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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-K/A

(Amendment No. 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 December 31, 2004 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 001-16611



MYKROLIS CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 04-3536767                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|129 Concord Road, Billerica, MA                                |  | 01821                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



(978) 436-6500

(Registrants telephone number, including area code)



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



|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of Class                |  | Name of Exchange on Which Registered
|Common Stock, $0.01 Par Value |  | New York Stock Exchange, Inc.       



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



Indicate by
check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No ̈



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes  x    No ̈



As of July 2, 2004, the aggregate market value of the registrants voting stock held by non-affiliates of the
registrant was approximately $692,438,997 based on the closing price on that date on the New York Stock Exchange.



As of February 1, 2005 41,961,602 shares of the registrants Common Stock were outstanding.



Documents Incorporated by Reference



None



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EXPLANATORY NOTE



On March 21, 2005, Mykrolis Corporation (the Company) entered into an Agreement and Plan of Merger with
Entegris, Inc., a Minnesota corporation (Entegris) and Eagle DE, Inc., a Delaware corporation and a wholly-owned subsidiary of Entegris, pursuant to which Entegris will reincorporate in Delaware by merging into Eagle DE, Inc. and then
immediately thereafter the Company will be merged into Eagle DE, Inc., whose name will be changed to Entegris, Inc. As a result of this development, the Company has postponed its Annual Meeting of Stockholders so that it is necessary for the Company
to file this Amendment No. 1 on Form 10-K/A to the Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the Original Filing), which was filed with the Securities and Exchange Commission on March 11, 2005, in order to
amend the Original Filing to directly include the information required by Items 10, 11, 12, 13 and 14 of Form 10-K in this report rather than provide that information by incorporation by reference to the Companys 2005 proxy statement, as was
done in the Original Filing. This Form 10-K/A contains all of the information included in the Original Filing and, except for the amendments described above, does not modify or update other disclosures in, or exhibits to the Original Filing (other
than a revision to the list of exhibits to incorporate by reference the exhibits filed with the Original Filing, to add a new consent of Independent Registered Public Accounting Firm and new certifications which are provided herewith).



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Part I



Item 1.    Business.



The Company



Mykrolis is a worldwide developer, manufacturer and supplier of liquid and gas delivery systems, components and consumables used to precisely measure,
deliver, control and purify the process liquids, gases and chemicals that are used in the semiconductor manufacturing process. Our products are also used to manufacture a range of other products, such as flat panel displays, high purity chemicals,
photoresists, solar cells, gas lasers, optical and magnetic storage devices and fiber optic cables. We sell our products worldwide through a direct sales force and through distributors in selected regions. Mykrolis Corporation was formed in 2000 in
connection with the spin-off by Millipore Corporation of its microelectronics business unit. Our history is described in greater detail under Our History below.



We offer a diverse product line, grouped in 450 product categories, including both consumable products and equipment
products.



| |  |  | We offer more than 3,000 consumable products. Our consumable products are used by our customers in the manufacturing process and require periodic replacement to maintain the purity
and precision of the manufacturing process. These products use a number of purification technologies to remove particles, ions and molecules from liquid and gas streams.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our equipment products include components, systems and subsystems that use electro-mechanical, pressure differential and related technologies, to permit semiconductor and other
electronics manufacturers to monitor and control the flow and condition of process liquids and gases, as well as vacuum systems used in these manufacturing processes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During the third quarter of 2004 Mykrolis acquired the business and certain of the assets of Bentec Scientific, LLC, a
privately held company that developed, manufactured and marketed polyvinyl alcohol roller brushes for use in post chemical mechanical planarization (CMP) process cleaning applications. The Bentec products supplement our consumable
product offerings for semiconductor applications. Bentecs results of operations are included in our consolidated financial statements since August 12, 2004, the date of purchase.



Unless the context otherwise requires, the terms Mykrolis, we, our, or the
Company mean Mykrolis Corporation and its subsidiaries and the term Millipore means Millipore Corporation and its subsidiaries when referring to periods prior to March 31, 2001 and Millipore Corporation and its subsidiaries
other than Mykrolis when referring to periods subsequent to March 31, 2001.



Background



The manufacture of semiconductors
requires hundreds of process steps which take place in the controlled environment of process chambers within the semiconductor tool. We offer products for each of the primary processing steps in the manufacture of semiconductors which are listed
below.



Deposition.    Deposition
refers to placing layers of insulating or conductive materials on a wafer surface in thin films that make up the circuit elements of semiconductor devices. The two main deposition processes are physical vapor deposition, where a thin film is
deposited on a wafer surface in a low-pressure gas environment, and chemical vapor deposition, where a thin film is deposited on a wafer surface using a gas medium and a chemical bonding process. In addition, electro-plating technology is utilized
for the deposition of low resistance conductive materials such as copper. The control of uniformity and thickness of these films through filtration and purification of the fluids and materials used during the process is critical to the performance
of the semiconductor circuit and, consequently, the manufacturing yield.



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Chemical Mechanical Planarization.    CMP flattens, or planarizes, the
topography of the film surface to permit the patterning of small features on the resulting smooth surface by the photolithography process. Semiconductor manufacturers need filtration and purification systems to maintain acceptable manufacturing
yields through the chemical mechanical planarization process by filtering the liquid slurries, which are solutions containing abrasive particles in a chemical mixture, to remove oversized particles and contaminants that can cause defects on a
wafers surface while not affecting the functioning of the abrasive particles in the liquid slurries. In addition, manufacturers use consumable roller brushes to clean the wafer after completion of the CMP process to prepare the wafer for
subsequent operations.



Photolithography.    Photolithography is the process step that defines the patterns of the circuits to be built on the chip. Before photolithography, a wafer is pre-coated with photoresist, a light sensitive film
composed of ultra-high purity chemicals in liquid form. The photoresist is exposed to specific forms of radiation, such as ultraviolet light, electrons or x-rays, to form patterns which eventually become the circuitry on the chip. This process is
repeated many times, using different patterns and interconnects between layers to form the complex, multi-layer circuitry on a semiconductor chip. As device geometries decrease and wafer sizes increase, it is even more critical that these
photoresists are dispensed on to the chip with accurate thickness and uniformity, as well as with low levels of contamination, and that the process gases are free of micro-contamination so that manufacturers can achieve acceptable yields in the
manufacturing process.



Etch and Resist
Strip.    Etch is the process of selectively removing precise areas of thin films that have been deposited on the surface of a wafer. The hardened photoresist protects the remaining material that makes up the circuits. During
etch, specific areas of the film not covered by photoresist are removed to leave a desired circuit pattern. Similarly, resist strip is a process of removing the photoresist material from the wafer after the desired pattern has been placed on the
wafer. Emerging advanced etch and resist strip applications require precisely controlled gas chemistries and flow rates in order to achieve precise etch and resist strip characteristics.



Wet Cleaning.    Ultra-high purity chemicals and photoresists of precise composition are used to
clean the wafers, to pattern circuit images and to remove photoresists after etch. Before processes such as photoresist coating, thin film deposition, ion implantation, diffusion and oxidation, and after processes, such as ion implantation and etch,
the photoresists must be stripped off, and the wafer cleaned in multiple steps of chemical processes. To maintain manufacturing yields and avoid defective products, these chemicals must be maintained at very high purity levels without the presence
of foreign material such as particles, ions or organic contaminants.



The increasing complexity of semiconductor devices has resulted in the need for more complex, higher-precision liquid and gas delivery, measurement, control and purification systems and subsystems. The ability of semiconductor device
manufacturers to offer integrated circuits with smaller geometries, greater functionality and higher performance at a lower cost requires continuous improvements in semiconductor process equipment, process controls and liquid and gas delivery
systems. The design and performance of those liquid and gas delivery systems, subsystems, components and consumables are critical to the semiconductor manufacturing process because they directly affect cost of ownership and manufacturing yields.



In addition, as equipment and process complexity in
semiconductor manufacturing increases, semiconductor original equipment manufacturers and device manufacturers are seeking to improve time-to-market, reduce manufacturing costs, improve production quality and enhance product reliability and
long-term service and support. To address these challenges, semiconductor equipment companies and device manufacturers are outsourcing the design and manufacture of liquid and gas delivery, measurement, control and purification systems, subsystems,
components, and consumables to us and to other well-established subsystem and component companies that have worldwide presence and leading technologies.



Many of the processes used to manufacture semiconductors are also used to manufacture flat panel displays, magnetic and optical storage devices and fiber
optic cables for telecommunications, resulting in the need for similar filtration, purification, control and measurement capabilities.



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Our Business Strategy



Our objective is to be a global leader providing innovative process solutions to the semiconductor and ancillary markets. We intend to build upon our
position as a worldwide developer, manufacturer and supplier of liquid and gas delivery systems, components and consumables used by semiconductor and other electronic device manufacturers to grow our business in these and other high value-added
manufacturing process markets. Our strategy includes the following key elements:



Comprehensive and Diverse Product Offerings.    The semiconductor manufacturing industry is driven by rapid technological changes and intense competition. We believe that semiconductor
manufacturers are seeking process control suppliers who can provide a broad range of reliable, flexible and cost effective products, as well as the technological and application design expertise necessary to deliver effective solutions. Our
comprehensive product offering enables us to meet a broad range of customer needs and provide a single source of flexible product offerings for semiconductor device and capital equipment manufacturers as they seek to consolidate their supplier
relationships to a smaller select group. In addition, we believe manufacturers of semiconductor tools are looking to their suppliers for subsystems that provide more integrated functionality and that can seamlessly communicate with other equipment.
We believe our offering of consumables and equipment, as well as our ability to integrate them, allows us to provide advanced subsystems.



Diversified Revenue Stream.    We target a diversified revenue stream by balancing our sales of component and subsystem
equipment products with sales of our consumable products. Our consumable products provide a relatively more stable and recurring source of revenue in an otherwise cyclical industry. Our equipment products, which are generally driven by such factors
as the construction and expansion of semiconductor manufacturing facilities and the retrofitting and renovation of existing semiconductor facilities, position us to benefit from increases in capital spending that typically occur during industry
upturns.



Technology
Leadership.    With the emergence of smaller and more powerful semiconductor devices, and the deployment of new materials and processes to produce them, we believe there is a need for greater contamination and process control
within the semiconductor fabrication process. We seek to extend our technology by developing advanced products that address more stringent requirements for greater contamination control, fluid delivery and monitoring, and system integration. We have
continuously improved our products as our customers needs have evolved. For example, we have expanded upon our proprietary two-stage dispense technology with integrated filtration for photoresist delivery, where the photoresist is filtered
through one pump and precisely dispensed through a second pump at a different flow rate to reduce defects on wafers.



Strong Customer Base.    We have established ongoing relationships with many leading original equipment manufacturers and
materials suppliers in our key markets. These industry relationships have provided us with the opportunity for significant collaboration with our customers at the product design stage which has facilitated our ability to introduce new products and
applications that meet our customers needs. For example, we work with our key customers at the pre-design and design stage to identify and respond to their requests for current and future generations of products. We target opportunities to
offer new technologies in emerging applications, such as copper plating, chemical mechanical planarization, wet- dry cleaning systems and photolithography. We believe that our large customer base will continue to be an important source of new
product development ideas.



Global
Presence.    We have established a global infrastructure of design, manufacturing, distribution, service and support facilities to meet the needs of our customers. In addition, we may expand our global infrastructure, either
through acquisition or internal development, to accommodate increased demand or we may consolidate inefficient operations to optimize our manufacturing and other capabilities. For example, we have established sales and service offices in China in
anticipation of a growing semiconductor manufacturing base in that region. As semiconductor and other electronic device manufacturers have become increasingly global, they have required that suppliers offer comprehensive local repair and customer
support services. We maintain our customer relationships through a combination of direct sales and support personnel and selected independent sales representatives and distributors in Asia, Europe and the Middle East.



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Ancillary Markets.    We plan to leverage our accumulated expertise in the
semiconductor industry by developing products for applications that employ similar production processes that utilize high purity fluids, integrated dispense systems and vacuum-based production technologies. Our products are used in manufacturing
processes outside of the semiconductor industry, including the manufacturing of flat panel displays, high-purity chemicals, photoresists, solar cells, gas lasers, optical and magnetic storage devices and fiber optic cables. We plan to continue to
identify and develop products that address advanced materials processing applications where fluid management plays a critical role. We believe that by utilizing our technology to provide manufacturing solutions across multiple industries we are able
to increase the total available market for our products and reduce, to an extent, our exposure to the cyclicality of any particular market.



Strategic Acquisitions, Partnerships and Related Transactions.    We plan to pursue strategic acquisitions and business
partnerships that enable us to address gaps in our product offerings, secure new customers, diversify into complementary product markets or broaden our technological capabilities and product offerings. During the third quarter of 2004 Mykrolis
acquired the business and certain of the assets of Bentec Scientific, LLC, a privately held company that developed, manufactured and marketed polyvinyl alcohol roller brushes for use in post-CMP cleaning applications. During the fourth quarter of
2003, we acquired the business and certain of the assets and liabilities of Aeronex, Inc., a privately held company that developed, manufactured and marketed gas purification components and systems. In addition, we are continuously evaluating
opportunities for strategic alliances and joint development efforts with key customers and other industry leaders. In addition, as the dynamics of the markets that we serve shift, we will re-evaluate the ability of our existing businesses to provide
value added solutions to those markets in a manner that contributes to our achieving our objectives; in the event that we conclude that a business is not able to do this, we expect to restructure or replace that business.



Products



Our products include consumable products and equipment products that are used in the manufacture of semiconductors and other
high precision electronic devices. Our consumable products include liquid filtration and purification products and gas filtration and purification products as well as other filtration components, PVA brush rollers and service programs. Our equipment
products include precision liquid dispense systems, mass flow and pressure controllers, gas purification systems and vacuum gauges. These products are used by customers in manufacturing operations to remove contaminants in liquid and gas processes,
to purify liquids and gases, to measure and control flow rates and to control and monitor pressure and vacuum levels during the manufacturing process. In addition, we integrate consumable and equipment components into subsystems that provide our
customers with an integrated solution to a particular liquid and gas delivery problem. Consumable products, including service revenue, accounted for 69%, 71% and 65% of our net sales for the years ended December 31, 2004, 2003, and 2002,
respectively, and equipment products accounted for 31%, 29% and 35%, respectively, of our net sales in these same periods. In each of these periods liquid filtration and purification products accounted for more than two-thirds of our net sales from
consumable products. For the years ended December 31, 2004, 2003 and 2002, our gas delivery products accounted for approximately 56%, 55% and 54%, respectively, of our net sales from equipment products. Our two product classes include the following
specific product types:



Consumable Products



Our consumable product class includes membrane based
liquid filters and housings, metal based gas filters and resin based gas purifiers, which purify the process fluids used in the semiconductor manufacturing process as well as PVA roller brushes for use in post CMP cleaning applications. The key
drivers of demand for our consumable products include the utilization rate of semiconductor fabrication facilities, the number of semiconductor wafers being manufactured and the timing of semiconductor plant preventative maintenance programs during
which filters are usually replaced.



