<S>       <C>
 10.2     Form of Escrow Agreement, dated as of August 13, 1992, among the
          Company, all holders of Class A Common Stock, and American Stock
          Transfer & Trust Company as Escrow Agent. Incorporated by reference to
          Exhibit 10.9 to IPO Amendment No. 2.

 10.3     Form of 1994 Public Offering Unit Purchase Option between the Company
          and Blair. Incorporated by reference to Exhibit 1.2 to Amendment No. 3
          to the SB-2 Registration Statement, filed January 25, 1994 ("SB-2
          Amendment No. 3").

 10.4     Consulting Agreement dated as of August 31, 1993 by and among the
          Company, HCB, Harold Baldauf, Jr. and David Baldauf. Incorporated by
          reference to Exhibit 10.24 to the 1993 Form 10-KSB.

 10.5     Settlement Agreement, dated January 23, 1993, between Westech and
          Speedfam Corporation. Incorporated by reference to Exhibit 10.34 to
          the 1993 Form 10-KSB.

 10.6     Indenture of Lease, dated July 30, 1993, relating to facilities leased
          for Westech's subassembly manufacturing facility. Incorporated by
          reference to Exhibit 10.38 to SB-2 Amendment No. 2.

 10.7     Lease, dated July 20, 1994, relating to Westech's facility in Phoenix,
          Arizona. Incorporated by reference to Exhibit 10.35 to the Company's
          Registration Statement on Form S-3 (Registration No. 33-9038) filed on
          May 12, 1995 (the "May 1995 Form S-3").

 10.8     Lease, dated November 1, 1994, relating to Tempe, Arizona research and
          development facility. Incorporated by reference to Exhibit 10.36 to
          the May 1995 Form S-3.

 10.9     Lease, dated October 15, 1985, as amended (together with related
          Subordination, Non-Disturbance and Estoppel Agreement dated July 1,
          1986), relating to Athens' facility in Oceanside, California.
          Incorporated by reference to Exhibit 10.37 to the May 1995 Form S-3.

 10.10    Lease, dated March 23, 1988, as amended (together with related
          Subordination, Nondisturbance and Attornment Agreement dated January
          17, 1995), relating to Athens' larger facility in Oceanside,
          California. Incorporated by reference to Exhibit 10.38 to the May 1995
          Form S-3.
</TABLE>

                                       35
<PAGE>
 
<TABLE>
<S>       <C>
 10.11    License Agreement, dated as of April 17, 1991, between Athens and
          Sumitomo Corporation, together with amendment Agreement dated December
          29, 1993. Incorporated by reference to Exhibit 10.41 to the May 1995
          Form S-3.

 10.12    Promissory note and security agreement between Integrated Process
          Equipment Corp. and Don M. Jackson, Jr., dated August 31, 1995; and
          related Commercial Guaranty issued by the Company to Second National
          Bank of Saginaw, previously filed as Exhibit 10.1 to the Company's
          Quarterly Report on Form 10-Q for the first quarter ended September
          30, 1995, incorporated herein by reference.

 10.13    IPEC 1992 Stock Option Plan (as amended December 12, 1995), previously
          filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
          for the second quarter ended December 31, 1995, incorporated herein by
          reference.

 10.14    Promissory Note (First Note) from IPEC to William Reiersgaard dated
          October 30, 1995. Incorporated by reference to Exhibit 2.4 to the
          GAARD 8-K.

 10.15    Promissory Note (Second Note) from IPEC to William Reiersgaard dated
          October 30, 1995. Incorporated by reference to Exhibit 2.4 to the
          GAARD 8-K.

 10.16    Promissory Note from IPEC/Precision, a subsidiary of IPEC, to HDOS
          dated December 29, 1995. Incorporated by reference to Exhibit 2.5 to
          the HDOS 8-K.

 10.17    Security and Pledge Agreement dated December 29, 1995 between
          IPEC/Precision and IPEC in favor of HDOS. Incorporated by reference to
          Exhibit 2.5 to the HDOS 8-K.

 10.18    Form of Promissory Note and Security Agreement dated December 1995
          from Sanjeev Chitre to IPEC, previously filed as Exhibit 10.6 to the
          Company's Quarterly Report on Form 10-Q for the second quarter ended
          December 31, 1995, incorporated herein by reference.

 10.19*   Lease Agreement, dated March 8, 1996, relating to Precision's facility
          in Bethel, Connecticut.
</TABLE>

                                       36
<PAGE>
 
<TABLE>
<S>       <C>
 10.20*   Loan Agreement dated April 24, 1996, between the Company and First
          Interstate Bank of Arizona, N.A. ("Credit Facility Agreement"), with
          related Side Letter Concerning Liens dated April 24, 1996, Letter
          Agreement dated May 31, 1996, Revolving Credit Note dated April 24,
          1996, Term Note dated April 24, 1996 and Security Agreement dated
          April 24, 1996.

          The following additional schedules to the Credit Facility Agreement
          have been omitted and the Company agrees to furnish supplementally a
          copy of any omitted schedule to the SEC upon request: Officer's
          Certificate of Parent dated April 24, 1996, Borrowing Base Certificate
          dated April 25, 1996, Compliance Certificate dated April 24, 1996,
          Notice of Negative Pledge dated April 24, 1996, and Patent Mortgage,
          Trademark Security Agreements, Patent Security Agreements and
          Copyright Security Agreements for the Company and its subsidiaries,
          each dated April 24, 1996.

 11.1*    Statement regarding computation of per share earnings.

 22.1*    Subsidiaries of Company.

 23.1**   Consent of KPMG Peat Marwick LLP.

 23.2**   Consent of Richard A. Eisner & Company, LLP.

 24.1*    Powers of Attorney.
</TABLE>
 
 *   Incorporated by reference to the corresponding Exhibits to the Company's 
     Annual Report on Form 10-K filed on September 13, 1996.
 **  Filed herewith

(b)  Reports on Form 8-K:

     No reports on Form 8-K were filed during the quarter ended June 30, 1996.

                                       37
<PAGE>
 
                      INTEGRATED PROCESS EQUIPMENT CORP.
                      AND SUBSIDIARIES

                      Consolidated Financial Statements

                      June 30, 1996, 1995 and 1994

                      (With Independent Auditors' Reports Thereon)
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.

                                AND SUBSIDIARIES

                                     Index


<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                                ----
<S>                                                                                                              <C> 
Independent Auditors' Report, KPMG Peat Marwick LLP                                                              F-2
Independent Auditors' Report, Richard A. Eisner & Company, LLP                                                   F-3
Consolidated Balance Sheets as of June 30, 1996 and 1995                                                         F-4
Consolidated Statements of Operations for the years ended June 30, 1996, 1995 and 1994                           F-5
Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 
    1996, 1995 and 1994                                                                                          F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994                           F-8
Notes to Consolidated Financial Statements                                                                      F-10
</TABLE>

                                      F-1
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Integrated Process Equipment Corp.:


We have audited the accompanying consolidated balance sheet of Integrated
Process Equipment Corp. and subsidiaries as of June 30, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Integrated Process
Equipment Corp. and subsidiaries as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

                              KPMG Peat Marwick LLP



Phoenix, Arizona
August 2, 1996

                                      F-2
<PAGE>
 
                         INDEPENDENT AUDITORS' REPORT


The Board of Directors and Stockholders
Integrated Process Equipment Corp.:


We have audited the accompanying consolidated balance sheet of Integrated
Process Equipment Corp. and subsidiaries as of June 30, 1995 and the related
consolidated statements of operations, changes in stockholders' equity and cash
flows for each of the years in the two-year period then ended.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the 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 enumerated above present fairly, in all
material respects, the financial position of Integrated Process Equipment Corp.
and subsidiaries at June 30, 1995 and the consolidated results of their
operations and cash flows for each of the years in the two-year period then
ended, in conformity with generally accepted accounting principles.



Richard A. Eisner & Company, LLP

New York, New York
August 18, 1995

                                      F-3
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES
                          Consolidated Balance Sheets
                      (in thousands, except share amounts)
                             June 30, 1996 and 1995

<TABLE>
<CAPTION>
                                                                                     1996           1995    
                                                                                  ----------     ---------- 
<S>                                                                              <C>            <C>         
                 ASSETS                                                                                     
Current assets:                                                                                             
 Cash and cash equivalents                                                        $   11,681     $   66,007 
 Accounts receivable (note 16)                                                        44,079         30,622 
 Inventories (notes 3 and 16)                                                         31,681         22,882 
 Prepaid expenses                                                                      1,590          1,419 
 Deferred income taxes (note 12)                                                       5,175          2,204 
                                                                                  ----------     ---------- 
     Total current assets                                                             94,206        123,134 
                                                                                  ----------     ---------- 
                                                                                                            
Property, plant and equipment, net (note 4)                                           52,655         11,701 
Intangible assets, net (note 5)                                                       28,046         21,504 
Deferred income taxes (note 12)                                                       13,175             -- 
Other assets                                                                           3,602          1,638 
                                                                                  ----------     ---------- 
                                                                                                            
                                                                                  $  191,684     $  157,977 
                                                                                  ==========     ========== 
                                                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                                                         
Current liabilities:                                                                                        
 Notes payable (note 7)                                                           $    2,056     $      -- 
 Current portion of long-term debt (note 8)                                            2,124          4,772 
 Accounts payable                                                                     15,176          9,627 
 Accrued liabilities (note 6)                                                         21,150         10,591 
                                                                                  ----------     ---------- 
     Total current liabilities                                                        40,506         24,990 
                                                                                                            
Long-term debt, less current portion (note 8)                                         22,841          1,748 
Deferred income taxes (note 12)                                                           --          1,119  
     Total liabilities                                                                63,347         27,857 
                                                                                  ----------     ----------  
                                                                                                  
Stockholders' equity (note 9):                                                                     
 Preferred stock, $.01 par value per share.  Nonvoting authorized,                                                                  
  2,000,000 shares:                                                                               
  Series B-1 cumulative preferred stock.  Authorized 21,478 shares,                                                              
   issued and outstanding 20,941 shares.  Liquidation preference of                                                             
   $1,950.                                                                                --             --   
  Series B-2 cumulative preferred stock.  Authorized 21,478 shares,                                                              
   issued and outstanding 20,941 shares.  Liquidation preference of                                                             
   $1,950.                                                                                --             --   
  Series B-3 cumulative preferred stock.  Authorized 21,478 shares,                                                              
   issued and outstanding 21,210 shares in 1996.  Liquidation preference of                                                         
   $1,975.                                                                                --             --   
 Common stock, $.01 par value per share.  Authorized 50,000,000 shares                                                            
  in 1996, 30,000,000 shares in 1995; one vote per share; issued and                                         
  outstanding 14,238,406 shares in 1996 and 13,501,756 shares in 1995.                   142            135                         
 Class A common stock, $.01 par value per share.  Authorized 3,500,000                                                              
  shares, four votes per share; issued and outstanding 521,650 shares in                                     
  1996 and 521,704 shares in 1995.                                                         5              5  
 Additional paid-in capital                                                          151,730        142,422 
 Accumulated deficit                                                                 (23,546)       (12,450)
 Foreign currency translation adjustment                                                   6              8 
                                                                                  ----------     ---------- 
     Total stockholders' equity                                                      128,337        130,120 
                                                                                                           
Commitments and contingencies (note 13)                                                                    
                                                                                  ----------     ---------- 
                                                                                                           
                                                                                  $  191,684     $  157,977 
                                                                                  ==========     ==========  
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
 
                      INTEGRATED PROCESS EQUIPMENT CORP.
                               AND SUBSIDIARIES

                     Consolidated Statements of Operations
                   (in thousands, except per share amounts)

                   Years ended June 30, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                               1996          1995          1994
                                            ----------     ---------     ---------
 
<S>                                        <C>            <C>           <C>    
Revenue                                    $   184,500    $   88,385    $   31,158
 
Cost of goods sold                             109,719        50,776        22,738
                                            ----------     ---------     ---------
    Gross margin                                74,781        37,609         8,420
 
Operating expenses:
 Research and development                       19,871         7,330         2,453
 Purchased research and development             36,961         8,485         1,107
 Selling, general and administrative            35,436        20,458         9,403
                                            ----------     ---------     ---------
    Total operating expenses                    92,268        36,273        12,963
                                            ----------     ---------     ---------
 
    Operating income (loss)                    (17,487)        1,336        (4,543)
 
Other income (expense):
 Interest income                                 1,754           383            22
 Interest expense (note 8)                      (2,149)       (1,059)       (5,197)
 Other, net                                        446            15           (12)
                                            ----------     ---------     ---------
    Total other income (expense)                    51          (661)       (5,187)
                                            ----------     ---------     ---------
 
    Income (loss) before income taxes          (17,436)          675        (9,730)
 
Income tax expense (benefit) (note 12)          (6,779)           76          (830)
                                            ----------     ---------     ---------
 
    Net income (loss)                          (10,657)          599        (8,900)
 
Cumulative dividend on preferred stock            (579)         (377)         (118)
                                            ----------     ---------     ---------
 
    Net income (loss) attributable to
     common stockholders                   $   (11,236)   $      222    $   (9,018)
                                            ==========     =========     =========
 
Net income (loss) per share                $      (.78)   $      .02    $    (3.26)
                                            ==========     =========     =========
 
Shares used in per share calculation            14,434         9,865         2,763
                                            ==========     =========     =========
</TABLE>
 
See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

           Consolidated Statements of Changes in Stockholders' Equity
                      (in thousands, except share amounts)

                    Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
 
 
                                     SERIES A             SERIES B                                   CLASS A          
                                  PREFERRED STOCK     PREFERRED STOCK       COMMON STOCK           COMMON STOCK       
                                                                                                                      
                                -------------------   ----------------   -------------------   --------------------   
                                 SHARES     AMOUNT    SHARES    AMOUNT     SHARES     AMOUNT     SHARES     AMOUNT    
                                ---------   -------   -------   ------   ----------   ------   ----------   -------   
<S>                             <C>         <C>       <C>       <C>      <C>          <C>      <C>          <C>       
Balance at June 30, 1993         305,398     $  425         -   $    -    1,006,250     $ 10    1,100,310       $11    
                                                                                                                      
Conversion of Series A        
 preferred stock to common 
 stock                          (305,398)      (425)        -        -      152,698        2            -         -
Acquisition of Westech    
 Systems, Inc.                         -          -    21,478        -      429,530        4            -         -
Director stock sale                    -          -         -        -       72,928        -      (72,928)        -     
Exercise of stock options              -          -         -        -       10,000        -            -         -
Proceeds from public                                                                                                     
 offering, net of offering                                                                                          
 costs of $1,538                       -          -         -        -    2,561,000       26            -         -      
Issuance of Class A warrants           -          -         -        -            -        -            -         -
Issuance of Class D warrants           -          -         -        -            -        -            -         -
Net loss                               -          -         -        -            -        -            -         -
Preferred stock dividends                                                                                           
 paid                                  -          -         -        -            -        -            -         -  
Foreign currency translation                                                                                        
 adjustment                            -          -         -        -            -        -            -         -    
                               ---------    -------    -------  ------   ----------   ------   ----------   -------    

Balance at June 30, 1994               -          -     21,478       -    4,232,406       42    1,027,382        11    
                                                                                                                      
Issuance of Series B-2                                                                                                        
 preferred stock                       -          -     21,478       -            -        -            -         -           
Conversion of  Series B                                                                                                   
 preferred stock to 
 common stock                          -          -    (1,074)       -       12,860        -            -         -       
Conversion of Class A stock                                                                                             
 to common stock                       -          -         -        -      505,678        6     (505,678)       (6)    
Exercise of warrants                   -          -         -        -    7,350,410       74            -         -     
Exercise of unit purchase                                                                                                 
 options                               -          -         -        -       64,540        -            -         -       
Acquisition of Athens Corp             -          -         -        -    1,095,695       11            -         -     
Exercise of stock options              -          -         -        -      217,731        2            -         -     
Employee stock purchase plan           -          -         -        -       22,436        -            -         -      
Tax benefit attributable to                                                                                         
 exercise stock options                -          -         -        -            -        -            -         -            
Issuance of Class E warrants           -          -         -        -            -        -            -         -
Option compensation charges            -          -         -        -            -        -            -         -           
Net Income                             -          -         -        -            -        -            -         -          
Preferred stock dividends                                                                                                     
 Paid                                  -          -         -        -            -        -            -         -           
                               ---------    -------   -------   ------   ----------   ------   ----------   -------         
Balance at June 30, 1995               -          -    41,882        -   13,501,756      135     521,704          5    

<CAPTION> 
 
                                   ADDITIONAL                 FOREIGN
                                    PAID-IN                   CURRENCY
                                   ----------  ACCUMULATED   TRANSLATION
                                    CAPITAL      DEFICIT     ADJUSTMENT
                                   ----------  -----------   ----------
                                
<S>                                <C>          <C>         <C>
Balance at June 30, 1993            $   5,192      (4,029)    $      7
                                
Conversion of Series A                                                 
 preferred stock to common stock          423           -            - 
Acquisition of Westech      
 Systems, Inc.                          5,996           -            -      
Director stock sale                         -           -            -
Exercise of stock options                  77           -            -
Proceeds from public        
 offering, net of offering    
 costs of $1,538                       17,207           -            -     
Issuance of Class A warrants            3,516           -            -
Issuance of Class D warrants               73           -            -
Net loss                                    -      (8,900)           -
Preferred stock dividends   
 paid                                       -         (41)           -     
Foreign currency translation
 adjustment                                 -           -            1             
                                   ---------- -----------   ----------     
                                
Balance at June 30, 1994               32,484     (12,970)           8
                                
Issuance of Series B-2      
 preferred stock                        2,000           -            -     
Conversion of  Series B     
 preferred                  
 stock to common stock                      -           -            -          
Conversion of Class A stock 
 to common stock                            -           -            -          
Exercise of warrants                   83,346           -            -
Exercise of unit purchase options         541           -            -
Acquisition of Athens Corp             20,998           -            -
Exercise of stock options               1,670           -            -
Employee stock purchase plan              212           -            -
Tax benefit attributable to                                            
 exercise of stock options                988           -            - 
Issuance of Class E warrants              144           -            -
Option compensation charges                39           -            -
Net Income                                  -         599            -
Preferred stock dividends   
 Paid                                       -         (79)           - 
                                   ---------- -----------   ----------                
Balance at June 30, 1995              142,422     (12,450)           8
</TABLE> 

                                      F-6
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

     Consolidated Statements of Changes in Stockholders' Equity, Continued
                      (in thousands, except share amounts)

                    Years ended June 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                               SERIES A                SERIES B                  
                                            PREFERRED STOCK        PREFERRED STOCK            COMMON STOCK     
                                            ---------------        ----------------        ------------------- 
                                            SHARES   AMOUNT        SHARES    AMOUNT          SHARES     AMOUNT 
                                            ------   ------        -------   ------        ----------   ------ 
                                                                                                               
<S>                                         <C>      <C>           <C>       <C>           <C>          <C>    
Balance at June 30, 1995                        --   $   --        41,882    $   --        13,501,756     $135 
                                                                                                               
Issuance of Series B-3 preferred stock          --       --        21,478        --                --       -- 
Conversion of Series B preferred stock          --       --          (268)       --             4,020       -- 
 to common stock                                                                                               
Reclassification of shares                      --       --            --        --                54       -- 
Exercise of warrants                            --       --            --        --           156,250        2 
Acquisition of remaining 6% interest of         --       --            --        --           211,670        2 
 Athens Corp.                                                                                                  
Exercise of unit purchase options               --       --            --        --            68,880        1 
Conversion of convertible debenture             --       --            --        --            50,000       -- 
Exercise of stock options                       --       --            --        --           179,868        2 
Employee stock purchase plan                    --       --            --        --            65,908       -- 
Tax benefit attributable to exercise of         --       --            --        --                --       -- 
 stock options                                                                                                 
Issuance of warrants                            --       --            --        --                --       -- 
Net loss                                        --       --            --        --                --       -- 
Preferred stock dividends paid                  --       --            --        --                --       -- 
Foreign currency translation adjustment         --       --            --        --                --       -- 
                                            ------   ------        ------    ------        ----------     ----