Liquid Filtration and
Purification Products



Liquid processing occurs during
multiple manufacturing steps including photolithography, deposition, planarization and surface etching and cleaning. The fluids that are used include various mixtures of acids, bases,



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solvents, slurries and photochemicals, which in turn are used over a broad range of operating conditions, including temperatures from 5 degrees Celsius up to
180 degrees Celsius. The design and performance of our liquid filtration and purification products are critical to the semiconductor manufacturing process because they directly affect the cost of ownership and manufacturing yield. Specially designed
proprietary filters remove sub-micron sized particles and bubbles from the different fluid streams that are used in the manufacturing process. Some of our filters are constructed with ultra-high molecular weight polyethylene hollow fiber and flat
sheet membranes that offer improved bubble clearance and gel removal, either of which can cause defects in the wafers if not removed. Our low hold-up volume disposable filters, with hollow fiber or flat sheet membranes, use our Connectology technology to allow filter changes in less than a
minute, significantly faster than conventional filters, to reduce the amount of expensive chemicals lost each time a filter is changed and to minimize operator exposure to hazardous solvents and vapors during changeout.



Gas Filtration and Purification Products



Our Wafergard®, ChamberGard and Waferpure® particle and molecular filtration products purify the gas entering the process chamber in order to eliminate system and wafer problems due to
particulate, atmospheric and chemical contaminants. These filters are able to retain all particles 0.003 microns and larger. Our metal filters, such as stainless steel and nickel filters, reduce outgassing and improve corrosion resistance. Our
Waferpure® and Aeronex Gatekeeper® purifiers chemically react with and absorb volatile
contaminants, such as oxygen and water, to prevent contamination and our ChamberGard vent diffusers reduce particle contamination and processing cycle times.



PVA Roller Brush Products



Our PVA roller brush products, acquired from Bentec Scientific LLC during the third quarter of 2004, are used to clean the wafer following the chemical
mechanical planarization process. This process uses abrasive liquid slurries to planarize the wafer after which a haze of slurry residue remains on the wafer and must be cleaned in preparation for subsequent operations. This cleaning process is
integrated into advanced CMP tools and is effected by a cleaning solution being run through a PVA roller brush that rotates to remove the slurry residue from the surface of the wafer. Our unique Planacore PVA roller brush is molded on the core to allow easy installation that reduces tool
downtime and a dimensionally stable product that provides consistent wafer to wafer cleaning performance.



Equipment



Our equipment product class includes precision liquid dispense systems, mass flow and pressure controllers, gas purification systems and vacuum gauges as
well as other equipment components. The key drivers of demand for our equipment products include the expansion and construction of semiconductor fabrication facilities, retrofitting and renovation of existing semiconductor production equipment and
the installation of new processes in semiconductor fabrication facilities.



Liquid Delivery Systems



Our proprietary photochemical filtration and dispense systems integrate our patented two-stage, filter device and valve control technologies. We believe that we offer the microelectronics industry the only dispense systems with integrated
filtration capability and that our proprietary patented two-stage technology has a significant advantage over conventional single-stage technology. Our two-stage technology permits the filtering and dispense functions to operate independently so
that filtering and dispensing of photochemicals can occur at different rates, reducing the differential pressure across the filter, conserving expensive photochemicals and resulting in reduced defects in wafers. As described above, we offer a line
of proprietary filters specifically designed to efficiently connect with these systems. Our patented digital valve control technology improves chemical uniformity on wafers and improves ease of optimized system operation. In addition, our integrated
high precision liquid dispense systems enable uniform application of photoresists for the spin-coating process where uniformity is measured in units of Angstroms, a tiny fraction of the thickness of a human hair.



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Gas Delivery Products and Purification Systems



We offer a wide variety of gas delivery and purification products to meet
the stringent requirements of semiconductor processing, including mass flow controllers, transducers, vacuum gauges, valves and controllers and gas purification systems.



Our mass flow controllers automatically and precisely measure and control the flow rates of multiple liquids and gases into
the semiconductor tool process chamber in order to maintain circuit quality, reduce maintenance requirements and prolong the life of the equipment used in the manufacturing process. We have also developed pressure-based mass flow controllers, which
measure and control the liquids and gases by controlling the pressure applied to these fluids. Our IntelliFlow product platform combines our gas measurement and control products with the DeviceNet communications protocol to provide a digital solution to achieve advanced process control and network communications to provide real time
feedback as to gas measurement and control performance, thereby minimizing costly unscheduled down time. We believe that our newly introduced Intelliflow(R)3XP mass flow controller, a pressure insensitive mass flow controller, demonstrates improved performance, embedded
diagnostics and user programmability for gases and flow ranges, is the technological leader in the market.



Our Aeronex Gas Purification Systems contain dual resin beds providing a continuous supply of purified gas without process interruption. These gas
purification systems are capable of handling higher flow rates and longer duty cycles than cartridge purifiers.



We also offer other equipment components including: transducers to measure the pressure in the process gas feed line and of the process fluids during
semiconductor manufacturing; vacuum gauges to directly measure the level of pressure in the process chamber and between the process chamber and a pump; and vacuum controllers to receive signals from the vacuum gauges and provide the necessary
control signals to the vacuum valves in order to maintain precise processing parameters.



We believe that our customers will increasingly demand more integrated products and systems that combine the functionality of many of our gas delivery products which were previously purchased as discrete components.



Worldwide Applications Development and Field Support
Capabilities



We provide strong technical support to our
customers through local service groups and engineers consisting of field applications engineers, technical service groups, applications development groups and training capabilities. Our field applications engineers, located in the United States and
in eight other countries, work directly with our customers on product qualification and process improvement in their facilities. In addition, in response to customer needs for local technical service and fast turn-around time, we maintain regional
applications laboratories. Our applications laboratories maintain process equipment that simulate customers applications and industry test standards and provide product evaluation, technical support and complaint resolution for our customers.
Our service centers are responsible for calibration, repairs and servicing of our products. These service centers also support industry collaborations and provide additional technical expertise to our customers. We have service centers located in
California, Texas, Japan, Korea, China, Taiwan, Singapore, Germany and France.



Customers and Markets



Our major customer
groups include integrated circuit device manufacturers, original equipment manufacturers that provide equipment to integrated circuit device manufacturers, gas and chemical manufacturing companies and manufacturers of high precision electronics.



Our most significant customers based on sales in 2004 include
industry leaders, such as Applied Materials, Inc., Dainippon Screen Manufacturing Co., Ltd., Samsung Electronics Co., Ltd., Taiwan Semiconductor



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Manufacturing Co. Ltd., Tokyo Electron Limited and UMC Group. We also sell our products to flat panel display original equipment manufacturers, materials
suppliers and end-users. The major manufacturers for flat panel displays and flat panel display equipment are concentrated in Japan, Korea and other parts of Asia.



In 2004, 2003 and 2002, net sales to our top ten customers accounted for approximately 38%, 34% and 35%, respectively, of
our net sales. During those same periods, our largest single customer accounted for approximately 14%, 11% and 13%, respectively, of our net sales and international net sales represented approximately 74%, 73% and 69%, respectively, of our net
sales. Over 2,700 customers purchased products from us during 2004.



We may enter into supply agreements with our customers to govern the conduct of business between us and our customers, including the manufacture of our products. These agreements generally have a term of one to three years but these
agreements do not contain any long-term purchase orders or commitments. Instead, we work closely with our customers to develop non-binding forecasts of the future volume of orders. However, customers may cancel their orders, change production
quantities from forecasted volumes or delay production for a number of reasons beyond our control.



Sales and Marketing



We
sell our products worldwide primarily through our own direct sales force located in twelve offices in all major semiconductor markets, as well as through independent distributors elsewhere. As of December 31, 2004, our sales and marketing force
consisted of approximately 207 employees worldwide. Our direct sales force is supplemented by independent sales representatives and agents.



Our marketing efforts focus on our push/pull marketing strategy in order to maximize our selling opportunities. We work with original
equipment manufacturers to persuade them to design tools that require our products and we create end user pull demand by persuading semiconductor manufacturers to specify our products. Our industry relationships have provided us with the
opportunity for significant collaboration with our customers at the product design stage that has facilitated our ability to introduce new products and applications that meet our customers needs. In addition, we are constantly identifying for
our customers the variety of analytical, purification and process control challenges which may be addressed by our products. Further, we adapt our products and technologies to resolve process control issues identified by our customers. Our sales
representatives provide our customers with worldwide support and information about our products.



We believe that our technical support services are important to our marketing efforts. These services include assisting in defining a customers
needs, evaluating alternative products, designing a specific system to perform the desired separation, training users and assisting customers in compliance with relevant government regulations. In addition, we maintain a network of service centers
located in the United States and in key international markets to support our products.



Competition



The market for our products is
highly competitive. While price is an important factor, we compete primarily on the basis of the following factors:



|                                          |  |                                       
|----------------------------------------- |  | --------------------------------------
|      historical customer relationships; |  |       breadth of product line;       
|                                          | 
|      technical expertise;               |  |       breadth of geographic presence;
|                                          | 
|      product quality and performance;   |  |       manufacturing capabilities; and
|                                          | 
|      total cost of ownership;           |  |       after-sales service.           
|                                          | 
|      customer service and support;      |  |                                       



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We believe that we compete favorably with respect to all of the factors listed above, but we cannot
assure you that we will continue to do so. We believe that our key competitive strengths include our broad product line, the low total cost of ownership of our products, our ability to provide our customers with quick order fulfillment and our
technical expertise. However, our competitive position varies depending on the market segment and specific product areas within these segments. For example, in the market for photochemical dispense systems, we believe that our patented technology,
our longstanding relationship with the leading original equipment manufacturer in this market niche and our ability to support our customers needs on a global basis have allowed us to compete favorably. In contrast, other companies have more
established positions in the markets related to gas delivery systems and components, such as gas flow measurement and control products, pressure measurement and control products and vacuum gauges, valves and controllers. While we have longstanding
relationships with a number of semiconductor and other electronic device manufacturers, we also face significant competition from companies that have longstanding relationships with other semiconductor and electronic device manufacturers and, as a
result, have been able to have their products specified by those customers for use in manufacturers fabrication facilities. In addition, some of our competitors have cost advantages over us in the markets for gas delivery systems and
components due to their larger market share and the related economies of scale. In the markets for our consumable products, we believe that our differentiated membrane technology, strong supply chain capabilities, which allow us to provide our
customers with quick order fulfillment, and technical expertise, which enables us to develop membranes to meet specific customer needs and assist our customers in improving the functionality of our membranes for particular applications, allow us to
compete favorably. In these markets our competitors compete against us on the basis of price, as well as alternative membrane technology having different functionality, manufacturing capabilities and breadth of geographic presence.



The market for our products is highly fragmented, and we compete with a
number of different companies, including Advanced Energy Industries Inc., Celerity Group, Inc., Iwaki Co., Ltd., MKS Instruments, Inc., Mott Metallurgical Corporation and Pall Corporation. Some of our competitors are larger and have greater
resources than we do. In some cases, our competitors are smaller than us, but well-established in specific product niches. However, we believe that none of our competitors competes with us across all of our product offerings and that, within the
markets that we serve, we offer a broader line of products, make use of a wider range of process control technologies and address a broader range of applications than any single competitor. Nonetheless, competitors with greater financial resources
may be able to offer lower prices, additional products or services or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond quickly to new technological trends, devote more resources to capitalize
on those new technological trends and may be able to undertake more extensive marketing campaigns. They also may adopt more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners.



Semiconductor and other electronic device manufacturers may
direct semiconductor capital equipment manufacturers to use a specified suppliers product in their equipment. Accordingly, our success depends in part on our ability to have semiconductor and other electronic device manufacturers specify that
our products be used at their fabrication facilities. Some of our competitors may have more developed relationships with semiconductor and other electronic device manufacturers, which enable them to have their products specified for use in
manufacturers fabrication facilities.



Research and Development



Our aggregate research and development expenses in 2004,
2003 and 2002 were $25.7 million, $19.1 million and $19.7 million, respectively. As of December 31, 2004, we had approximately 106 employees in engineering, research and development. In addition, we have followed a practice of supplementing our
internal research and development efforts by licensing technology from unaffiliated third parties and/or acquiring distribution rights with respect thereto when we believe it is in our long-term interests to do so.



To meet the global needs of our customers, we have research and development
capabilities in the United States and Japan. Our research and development efforts are directed toward developing and improving our



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technology platforms for semiconductor and advanced processing applications and identifying and developing products for new applications for which fluid
management plays a critical role. Key elements of our 2004, 2003 and 2002 research and development expenses were related to the development of the new product platforms to meet the manufacturing needs for 90 and 65 nanometer semiconductor devices.
Driven by the proliferation of new materials and chemicals in the manufacturing processes and increased needs for tighter process control for 300mm wafers, investments were made for new contamination control products in the area of copper
interconnects, deep ultra-violet (DUV) photolithography; and chemical and gas management technologies for advanced wafer cleans, deposition and etch equipment. Additional investments were made in the area of advanced process control, monitoring and
diagnostics capabilities for future generations of semiconductor manufacturing processes. We have undertaken an initiative to involve our marketing, engineering, manufacturing and sales personnel in the development of new products in order to reduce
the time to market for new products. Our employees also work closely with our customers development personnel. These relationships help us identify and define future technical needs on which to focus our research and development efforts. In
addition, we participate in Semiconductor Equipment and Materials International (SEMI), a consortium of semiconductor equipment suppliers. We also support research at academic and other institutions targeted at advances in materials science and
semiconductor process development. Finally we continue to maintain a membrane research agreement with Millipore that was entered into at the time of our separation from Millipore and continues in effect through March 31, 2006.