Balance at June 30, 1996                        --   $   --        63,092    $   --        14,238,406     $142 
                                            ======   ======        ======    ======        ==========     ==== 
<CAPTION> 
                                                 CLASS A             ADDITIONAL                            FOREIGN        
                                              COMMON STOCK            PAID-IN                             CURRENCY         
                                            -----------------        --------                            TRANSLATION       
                                             SHARES    AMOUNT         CAPITAL            DEFICIT          ADJUSTMENT      
                                            --------   ------        ----------        ----------        -----------
                                                                                                                             
<S>                                         <C>        <C>           <C>               <C>               <C>             
Balance at June 30, 1995                    521,704     $   5         $142,422           (12,450)               8
                                                                                                                 
Issuance of Series B-3 preferred stock           --        --            2,000                --               -- 
Conversion of Series B preferred stock           --        --               --                --               -- 
 to common stock                                                                               
Reclassification of shares                      (54)       --               --                --               -- 
Exercise of warrants                             --        --            1,413                --               -- 
Acquisition of remaining 6% interest of          --        --              204                --               -- 
 Athens Corp.                                                                                  
Exercise of unit purchase options                --        --              926                --               -- 
Conversion of convertible debenture              --        --              110                --               -- 
Exercise of stock options                        --        --            1,950                --               -- 
Employee stock purchase plan                     --        --            1,044                --               -- 
Tax benefit attributable to exercise of          --        --            1,561                --               -- 
 stock options                                                                                 
Issuance of warrants                             --        --              100                --               -- 
Net loss                                         --        --               --           (10,657)              --
Preferred stock dividends paid                   --        --               --              (439)              --
Foreign currency translation adjustment          --        --               --                --               (2)
                                            -------     -----         --------         ---------         --------

Balance at June 30, 1996                    521,650     $   5          151,730         $ (23,546)        $      6
                                            =======     =====         ========         =========         ======== 
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows
                                 (in thousands)

                   Years ended June 30, 1996, 1995 and 1994


<TABLE>
<CAPTION>
                                                              1996           1995           1994
                                                           ----------     ----------     ----------
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
 Net income (loss)                                         $(10,657)      $    599       $ (8,900)
 Adjustments to reconcile net income (loss) to net
  cash provided by (used in) operating activities:
  Depreciation and amortization                               8,040          3,620          5,829
  (Gain) loss on sale of property,
   plant and equipment                                         (123)            --             12
  Purchased research and development                         36,961          8,485          1,107
  Deferred tax benefit                                      (15,855)        (1,199)          (830)
  Changes in operating assets and liabilities,
   net of effects of acquisitions:
   Increase in accounts receivable                          (11,130)       (17,444)        (4,401)
   Increase in inventories                                   (3,748)        (2,481)        (6,078)
   Increase in prepaid expenses and
    other assets                                             (1,081)          (910)          (183)

   Increase in accounts payable                               3,191            360             43
   Increase in accrued liabilities                            7,348          1,317            682
                                                           --------       --------       --------
    Net cash provided by (used in)
     operating activities                                    12,946         (7,653)       (12,719)
                                                           --------       --------       --------

Cash flows from investing activities:
 Purchase of property, plant and equipment                  (38,304)        (5,761)          (951)
 Acquisition costs                                               --             --            134
 Proceeds from sale of property, plant
  and equipment                                                 900             --              3

 Proceeds from (issuance of) notes receivable -
  officers                                                     (941)            --             31

 Purchase of subsidiaries, net of cash acquired             (23,641)          (929)        (1,111)
                                                           --------       --------       --------
   Net cash used in investing activities                    (61,986)        (6,690)        (1,894)
                                                           --------       --------       --------

Cash flows from financing activities:
 Proceeds from long-term debt                                35,787            338             --
 Repayment of notes payable                                 (24,000)        (4,000)            --
 Proceeds from issuance of common stock
  and warrants                                                5,544         85,845         17,310

 Payment of preferred stock dividends                          (439)           (79)           (41)
 Repayment of long-term debt and capital leases             (22,176)          (963)        (1,604)
 Repayment of related party notes payable                        --         (6,970)          (515)
 Borrowing from related parties                                  --          5,200
 Deferred financing fees                                         --             --           (667)
                                                           --------       --------       --------
   Net cash provided by (used in)
    financing activities                                     (5,284)        79,371         14,483
                                                           -------- --    --------       --------

Effect of exchange rate changes on cash                          (2)            --              1
                                                           --------       --------       --------
   Net increase (decrease) in cash and
    cash equivalents                                        (54,326)        65,028           (129)

Cash and cash equivalents, beginning of                      66,007            979          1,108
                                                           --------       --------       --------

Cash and cash equivalents, end of year                     $ 11,681       $ 66,007       $    979
                                                           ========       ========       ========
</TABLE>

                                      F-8
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

                Consolidated Statements of Cash Flows, Continued
                                 (in thousands)

                   Years ended June 30, 1996 , 1995 and 1994

<TABLE>
<CAPTION>
                                               1996           1995          1994
                                            ----------     ----------     ---------
<S>                                         <C>            <C>            <C>
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
Cash paid for:
  Interest                                  $    2,023     $      837     $     905
                                            ==========     ==========     =========
  Income taxes                              $    3,317     $      576     $      --
                                            ==========     ==========     =========
 
SUPPLEMENTAL DISCLOSURES OF NONCASH
 INVESTING ACTIVITIES:
 
 
 The Company made acquisitions for
  $23,641, $929 and $1,111 of cash in
  the years ended June 30, 1996, 1995
  and 1994, respectively.  The purchase
  prices were allocated to the assets
  acquired and liabilities assumed
  based on their fair value as
  indicated in notes to the
  consolidated financial statements.  A
  summary of cash paid for the
  acquisitions follows:
 
  Purchase price                            $   54,395     $   21,747     $  11,198
  Less cash acquired                            (1,269)           (18)          (87)
  Common stock issued                             (206)       (20,800)       (4,000)
  Notes payable                                (26,056)            --            --
  Long-term debt                                (3,223)            --            --
  Preferred stock issued                            --             --        (6,000)
                                            ----------     ----------     ---------
 
                                            $   23,641     $      929     $   1,111
                                            ==========     ==========     =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-9
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
        (in thousands, except percentages, shares and per share amounts)

(1)  ORGANIZATION

   Integrated Process Equipment Corp. (IPEC) and subsidiaries (the Company)
   designs, manufactures, markets and services capital equipment used by the
   semiconductor industry.

   ACQUISITIONS

       WESTECH SYSTEMS, INC.

   On September 3, 1993, IPEC acquired Westech Systems, Inc. (Westech) for
   $4,900.  The purchase price consisted of cash amounting to $900 and 429,530
   shares of IPEC's common stock valued at $4,000.  In addition, IPEC agreed to
   issue up to $6,000 of its Series B 6% cumulative convertible preferred stock,
   contingent upon achievement of revenue targets in 1993, 1994 and 1995.  Since
   the revenue targets for each calendar year were met, $6,000 of preferred
   stock has been issued and included in the purchase price with a corresponding
   increase in goodwill.

   After giving consideration to the issuance of preferred stock, the adjusted
   purchase price has been allocated to the assets acquired, including cash of
   $87 and liabilities assumed based on their fair values as follows:

<TABLE>
               <S>                                         <C>    
               Purchase price:                                       
                Cash                                       $      900
                Common stock                                    4,000
                Preferred stock                                 6,000
                Costs of acquisition                              298
                                                           ----------
                                                                     
                   Total                                   $   11,198
                                                           ==========
                                                                     
               Assets acquired and liabilities assumed:              
                Current assets                             $   16,317
                Property, plant and equipment                   4,557
                Other assets                                       49
                Patents                                         5,176
                Purchased research and development              1,107
                Goodwill                                        6,910
                Current liabilities                           (20,135)
                Noncurrent liabilities                         (1,953)
                Deferred income taxes                            (830)
                                                           ----------
                                                                     
                   Total                                   $   11,198
                                                           ========== 
</TABLE>

   The purchased research and development has been charged to operations upon
   acquisition.  The acquisition has been accounted for as a purchase and,
   accordingly, the accompanying consolidated financial statements include the
   accounts of Westech from the date of acquisition.  The name of Westech has
   been subsequently changed to IPEC Planar Phoenix, Inc.

                                     F-10
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

       ATHENS CORP

   On November 22, 1994, the Company acquired approximately 94% of the
   outstanding common stock of Athens Corp (Athens), a privately owned company
   engaged in manufacturing wet process reprocessing systems for the
   semiconductor industry.  The purchase price consisted of 1,095,695 shares of
   the Company's common stock.  The Company subsequently acquired the remaining
   6% of the common stock of Athens in fiscal 1996 in exchange for 211,670
   shares of common stock.

   The purchase price has been allocated to the assets acquired, including cash
   of $18 and liabilities assumed based on their fair values as follows:

<TABLE>
               <S>                                        <C>   
               Purchase price:                                      
                Common stock                              $   21,215
                Costs of acquisition                             995
                                                           ---------
                                                                    
                   Total                                  $   22,210
                                                           =========
                                                                    
               Assets acquired and liabilities assumed:             
                Current assets                            $    6,711
                Property, plant and equipment                  1,207
                Other assets                                     753
                Purchased research and development             8,485
                Developed technology                          13,592
                Assembled workforce                              881
                Goodwill                                         577
                Current liabilities                           (9,186)
                Noncurrent liabilities                          (696)
                Deferred income taxes                           (114)
                                                           ---------
                                                                    
                   Total                                  $   22,210
                                                           ========= 
</TABLE>

   The purchased research and development has been charged to operations upon
   acquisition.  The acquisition has been accounted for as a purchase and,
   accordingly, the accompanying consolidated financial statements include the
   accounts of Athens from the date of acquisition.  The name of Athens has been
   subsequently changed to IPEC Clean, Inc.

   The purchased research and development includes eight different potential
   products and was valued using a discounted cash flow analysis with no
   valuation of any potential product exceeding the estimated replacement cost
   to the Company. Of the eight "in-process" products acquired, four were in the
   product definition stage and four products had been conceptually outlined but
   had not gone through the product definition stage. At the time of the
   acquisition, there were no future alternative uses for these products. The
   Company believes that the technology has no separate economic value and was
   expensed as purchased research and development cost at the time of
   acquisition.

       GAARD AUTOMATION, INC.

   On October 30, 1995, the Company acquired all of the outstanding common stock
   of GAARD Automation, Inc. (GAARD), a privately owned company that develops
   and sells an advanced high throughput chemical mechanical planarization (CMP)
   system for metal planarization.  GAARD also designs and manufactures custom
   flexible automation systems used outside the semiconductor industry.  The
   purchase price consisted of cash of $12,000 and notes payable and long-term
   debt of $18,923.  Notes payable of $15,000 were subsequently repaid in 1996.


                                     F-11
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   The purchase price has been allocated to the assets acquired (including cash
   of $1,269) and liabilities assumed based on their fair values as follows:

<TABLE>
               <S>                                        <C>       
               Purchase price:                                      
                Cash                                       $  12,000
                Notes payable                                 15,700
                Long-term debt                                 3,223
                Costs of acquisition                             620
                                                           ---------
                                                                    
                     Total                                 $  31,543
                                                           =========
                                                                    
               Assets acquired and liabilities assumed:             
                Current assets                             $   7,958
                Property, plant and equipment                    128
                Deferred income taxes                          1,010
                Purchased research and development            28,793
                Current liabilities                           (6,346)
                                                           ---------
                                                                    
                     Total                                 $  31,543
                                                           ========= 
</TABLE>

   The purchased research and development has been charged to operations upon
   acquisition.  The name of GAARD has subsequently been changed to IPEC Planar
   Portland, Inc. The acquisition has been accounted for as a purchase, and
   accordingly, the accompanying consolidated financial statements include the
   results of GAARD from the date of acquisition.

   The purchased research and development includes one potential product and was
   valued using a discounted cash flow analysis. The valuation did not exceed
   the estimated replacement cost to the Company. The product, a CMP tool, was
   in the product definition stage at the time of the acquisition, and there
   were no future alternative uses for this product. The Company believes that
   the technology has no separate economic value and was expensed as purchased
   research and development cost at the time of acquisition.

       PRECISION MATERIALS

   On December 29, 1995, the Company's subsidiary IPEC Precision, Inc. acquired
   substantially all of the assets constituting the Precision Materials
   Operation of Hughes Danbury Optical Systems, Inc. (HDOS).  IPEC Precision
   (formerly HDOS) is engaged in the design, manufacture, and sale of precision
   equipment, based on proprietary plasma assisted chemical etching and
   metrology technologies, for use in the production of advanced semiconductor
   wafers and devices, and provides wafer processing services that use such
   proprietary technology and equipment.  The purchase price consisted of cash
   of $11,517 and notes payable of $10,356.

                                     F-12
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   The purchase price has been allocated to the assets acquired and liabilities
   assumed based on their fair values as follows:

<TABLE>
<S>                                        <C>
Purchase price:
 Cash                                       $  11,517
 Notes payable                                 10,356
 Costs of acquisition                             725
                                            ---------
 
    Total                                   $  22,598
                                            =========
 
Assets acquired and liabilities assumed:
 Current assets                             $     879
 Property, plant and equipment                  6,190
 Deferred income taxes                            400
 Patents                                        6,222
 Assembled workforce                            1,622
 Purchased research and development             8,168
 Current liabilities                             (883)
                                            ---------
 
    Total                                   $  22,598
                                            =========
</TABLE>

   The purchased research and development has been charged to operations upon
   acquisition. The acquisition has been accounted for as a purchase and,
   accordingly, the accompanying consolidated financial statements include the
   results of IPEC Precision from the date of acquisition.  A $9,000 note
   payable to HDOS relating to the acquisition bearing interest at the rate of
   11% per annum was repaid on February 27, 1996.  The Company also financed
   $10,000 of the $11,517 paid to HDOS through borrowing from a stockholder,
   which was also repaid in April 1996.

   The purchased research and development includes four potential products and
   was valued using a discounted cash flow analysis. The valuation did not
   exceed the estimated replacement cost to the Company. Of the four "in-process
   products" acquired, two were in the product definition stage and two products
   had been conceptually outlined but had not gone through the product
   definition stage. The Company believes that the technology has no separate
   economic value and was expensed as purchased research and development cost at
   the time of acquisition.

       PRO FORMA

   Pro forma unaudited consolidated operations data (excluding nonrecurring
   charges for purchased research and development), assuming all acquisitions
   had taken place on July 1, 1993 is as follows:

<TABLE>
<CAPTION>
                                             YEAR ENDED JUNE 30
                                  -------------------------------------
                                     1996          1995          1994
                                  ----------    ----------    ---------
 
<S>                              <C>           <C>           <C> 
Revenue                           $  192,649    $   111,640   $  60,781
                                  ==========    ==========    =========
Net income (loss)                 $   11,712    $     7,054   $  (6,977)
                                  ==========    ==========    =========
Net income (loss) per share       $      .73    $       .72   $   (2.53)
                                  ==========    ==========    =========
</TABLE>

                                     F-13
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    PRINCIPLES OF CONSOLIDATION

    The consolidated financial statements include the accounts of IPEC and its
    subsidiaries.  All significant intercompany balances and transactions have
    been eliminated in consolidation.

    USE OF ESTIMATES

    Management of the Company has made a number of estimates and assumptions
    relating to the reporting of assets and liabilities and the disclosure of
    contingent assets and liabilities to prepare these financial statements in
    conformity with generally accepted accounting principles.  Actual results
    could differ from those estimates.

    CASH AND CASH EQUIVALENTS

    All highly liquid securities with original maturities of three months or
    less at the date of purchase are considered to be cash equivalents.

    CONCENTRATIONS OF CREDIT RISK

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

    INVENTORIES

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

    PROPERTY, PLANT AND EQUIPMENT

    Property, plant and equipment are stated at cost and are depreciated on the
    straight-line method over the estimated useful lives of the assets which
    range from three to forty years.  Equipment recorded under capital leases is
    stated at the lower of fair market value or the present value of minimum
    lease payments at the inception of the lease.  Equipment recorded under
    capital leases and leasehold improvements are amortized using the straight-
    line method over the shorter of the lease term or the estimated useful lives
    of the related assets.

                                     F-14
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   INTANGIBLE ASSETS

   Intangible assets have been allocated among various categories based on their
   estimated fair value upon acquisition as determined by management or by
   independent appraisal.  The Company continually evaluates whether events and
   circumstances have occurred that indicate the estimated useful life of
   intangible assets may warrant revision or that the remaining balance may not
   be recoverable.  When factors indicate that the asset should be evaluated for
   possible impairment, the Company uses an estimate of the related undiscounted
   net cash flows generated by the asset over the remaining estimated life of
   the assets in measuring whether the asset is recoverable.  Material factors
   which may alter the useful life of the asset or determine that the balance
   may not be recoverable include effects of new technologies obsolescence,
   demand, competition and other economic factors.  Goodwill represents the
   excess cost over the fair value of tangible and intangible assets acquired
   and is amortized over 10 years using the straight-line method.  Patents are
   amortized over 5 to 10 years using the straight-line method.  Developed
   technology represents patented machine control software and sulfuric acid
   reprocessing technology on which several generations of products will be
   based and is being amortized over 15 years using the straight-line method.
   Assembled workforce represents the avoided cost to interview and train
   employees and is being amortized over 5 years using the straight-line method.

   WARRANTY EXPENSE

   The Company warrants its products for a period of one year or longer upon
   sale.  Future estimated warranty costs are charged to operations at the time
   of sale.

   REVENUE RECOGNITION

   The Company recognizes revenue from sales when a product is shipped.  Revenue
   from spare part sales or service revenue is recognized when shipped or upon
   completion of service.

   RESEARCH AND DEVELOPMENT

   Expenditures for research and development are charged to operations as
   incurred.

   INCOME TAXES

   The Company utilizes the method of accounting for income taxes prescribed by
   Statement of Financial Accounting Standards No. 109, "Accounting for Income
   Taxes" (SFAS No. 109).  Pursuant to SFAS No. 109, deferred tax assets and
   liabilities are recognized for the future tax consequences attributable to
   differences between the financial statement carrying amounts of existing
   assets and liabilities and their respective tax bases.  Deferred tax assets
   and liabilities are measured using enacted tax rates expected to apply to
   taxable income in the years in which these temporary differences are expected
   to be recovered or settled.

   INCOME (LOSS) PER SHARE OF COMMON STOCK

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

                                     F-15
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



    FOREIGN CURRENCY TRANSLATION

    The functional currency for the Company's foreign operations is their local
    currency.  Assets and liabilities of foreign operations are translated into
    U.S. dollars using current exchange rates at the balance sheet date, and
    revenue and expenses are translated into U.S. dollars using average exchange
    rates for the year.  The effects of foreign currency translation adjustments
    are included as a separate component of stockholders' equity.  Transaction
    gains and losses are included in operations and were not significant for the
    years ended June 30, 1996, 1995 and 1994.