Patents and Other Intellectual Property Rights



We rely on a combination of patent, copyright, trademark and trade secret
laws and license agreements to establish and protect our proprietary rights. We maintain 142 U.S. issued and enforceable patents, 232 issued and enforceable foreign patents, including counterparts to U.S. filings, 105 pending U.S. patent
applications, 24 pending filings under the Patent Cooperation Treaty not yet nationalized and 320 pending foreign patent applications. While we believe that patents may be important for aspects of our business, such as our patents related to
photoresist dispense pumps, polymeric membranes and surface chemistries, gas filters and purifiers, gas and liquid contactors, fluid control processes, mass flow controllers and our Connectology products, which U.S. patents expire between 2005 and 2024, we believe that our success
also depends more upon close customer contact, innovation, technological expertise, responsiveness and worldwide distribution. Additionally, while our patented technology may delay or deter a competitor in offering a competing product, we do not
believe that our patent portfolio functions as a barrier to entry for any of our competitors. In addition, while we license and will continue to license technology used in the manufacture and distribution of products from third parties, except as
described in the Risks Related to our Separation from Millipore section of Managements Discussion and Analysis of Financial Condition and Results of Operations in Item 7 below, which information is hereby incorporated by reference,
these licenses are not currently related to any of our core product technology.



We require each of our employees, including our executive officers, to enter into standard agreements pursuant to which the employee agrees to keep confidential all of our proprietary information and to assign to us
all inventions made while employed by us.



A number of our
patented products were specifically developed in response to the transition from 200 millimeter wafers to 300 millimeter wafers, and many of our new products are specifically targeted to meet the more stringent requirements for the advanced
technologies dominating 300 millimeter wafer manufacturing processes. Examples include our Solaris® chemical mechanical planarization filters for copper slurries, IntelliGen® photoresist dispense with digital valves targeted for photolithography applications and our Intelliflow® mass flow controllers for 300 millimeter tool automation.



In connection with our separation from Millipore, we were assigned patents
and trademarks which relate exclusively to our business. Patented technology that was used by both Millipore and Mykrolis was generally retained by Millipore and licensed to us with exclusive rights in our fields of use that are generally defined by
the operating scope of our business at the time of our separation from Millipore. In some cases, the technology was transferred to us, and we granted Millipore an exclusive license in its fields of use in the biopharmaceutical and



11



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related industries. These licenses are assignable by the licensee only in connection with a sale of its business, do not require the payment of any license
fees or royalties by either Millipore or us and will continue in effect for the life of the patents. In addition, in order to assure future access to patented technology not licensed as part of the separation, the separation agreements provide each
of us with a technology license option. The option grants each party a five-year option to acquire a royalty bearing license to patented technology existing as of the separation date that is owned by the other party and is not currently used by the
optionee but may be useful for future products, with exclusive rights in its fields of use. The license term would extend for the life of the subject patents.



Governmental Regulation



Our operations are subject to federal, state and local regulatory requirements relating to environmental, waste management and health and safety matters,
including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of contaminants, hazardous substances and wastes, as well as practices and procedures applicable to the construction and
operation of our plants. There can be no assurance that we will not incur material costs and liabilities or that our past or future operations will not result in exposure to injury or claims of injury by employees or the public. Although some risk
of costs and liabilities related to these matters is inherent in our business, as with many similar businesses, we believe that our business is operated in substantial compliance with applicable regulations. However, new, modified or more stringent
requirements or enforcement policies could be adopted, which could adversely affect us. While we expect that capital expenditures will be necessary to assure that any new manufacturing facility is in compliance with environmental and health and
safety laws, we do not expect these expenditures to be material. Otherwise, we are not presently aware of any facts or circumstances that would cause us to incur significant liabilities in the future related to environmental, health and safety law
compliance.



Employees



As of February 1, 2005, we had approximately 1,077 full-time employees,
including approximately 106 in engineering, research and development and approximately 270 in sales and marketing as well as 179 temporary employees. Given the variability of business cycles in the semiconductor industry and the quick response time
required by our customers, it is critical that we be able to quickly adjust the size of our production staff to maximize efficiency. Therefore, we use skilled temporary labor as required.



None of our employees are represented by a labor union or covered by a collective bargaining agreement other than
statutorily mandated programs in European countries.



Information About Our
Operating Segment



The Company operates in one reportable
business segment that develops, manufactures and sells consumables and capital equipment products to semiconductor manufacturing companies and other companies using similar manufacturing processes, as well as Original Equipment Manufacturer
(OEM) suppliers to those companies. In 2004, 2003 and 2002 approximately 74%, 73% and 69%, respectively, of our net sales were made to customers outside North America. Industry and geographic segment information is discussed in Note 14
to the Mykrolis Corporation Consolidated Financial Statements (the Financial Statements) included in Item 8 below, which Note is hereby incorporated herein by reference.



Other Information



In March of 2001, the Board of Directors of Mykrolis adopted a shareholder rights plan (the Rights Plan) pursuant to which Mykrolis declared a
dividend on November 29, 2001 to its shareholders of record on December 31, 2001 of the right to purchase (a Right) one additional share of Mykrolis Common Stock for each share of Mykrolis Common Stock owned, at a price of $130.00 for
each share. The Rights Plan is designed to protect Mykrolis shareholders from attempts by others to acquire Mykrolis on terms or by using tactics that



12



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could deny all shareholders the opportunity to realize the full value of their investment. The Rights are attached to the shares of our common stock until
certain triggering events occur. The Rights authorize the holders to purchase shares of our common stock at a 50% discount from market value upon the occurrence of specified triggering events, including, unless approved by our board of directors, an
acquisition by a person or group of specified levels of beneficial ownership of our common stock or a tender offer for our common stock. The common stock purchase rights are redeemable by us for $0.01 and will expire in March of 2011. One of the
events which will trigger the common stock purchase rights is the acquisition, or commencement of a tender offer, by a person (an Acquiring Person, as defined in the shareholder rights plan), other than Mykrolis or any of our subsidiaries or
employee benefit plans, of 15% or more of the outstanding shares of our common stock. An Acquiring Person may not exercise a common stock purchase right.



Mykrolis products are made from a wide variety of raw materials which are generally available in quantity from alternate sources of supply.
Accordingly, as a general matter, Mykrolis is not substantially dependent upon any single supplier.



Our History



Mykrolis
Corporation is a Delaware corporation organized on October 16, 2000 under the name Millipore MicroElectronics, Inc. in connection with the spin-off by Millipore Corporation of its microelectronics business unit. On March 27, 2001, we changed our
name to Mykrolis Corporation. On March 31, 2001, Millipore effected the separation of our business from Millipores business by transferring to us substantially all of the assets and liabilities associated with its microelectronics business. On
August 9, 2001 we completed an initial public offering of approximately 18% of the total shares of the Companys common stock outstanding. On February 27, 2002, Millipore completed the spin-off of Mykrolis by distributing to its stockholders
the 82% of our common stock that it held following our initial public offering. In the early 1980s, Millipore internally developed products with applications in semiconductor manufacturing, which became the Millipore microelectronics business
unit. Subsequently, through internal development and acquisitions, Millipore expanded that business unit into the business that was spun off as Mykrolis Corporation.



Executive Officers of Mykrolis



The following is a list, as of February 1, 2005, of the Executive Officers of Mykrolis. All of the officers of Mykrolis Corporation listed below were
elected to serve until the first Directors Meeting following the 2005 Annual Stockholders Meeting.



|                                |  |     |  |                                                       |  |                        
|------------------------------- |  | --- |  | ----------------------------------------------------- |  | -----------------------
|Name                            |  | Age |  | Office                                                |  | First Elected To Office
|Corporate Officers              |  |     |  |                                                       |  |                        
|Gideon Argov                    |  | 48  |  | Chief Executive Officer                               |  | 2004                   
|Jean-Marc Pandraud              |  | 52  |  | President and Chief Operating Officer                 |  | 2001                   
|Bertrand Loy                    |  | 39  |  | Vice President, Treasurer and Chief Financial Officer |  | 2001                   
|Peter W. Walcott                |  | 58  |  | Vice President, Secretary & General Counsel           |  | 2001                   
|Peter S. Kirlin                 |  | 44  |  | Vice PresidentBusiness Development                   |  | 2004                   
|Fred E. Faulkner                |  | 58  |  | Vice PresidentWorldwide Manufacturing                |  | 2001                   
|Takashi Mizuno                  |  | 44  |  | Vice President; President Nihon Mykrolis KK           |  | 2001                   
|Gerry Mackay                    |  | 42  |  | Vice President; Worldwide Sales and Marketing         |  | 2003                   
|Jieh Hwa Shyu                   |  | 51  |  | Vice President & Chief Technology Officer             |  | 2003                   
|                                | 
|Non-CorporateExecutive Officers |  |    
|Sharon Pinto                    |  | 51  |  | Vice PresidentHuman Resources                        |  | 2003                   



Gideon Argov
has been our Chief Executive Officer and a director since November 2004. Prior to joining Mykrolis, Mr. Argov was a Special Limited Partner at Parthenon Capital, a Boston-based private equity



13



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partnership, since 2001. He served as Chairman, Chief Executive Officer and President of Kollmorgen Corporation from 1991 to 2000. From 1988 to 1991 he
served as Chief Executive Officer of High Voltage Engineering Corporation. Prior to 1988, he led consulting engagement teams at Bain and Company. He is a director of Helix Technology, Inc. and Fundtech Corporation.



Jean-Marc Pandraudhas been our President and Chief Operating Officer
since January 2001. Prior to that he served as Vice President and General Manager of the Microelectronics Divisions of Millipore, a position he had held since July 1999. From 1994 until 1999, Mr. Pandraud served as the Vice President and General
Manager of Millipores Laboratory Water Division and was also Regional Manager of Millipores Latin American operations from 1997 until 1999. Mr. Pandraud also served as the Managing Director of Millipores French subsidiary and as
European General Manager for the Millipore Analytical Division from 1988 until 1994.



Bertrand Loyhas been our Vice President and Chief Financial Officer since January 2001. Prior to that, Mr. Loy served as the Chief Information Officer of Millipore from April 1999 until December 2000.
From 1995 until 1999, he served as the Division Controller for Millipores Laboratory Water Division. From 1989 until 1995, Mr. Loy served Sandoz Pharmaceuticals (now Novartis) in a variety of financial, audit and controller positions located
in Europe, Central America and Japan.



Peter W. Walcotthas been our Vice President, Secretary and General Counsel since October 2000. Mr. Walcott served as the Assistant General Counsel of Millipore from 1981 until March 2001.



Peter S. Kirlin has been our Vice President -Business Development since June of 2004. Prior to joining us he served
Dupont Photomasks, Inc. as Chairman of the Board and Chief Executive Officer from May 2000 until July 2003. From 1988 until May 2000, Mr. Kirlin held various positions with ATMI, Inc., a supplier of materials, equipment and services used in the
manufacture of semiconductors, most recently as Group Vice President, Technologies and Services. From 1986 to 1988, he worked at American Cyanamid Corporation as a project leader and conducted post-graduate research projects at the University of
Munichs Institute of Physical Chemistry. Mr. Kirlin also serves as a director of Akrion, Inc. a supplier of single wafer and batch immersion cleaning tools for the semiconductor industry.



Fred E. Faulkner, Jr.has been our Vice PresidentWorldwide
Manufacturing since April 2001. Prior to joining Mykrolis, Mr. Faulkner served as Millipores Director of Manufacturing Operations from May 2000 until April 2001. Prior to that, Mr. Faulkner was President and Chief Operating Officer of Boston
Acoustics, Inc., a designer and manufacturer of high-performance audio systems, from April 1997 until April 2000. Before joining Boston Acoustics, Mr. Faulkner served as Vice President of Technical Operations for Millipores Microelectronics
Division from June 1994 until April 1997.



Takashi Mizunohas been our Vice President since April 2001 and has been President of our Japanese subsidiary, Nihon Mykrolis KK since April 2001. Mr. Mizuno was a Director of Global Accounts for Tokyo Electron Limited from February 2000 until April 2001.
Prior to that, Mr. Mizuno served as Millipores Director of Laboratory Research from September 1995 until February 2000 and as Division Manager of Millipores Laboratory Water Division from January 1995 until September 1995.



Gerry Mackayhas been our Vice PresidentWorldwide Sales &
Marketing since February 2002. Prior to joining Mykrolis, Mr. Mackay served Millipore in various sales and marketing capacities since August of 1987, first with Millipores UK subsidiary and subsequently as the General Manager for
Millipores Asia operations and finally as Worldwide Director of MarketingBiotechnology. Mr. Mackay was designated as an Executive Officer by our Board of Directors in April 2002, and was elected an officer of the corporation in April
2003.



Jieh Hwa Shyuhas been our Vice President of
Research and Development since April of 2001, was designated as an Executive Officer by our Board of Directors in April 2002 and was elected an officer of the corporation in April 2003. In January 2004 Mr. Shyu was named Chief Technology Officer of
Mykrolis. Prior to



14



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our separation from Millipore, Mr. Shyu served the Microelectronic Division of Millipore as a Director of R & D from 1997 until March 2001. Prior to
joining Millipore, Mr. Shyu served Digital Equipment Corporation as a Principal Engineer and Supervisor.



Sharon Pintohas been our Vice President-Human Resources since June of 2003 and was designated as an Executive Officer by our Board of Directors in
October 2003. Prior to joining us Ms. Pinto had served as the Director of Human Resources at Maxtor Corporation since April 2002. From January 2001 until April 2002, Ms. Pinto was the Director of Human Resources at Tilion Inc and from January
1999 until December of 2000 she served as the Global Human Resource Director of Lionbridge Technologies Inc. Prior to that Ms. Pinto was a Senior Human Resources Manager at Polaroid Corporation.



Available Information



Our Annual Report on Form 10-K, our quarterly reports on Form 10-Q and any current reports on Form 8-K that we may file or
furnish to the S.E.C. pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934 as well as any amendments to any of those reports are available free of charge on or through our website as soon as reasonably practicable after we file
them with or furnish them to the S.E.C. electronically. Our website is located at http://www.Mykrolis.com; these reports can be found under Investor RelationsSEC Filings. In addition, the SEC maintains a website containing
these reports that can be located at http://www.SEC.gov. These reports may also be read and copied at the SECs Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the Public Reference
Room may be obtained by calling the SEC at 1-800-SEC-0330.



The
Board of Directors adopted an amended code of business ethics, The Mykrolis Code of Conduct, applicable to all of our executives, directors and employees on June 27, 2002 as well as a set of corporate governance guidelines on December 19, 2002. The
Mykrolis Code of Conduct, the Governance Guidelines and the charters for our Audit & Finance Committee and of our Management Development & Compensation Committee all appear on our website at http://www.Mykrolis.com under
Investor RelationsGovernance. The Governance Guidelines and committee charters are also available in print to any shareholder that requests a copy. Copies may be obtained by contacting Peter W. Walcott, our Vice President &
General Counsel at our corporate headquarters.



Item
2.    Properties.



Our principal
executive offices are located in Billerica, Massachusetts. We also have manufacturing and design facilities in the United States and Japan. Information about these facilities is set forth below:



|                         |  |                                             |  |                         |  |              
|------------------------ |  | ------------------------------------------- |  | ----------------------- |  | -------------
|Location                 |  | Principal Function                          |  | Approximate Square Feet |  | Leased/ Owned
|Billerica, Massachusetts |  | Executive Offices, Research & Manufacturing |  | 175,000                 |  | Leased1      
|Allen, Texas             |  | Research & Manufacturing                    |  | 178,000                 |  | Leased2      
|Yonezawa, Japan          |  | Manufacturing                               |  | 166,0003                |  | Owned        

---

|1 | This lease expires March 31, 2014, but is subject to two five year renewal options.
|- | -----------------------------------------------------------------------------------

|2 | This lease expires May 31, 2008, but is subject to two five year renewal options.
|- | ---------------------------------------------------------------------------------

|3 | Includes 29,000 square feet leased by Millipore through 2004 and 27,000 square feet that were leased to Millipore until August 2003; this space is currently
partially subleased.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition, we lease a
144,000 square foot building in Bedford, Massachusetts of which 70,000 square feet is subleased by us to a third party under a sublease expiring in November 2005. We have an option to purchase this leased facility at fair market value between June
2005 and November 2005, the expiration date on our lease, and our landlord has an option to sell us this facility at 90% of its fair market value prior to November 30, 2005. If our landlord exercises the option to sell, we will have one year to
complete the purchase of the facility, during which time interest on the purchase price will accrue. Since this facility was deemed to be inappropriate for our business needs, we closed this facility during the third quarter of 2001. We are
currently attempting to sublease the unused portion of this facility.



15



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We lease approximately 4,200 square feet of manufacturing space in Millipores facility located at
80 Ashby Road, Bedford, MA under a transitional services agreement that expires March 31, 2006. We also lease approximately 21,000 square feet of research and development and manufacturing space in two buildings located in San Diego, California
which we assumed pursuant to our acquisition of Aeronex, Inc. described above. The leases for this space expire in December 2006.



We maintain a worldwide network of sales and service centers, including two in the United States, three in Europe (two in Germany and one in France), two
in Japan and four in other parts of Asia (Taiwan, Singapore, China (Shanghai) and Korea). Leases for our facilities expire between February 2005 and March 2014. We currently expect to be able to extend the terms of expiring leases or to find
suitable replacement facilities on reasonable terms.



We
believe that our facilities are well-maintained and, except as described above, suitable for their respective operations. Except for approximately 25,000 square feet in our Billerica facility, 27,000 square feet in our Yonezawa plant, our Swindon
U.K. site and the above described closed facility, all of our facilities are fully utilized.



In addition to the above facilities that we use or have used in our operations, we continue to be a named lessee on two leases relating to facilities located in California which were formerly used by Tylan General
Corporation prior to its acquisition by Millipore in 1997. These leases expire in 2005 and 2006. These lease obligations were assumed by us pursuant to our separation from Millipore. While both of these facilities have been subleased for the
remainder of their terms, under the provisions of the sublease arrangements we were not released from the lease obligations by the landlord.



Item 3.    Legal Proceedings.



On March 3, 2003 we filed a lawsuit against Pall Corporation in the United States District Court for the District of Massachusetts alleging infringement
of two of the Companys U.S. patents by a fluid separation device known as the Pall Photo Kleen EZD-2 filter assembly manufactured and sold by the defendant. Our lawsuit also sought a preliminary injunction preventing the defendant from the
manufacture, use, sale, offer for sale or importation into the U.S. of the infringing product. On March 24, 2003 defendant filed an answer denying that its fluid separation device infringed our patents; defendant also filed a counterclaim seeking a
dismissal of the Companys lawsuit, a decree that our patents are invalid and/or not infringed and costs incurred in conducting the litigation. On April 30, 2004, the court issued a preliminary injunction against Pall Corporation and ordered
Pall to immediately stop making, using, selling, or offering to sell within the U.S., or importing into the U.S., its PhotoKleen EZD-2 Filter Assembly products or any colorable imitation of those products. On June 21, 2004, the Company
filed a motion with the court to hold Pall Corporation in contempt of court for failing to comply with the terms of the preliminary injunction. Subsequently, Pall filed a motion to dissolve the preliminary injunction based on two Japanese
publications that it alleged raised questions as to the validity of the Companys patents. On January 18, 2005, the United States District Court of Massachusetts issued an order holding Pall Corporation in contempt of court for the violation of
the preliminary injunction and ordering Pall to disgorge all profits earned from the sale of its PhotoKleen EZD-2 Filter Assembly products and colorable imitations thereof from the date the preliminary injunction was issued through January 12, 2005.
In addition, Pall was also ordered to reimburse Mykrolis for certain of its attorneys fees associated with the contempt and related proceedings. The Courts order also dissolved the preliminary injunction, effective January 12, 2005. On
February 17, 2005, the Company filed a notice of appeal to the U.S. Circuit Court of Appeals for the Federal Circuit appealing the portion of the Courts order that dissolved the preliminary injunction and Pall filed a notice of appeal to that
court with respect to the finding of contempt.



We are also
party to lawsuits arising in the ordinary course of business. We do not believe that these proceedings individually or in the aggregate will have a material adverse effect on our financial condition, results of operations or cash flows.



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



This item is not applicable.



16



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PART II



Item 5.    Market for Mykrolis Common Stock, and Related Stockholder Matters.



Mykrolis Common Stock, $0.01 par value, has traded on the New York
Stock Exchange under the symbol MYK since August 10, 2001. The following table sets forth, for the indicated fiscal periods, the high and low sales prices of Mykrolis Common Stock (as reported on the New York Stock Exchange
Composite Tape). As of February 1, 2005 there were approximately 2,181 shareholders of record.



|               |  |                       |       |      |   |       |  |     |       |  |   |      
|-------------- |  | --------------------- | ----- | ---- | - | ----- |  | --- | ----- |  | - | -----
|               |  | Range of Stock Prices
|               |  | 2004                  |       | 2003
|               |  | High                  |       | Low  |   | High  |  | Low
|First Quarter  |  | $                     | 17.98 |      | $ | 12.85 |  | $   | 9.31  |  | $ | 6.25 
|Second Quarter |  | $                     | 17.50 |      | $ | 12.89 |  | $   | 11.47 |  | $ | 7.25 
|Third Quarter  |  | $                     | 16.20 |      | $ | 8.09  |  | $   | 14.45 |  | $ | 9.80 
|Fourth Quarter |  | $                     | 14.40 |      | $ | 9.31  |  | $   | 16.83 |  | $ | 12.00



The Company has never
declared or paid any cash dividends on its capital stock. The Company currently intends to retain all available earnings for use in its business and does not anticipate paying any cash dividends in the foreseeable future. On November 29, 2001 the
Mykrolis Board of Directors declared a dividend of one common stock purchase right for each share of Mykrolis Common Stock outstanding to shareholders of record on December 31, 2001, payable on January 4, 2002. For a description of the Common Stock
Rights Plan see Other Information in Item 1 above. Each right entitles the holder to purchase one share of Mykrolis Corporation Common Stock at a price of $130.



Item 6.    Selected Financial Data.



The following table sets forth selected historical financial information derived from our audited consolidated and combined
balance sheets and statements of operations as of and for the years ended December 31, 2004, 2003, 2002, 2001 and 2000. Our combined financial statements for periods prior to March 31, 2001 include amounts that have been derived from the
consolidated financial statements and accounting records of Millipore using the historical results of operations and historical basis of assets and liabilities of our business. The selected historical financial information for the years ended
December 31, 2001 and 2000 includes allocations of Millipore corporate expenses related to our business, including centralized research and development, legal, accounting, employee benefits, officers salaries, real estate, insurance,
information technology services, distribution, treasury and other Millipore corporate and infrastructure costs. These expense allocations were determined on a basis that Millipore and we considered to be a reasonable reflection of the utilization of
services provided or the benefit received by us. However, the consolidated and combined financial information included herein may not necessarily reflect our operating results, financial position and cash flows in the future or what they would have
been had we been a separate, stand-alone entity during all periods presented.



17



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You should also read our Managements Discussion and Analysis of Financial Condition and
Results of Operations and our consolidated and combined financial statements and related notes included elsewhere in this document for a further explanation of the financial data summarized here.



|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|-------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------- | ---
|                                                         |  | 2004                                  |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                         |  | (In thousands, except per share data) |        
|Statement of Operations Data:                            |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Net sales                                                |  | $                                     | 289,230 |   |      | $ | 185,898 |      |  | $ | 178,449 |   |  | $    | 215,274 |   |  | $ | 355,540 |    
|Cost of sales                                            |  |                                       | 151,321 |   |      |   | 105,269 |      |  |   | 118,783 |   |  |      | 137,621 |   |  |   | 174,545 |    
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Gross profit                                             |  |                                       | 137,909 |   |      |   | 80,629  |      |  |   | 59,666  |   |  |      | 77,653  |   |  |   | 180,995 |    
|Selling, general and administrative expenses             |  |                                       | 75,737  |   |      |   | 64,795  |      |  |   | 67,809  |   |  |      | 80,724  |   |  |   | 96,469  |    
|Research and development expenses                        |  |                                       | 25,739  |   |      |   | 19,110  |      |  |   | 19,685  |   |  |      | 19,837  |   |  |   | 23,175  |    
|Restructuring and other charges                          |  |                                       | (213    | ) |      |   | 2,111   |      |  |   | 5,182   |   |  |      | 17,478  |   |  |   | (320    | )  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Operating income (loss)                                  |  |                                       | 36,646  |   |      |   | (5,387  | )    |  |   | (33,010 | ) |  |      | (40,386 | ) |  |   | 61,671  |    
|Other income (expense), net                              |  |                                       | 2,289   |   |      |   | 2,260   |      |  |   | 3,367   |   |  |      | (1,096  | ) |  |   | (1,395  | )  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Income (loss) before income taxes                        |  |                                       | 38,935  |   |      |   | (3,127  | )    |  |   | (29,643 | ) |  |      | (41,482 | ) |  |   | 60,276  |    
|Income tax expense                                       |  |                                       | 9,338   |   |      |   | 4,977   |      |  |   | 2,118   |   |  |      | 26,145  |   |  |   | 22,905  |    
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Net income (loss)                                        |  | $                                     | 29,597  |   |      | $ | (8,104  | )    |  | $ | (31,761 | ) |  | $    | (67,627 | ) |  | $ | 37,371  |    
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Basic income (loss) per share                            |  | $                                     | 0.71    |   |      | $ | (0.20   | )    |  | $ | (0.80   | ) |  | $    | (1.92   | ) |  | $ | 1.15    |    
|Shares used in computing basic income (loss) per share   |  |                                       | 41,491  |   |      |   | 39,939  |      |  |   | 39,628  |   |  |      | 35,262  |   |  |   | 32,500  | (2)
|Diluted income (loss) per share                          |  | $                                     | 0.68    |   |      | $ | (0.20   | )    |  | $ | (0.80   | ) |  | $    | (1.92   | ) |  | $ | 1.15    |    
|Shares used in computing diluted income (loss) per share |  |                                       | 43,240  |   |      |   | 39,939  |      |  |   | 39,628  |   |  |      | 35,262  |   |  |   | 32,500  | (2)
|                                                         | 
|                                                         |  | December 31,                          |        
|                                                         |  | 2004                                  |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000 |        
|                                                         |  | (In thousands)                        |        
|Balance Sheet Data:                                      |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |         |    
|Working capital (1)                                      |  | $                                     | 171,266 |   |      | $ | 113,663 |      |  | $ | 116,285 |   |  | $    | 153,526 |   |  | $ | 130,037 |    
|Total assets                                             |  |                                       | 350,968 |   |      |   | 283,755 |      |  |   | 267,189 |   |  |      | 289,490 |   |  |   | 299,031 |    
|Millipores invested equity                              |  |                                       |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   | 246,489 |    
|Shareholders equity                                     |  |                                       | 271,515 |   |      |   | 223,028 |      |  |   | 212,644 |   |  |      | 243,547 |   |  |   |        |    

---

|(1) | Working capital is total current assets less total current liabilities.
|--- | -----------------------------------------------------------------------

|(2) | Shares were authorized, issued and outstanding and were owned by Millipore.
|--- | ---------------------------------------------------------------------------



18



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



(In thousands except share and per share data)



You should read the following discussion and analysis of our
financial condition and results of operations with the consolidated financial statements and the accompanying notes to the consolidated financial statements included elsewhere in this document. This discussion contains forward-looking statements
and involves numerous risks and uncertainties, including, but not limited to, those described in the Risk Factors section of this Item 7. Our actual results may differ materially from those contained in any forward-looking statements.



Overview



This overview is not a complete discussion of our financial condition,
changes in financial condition and results of operations; it is intended merely to facilitate an understanding of the most salient aspects of our financial condition and operating performance and to provide a context for the discussion that follows.
The detailed discussion and analysis that follows must be read in its entirety in order to fully understand our financial condition and results of operations.



We are a worldwide developer, manufacturer and supplier of liquid and gas delivery systems, components and consumables used
to precisely measure, deliver, control and purify the process liquids, gases and chemicals that are used in the semiconductor manufacturing process. Prior to March 2001, our business was operated as a fully integrated business unit of Millipore
Corporation (Millipore). We became an independent company through a spin-off by Millipore, which was completed in February of 2002.



The principal market we serve is the global semiconductor industry, a highly cyclical business which experienced a significant downturn that resulted in
deterioration in our net sales and results of operations during the period from 2001 to 2003. This downturn had the greatest impact on our sales of liquid and gas equipment products, as new semiconductor plant construction and upgrades declined. Net
sales of our consumable products, which tend to be driven by capacity utilization also declined during this period, although less drastically, and benefited from the recovery of the volume of semiconductor wafers being built in 2003. Commencing
during the fourth quarter of 2003 and continuing through the fourth quarter of 2004, we experienced improved business conditions, which had a positive impact on our sales growth and profitability. During the third quarter of 2004 this recovery began
to soften, as key OEM customers announced order delays and reduced booking rates and there was a pause in the growth of wafer starts. The outlook for 2005 is currently unclear; however, should business conditions signal a downturn, we intend to take
appropriate actions to maintain profitability at reduced sales levels.



As the depth of the semiconductor downturn continued from 2001 into 2002, product demand deteriorated causing lower overhead absorption due to the reduced production volumes and a resulting decrease in gross profit
margins from 36.1% to 33.4%. As business activity started to recover and we started to benefit from our manufacturing consolidation and restructuring programs during 2003, gross profit margins increased to 43.4%. In 2004, gross profit margin
increased further to 47.7% primarily driven by spending efficiency and increased leverage of our manufacturing overhead due to higher demand. We maintained our research and development expenditures during the period at $19,685 in 2002 and $19,110 in
2003 increasing to $25,739 in 2004 as we continued to make investments in a number of new product initiatives, including new chemical filtration products, dispense systems and advanced gas delivery equipment. Cost savings from our restructuring
programs in 2001 and 2002 and reductions in discretionary spending throughout the period caused our selling, general and administrative expenses to decline from $67,809 in 2002 to $64,795 in 2003 selling, general and administrative spending
increased to $75,737 in 2004 primarily due to increases in incentive compensation related to higher revenue and profitability.