    RECENTLY ISSUED ACCOUNTING STANDARDS

    In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
    "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
    Assets to Be Disposed Of", which requires impairment losses to be recorded
    on long-lived assets used in operations when indicators of impairment are
    present and the undiscounted cash flows estimated to be generated by those
    assets are less than the assets' carrying amount. SFAS No. 121 also
    addresses the accounting for long-lived assets that are expected to be
    disposed of. The Company will adopt SFAS No. 121 in the first quarter of the
    fiscal year ended June 30, 1997 and, based on current circumstances, does
    not believe the effect of adoption will be material to the consolidated
    financial statements.

    In October 1995, the Financial Accounting Standards Board issued SFAS No.
    123, "Accounting for Stock-Based Compensation." SFAS No. 123 is effective
    for transactions entered into in fiscal years beginning after December 15,
    1995. The Company will not be adopting the recognition and measurement
    criteria of SFAS No. 123 and thus, the impact of SFAS No. 123 on the
    Company's consolidated financial statements will not be material.

    RECLASSIFICATIONS

    Certain 1995 and 1994 balances have been reclassified to conform to the
    1996 presentation.

(3) INVENTORIES

    Inventories are summarized as follows:

<TABLE> 
<CAPTION> 
                                                               JUNE 30
                                                      -----------------------
                                                         1996          1995
                                                      ---------     ---------
          <S>                                         <C>           <C>  
          Raw materials                               $  20,781     $  16,864
          Work in process                                10,559         6,598
          Finished goods                                  2,302           477
                                                      ---------     ---------
                                                         33,642        23,939
          Less:  inventory obsolescence reserve          (1,961)       (1,057)
                                                      ---------     ---------
                                                     
                                                      $  31,681     $  22,882
                                                      =========     =========
</TABLE>

                                     F-16
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

 
 
(4)  PROPERTY, PLANT AND EQUIPMENT

   Property, plant and equipment is summarized as follows:

<TABLE>
<CAPTION>
                                                                    JUNE 30
                                                            -----------------------
                                                               1996          1995
                                                            ---------     ---------
 
<S>                                                       <C>           <C>
Land                                                      $    1,642    $      251
Buildings                                                     15,414         1,219
Machinery and equipment                                       35,940         9,529
Building and leasehold improvements                            2,221           772
Office furniture and fixtures                                  1,262           704
Vehicles                                                         106           125
Equipment recorded under capital leases                        2,362           843
                                                           ---------     ---------
                                                           
   Total                                                      58,947        13,443
                                                           
Less accumulated depreciation and amortization                (6,292)       (1,742)
                                                           ---------     ---------
                                                           
                                                          $   52,655    $   11,701
                                                           =========     =========
                                                           
(5)  INTANGIBLE ASSETS                                     

  Intangible assets are summarized as follows:
                                                                    JUNE 30
                                                           -----------------------
                                                              1996          1995
                                                           ---------     ---------
                                                           
Goodwill                                                  $    7,072    $    5,024
Patents                                                       11,398         5,177
Developed technology                                          13,592        13,592
Assembled workforce                                            2,503           881
                                                           ---------     ---------
                                                           
   Total                                                      34,565        24,674
                                                           
Less accumulated amortization                                 (6,519)       (3,170)
                                                           ---------     ---------
                                                           
                                                          $   28,046    $   21,504
                                                           =========     =========
</TABLE>

                                     F-17
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

 
 
(6)  ACCRUED LIABILITIES

   Accrued liabilities are summarized as follows:

<TABLE>
<CAPTION>
                                           JUNE 30
                                   ----------------------
                                      1996         1995
                                   ---------    ---------
 
   <S>                            <C>          <C>    
   Accrued warranties             $    7,043   $    2,899
   Accrued income taxes                3,190
   Accrued payroll and benefits        1,786          960
   Accrued vacation                    1,178          673
   Accrued commissions                 1,154        1,780
   Other accrued liabilities           6,799        4,279
                                   ---------    ---------
 
                                  $   21,150   $   10,591
                                   =========    =========
</TABLE>

(7)  NOTES PAYABLE

   At June 30, 1996 notes payable amounted to $2,056.  Notes payable amounting
   to $13,000 and $2,700 were issued in connection with the acquisition of
   GAARD.  The $13,000 note was paid in April 1996 and $2,000 of the $2,700 note
   was paid in January 1996.  The $2,700 note is non-interest bearing, and is
   due in fiscal 1997.

   A note payable to HDOS amounting to $1,356 was also outstanding at June 30,
   1996.  The note is due in equal installments on July 1, 1996 and September
   30, 1996.  The note bears interest at 8.5%.

                                     F-18
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

 
 
(8)  LONG-TERM DEBT

  Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                   JUNE 30
                                                         -----------------------------
                                                            1996               1995
                                                         ---------          ---------
<S>                                                      <C>                <C>
Notes payable, bank (a)                                   $19,786            $   --
Notes payable, other, interest ranging from prime
 plus 1% to 12%; due in 1997; collateralized by
 various assets
                                                              500             2,038

Note payable, interest at prime; matures in January
 1998; collateralized by patents and guaranteed by a
 stockholder
                                                              175               275
Notes payable to stockholder, bearing interest at
 prime plus 2% (b)                                             --             3,000

Note payable, GAARD acquisition (c)                         2,620                --

Capital lease obligations, interest at rates ranging
 from 7.3% to 11.3% (d)                                     1,884               636

Other                                                          --               571
                                                          -------            ------
                                                           24,965             6,520

Less current portion                                        2,124             4,772
                                                          -------            ------

Long-term debt, net                                       $22,841            $1,748
                                                          =======            ======
</TABLE>
 
 
(a)  The Company entered into a loan agreement in April 1996 with a bank. Under
   the terms of the agreement, the Company received a $10,000 term loan and a
   $30,000 revolving loan facility to provide working capital and for general
   corporate purposes. The borrowing base for the revolving loan facility
   consists of 80% of eligible accounts receivable as defined by the agreement.
   At June 30, 1996, the borrowing base was $22,104. The unused credit available
   under this facility at June 30, 1996 was $12,318.
   
     The outstanding balance of the term loan was $10,000 at June 30, 1996.  It
   bears interest at a rate of 9.52% and matures in October 1997. The
   outstanding balance on the revolving loan facility was $9,786 at June 30,
   1996. It bears interest at the Company's option at the prime rate or LIBOR
   plus 2.75%. The weighted average interest rate at June 30, 1996 on the
   outstanding balance was 8.24%. The commitments made under the revolving
   credit facility expire in April 1997, but may be extended annually for two
   one-year periods with the consent of the bank. If the revolving credit
   facility expires, the Company is obligated to repay the outstanding balance
   in eight equal quarterly payments of principal plus interest. The term loan
   and revolving loan facility are secured by a blanket lien on the assets of
   the Company and its subsidiaries.

                                     F-19
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued


       The terms of the loan agreement include various covenants, which, among
    other things include maintenance of certain financial ratios, limit the
    amount of dividends that can be paid to common stockholders and acquisitions
    of treasury stock. The Company was in compliance with these covenants as of
    June 30, 1996.

(b)    IPEC, Westech Systems, Inc. (now known as IPEC Planar Phoenix, Inc.) and
    an individual stockholder entered into a two-year $10,000 revolving credit
    facility in September 1994. In December 1995 in connection with the IPEC
    Precision acquisition, this facility was converted to a term loan due on
    September 30, 1997. The loan bears interest at a floating rate equal to the
    prime rate in effect from time to time plus 2% and is secured by a first
    lien on the assets of IPEC and Westech and a pledge of the stock of IPEC's
    subsidiaries. The loan was repaid in full in April 1996.

       As consideration for making the loan available, IPEC and Westech agreed
    to pay the stockholder administrative fees of $300 in the aggregate ($100 of
    which has been paid and the balance of which is payable by September 8,
    1996). IPEC also issued to the stockholder three-year warrants to purchase
    50,000 shares of IPEC common stock at a purchase price of $10 per share and
    a 10-year debenture in the principal amount of $500 bearing interest at the
    prime rate. The debenture was converted into 50,000 shares of IPEC common
    stock in the third quarter of fiscal 1996. The warrants were exercised in
    the fourth quarter of fiscal 1996.
 
(c)   The Company entered into a $3,223 promissory note with the former owner of
    GAARD. The note bears interest at 5.58% per year, payable monthly. The note
    matures in September 1998 and is unsecured.
    
(d)   The Company entered into lease financing arrangements for certain
    equipment and leasehold improvements. These leases expire at various dates
    through June 2001.
 
In September 1993, the Company obtained a bridge loan in the amount of $5,000
which was discounted by the value of warrants issued to the lenders. Upon
completion of the public offering in January 1994, the Company repaid the loan
and wrote off the debt discount and expenses of the loan aggregating $4,256,
which is included in interest expense.

Interest expense to related parties was $561, $304 and $164 for the years ended
June 30, 1996, 1995 and 1994, respectively. Interest expense includes debt
discount and deferred financing fees of $213 for the year ended June 30, 1995.


                                     F-20
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   The future maturities of long-term debt as of June 30, 1996 are as follows:

<TABLE>
<CAPTION>
                          YEAR ENDING JUNE 30:                
                                <S>               <C>   
                                1997              $   2,124
                                1998                 16,650
                                1999                  5,556
                                2000                    395
                                2001                    240
                                                  ---------
                                                           
                                Total             $  24,965
                                                  ========= 
</TABLE>

(9)  STOCKHOLDERS EQUITY

   PREFERRED STOCK

   Approximately 305,000 shares of Series A preferred stock were converted into
   approximately 153,000 shares of common stock in fiscal 1994.

   The holders of Series B preferred stock are entitled to an annual cumulative
   dividend amounting to $5.59 per share, payable semiannually on December 31
   and June 30, commencing June 30, 1994.  The Series B preferred stock was
   issued to the former stockholders of Westech upon achievement of revenue
   targets in calendar 1993, 1994 and 1995.  Each share of the Series B-1
   preferred stock, Series B-2 preferred stock and Series B-3 preferred stock is
   convertible into 12.54, 11.41 and 15.00 shares of common stock, respectively.
   During fiscal 1995, 1,074 shares of Series B-1 and B-2 preferred stock were
   converted into 12,860 shares of common stock, and in fiscal 1996, 268 shares
   of Series B-3 preferred stock were converted into 4,020 shares of common
   stock.