Our operations generated positive cash flows of $7,481 in 2002, $14,927 in 2003 and $44,093 in 2004 as a result of increasing levels of profitability and
efforts to effectively manage working capital. Capital expenditures



19



---

for property, plant and equipment were $17,949 in 2002, $3,755 in 2003 and $4,154 in 2004. Capital expenditures during this period were primarily used for
the purchase of production and research and development equipment and the transfer of manufacturing operations from Millipore facilities. Most of our separation-related programs have now been completed. During 2003 and 2004, we also used cash of
approximately $7,875 and $7,439, respectively, to acquire certain assets of two privately held businesses, Aeronex, Inc and Bentec Scientific LLC. During 2005, we expect to invest in the range of $10 to $12 million on capital expenditures primarily
related to the purchase of manufacturing and R&D equipment. We believe that our cash, investments and expected future cash flows from operations will be sufficient to meet our working capital, capital expenditure, and research and development
investment requirements for the next 12 months. However, in order to take advantage of growth opportunities, we may elect to raise capital through equity or debt financing. To that end, we filed a shelf registration statement with the Securities and
Exchange Commission, which became effective on November 26, 2003.



Our Separation from Millipore Corporation



In
connection with our separation from Millipore, we entered into agreements with Millipore under which Millipore agreed to provide services to us during a transition period after the separation date. The agreements related to facilities services,
information technology services, distribution, accounting, finance and other services and arrangements. Under these agreements, we reimbursed Millipore for the cost of these services. The duration of the different transition service agreements
varied depending on the anticipated time it would take for us to replace the service, generally for a oneyear period. As these transition service agreements expired without renewal, we were able to provide these services ourselves or negotiate
new agreements with various third parties at costs at least as favorable as those paid to Millipore for these services.



Upon separation, we also entered into agreements with Millipore for membrane manufacturing and supply, research and development, product distribution and
contract manufacturing, generally for a fiveyear period. The foregoing transition agreements may not necessarily reflect the costs of obtaining the services from unrelated third parties or of our providing the applicable services ourselves.
However, we believe that purchasing these products and services from Millipore provides us with an efficient means of obtaining these products and services during the transition period.



Products and services purchased from Millipore included in the accompanying consolidated statements of operations are as
follows:



|                                             |  |                         |       |      |   |       |  |   |      
|-------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                             |  | Year Ended December 31,
|                                             |  | 2004                    |       | 2003 |   | 2002 
|Cost of sales                                |  | $                       | 2,815 |      | $ | 1,986 |  | $ | 3,884
|Selling, general and administrative expenses |  |                         |      |      |   | 796   |  |   | 3,126
|Research and development expenses            |  |                         | 94    |      |   | 205   |  |   | 642  
|                                             |  |                         |       |      |   |       |  |   |      
|Total                                        |  | $                       | 2,909 |      | $ | 2,987 |  | $ | 7,652
|                                             |  |                         |       |      |   |       |  |   |      



In addition, we have
agreed to provide transition services to Millipore, for which we have been reimbursed at our cost. These amounts totaled $806, $1,296, and $1,750 in 2004, 2003 and 2002 respectively, related to manufacturing, distribution, research and development
services that have been recorded as reductions to our cost of sales, and to our research and development expenses. During 2001, we entered into a royalty agreement with Nihon Millipore, which provides Nihon Millipore the right to use certain
intellectual property that was developed by Mykrolis in connection with the bioscience business. As a result of this agreement, $358, $553 and $536 in royalty income from Millipore was recognized and recorded in other income (expense), net for the
years ended December 31, 2004, 2003 and 2002, respectively. Millipore discontinued usage of our distribution and research and development services in Japan and vacated our Japanese manufacturing site in late 2004, therefore, intellectual property
royalty income ceased in the fourth quarter of 2004. We anticipate to partially offset this loss by additional cost reductions in Japan.



20



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In 2004, 2003 and 2002 we purchased products from Millipore for inclusion in our products sold to third
parties totaling $3,986, $3,016 and $2,717, respectively. For 2004, 2003 and 2002, products sold to Millipore by us totaled $1,308, $1,587 and $2,010, respectively.



Critical Accounting Policies and Significant Judgments and Accounting Estimates



The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and significant
judgments and estimates, including those related to net sales, accounts receivable, inventories, long-lived assets and goodwill, deferred tax assets, income tax contingencies, warranty obligations, restructuring charges, pension obligations, and
litigation contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



We believe the following critical accounting policies affect our more significant judgments and estimates used in the
preparation of the consolidated financial statements. We have reviewed these policies with the Audit and Finance Committee of our Board of Directors.



Net Sales



Our net sales consist of revenue from sales of products net of trade discounts and allowances. We recognize revenue upon shipment, primarily FOB shipping
point, when evidence of an arrangement exists, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured through historical collection
results and regular credit evaluations. In most transactions, we have no obligations to our customers after the date products are shipped other than pursuant to warranty obligations. In the event that significant post-shipment obligations or
uncertainties exist such as customer acceptance, revenue recognition is deferred as appropriate until we fulfill such obligations or the uncertainties are resolved.



Accounts Receivable



We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments based upon
specific identification, by customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



Inventories



We adjust the cost basis of our inventory to reflect its net realizable
value, if lower than cost. We provide reserves for estimated excess and obsolete inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions.
We fully reserve for inventories deemed obsolete. We perform quarterly reviews of all inventory items to identify excess and obsolete inventories on-hand by comparing on-hand balances to recent historical usage as well as anticipated or forecasted
demand, based upon input from sales, R&D and marketing functions. If estimates of future demand or actual market conditions are less favorable than those previously projected, additional inventory write-downs may be required.



Long-Lived Assets and Goodwill



We periodically evaluate the recoverability of long-lived assets whenever
events and changes in circumstances indicate that the carrying value of an asset or class of assets may not be fully recoverable and



21



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exceeds its fair value. For long-lived assets we intend to hold and use, if the carrying amount of the asset exceeds the sum of undiscounted cash flows
expected to result from the use of the asset over its useful life, an impairment loss will be recorded. The amount of the impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Assets
held for sale are valued at fair value less costs to sell the asset.



For goodwill, we assess fair value by measuring discounted cash flows and comparable company analysis for the applicable underlying reporting unit and test for impairment as the difference between the resulting implied fair value of
goodwill compared to its recorded carrying value. Goodwill impairment is tested annually or whenever events and changes in circumstances occur. We adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 142 on
January 1, 2002; accordingly, goodwill amortization ceased on that date.



The estimates of useful lives and expected cash flows require us to make significant judgments regarding future periods that are subject to some factors outside our control. Changes in these estimates can result in
significant revisions to the carrying value of these assets and may result in material charges to the results of operations.



Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant
improvements, which extend the life of the underlying asset, are capitalized. Assets are depreciated primarily using straight-line methods over estimated useful lives. Upon retirement or sale, the cost of assets disposed and the related accumulated
depreciation are eliminated and related gains or losses are reflected in income.



Deferred Tax Assets



Our valuation allowance against the U.S. deferred tax assets are based on an assessment of historical pre-tax income (loss) and projected pre-tax income (loss) for early future periods. In addition, there is a valuation allowance against
the deferred tax assets in certain foreign subsidiaries based on our assessment of historical pre-tax income and projected pre-tax income for early future periods. We currently expect there will be sufficient pre-tax income during 2005 to realize
deferred tax assets in these foreign subsidiaries. We currently forecast pre-tax income in the U.S. and in addition, we have undertaken tax-planning initiatives designed to generate future U.S. taxable income however due to the early future period
uncertainty a full valuation remains on the U.S. deferred tax assets at December 31, 2004. As we continue to generate taxable income in the U.S. against which these tax assets may be applied, some portion or all of the valuation allowance would be
reversed and an increase in net income would consequently be reported in future years.



Income Tax Contingencies



Tax contingencies are recorded for probable exposures involving tax positions taken that could be challenged by taxing authorities. These probable exposures result from the varying application of statutes, rules, regulations and
interpretations. Our estimate of the value of our tax contingencies contains assumptions based on past experiences and judgments about potential actions by taxing jurisdictions. It is reasonably likely that the ultimate resolution of these matters
may be greater or less than the amount that we have accrued.



Warranty Obligations



At the time
revenue is recognized, we provide for the estimated cost of product warranties as provided for under our contractual arrangements. Our warranty obligation is affected by product failure rates and service delivery costs incurred in correcting a
product failure. Should such failure rates or costs differ from these estimates, accrued warranty costs would be adjusted in the period that such events or costs become known.



22



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Restructuring Charges



During 2003, 2002 and 2001, we recorded significant charges to operations in connection with our restructuring programs. The
related reserves reflect estimates, including those pertaining to severance costs, facility exit costs and asset impairments. We reassess the reserve requirements to complete each restructuring program at the end of each reporting period and record
adjustments to reflect changes in prior estimates. Actual experience may be different from these estimates.



Pension Obligations



We have pension costs and credits, which are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount
rates, compensation increases and expected return on plan assets, which are usually updated annually at the beginning of each fiscal year. We consider current market conditions in making these key assumptions. Changes in the related pension costs or
credits may occur in the future due to changes in assumptions.



Litigation contingencies



In March of
2003 we filed a lawsuit against Pall Corporation in the United States District Court for the District of Massachusetts alleging infringement of two of the Companys U.S. Patents by a fluid separation device known as the Pall Photo Kleen EZD-2
filter assembly manufactured and sold by the defendant. Current developments in this litigation are described in Part I, Item 3, of this report.



We are subject to proceedings, lawsuits and other claims, including proceedings under laws and government regulations related to securities,
environmental, labor, product and other matters. We are required to assess the likelihood of any adverse judgments or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if
any, for these contingencies is based on a careful analysis of each individual issue with the assistance of outside legal counsel. The required reserves may change in the future due to new developments in each matter or changes in approach such as a
change in settlement strategy in dealing with these matters.



Results of
Operations



Operating trends and recent developments



We operate in one reportable business segment that develops, manufactures
and sells consumables and capital equipment products to semiconductor fabrication companies and other companies using similar manufacturing processes, as well as OEM suppliers to those companies. The principal market we serve is the global
semiconductor industry, a highly cyclical business. From early 2001 until 2003, this industry faced a severe downturn, and as a result, we have experienced significant variations in net sales and results of operations in the periods presented.



Our liquid and gas equipment products were impacted the most
by the industry downturn and we have experienced weak demand for these products during 2001, 2002 and a portion of 2003 as new semiconductor fabrication plant constructions and upgrades declined. The semiconductor and related industry capacity
utilization started to improve in late 2002 and this trend has continued through 2004, which primarily benefited our consumable products.



Beginning in the fourth quarter of 2003 semiconductor fabrication companies increased capacity utilization rates and capacity additions, which
significantly improved our business conditions and positively impacted our revenue and profitability levels in 2004.During the third quarter of 2004 our business conditions began to soften as key OEM customers announced order delays and
reduced booking rates and key semiconductor manufacturers reported lower wafer starts. The outlook for 2005 is currently unclear; however, should business conditions signal a downturn, we intend to take appropriate actions to maintain profitability
at reduced sales levels.



23



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During the third quarter of 2004, we completed the acquisition of Bentec Scientific LLC, a privately held
manufacturer of polyvinyl alcohol (PVA) roller brushes used in post chemical mechanical planarization (CMP) cleaning applications. This acquisition is a key addition to our technology portfolio and expands our consumable
product line. In addition, in the fourth quarter of 2003, we acquired the business and certain assets and liabilities of Aeronex, Inc., a privately held company that developed, manufactured and marketed gas purification components and systems. The
Aeronex products complement our line of gas purifiers. As part of our business strategy, we expect to continue to address gaps in our product offerings, diversify into complementary markets or pursue additional technology and customers through
acquisitions, joint ventures or other types of collaborations. Our results of operations include Bentec and Aeronex results since the date of purchase.



Our results of operations for the years ended December 31, 2004, 2003 and 2002 in dollars and as a percentage of total net sales were as follows:



|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|-------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | --
|                                             |  | Year ended December 31,     |        
|                                             |  | 2004                        |         |   | 2003 |   |         | 2002 | 
|Net sales                                    |  | $                           | 289,230 |   |      | $ | 185,898 |      |  | $ | 178,449 |   
|Cost of sales                                |  |                             | 151,321 |   |      |   | 105,269 |      |  |   | 118,783 |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Gross profit                                 |  |                             | 137,909 |   |      |   | 80,629  |      |  |   | 59,666  |   
|Selling, general and administrative expenses |  |                             | 75,737  |   |      |   | 64,795  |      |  |   | 67,809  |   
|Research and development expenses            |  |                             | 25,739  |   |      |   | 19,110  |      |  |   | 19,685  |   
|Restructuring and other charges              |  |                             | (213    | ) |      |   | 2,111   |      |  |   | 5,182   |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Operating income (loss)                      |  |                             | 36,646  |   |      |   | (5,387  | )    |  |   | (33,010 | ) 
|Other income (expense), net                  |  |                             | 2,289   |   |      |   | 2,260   |      |  |   | 3,367   |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Income (loss) before income taxes            |  |                             | 38,935  |   |      |   | (3,127  | )    |  |   | (29,643 | ) 
|Income tax expense                           |  |                             | 9,338   |   |      |   | 4,977   |      |  |   | 2,118   |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Net income (loss)                            |  | $                           | 29,597  |   |      | $ | (8,104  | )    |  | $ | (31,761 | ) 
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|                                             |  |                             |        
|                                             |  | 2004                        |         |   | 2003 |   |         | 2002 | 
|                                             |  | (As a percent of net sales) |        
|Net sales                                    |  |                             | 100.0   | % |      |   | 100.0   | %    |  |   | 100.0   | % 
|Cost of sales                                |  |                             | 52.3    |   |      |   | 56.6    |      |  |   | 66.6    |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Gross profit                                 |  |                             | 47.7    |   |      |   | 43.4    |      |  |   | 33.4    |   
|Selling, general and administrative expenses |  |                             | 26.2    |   |      |   | 34.9    |      |  |   | 38.0    |   
|Research and development expenses            |  |                             | 8.9     |   |      |   | 10.3    |      |  |   | 11.0    |   
|Restructuring and other charges              |  |                             | (0.1    | ) |      |   | 1.1     |      |  |   | 2.9     |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Operating income (loss)                      |  |                             | 12.7    |   |      |   | (2.9    | )    |  |   | (18.5   | ) 
|Other income (expense), net                  |  |                             | 0.8     |   |      |   | 1.2     |      |  |   | 1.9     |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Income (loss) before income taxes            |  |                             | 13.5    |   |      |   | (1.7    | )    |  |   | (16.6   | ) 
|Income tax expense                           |  |                             | 3.2     |   |      |   | 2.7     |      |  |   | 1.2     |   
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   
|Net income (loss)                            |  |                             | 10.2    | % |      |   | (4.4    | )%   |  |   | (17.8   | )%
|                                             |  |                             |         |   |      |   |         |      |  |   |         |   



Year Ended December 31, 2004
Compared to Years Ended December 31, 2003 and 2002



Net
Sales.Net sales were $289,230 in 2004, which represented a 55.6%, or $103,332, increase from 2003. The increase was primarily attributable to increases in sales of both our consumable and equipment product lines, as our
customers capacity utilization and capacity expansion increased. The favorable impact of stronger Japanese Yen, Asian and Euro foreign exchange rates increased net sales by $12,411 in 2004 compared to 2003.