   CLASS A COMMON STOCK

   Each share of Class A common stock is entitled to four votes and can be
   converted into one share of the Company's common stock.  Each share of common
   stock is entitled to one vote.  In connection with the Company's initial
   public offering, all of the holders of the Company's Class A common stock
   placed into escrow on a pro rata basis, an aggregate of 733,550 shares of
   Class A common stock.  Since the market price of the Company's common stock
   attained specific levels in fiscal 1995, the shares of Class A common stock
   placed in escrow were released to the respective shareholders.

   OPTIONS AND WARRANTS

   Concurrent with the Company's initial public offering in August 1992, the
   Company issued options to the underwriter to purchase 87,500 units at an
   exercise price of $44.20 per unit.  Each unit consists of one share of common
   stock, one Class A warrant and one Class B warrant.  The options expire in
   1997.  At June 30, 1996, approximately 23,000 of these options were
   outstanding.


                                     F-21
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued

Concurrent with the Company's secondary offering in February 1994, the Company
issued options to the underwriter for the purchase of 1,800 units at an exercise
price of $1,650 per unit. Each unit consists of 130 shares of common stock and
78 Class B warrants which expire in 1999. At June 30, 1996, all of these options
were outstanding.

Upon the exercise of each Class A warrant, the holder received one share of
common stock and one Class B warrant. The Class A warrants were called for
redemption in August 1994.

Upon the exercise of each Class B warrant, the holder received one share of
common stock. These warrants were called for redemption in May 1995.

Class D warrants were issued in connection with lines of credit extended by a
stockholder and have been assigned a value of $73. Additional warrants were
issued in connection with services provided during the acquisition of GAARD and
have been assigned a value of $100.

WARRANTS

The following table summarizes  warrant activity:

<TABLE>
<CAPTION>
                                  COMMON        CLASS A       CLASS B      CLASS C     CLASS D     CLASS E      OTHER
                                    (d)           (a)           (b)          (d)         (c)         (e)         (f)         TOTAL
                                ----------    ----------    ----------    --------    --------    --------    --------    ---------
<S>                             <C>           <C>           <C>           <C>         <C>         <C>         <C>         <C>
Exercise price                  $     4.00          8.90         13.45        2.62        8.90       10.00       29.25           --
Expiration                         8/13/95       8/13/97       8/13/99     8/28/97     8/13/97    12/31/97    12/26/00           --
Issued with public offerings            --     1,006,250     2,620,850          --     100,000          --          --    3,727,100
Issued with bridge financing        25,000     1,250,000            --          --          --          --          --    1,275,000
Issued in connection with      
  line of credit                        --            --            --     275,000          --      50,000          --      325,000
Issued in connection with      
  exercise of A warrants                --            --     2,291,380          --          --          --          --    2,291,380
Issued in connection with      
  acquisition services                  --            --            --          --          --          --      10,000       10,000
Issued with unit purchase       
  options                               --        64,540        64,540          --          --          --          --      129,080
Exercised                          (25,000)   (2,291,380)   (4,971,660)   (137,500)   (100,000)    (50,000)         --   (7,575,540)
Redeemed                                --       (29,410)       (5,110)         --          --          --          --      (34,520)
                                ----------    ----------    ----------    --------    --------    --------    --------   ----------
Outstanding June 30, 1996       $       --            --            --     137,500          --          --      10,000      147,500
                                ==========    ==========    ==========    ========    ========    ========    ========   ==========
</TABLE>

                                     F-22
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   (a)    Upon exercise of each Class A warrant, the holder received one share
       of common stock and one Class B warrant. In August 1994, the Class A
       warrants were called by the Company for redemption. As a result, warrants
       for 2,226,840 shares were exercised providing net proceeds of
       approximately $19,025 to the Company.

   (b)    Upon exercise of each Class B warrant, the holder received one share
       of common stock. In May 1995, these warrants were called by the Company
       for redemption. As a result warrants for 4,902,780 shares were exercised
       providing net proceeds of $63,273 to the Company.

   (c)    These warrants were issued in connection with a line of credit
       extended by a stockholder and assigned a value of $73.

   (d)    Upon exercise, the holder will receive one share of common stock for
       each warrant exercised.

   (e)    These warrants were issued in connection with a line of credit
       extended by a stockholder and assigned a value of $144.

   (f)    These warrants were issued in connection with services provided during
       the acquisition of GAARD and were assigned a value of $100.

(10)  EMPLOYEE BENEFITS

   Effective August 1993, the Company established a defined contribution plan
   under Section 401(k) of the Internal Revenue Code that covers all eligible
   employees.  Participants may contribute up to 15% of their salary.
   Participants vest immediately in their own contributions and over a five-year
   period in the Company's matching contributions.  The Company made matching
   contributions of $189 in fiscal 1996.

   The Company acquired defined contribution plans under Section 401(k) of the
   Internal Revenue Code in connection with the acquisitions of Athens and
   GAARD.  The Athens plan was merged into the Company's plan on July 1, 1995.
   The GAARD plan is expected to be merged into the Company's plan on January 1,
   1997.  Participants in the GAARD plan may also contribute up to 15% of their
   salary.

   In connection with the acquisition of IPEC Precision, employees of IPEC
   Precision became eligible for participation in the Company's 401(k) plan.

   In 1994, the Company adopted the 1994 Employee Stock Purchase Plan to provide
   employees with a more convenient means to acquire an equity interest in the
   Company. Eligible employees of the Company can purchase common stock through
   payroll deductions at 85% of the fair market value of the stock. Payroll
   deductions for the purchase of stock may not exceed 10% of an employee's base
   compensation or $25. As of June 30, 1996, 88,344 shares have been purchased
   under this plan. The maximum number of shares that may be issued under this
   plan is 1,000,000.


                                     F-23
<PAGE>
 
                      INTEGRATED PROCESS EQUIPMENT CORP.
                               AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



The Company's 1992 Stock Option Plan provides for the issuance of incentive
stock options, nonqualified stock options and stock appreciation rights to
purchase up to 4,050,000 shares of common stock to employees, directors and
consultants.  The grants vest over periods ranging up to five years.  Under
the Stock Option Plan, options may be granted to purchase shares of the
Company's common stock at not less than fair market value at the date of
grant, and are exercisable for a period not exceeding ten years from that
date.

The following table summarizes the activity under this plan:

<TABLE>
<CAPTION>
                                        NUMBER OF               EXERCISE  
                                         OPTIONS                 PRICE             EXERCISABLE
                                        ---------            --------------       ------------
<S>                                     <C>                  <C>                  <C>
Outstanding, July 1, 1993                      --            $                             --
 
Granted                                   314,000              7.75 - 10.00
Exercised                                 (10,000)                 7.75
                                        --------- 
Outstanding, June 30, 1994                304,000              7.75 - 10.00           164,000
                                                                                    ========= 
Granted                                 2,860,000              9.00 - 28.75
Exercised                                (196,000)             7.75 -  9.00
Forfeitures                              (111,000)             7.75 -  9.00
                                        --------- 
 
Outstanding, June 30, 1995              2,857,000              7.75 - 28.75           655,000
                                                                                    =========
 
Granted                                   649,000            17.875 - 31.00
Exercised                                (180,000)             7.75 - 20.75
Forfeitures                              (238,000)             9.00 - 31.00
                                        ---------
 
Outstanding, June 30, 1996              3,088,000              7.75 - 31.00         1,103,000
                                        =========                                   =========
</TABLE>

On April 3, 1996, the Board of Directors of the Company approved a repricing
of options granted after April 20, 1995.  Employees, excluding officers and
directors who were issued stock options subsequent to April 20, 1995 and who
were active employees on April 3, 1996, could elect to keep their options to
buy common stock at the original grant price or reprice their options to
$17.875 per share, the fair market value of the common stock on April 2,
1996.  If the employee elected to reprice their options to $17.875 per share,
the vesting commencement date was extended by periods ranging from four
months to one year.

Common stock received through the exercise of non-qualified stock options
result in a tax deduction for the Company equivalent to the taxable income
recognized by the optionee at time of exercise.  For financial reporting
purposes, the tax effect of this deduction is accounted for as a credit to
additional paid-in capital rather than as a reduction of income tax expense.
Such optionee exercise of options resulted in a tax benefit to the Company of
$1,561 and $988 for the years ended June 30, 1996 and 1995, respectively.

                                     F-24

<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(11)  MAJOR CUSTOMERS

      One customer accounted for 29%, 18% and 17% of revenue for the fiscal
      years ended June 30, 1996, 1995 and 1994, respectively. Another customer
      accounted for 20% and 45% of revenue for the fiscal years ended June 30,
      1995 and 1994, respectively. A third customer accounted for 14% of revenue
      for the fiscal year ended June 30, 1995.