Net sales were $185,898 in 2003, which represented a 4.2% or $7,449, increase
from 2002. The increase was primarily attributable to the favorable impact of stronger Japanese Yen, Asian and Euro foreign exchange



24



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rates which increased net sales by $8,760. The strong recovery in net sales in Asia, driven primarily by increased consumable sales, was offset by a sharp
decline in our North American equipment business.



Net
sales and percent change in net sales in comparison to the prior year from 20042002 years, by geography, are summarized in the table below.



|              |  |                         |         |                                          |   |         |  |      |         |  |      |   |  |      |   |  |     |  
|------------- |  | ----------------------- | ------- | ---------------------------------------- | - | ------- |  | ---- | ------- |  | ---- | - |  | ---- | - |  | --- | -
|              |  | Net Sales in US Dollars |         | Net Sales as a percent ofTotal Net Sales |  
|              |  | 2004                    |         | 2003                                     |   | 2002    |  | 2004 |         |  | 2003 |   |  | 2002 |  
|North America |  | $                       | 76,391  |                                          | $ | 49,280  |  | $    | 55,344  |  | 26   | % |  | 27   | % |  | 31  | %
|Japan         |  |                         | 107,808 |                                          |   | 67,511  |  |      | 63,323  |  | 37   | % |  | 36   | % |  | 36  | %
|Taiwan        |  |                         | 40,176  |                                          |   | 24,403  |  |      | 20,746  |  | 14   | % |  | 13   | % |  | 11  | %
|AsiaOther    |  |                         | 37,355  |                                          |   | 25,962  |  |      | 21,057  |  | 13   | % |  | 14   | % |  | 12  | %
|Europe        |  |                         | 27,500  |                                          |   | 18,742  |  |      | 17,979  |  | 10   | % |  | 10   | % |  | 10  | %
|              |  |                         |         |                                          |   |         |  |      |         |  |      |   |  |      |   |  |     |  
|Total         |  | $                       | 289,230 |                                          | $ | 185,898 |  | $    | 178,449 |  | 100  | % |  | 100  | % |  | 100 | %
|              |  |                         |         |                                          |   |         |  |      |         |  |      |   |  |      |   |  |     |  



|                |  |                               |   |  |                                     |    |  |      |   |  |      |   
|--------------- |  | ----------------------------- | - |  | ----------------------------------- | -- |  | ---- | - |  | ---- | --
|                |  | Net Sales Change inUS Dollars |   |  | Net Sales Change inLocal Currencies |   
|                |  | 2004                          |   |  | 2003                                |    |  | 2004 |   |  | 2003 |   
|North America   |  | 55                            | % |  | (11                                 | )% |  | 55   | % |  | (11  | )%
|Japan           |  | 60                            | % |  | 7                                   | %  |  | 50   |   |  | (1   | ) 
|Taiwan          |  | 65                            | % |  | 18                                  | %  |  | 60   |   |  | 17   |   
|Asia, other     |  | 44                            | % |  | 23                                  | %  |  | 39   |   |  | 20   |   
|Europe          |  | 47                            | % |  | 4                                   | %  |  | 33   |   |  | (11  | ) 
|                |  |                               |   |  |                                     |    |  |      |   |  |      |   
|Total net sales |  | 56                            | % |  | 4                                   | %  |  |      |   |  |      |   
|                |  |                               |   |  |                                     |    |  |      |   |  |      |   



The primary currencies
impacting the difference between U.S. dollar results and local currency results, during 2004, compared with 2003, were the Japanese Yen, the Euro and the South Korean Won. During 2004 average exchange rates for the Japanese Yen strengthened by
approximately 7.4%, the Euro by 10.2% and the South Korean Won by 3.9%. This positively impacted U.S. Dollar sales growth in 2004. During 2003 compared to 2002, average exchange rates for the Japanese Yen strengthened by approximately 7.9%, the Euro
by 19.7% and the South Korean Won by 5.0%. This also positively impacted U.S. Dollar sales growth in 2003.



Gross Profit Margins.Gross profit margins were 47.7% in 2004, 43.4% in 2003 and 33.4% in 2002. During 2004, the improvement
in our gross profit margin was primarily driven by spending efficiency, increased leverage of our manufacturing overhead due to higher demand, sales of products that were previously deemed excess or obsolete and the favorable impact of foreign
exchange. The favorable impact of stronger foreign exchange rates in Japan, Asia and Europe in relation to the U.S. resulted in a favorable foreign exchange impact of approximately $4 million in the 2004 period compared to the 2003 period.



During 2003, the improvement in gross margin was primarily
attributed to $9,424 of excess and obsolete inventory reserves that were recorded in the fourth quarter of 2002 and to a lesser extent the $4.0 million favorable impact of foreign exchange. In addition, we realized spending efficiency from cost
reductions resulting for the consolation and reorganization of manufacturing operations and reductions in warranty expense during 2003. Finally, gross profit margins in 2002 included $1,735 of redundant facility costs and labor expenses associated
with the transfer of manufacturing operations from Millipore to our Billerica facility and $971 of impairment charges associated with surplus manufacturing machinery.



During the fourth quarter of 2002, we recorded $9,424 of inventory reserves and write-offs in light of the prolonged
downturn in the semiconductor industry. We decided to rationalize our product portfolio and discontinue older generations of pressure transducers, vacuum products, filter housings, liquid dispense pumps and mass flow controllers. These
end-of-life decisions resulted in a $6,992 charge to operations. In addition, the Company recorded additional charges for other products considered in excess of supply requirements needed to meet lower projections of product demand in
the semiconductor industry over the ensuing three-year period and in excess of net realizable value.



25



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Operating Expenses



Research and Development Expenses.    Research and development expenses consist primarily of
salaries and related expense for personnel engaged in research and development, fees paid to consultants, material cost for test units and other expense related to the design, development, testing and enhancement of our products. We expense all our
research and development costs as they are incurred.



Research
and development expenses increased 34.7% to $25,739 in 2004 compared to 2003. Key elements of our research and development expenses were related to the development of the new product platforms to meet the manufacturing needs for 90 and 65 nanometer
semiconductor devices. In order to respond to the proliferation of new materials and chemicals in the manufacturing processes, and increased needs for tighter process control for 300mm wafers, investments were made for new contamination control
products in the area of copper interconnects, deep ultra-violet (DUV) photolithography; and chemical and gas management technologies for advanced wafer cleans, deposition and etch equipments. Additional investments were made in area of advanced
process control, monitoring and diagnostics capabilities for future generations of semiconductor manufacturing processes. During 2003 compared to 2002, research and development expenses decreased 2.9% from $19,685 in 2002 to $19,110 in 2003 mostly
due to the timing of spending on key research and development project materials and the delay in staffing open positions.



Selling, General and Administrative Expenses.    Selling, general and administrative expenses consist primarily of compensation
for personnel engaged in sales and marketing, finance and accounting, information technology, facilities and human resources; costs associated with marketing programs which include costs associated with trade shows, public relations, product
marketing costs, and product evaluation costs and travel, professional services, which include legal, accounting audit and tax fees and directors and officers insurance, administrative expenses associated with operating as a public company and bad
debt expenses.



Selling, general and administrative expenses
increased 16.9% to $75,737 during 2004 versus 2003. This increase was primarily attributable to increases in incentive compensation relating to improvement in revenue and profitability, increases in travel and professional fees related to our
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 as well as the unfavorable impact of stronger foreign currency translation rates. This increase was slightly offset by a non-recurring benefit of $1,976 related to the termination of post
retirement benefits recorded in the third quarter of 2004. Selling, general and administrative expenses decreased 4.4% from $67,809 in 2002 to $64,795 in 2003. This decrease was primarily attributable to cost savings resulting from the 2001 and 2002
restructuring programs as well as additional actions to reduce discretionary spending.



The impact of stronger foreign exchange rates in Japan, Asia and Europe in relation to the U.S. resulted in increased operating expenses of approximately $2 million in both 2004 compared to the 2003 and 2003 compared
to 2002.



Restructuring and Other
Charges.We took several restructuring actions in 2003, 2002 and 2001 to better align our cost structure with prevailing market conditions due to the prolonged industry downturn. These actions, which were necessary as a
result of reduced business volume, primarily focused on reducing our workforce and consolidating global facilities.



During 2004, we recorded $146 of accretion to selling, general and administration expenses during 2004 as a non-cash increase in the restructuring reserve
as a result of originally recording the liability at present value. In addition, during 2004, we recorded changes to prior estimates resulting in the reversal of $88 in employee severance costs and $125 in facility exit costs. These changes in
estimate were primarily due to lower than expected severance benefits paid and a reduction in estimated leasing costs for the Swindon, England and Bedford, MA vacant facilities.



Our operating results in 2003 included a total of $2,111 of restructuring and other charges. We recorded charges of $1,189
related to employee severance costs, $352 related to facility exit costs at the Swindon service



26



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facility and $570 related to changes in estimates for prior-year restructuring programs associated with the closing of manufacturing and service facilities
in the United States and England.



During 2002, restructuring
and other charges totaled $5,182. We recorded facilities exit costs of $81 and asset impairment charges of $1,683 related to the closure of the San Clemente, CA manufacturing site. Severance costs of $1,708 were recorded for reduction in force of
employees in Europe, Asia and the United States. We recorded changes in estimate of $1,710 associated with facility exit costs for the Bedford, MA and Swindon, England sites. Also during 2002, the Company reclassified $1,638 of accrued restructuring
costs from the workforce category to the leasehold/other category. This reclassification was primarily to increase the accrued restructuring costs for the Bedford, MA facility and reduce the accrued restructuring costs for 2001 reduction in force
programs in Japan, Asia, Europe and the United States.



As of
December 31, 2004, our accrued restructuring costs amounted to $1,482. Of this amount, the majority of the $69 in severance costs for terminated employees will be paid by the first quarter of 2005. The facilities-related costs of $1,413 will be
substantially paid by the fourth quarter of 2005.



These
combined restructuring initiatives were expected to generate annual savings of approximately $22 million through reduced payroll costs, facility-related costs and depreciation expense. The savings have been reflected in costs of sales, selling,
general and administrative expenses and research and development expenses. For further details, see Note 18 of the accompanying notes to the consolidated financial statements included elsewhere in this document.



Other Income (Expense), Net.    During 2004, other
income (expense), net included foreign currency transaction exchange gains of $561, interest income of $768, royalty income from Millipore of $358 and $602 of income on investments in entities accounted for under the equity method. During 2003,
other income (expense), net included foreign currency transaction exchange gains of $567, interest income of $570, royalty income from Millipore of $536 and $587 of income on investments in entities accounted for under the equity method. In 2002,
other income (expense), net included foreign currency transaction exchange gains of $1,632 primarily related to intercompany loans denominated in foreign currencies, interest income of $1,220, royalty income from Millipore of $553 and $38 loss on
investments accounted for under the equity method.



Income
Tax Expense.    In 2004, we recorded income tax expense of $9,338 on pre-tax income of $38,935. The income tax expense is primarily related to our foreign operations and results from our overall geographic mix of
income and includes tax benefits relating to U.S. net operating losses for which no tax benefit had been previously taken.



In 2003, we recorded income tax expense of $4,977 on a pre-tax loss of $3,127. The income tax expense is related to our foreign operations and results
from our overall geographic mix of income and includes no tax benefit for net operating losses in the United States.



In 2002, we recorded income tax expense of $2,118 on a pre-tax loss of $29,643. The income tax expense included settlements from foreign tax audits for
which we are responsible under our tax sharing agreement with Millipore and other income tax expense in our foreign operations.



Prior to the completion of the spin-off by Millipore, our operating results were included in Millipores consolidated U.S. and state income tax
returns and in tax returns of certain Millipore foreign subsidiaries. Accordingly, income taxes were calculated on a separate return basis as if we filed tax returns separately from Millipore. At December 31, 2001, we had a $9.0 million income tax
receivable related to net operating loss carrybacks determined on a separate return basis. During 2002, in accordance with the tax sharing agreement, Millipore decided not to allow us to carry back these net operating losses. As a result, the
receivable was transferred to Millipore and is reflected in the consolidated financial statements as a reduction to additional paid-in capital included in shareholders equity. Millipore managed its consolidated tax position for the benefit of
its entire portfolio of businesses, and its tax strategies were not necessarily reflective of the tax strategies that we



27



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would have followed as a stand-alone company. We continuously evaluate our tax position and our effective tax rate depending on changes in the geographic mix
of our earnings and the continued development of our tax strategies.



During 2004, Millipore notified us that certain of the Companys U.S. tax attributes were utilized in connection with Millipores consolidated tax return filings for periods between the Separation and the Distribution Date. Under
the terms of the tax sharing agreement with Millipore in connection with the Separation, we are entitled to be paid for tax attributes utilized by Millipore. In the first quarter of 2004, we received a payment with respect to these tax attributes of
$1,255 from Millipore. As a result, this payment was recorded as an increase in additional paid-in capital included in stockholders equity. No receivable has been established for any remaining portion of these expunged attributes since the
Company continues to review this matter with its former parent. Upon any cash settlement in the future, the Company will record a similar adjustment to reflect the contribution to capital by Millipore.



Liquidity and Capital Resources



Cash provided by operating activities was $44,093 during the year ended
December 31, 2004 compared to $14,927 during the year ended December 31, 2003 and $7,481 during 2002. The increase in net cash from operations during 2004 and 2003 is primarily attributable to net income in 2004 and a reduced net loss in 2003. In
2002, cash provided by operating activities resulted primarily from inventory reductions of $20,981.