      Total export sales by geographic region are as follows:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED JUNE 30
                                                       -------------------------------------
                                                          1996          1995          1994
                                                       ----------     ---------     -------- 
      <S>                                              <C>            <C>           <C>
      Far East                                         $   44,410     $  13,032     $  7,195
                                                       ==========     =========     ========
      Europe                                           $   17,685     $   8,432     $  4,956
                                                       ==========     =========     ========
      Other                                            $       81     $      36     $      6
                                                       ==========     =========     ========
</TABLE> 

(12)  INCOME TAXES

      Income tax expense (benefit) is comprised of the following:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30
                                                       -------------------------------------
                                                          1996          1995         1994
                                                       ----------     ---------     --------
      <S>                                              <C>            <C>           <C>
      Current:                           
        Federal                                        $    7,827     $   1,052     $      -
        State                                               1,249           192            -
        Foreign                                                 -            31            -
                                                       ----------     ---------     --------
                                                            9,076         1,275            -
                                                       ----------     ---------     --------
                                  
      Deferred:                    
        Federal                                           (13,474)         (992)        (700)
        State                                              (2,381)         (207)        (130)
                                                       ----------     ---------     --------
                                                          (15,855)       (1,199)        (830)
                                                       ----------     ---------     --------
 
      Income tax expense (benefit)                     $   (6,779)    $      76    $    (830)
                                                       ==========     =========     ========
</TABLE>

<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



DEFERRED INCOME TAXES

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets, liabilities and the valuation allowance
are as follows:

<TABLE>
<CAPTION>
                                                     JUNE 30
                                             -----------------------
                                                1996          1995
                                             ---------     ---------
<S>                                          <C>           <C> 
Deferred tax assets:
  Warranty reserve                           $   2,934     $   1,160
  Inventory reserve                              1,698           961
  Vacation accrual                                 463           269
  Research and development credits                 158         1,090
  Net operating loss and alternative
    minimum tax credit carryforwards             6,763         7,115
 
  Technology asset                              14,784
  Other                                            227           225
                                             ---------     ---------
                                                27,027        10,820
  Valuation allowance                           (1,707)       (1,951)
                                             ---------     ---------
                                                25,320         8,869
                                             ---------     ---------
Deferred tax liabilities:
  Differences between the tax basis and
    fair value of intangibles and fixed
    assets acquired                              5,707         6,894
 
 
  Depreciation differences                         881           540
  Other                                            382           350
                                             ---------     ---------
                                                 6,970         7,784
                                             ---------     ---------
 
      Net deferred tax asset                 $  18,350     $   1,085
                                             =========     =========
</TABLE>

In December 1994, the Company acquired IPEC Clean, Inc.  IPEC Clean, Inc. had
net operating loss carryovers (NOLs) of approximately $19,000 at the date of
acquisition which expire between the years 2000 to 2005.  These NOLs may only
be used to offset future earnings of IPEC Clean, Inc.

The valuation allowance has been reduced by approximately $244 and $2,704
during the years ended June 30, 1996 and 1995, respectively.  The entire
valuation allowance relates to deferred tax assets attributable to the
acquisition of IPEC Clean, Inc.  Management believes that it is more likely
than not that the results of future operations will generate sufficient
taxable income to realize the net deferred tax assets.

<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   RATE RECONCILIATION

   A reconciliation of the Federal statutory income tax rate to the effective
   income tax rate is as follows:

<TABLE>
<CAPTION>
                                               YEAR ENDED JUNE 30
                                        -----------------------------
                                           1996      1995      1994
                                        --------- ---------- --------
       <S>                              <C>       <C>       <C>
        Federal income taxes at 
          statutory rate                  (34.0)%     34.0%   (34.0)%
                                           
        State and local taxes              (4.3)      61.0        -

        Research and development 
          tax credits                      (4.0)    (161.5)       -
                                             
        Nondeductible expenses, 
          including acquired 
          research and development 
          and amortization of 
          goodwill                          6.7      460.0        -
 
        Reversal of valuation 
          allowance for deferred tax 
          assets                           (1.4)    (383.3)    25.5
                                             
        Other                              (1.9)       1.1        -
                                         --------- ---------- -------- 
              Effective income 
                tax rate                  (38.9)%     11.3%    (8.5)%
                                         ========= ========== ========
</TABLE>

(13) COMMITMENTS AND CONTINGENCIES

   The Company is subject to lawsuits and other claims arising in the ordinary
   course of business.  In the opinion of management, based on consultation with
   legal counsel, the effect of such matters will not have a material adverse
   effect on the Company's financial position or results of operations.

                                     F-27
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



   The following is a schedule by year of the approximate future minimum lease
   payments under noncancelable operating leases with terms in excess of one
   year for the succeeding five years as of June 30, 1996:

<TABLE>
<CAPTION>
                          YEAR ENDING JUNE 30,              
                                <S>              <C>  
                                1997             $   1,425
                                1998                 1,267
                                1999                   957
                                2000                   797
                                2001                   445
                                                  --------
                                                          
                                                 $   4,891
                                                  ======== 
</TABLE>

   Total rent expense under all operating leases for the years ended June 30,
   1996, 1995 and 1994 was $1,647, $636 and $473, respectively.

(14) FAIR VALUE OF FINANCIAL INSTRUMENTS

   Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
   Value of Financial Instruments," requires that the Company disclose estimated
   fair values for its financial instruments.  The following summary presents a
   description of the methodologies and assumptions used to determine such
   amounts.

   LIMITATIONS

   Fair value estimates are made at a specific point in time and are based on
   relevant market information and information about the financial instrument;
   they are subjective in nature and involve uncertainties, matters of judgment
   and, therefore, cannot be determined with precision.  These estimates do not
   reflect any premium or discount that could result from offering for sale, at
   one time, the Company's entire holdings of a particular instrument.  Changes
   in assumptions could significantly affect these estimates.

   Since the fair value is estimated as of June 30, 1996, the amounts that will
   actually be realized or paid at settlement or maturity of the instruments
   could be significantly different.

   ACCOUNTS RECEIVABLE, ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

   The carrying amount is assumed to be the fair value because of the short-term
   maturity of these instruments.

   NOTES PAYABLE AND LONG-TERM DEBT

   The fair value of the Company's notes payable and long-term debt approximate
   the terms in the marketplace at which they could be replaced.  Therefore, the
   fair value approximates the carrying value of these financial instruments.

                                     F-28
<PAGE>
 
                       INTEGRATED PROCESS EQUIPMENT CORP.
                                AND SUBSIDIARIES

             Notes to Consolidated Financial Statements, Continued



(15) RELATED PARTY TRANSACTIONS

     The Company had purchases of raw materials and services of approximately
     $8,814, $3,455 and $5,136 from companies owned by stockholders of the
     Company during the years ended June 30, 1996, 1995 and 1994, respectively.
     The Company has payables related to these purchases of $934 and $359 at
     June 30, 1996 and 1995, respectively.
  
     On December 29, 1995, the Company loaned $900 to the Chairman of the
     Company. The loan bears interest at the prime rate and is due on the
     earliest to occur of (i) 90 days after the Chairman's ability to sell
     Company stock without restriction under Section 16 of the Securities
     Exchange Act or a lockup agreement, (ii) immediately on voluntary
     termination of employment, (iii) 90 days after involuntary termination
     of employment for "cause," or (iv) immediately on the sale of a
     personal residence. The loan is secured by all of the executive's
     options to purchase the Company's common stock and shares of common
     stock. Included in other assets is a receivable of $969 related to this
     loan at June 30, 1996.

(16) SUPPLEMENTAL FINANCIAL INFORMATION

     A summary of additions and deductions related to the allowance for accounts
     receivable and inventory obsolescence for the years ended June 30, 1996,
     1995 and 1994 follows:

<TABLE>
<CAPTION>
                                                 BALANCE AT                                         BALANCE AT
                                                 BEGINNING                                            END OF
                                                  OF YEAR         ADDITIONS       DEDUCTIONS           YEAR
                                                -------------    ------------    -------------     -------------
<S>                                            <C>              <C>             <C>               <C>
                                          
   Allowance for doubtful accounts:          
                                          
      Year ended June 30, 1996                  $           50   $          50   $                 $          100
                                                 =============    ============    =============     =============
                                          
      Year ended June 30, 1995                  $           50   $               $                 $           50
                                                 =============    ============    =============     =============
                                          
      Year ended June 30, 1994                  $                           50   $                 $           50
                                                 =============    ============    =============     =============
                                          
   Allowances for inventory obsolescence:    
                                          
      Year ended June 30, 1996                  $        1,057   $       1,059   $         (155)   $        1,961
                                                 =============    ============    =============     =============
                                          
      Year ended June 30, 1995                  $          738   $         319   $                 $        1,057
                                                 =============    ============    =============     =============
                                          
      Year ended June 30, 1994                  $                        1,289   $         (551)   $          738
                                                 =============    ============    =============     =============
</TABLE>

                                     F-29
<PAGE>
 
                                   SIGNATURES

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

                              INTEGRATED PROCESS EQUIPMENT CORP.
                              a Delaware Corporation

                              By:  /s/ JOHN S. HODGSON
                                  --------------------------------
                                  John S. Hodgson
                                  Vice President, Chief Financial
                                  Officer, Treasurer and
                                  Secretary (Principal Financial
                                  and Accounting Officer)

                              Date: January 16, 1997

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

<TABLE>
<CAPTION>
Signature                               Title                                              Date
                                                                  
<S>                                <C>                                                <C>  
/s/ SANJEEV R. CHITRE *            Chairman of the Board and Chief                    January 16, 1997
-----------------------------      Executive Officer (Principal Executive 
Sanjeev R. Chitre                  Officer)                    
                                                                  
/s/ JOHN S. HODGSON                Vice President, Chief Financial Officer,           January 16, 1997
-----------------------------      Treasurer and Secretary (Principal                               
John S. Hodgson                    Financial and Accounting Officer)  
                                    
/s/ WILLIAM J. FRESCHI *           Director                                           January 16, 1997
-----------------------------                                                 
William J. Freschi                                                            
                                                                              
/s/ HAROLD C. BALDAUF *            Director                                           January 16, 1997
-----------------------------                                                 
Harold C. Baldauf                                                             
                                                                              
/s/ KENNETH LEVY *                 Director                                           January 16, 1997
-----------------------------                                                 
Kenneth Levy                                                                  
                                                                              
                                   Director                                           January __, 1997
-----------------------------                                                 
Roger D. Emerick                                                              
                                                                              
                                   Director                                           January __, 1997
-----------------------------                                     
Roger D. McDaniel                                                 


* By:   /s/ JOHN S. HODGSON
     ------------------------
        John S. Hodgson
        Attorney-in-Fact
</TABLE> 
<PAGE>
 
                                  EXHIBIT INDEX
                                  -------------
 
   Exhibit                                  Description

     2.1       Stock Purchase Agreement among Integrated Process Equipment Corp.
               ("IPEC"), William Reiersgaard and GAARD Automation Inc.
               ("GAARD"), dated effective October 30, 1995. Incorporated by
               reference to Exhibit 2.1 to the Company's Current Report on Form
               8-K for reporting date October 30, 1995 and filed November 14,
               1995 (File No. 0-20470) ("GAARD 8-K").