Cash flow used in investing activities consisted of a net of $28,447 and $14,477 during 2004 and 2003, respectively, for the purchase of marketable
securities to invest in longer-term high-grade instruments. During 2004 we used $7,439 to acquire Bentec Scientific, a privately held manufacturer of polyvinyl alcohol (PVA) roller brushes used in post-CMP cleaning applications. During
2003, we also used $4,530 to acquire certain net assets of privately held Aeronex Inc., a manufacturer of gas purification products and $3,002 as a refundable deposit for the potential acquisition of certain assets of Bentec Scientific. Capital
expenditures for property, plant and equipment totaled $4,154, $3,755 and $17,949 in the years ended December 31, 2004, 2003 and 2002, respectively. Over the past three years, capital expenditures were primarily for the construction and purchase of
production and research and development equipment, and the transfer of manufacturing operations from Millipore facilities pursuant to our separation agreements. Most of our separation-related programs have now been completed. During 2005, we expect
to spend $10 to $12 million on capital expenditures primarily related to the purchase of manufacturing and research and development equipment.



In 2004, 2003 and 2002, cash flows provided by financing activities primarily consisted of $10,668, $5,540 and $1,860, respectively, from the issuance of
common stock under our employee stock purchase and stock option plans. Cash flows provided by financing activities for the year ended December 31, 2004 also included $1,255 of proceeds from our tax sharing agreement with Millipore. For the year
ended December 31, 2002 also included net transfers of $1,457 from Millipore in accordance with the transition service agreements entered into in conjunction with our separation from Millipore, offset by $1,608 in cash collateratization related to a
security deposit under the lease for our corporate headquarters, research and development and manufacturing facility and other security deposits. At December 31, 2004, this cash collateral was invested in certificates of deposit and money market
funds.



We believe that our cash, cash equivalents, marketable
securities and expected future cash flows from operations will be sufficient to meet our working capital, capital expenditure, and research and development investment requirements for the next 12 months. However, in order to take advantage of growth
opportunities, including potential acquisitions, facility expansion, joint ventures, alliances or other business arrangements, we may seek to raise capital through equity or debt financing. To that effect, during 2003 we filed a shelf registration
statement with the Securities and Exchange Commission with respect to $200 million of securities, which was declared effective on November 26, 2003. The timing, size and terms of any offering will depend on a number of factors, including market
conditions.



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Contractual Obligations



The following table summarizes the payments due for specific contractual obligations. These amounts are as of December 31,
2004.



|                         |  |                        |        |                 |   |          |  |          |        |                  |   |       |  |   |       
|------------------------ |  | ---------------------- | ------ | --------------- | - | -------- |  | -------- | ------ | ---------------- | - | ----- |  | - | ------
|                         |  | Payments Due by Period
|                         |  | Total                  |        | Less than1 Year |   | 1-3Years |  | 4-5Years |        | More than5 Years
|                         |  | (In thousands)        
|Operating leases         |  | $                      | 36,383 |                 | $ | 8,961    |  | $        | 10,612 |                  | $ | 5,793 |  |   | 11,017
|Capital leases           |  |                        | 54     |                 |   | 54       |  |          |       |                  |   |      |  |   |      
|Purchase obligations (1) |  |                        | 8,090  |                 |   | 8,090    |  |          |       |                  |   |      |  |   |      
|Pension obligations      |  |                        | 8,794  |                 |   | 116      |  |          | 1,657  |                  |   | 848   |  |   | 6,173 
|                         |  |                        |        |                 |   |          |  |          |        |                  |   |       |  |   |       
|Total                    |  | $                      | 53,321 |                 | $ | 17,221   |  | $        | 12,269 |                  | $ | 6,641 |  | $ | 17,190
|                         |  |                        |        |                 |   |          |  |          |        |                  |   |       |  |   |       

---

|(1) | Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including: fixed or
minimum quantities to be purchased; fixed, minimum or variable pricing provisions; and the approximate timing of the transactions. The amounts are based on our contractual commitments; however, it is possible we may be able to negotiate lower
payments if we choose to exit these contracts earlier.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Pursuant to the terms of the lease for our vacated Bedford, Massachusetts
facility, the landlord has an option to sell the facility to us at any time prior to November 30 2005, the end of the lease term, at 90% of the then current market value, excluding the value of the lease. The landlord has informed us that it is
currently assessing the alternatives available under this lease. Should the landlord decide to exercise the option to sell the facility to us, the lease provides that the sale to us of this facility is to be completed within twelve months following
the date of exercise during which time interest on the purchase price will accrue, offset by rent paid under the lease. We estimate that the current fair market value of the facility is between $7,200 and $8,700. The landlord has informed us that it
believes that the fair market value of the facility is substantially in excess of this range.



Qualitative and Quantitative Disclosure Relating to Market Risks



Our exposure to foreign currency exchange rate risk is managed on an enterprise-wide basis. We do not currently hold any derivative financial instruments
and continue to evaluate our future hedging strategy. We sell our products in many countries and a substantial portion of our net sales and a portion of our costs and expenses are denominated in foreign currencies. Approximately 74% of our net sales
in the year ended December 31, 2004 were derived from customers located outside of the U.S., principally in Asia including Japan, where we also manufacture some of our products. This exposes us to risks associated with changes in foreign currencies
that can adversely impact revenues, net income and cash flow. In addition, we are potentially subject to concentrations of credit risk, principally in accounts receivable, as historically we have relied on a limited number of customers for a
substantial portion of our net sales. We perform ongoing credit evaluations of our customers and we generally do not require collateral. Our major customers are large, well-established microelectronics companies that have historically paid their
accounts receivable balances with us.



Recently Issued Accounting
Pronouncements



In December 2004, the FASB issued SFAS No.
123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123 (R) replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123(R) requires that the compensation cost



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relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or
liability instruments issued. The provisions of this Statement are effective for the first interim or annual reporting period that begins after June 15, 2005. We are currently evaluating the method of adoption and the impact of SFAS 123(R) on our
financial position and results of operations. We are required to adopt SFAS 123 (R) in the third quarter of 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See
Note 3 in our Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts for the years 2002 through 2004, as if we had used a fair value based method under SFAS 123, which is similar to the methods
required under SFAS 123(R) to measure compensation expense for employee stock incentive awards.



In November 2004, the FASB issued SFAS No. 151, Inventory Costsan Amendment of ARB No. 43, Chapter 4 (SFAS 151). SFAS 151
amends ARB 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. In addition, this Statement requires that allocation of
fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The
adoption of the provisions of SFAS 151 is not expected to have a material impact on our financial position or results of operations.



In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-01, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments. EITF 03-01 provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an
impairment loss. EITF 03-01 also provides new disclosure requirements for other-than-temporary impairments on debt and equity investments. In September 2004, the FASB delayed until further notice the effective date of the measurement and recognition
guidance contained in EITF 03-01. The disclosure requirements of EITF 03-01 are effective for annual financial statements for fiscal years ending after December 15, 2003. The adoption of EITF 03-01 is not expected to have a material impact on our
financial position or results of operations.



In December 2004,
the FASB issued two FASB Staff Positions (FSP) that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1, Application
of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, states that the manufacturers deduction provided for under
this legislation should be accounted for as a special deduction instead of a tax rate change. FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of
2004, allows a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109, Accounting for Income Taxes. These FSPs
may affect how a company accounts for deferred income taxes. These FSPs are effective December 21, 2004. We are currently evaluating the impact from these FSPs on our results of operations and financial position.



Factors and Uncertainties that may Affect Future Results



The matters discussed in this Annual Report on Form 10-K, include
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to statements about:



| |  |  | our strategy;
| | - |  | -------------



| |  |  | our revenues;
| | - |  | -------------



| |  |  | sufficiency of our cash resources;
| | - |  | ----------------------------------



| |  |  | product development;
| | - |  | --------------------



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| |  |  | our research and development and other expenses; and
| | - |  | ----------------------------------------------------



| |  |  | our operations and legal risks.
| | - |  | -------------------------------



Discussions containing these forward-looking statements may be found, among other places, in Business and in Managements
Discussion and Analysis of Financial Condition and Results of Operations, as well as any amendments thereto reflected in subsequent filings with the SEC. These statements are based on current management expectations and are subject to
substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward-looking statements. When used herein or in such statements, the words anticipate,
believe, estimate, expect, may, will, should or the negative thereof and similar expressions as they relate to Mykrolis or its management are intended to identify such
forward-looking statements. We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances after the date of this Annual Report on Form 10-K except as required by law. Potential
risks and uncertainties that could affect our future operating results include the risk factors described elsewhere in this Annual Report on Form 10-K as well as the following:



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RISKS RELATING TO OUR BUSINESS AND INDUSTRY



Our business depends substantially on semiconductor industry capital spending and
production levels, which are characterized by periodic fluctuations that may cause a reduction in demand for our products.



Our business depends substantially upon the capital expenditures of semiconductor device manufacturers, which in turn depend upon the demand for
semiconductors and other products utilizing semiconductors. We estimate that approximately 90% of our sales during 2004, 2003 and 2002 were to semiconductor capital equipment manufacturers, semiconductor device manufacturers and semiconductor
material manufacturers and we expect that sales to such customers will continue to account for a substantial majority of our sales. Reductions in demand for the products manufactured by semiconductor capital equipment manufacturers and semiconductor
device manufacturers will restrict our ability to grow our business and cause our sales and profitability to decline. Historically, the semiconductor market has been highly cyclical and has experienced periods of over capacity, resulting in
significantly reduced demand for capital equipment used to make semiconductors. During fiscal 2003, 2002 and 2001 the semiconductor industry experienced a significant decline, which has caused a number of our customers to reduce their orders. The
cyclicality of our sales is illustrated by the following: our net sales for 2004 were $289,230, an increase of $103,332 over 2003; our net sales for 2003 were $185,898 slightly up from 2002 sales of $178,449, but representing a decline of $36,825,
or 13.6% from our net sales in 2001. Our net sales for 2001 were $215,274, representing a $140,226, or 39.4%, decline from our net sales in 2000. We also experienced downturns in 1996 and 1998. During the 1998 downturn, our annual net sales declined
approximately $82,865, or 31% from the prior year. There is typically up to a three month lag between a change in capital expenditures within the semiconductor industry and the related impact on the demand for our products. Any future downturn could
inhibit our growth and could cause our profitability to decline.



The
semiconductor industry is subject to rapid demand shifts which are difficult to predict. As a result, our inability to meet demand in response to these rapid shifts may cause a reduction in our market share.



Our ability to increase sales of our products, particularly our capital
equipment products, depends in part upon our ability to ramp up the use of our manufacturing capacity for such products in a timely manner and to mobilize our supply chain. In order to meet the demands of our customers, we may be required to ramp up
our manufacturing capacity in as little as a few months. If we are unable to expand our manufacturing capacity on a timely basis or manage such expansion effectively, our customers could seek such products from other suppliers, and our market share
could be reduced. Because demand shifts in the semiconductor industry are rapid and difficult to foresee, we may not be able to increase capacity quickly enough to respond to such an increase in demand.



Our annual and quarterly operating results are subject to fluctuations as a result of
rapid demand shifts and our insignificant level of backlog and if we fail to meet the expectations of securities analysts or investors, the market price of our securities may decrease significantly.



Our sales and profitability can vary significantly from quarter to quarter
and year to year. Because our expense levels are relatively fixed in the short-term, an unanticipated decline in revenue in a particular quarter could disproportionately affect our net income in that quarter. In addition, we make a substantial
portion of our shipments shortly after we receive the order, and therefore we operate with an insignificant level of backlog. As a consequence of the just-in-time nature of shipments and the low level of backlog, our results of operations may
decline quickly and significantly in response to changes in order patterns or rapid decreases in demand for our products. We anticipate that fluctuations in operating results will continue in the future. Such fluctuations in our results could cause
us to fail to meet the expectations of securities analysts or investors, which could cause the market price of our securities to decline substantially. We believe that period-to-period comparisons of our results of operations may not be meaningful,
and you should not rely upon them as indicators of our future performance.



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We may not be able to accurately forecast demand for our products.



As noted above, we typically operate our business on a just-in-time shipment
basis with a low level of backlog and we order supplies and plan production based on internal forecasts of demand. Due to these factors, we have, in the past, and may again in the future, fail to accurately forecast demand for our products, in terms
of both volume and specific products for which there will be demand. This has lead to, and may in the future lead to, delays in product shipments, disappointment of customer expectations, or, alternatively, an increased risk of excess inventory and
of inventory obsolescence. If we fail to accurately forecast demand for our products, our business, financial condition and operating results could be materially and adversely affected.



As the semiconductor industry rebounds, it may not rebound to historic levels but instead may reflect a lower rate of long-term growth,
similar to the electronics industry.



Notwithstanding the
recent severe and prolonged downturn in the semiconductor industry and the related reduction in manufacturing operations, there may still be excess manufacturing capacity. In addition, there is no new application to drive growth in the semiconductor
industry, as was the case in 1998 with telecommunications and internet applications. Accordingly, some analysts have predicted that the semiconductor industry may experience lower growth rates during a recovery cycle than has historically been the
case and that its longer-term performance may reflect this lower growth rate, which would be similar to the growth rate of the electronics industry.



If we are unable to maintain our technological expertise in design and manufacturing processes, we will not be able to successfully compete.



We believe that our future success will depend upon our ability to develop
and provide products that meet the changing needs of our customers, including the transition from the use of 200 millimeter wafers to 300 millimeter wafers, the shrinking of integrated circuit line-widths and the use of new classes of materials,
such as copper, titanium nitride and organic and inorganic dielectric materials, which are materials that have either a low or high resistance to the flow of electricity. This requires that we successfully anticipate and respond to technological
changes in manufacturing processes in a cost-effective and timely manner. Any inability to develop the technical specifications for any of our new products or enhancements to our existing products or to manufacture and ship these products or
enhancements in volume in a timely manner could harm our business prospects and significantly reduce our sales. In addition, if new products have reliability or quality problems, we may experience reduced orders, higher manufacturing costs, delays
in acceptance and payment, additional service and warranty expense and damage to our reputation.



Our competitive position will be weakened if semiconductor device manufacturers do not require semiconductor capital equipment manufacturers to design our products into new generations of their equipment.



New products designed by semiconductor capital equipment
manufacturers typically have a lifespan of five to ten years. Our competitive success depends on our products being designed into new generations of equipment for the semiconductor industry. In some cases, semiconductor device manufacturers may
direct semiconductor capital equipment manufacturers to use a specified suppliers product in their equipment. Accordingly, our success will depend in part on our ability to have semiconductor device manufacturers specify that our products be
used at their semiconductor fabrication facilities. If our products are not specified by semiconductor equipment manufacturers, our net sales may be reduced during the lifespan of our customers products.