     2.2       Asset Purchase Agreement between IPEC and Hughes Danbury Optical
               Systems, Inc. ("HDOS"), dated effective December 29, 1995.
               Incorporated by reference to Exhibit 2.1 to the Company's Current
               Report on Form 8-K for reporting date December 29, 1995 and filed
               January 13, 1996 (File No. 0-20470) ("HDOS 8-K").

     3.1       Certificate of Incorporation, as amended. Incorporated by
               reference to Exhibit 3.1 to the Company's Annual Report on Form
               10-KSB for the fiscal year ended June 30, 1993 (File No. 0-20470)
               (the "1993 Form 10-KSB").

     3.2       Amendment of Certificate of Incorporation, effective December 16,
               1993. Incorporated by reference to Exhibit 3.2 to Amendment No.
               1, filed on December 30, 1993 ("SB-2 Amendment No. 1") to the
               Registrant's Registration Statement on Form SB-2 (Registration
               No. 33-70962) (the "SB-2 Registration Statement").

     3.3       By-Laws, as amended. Incorporated by reference to Exhibit 3.3 to
               SB-2 Amendment No. 1.

     3.4       Certificate of Amendment of the Certificate of Incorporation of
               the Company, filed with the State of Delaware on January 31,
               1996, previously filed as Exhibit 3(i).1 to the Company's
               Quarterly Report on Form 10-Q for the third quarter ended March
               31, 1996, incorporated herein by reference.

     4.1       Form of Class C Warrant issued by the Company. Incorporated by
               reference to Exhibit 10.13 to IPO Amendment No. 1.


                                       1
<PAGE>
 
     4.2       Warrant Agreement dated June 29, 1992 among the Company, American
               Stock Transfer & Trust Company (the "Warrant Agent") and D.H.
               Blair Investment Banking Corp. ("Blair"). Incorporated by
               reference to Exhibit 10.14 to IPO Amendment No. 1.

     4.3       Form of Warrant Agreement, dated as of August 13, 1992, between
               the Company, the Warrant Agent and Blair, including the form of
               warrants. Incorporated by reference to Exhibit 4.1 to IPO
               Amendment No. 1.

     4.4       Form of Warrant Agreement, dated as of July 23, 1993, between the
               Company, the Warrant Agent and Blair. Incorporated by reference
               to Exhibit 10.16 to the 1993 Form 10-KSB.

     4.5       Form of Warrant Agreement, dated as of January 26, 1994, between
               the Company, the Warrant Agent and Blair, including the form of
               Warrants. Incorporated by reference to Exhibit 4.1 to Amendment
               No. 2 to the SB-2 Registration Statement, filed on January 18,
               1994 ("SB-2 Amendment No. 2").

     4.6       Form of Initial Public Offering Unit Purchase Option between the
               Company and Blair. Incorporated by reference to Exhibit 1.2 to
               Amendment No. 2 to the IPO Registration Statement, filed August
               5, 1993 ("IPO Amendment No. 2").

     4.7       Registration Agreement, dated as of November 22, 1994, by and
               among the Company and the Exchanging Shareholders. Incorporated
               by reference to Exhibit 10.2 to the 1994 Form 8-K.

     4.8       Registration Rights Agreement, dated as of September 9, 1994,
               between the Company and Kassner. Incorporated by reference to
               Exhibit 4.12 to the 1995 Form 10-K.

     4.9       Stockholders' Agreement, dated as of August 31, 1993 among the
               Company, Harold C. Baldauf ("HCB") and Janet A. Baldauf ("JAB").
               Incorporated by reference to Exhibit 10.22 to the 1993 Form 10-
               KSB.


                                       2
<PAGE>
 
     10.1      Licensing and Manufacturing Agreement, dated July 18, 1990,
               between the Registrant and MTC. Incorporated by reference to
               Exhibit 10.4 to the IPO Registration Statement.

     10.2      Form of Escrow Agreement, dated as of August 13, 1992, among the
               Company, all holders of Class A Common Stock, and American Stock
               Transfer & Trust Company as Escrow Agent. Incorporated by
               reference to Exhibit 10.9 to IPO Amendment No. 2.

     10.3      Form of 1994 Public Offering Unit Purchase Option between the
               Company and Blair. Incorporated by reference to Exhibit 1.2 to
               Amendment No. 3 to the SB-2 Registration Statement, filed January
               25, 1994 ("SB-2 Amendment No. 3").

     10.4      Consulting Agreement dated as of August 31, 1993 by and among the
               Company, HCB, Harold Baldauf, Jr. and David Baldauf. Incorporated
               by reference to Exhibit 10.24 to the 1993 Form 10-KSB.

     10.5      Settlement Agreement, dated January 23, 1993, between Westech and
               Speedfam Corporation. Incorporated by reference to Exhibit 10.34
               to the 1993 Form 10-KSB.

     10.6      Indenture of Lease, dated July 30, 1993, relating to facilities
               leased for Westech's subassembly manufacturing facility.
               Incorporated by reference to Exhibit 10.38 to SB-2 Amendment No.
               2.

     10.7      Lease, dated July 20, 1994, relating to Westech's facility in
               Phoenix, Arizona. Incorporated by reference to Exhibit 10.35 to
               the Company's Registration Statement on Form S-3 (Registration
               No. 33-9038) filed on May 12, 1995 (the "May 1995 Form S-3").

     10.8      Lease, dated November 1, 1994, relating to Tempe, Arizona
               research and development facility. Incorporated by reference to
               Exhibit 10.36 to the May 1995 Form S-3.

     10.9      Lease, dated October 15, 1985, as amended (together with related
               Subordination, Non-Disturbance and Estoppel Agreement dated July
               1, 1986), relating to Athens' facility in Oceanside, California.
               Incorporated by reference to Exhibit 10.37 to the May 1995 
               Form S-3.


                                       3
<PAGE>
 
     10.10     Lease, dated March 23, 1988, as amended (together with related
               Subordination, Nondisturbance and Attornment Agreement dated
               January 17, 1995), relating to Athens' larger facility in
               Oceanside, California. Incorporated by reference to Exhibit 10.38
               to the May 1995 Form S-3.

     10.11     License Agreement, dated as of April 17, 1991, between Athens and
               Sumitomo Corporation, together with amendment Agreement dated
               December 29, 1993. Incorporated by reference to Exhibit 10.41 to
               the May 1995 Form S-3.

     10.12     Promissory note and security agreement between Integrated Process
               Equipment Corp. and Don M. Jackson, Jr., dated August 31, 1995;
               and related Commercial Guaranty issued by the Company to Second
               National Bank of Saginaw, previously filed as Exhibit 10.1 to the
               Company's Quarterly Report on Form 10-Q for the first quarter
               ended September 30, 1995, incorporated herein by reference.

     10.13     IPEC 1992 Stock Option Plan (as amended December 12, 1995),
               previously filed as Exhibit 10.1 to the Company's Quarterly
               Report on Form 10-Q for the second quarter ended December 31,
               1995, incorporated herein by reference.

     10.14     Promissory Note (First Note) from IPEC to William Reiersgaard
               dated October 30, 1995. Incorporated by reference to Exhibit 2.4
               to the GAARD 8-K.

     10.15     Promissory Note (Second Note) from IPEC to William Reiersgaard
               dated October 30, 1995. Incorporated by reference to Exhibit 2.4
               to the GAARD 8-K.

     10.16     Promissory Note from IPEC/Precision, a subsidiary of IPEC, to
               HDOS dated December 29, 1995. Incorporated by reference to
               Exhibit 2.5 to the HDOS 8-K.

     10.17     Security and Pledge Agreement dated December 29, 1995 between
               IPEC/Precision and IPEC in favor of HDOS. Incorporated by
               reference to Exhibit 2.5 to the HDOS 8-K.

     10.18     Form of Promissory Note and Security Agreement dated December
               1995 from Sanjeev Chitre to IPEC, previously filed as Exhibit
               10.6 to the Company's Quarterly Report


                                       4
<PAGE>
 
               on Form 10-Q for the second quarter ended December 31, 1995,
               incorporated herein by reference.

     10.19*    Lease Agreement, dated March 8, 1996, relating to Precision's
               facility in Bethel, Connecticut.

     10.20*    Loan Agreement dated April 24, 1996, between the Company and
               First Interstate Bank of Arizona, N.A. ("Credit Facility
               Agreement"), with related Side Letter Concerning Liens dated
               April 24, 1996, Letter Agreement dated May 31, 1996, Revolving
               Credit Note dated April 24, 1996, Term Note dated April 24, 1996
               and Security Agreement dated April 24, 1996.

               The following additional schedules to the Credit Facility
               Agreement have been omitted and the Company agrees to furnish
               supplementally a copy of any omitted schedule to the SEC upon
               request: Officer's Certificate of Parent dated April 24, 1996,
               Borrowing Base Certificate dated April 25, 1996, Compliance
               Certificate dated April 24, 1996, Notice of Negative Pledge dated
               April 24, 1996, and Patent Mortgage, Trademark Security
               Agreements, Patent Security Agreements and Copyright Security
               Agreements for the Company and its subsidiaries, each dated April
               24, 1996.

     11.1*     Statement regarding computation of per share earnings.

     22.1*     Subsidiaries of Company.

     23.1**    Consent of KPMG Peat Marwick LLP

     23.2**    Consent of Richard A. Eisner & Company, LLP.

     24.1*     Powers of Attorney
 
       *       Incorporated by reference to the corresponding Exhibits to the
               Company's Annual Report on Form 10-K filed on September 13, 1996.

      **       Filed herewith.


                                       5