Because our sales are concentrated on a small number of key customers, our revenue and
profitability may materially decline if one or more of our key customers do not continue to purchase our existing and new products in significant quantities.



We depend and expect to continue to depend on a limited number of customers for a large portion of our business, and changes
in several customers orders could have had a significant impact on our operating results. In 2004, 2003 and 2002, our top customer accounted for approximately 14%, 11% and 13%, respectively, of our



33



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net sales. In those same periods, net sales to our ten largest customers accounted for approximately 38%, 34% and 35%, respectively, of our net sales. In
addition, we sell products to systems integrators who then sell components, which include our products, to some of our major customers. If any one of our key customers decides to purchase significantly less from us or to terminate its relationship
with us, our revenue and profitability may decline significantly. We could also lose our key customers or significant sales to our key customers because of factors beyond our control, such as a significant disruption in our customers
businesses generally or in a specific product line. These customers may stop incorporating our products into their products with limited notice to us and suffer little or no penalty for doing so. In addition, if any of our customers merge, we may
experience lower overall sales from the merged companies. Because one of our strategies has been to develop long-term relationships with a few key customers in the product areas in which we focus and because we have a long product design and
development cycle for most of our products and prospective customers typically require lengthy product qualification periods prior to placing volume orders, we may be unable to replace these customers quickly or at all.



Because we are subject to order and shipment uncertainties and many of our costs are
fixed, any significant changes, cancellations or deferrals of orders or shipments could cause our revenue and profitability to decline or fluctuate.



As is typical in the microelectronics industry, we do not usually obtain long-term purchase orders or commitments from our customers. Instead, we work
closely with our customers to develop non-binding forecasts of the future volume of orders. Customers may cancel their orders, change production quantities from forecasted volumes or delay production for reasons beyond our control. Order
cancellations or deferrals could cause us to hold inventory for longer than anticipated, which could reduce our profitability, restrict our ability to fund our operations and cause us to incur unanticipated reductions or delays in our revenue. Our
customers often change their orders multiple times between initial order and delivery. Such changes usually relate to quantities or delivery dates, but sometimes relate to the specifications of the products we are supplying. If a customer does not
timely pay for these products, we could incur significant charges against our income. In addition, our profitability may be affected by the generally fixed nature of our costs. Because a substantial portion of our costs are fixed, we may experience
deterioration in gross margins when volumes decline. From time to time, we make capital investments in anticipation of future business opportunities. If we are unable to obtain the anticipated business, our revenue and profitability may decline.



Competition from existing or new companies in the microelectronics industry
could cause us to experience downward pressure on prices, fewer customer orders, reduced margins, the inability to take advantage of new business opportunities and the loss of market share.



We operate in a highly competitive industry. We compete against many
domestic and foreign companies that have substantially greater manufacturing, financial, research and development and marketing resources than we do. In addition, some of our competitors may have more developed relationships with our existing
customers than we do, which may enable them to have their products specified for use more frequently by these customers. We also face competition from the manufacturing operations of our current and potential customers, who continually evaluate the
benefits of internal manufacturing versus outsourcing. As more original equipment manufacturers dispose of their manufacturing operations and increase the outsourcing of their products to liquid and gas delivery system and other component companies,
we may face increasing competitive pressures to grow our business in order to maintain our market share. If we are unable to maintain our competitive position, we could experience downward pressure on prices, fewer customer orders, reduced margins,
the inability to take advantage of new business opportunities and a loss of market share.



If we are unable to successfully adjust our business strategy for some of our product lines to reflect the increasing price sensitivity on the part of our customers, our business and financial condition could be
harmed.



Our business strategy for many of our product
lines has been focused on product performance, technological innovations that provide enhanced efficiencies, and customer service, rather than simply price. As a result of



34



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current economic conditions and changes in various markets that we serve, our customers have experienced significant cost pressures and, as a result, we have
observed increased price sensitivity on the part of our customers. If competition for any of our product lines should come to focus solely on price rather than on product performance, technological innovations and customer service, we will need to
adjust our business strategy and/or product offerings accordingly and, if we are unable to do so, our business, financial condition and operating results could be materially and adversely affected.



We conduct a significant amount of our sales activity and manufacturing efforts outside
the United States, which subjects us to additional business risks and may cause our profitability to decline due to increased costs.



Sales by our international subsidiaries to customers outside the United States accounted for approximately 74% of our net sales in 2004, 73% of our net
sales in 2003, and 69% of our net sales in 2002. We anticipate that international sales will continue to account for a majority of our net sales. In addition, a number of our key domestic customers derive a significant portion of their revenues from
sales in international markets. We also manufacture a significant portion of our products outside the United States and are dependent on international suppliers for many of our parts. We intend to continue to pursue opportunities in both sales and
manufacturing internationally. Our international operations are subject to a number of risks and potential costs that could adversely affect our revenue and profitability, including:



| |  |  | unexpected changes in regulatory requirements that could impose additional costs on our operations or limit our ability to operate our business;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | greater difficulty in collecting our accounts receivable and longer payment cycles than is typical in domestic operations;
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in labor conditions and difficulties in staffing and managing foreign operations;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | liability for foreign taxes assessed at rates higher than those applicable to our domestic operations; and
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | political and economic instability.
| | - |  | -----------------------------------



In the past, we have incurred costs or experienced disruptions due to the factors described above and expect to do so in the future. For example, our
operations in Asia, and particularly Korea, Taiwan and Japan, have been negatively impacted in the past as a result of regional economic instability, most recently in 1998. In addition, Taiwan and Korea account for a growing portion of the
worlds semiconductor manufacturing. There are currently strained relations between China and Taiwan and there are growing tensions between North Korea and South Korea and the United States. Any adverse developments in those relations could
significantly disrupt the worldwide production of semiconductors, which would lead to reduced sales of our products.



Fluctuations in the value of the U.S. dollar in relation to other currencies may lead to lower net income or may cause us to raise prices, which could result in
reduced net sales.



Foreign currency exchange rate
fluctuations could have an adverse effect on our net sales and results of operations. Approximately 74% of our net sales in 2004, 73% of our net sales in 2003 and 69% of our net sales in 2002 were denominated in foreign currencies. Unfavorable
foreign currency fluctuations against the U.S. dollar could require us to increase prices to foreign customers, which could result in lower net sales by us to such customers. Alternatively, if we do not adjust the prices for our products in response
to unfavorable foreign currency fluctuations, our profitability could decline. In addition, sales made by our foreign subsidiaries are denominated in the currency of the country in which these products are sold, and the currency we receive in
payment for such sales could be less valuable at the time of receipt versus the time of sale as a result of foreign currency exchange rate fluctuations.



We incur significant cash outlays over long-term periods in order to research, develop, manufacture and market new products, which may never reach market or may have
limited market acceptance.



We make significant cash
expenditures to research, develop and market new products. For example, we incurred $25,739 of research and development expense in 2004, $19,110 in 2003, and $19,685 in 2002. The



35



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development period for a product can be as long as five years. Following development, it may take an additional two to three years for the market size of
that product to reach a substantial level. We cannot be certain of the success of a new product. A product concept may never progress beyond the development stage or may only achieve limited acceptance in the marketplace. If this occurs, we do not
receive a direct return on our expenditures and may not even realize any indirect benefits. Additionally, capacity expansion may be necessary in order to manufacture a new product. If sales levels do not increase to offset the additional fixed
operating expenses associated with any such expansion, our revenue and profitability could decline and our prospects could be harmed.



We depend on our suppliers for our raw materials and components, and our production would be substantially curtailed if these suppliers are not able to meet our
demands and alternative sources are not available.



We
purchase raw materials and components from third parties to complete our customers orders, and some of these raw materials and components may, in the future, need to be ordered from sole-source suppliers. Although we work with our customers
and suppliers to minimize the impact of defects or shortages in raw materials and components, we sometimes experience short-term adverse effects due to price fluctuations, delayed shipments and out of specification materials or components. In the
past, there have been industry-wide shortages of electronic components, particularly memory and logic devices. If a significant shortage of raw materials or components were to occur or if our suppliers provide us with out of specification materials
or components, we may have to delay shipment. Supply shortages of or defects in particular components will likely substantially curtail production of products using these components. If defects in materials or components from our suppliers are
undetected by us and incorporated into our products, the quality of our products will deteriorate and may injure our reputation with our customers or cause us to incur remedial expense to resolve the problem. In addition, while many of our
significant customer contracts permit periodic reviews of pricing based on decreases and increases in the prices of raw materials and components, we are not always able to pass on price increases to our customers and significant price increases from
our suppliers could cause our profitability to decline. The loss of any of these or other significant suppliers, delays in shipments, the inability of a supplier to meet performance and quality specifications or delivery schedules or our inability
to pass along price increases could cause our revenue and profitability to decline significantly.



We may acquire other businesses, form joint ventures or divest businesses that could negatively affect our profitability, increase our debt and dilute your ownership of our company.



As part of our business strategy, we have, and we expect to continue to
address gaps in our product offerings, diversify into complementary product markets or pursue additional technology and customers through acquisitions, joint ventures or other types of collaborations. We also expect to adjust our portfolio of
businesses to meet our ongoing strategic objectives. As a result, we may enter markets in which we have no or limited prior experience and may encounter difficulties in divesting businesses that no longer meet our objectives. Competition for
acquiring attractive businesses in our industry is substantial. In executing this part of our business strategy, we may experience difficulty in identifying suitable acquisition candidates or in completing selected transactions at appropriate
valuations. Alternatively, we may be required to undertake multiple transaction at the same time in order to take advantage of acquisition opportunities that do arise; this could strain our ability to effectively execute and integrate these
transactions. We intend to pay for these acquisitions with cash and/or our common stock which could impair our liquidity and dilute your ownership of our company. Further, we may not be able to successfully integrate any acquisitions that we do make
into our existing business operations and we could assume unknown or contingent liabilities or experience negative effects on our reported results of operations from dilutive results from operations and/or from future potential impairment of
acquired assets including goodwill related to future acquisitions. We may experience difficulties in operating in foreign countries or over significant geographical distances and in retaining key employees or customers of an acquired business, and
our managements attention could be diverted from other business issues. We may not identify or complete these transactions in a timely manner, on a cost effective basis or at all, and we may not realize the benefits of any acquisition or joint
venture.



36



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We may not be able to obtain financing to fund our future capital requirements, including strategic acquisitions, on
favorable terms or at all, and the amount of equity that we can issue may likewise be limited. This could prevent us from addressing gaps in our product offerings, improving our technology or increasing our manufacturing capacity.



If our cash flows from operations are less than we expect, we may need to
issue additional equity or incur debt. There can be no assurance that we will be able to obtain necessary short-term or other financing on favorable terms or at all. If we are unable to obtain necessary financing, we may not have sufficient cash to
operate our business. In particular, we expect to fund future acquisitions in whole or in part by issuing additional equity. Any equity issued would be dilutive to existing stockholders. If the price of our equity is low or volatile, we may not be
able to issue equity to acquire other companies and our acquisition strategy could require us to incur substantial amounts of indebtedness. While we currently have no debt outstanding, potential future levels of indebtedness could have adverse
consequences for our business, including:



| |  |  | greater vulnerability to the cyclical nature of our industry and the effects of rapid demand shifts affecting our business;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | dedication of a substantial portion of our cash flow from operations to repayment of debt, limiting the availability of cash for working capital, capital expenditures or
acquisitions which may be attractive to us; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reduced flexibility in planning for, or reacting to, changes in our business and industry.
| | - |  | ------------------------------------------------------------------------------------------



Furthermore, if we raise funds through the issuance of debt, the debt securities issued will likely have rights, preferences
and privileges senior to those of holders of our common stock in the event of a liquidation or otherwise, and the terms of the debt securities may impose restrictions on our operations. We cannot assure you that financing for acquisitions will be
available on terms acceptable to us, or at all.



Loss of any of our key
personnel could hurt our business because of their experience in the microelectronics industry and their technological expertise. Similarly, our inability to attract and retain new qualified personnel could inhibit our ability to operate and grow
our business successfully.



We depend on the services of
our key senior executives and other technological experts because of their experience in the microelectronics industry and their technical expertise. The loss of the services of one or several of our key employees or an inability to attract, train
and retain qualified and skilled employees, specifically research and development and engineering personnel, could result in the loss of customers or otherwise inhibit our ability to operate and grow our business successfully. During the recent
extended downturn in the semiconductor industry we had to impose salary reductions on our senior employees and freeze merit increases in an effort to maintain our financial position. Similarly, changes in accounting rules requiring fair value
accounting for stock options will make it more expensive to provide our employees with equity incentives, which may require us to reduce the level of equity compensation. These actions may have an adverse effect on employee loyalty and may make it
more difficult for us to attract and retain key personnel. In addition, our ability to successfully integrate acquired facilities or businesses depends, in part, on our ability to retain and motivate key management and employees hired by us in
connection with the acquisition.



If we are unable to protect our
intellectual property rights, our business and prospects could be harmed.



Our future success and competitive position depend in part upon our ability to obtain and maintain proprietary technology used in our principal product families. We rely, in part, on patent, trade secret and trademark
law to protect that technology. We routinely enter into confidentiality agreements with our employees. However, there can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach or that our
confidential and proprietary information and technology will not be independently developed by or become otherwise known to third parties. We have obtained a number of patents relating to our products and have filed applications for additional
patents. We cannot assure you that any of our pending patent applications will be approved, that we will develop additional proprietary technology that is



37



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patentable, that any patents owned by or issued to us will provide us with competitive advantages or that these patents will not be challenged by third
parties. Patent filings by third parties, whether made before or after the date of our filings, could render our intellectual property less valuable. Competitors may misappropriate our intellectual property, and disputes as to ownership of
intellectual property may arise. In addition, if we do not obtain sufficient international protection for our intellectual property, our competitiveness in international markets could be significantly impaired, which would limit our growth and
future revenue. Furthermore, there can be no assurance that third parties will not design around our patents.



Protection of our intellectual property rights has and may continue to result in costly litigation.



We may from time to time be required to institute litigation in order to enforce our patents, copyrights or other intellectual property rights, to protect
our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation could result in substantial costs and diversion of resources and could negatively affect our
sales, profitability and prospects regardless of whether we are able to successfully enforce our rights. For example, in 1998, we settled a patent lawsuit in which each party claimed infringement of a patent by the other. In connection with the
settlement, we incurred a charge of approximately $3.7 million and agreed to a cross-license of the two patents at issue. More recently, on March 3, 2003 we filed a lawsuit against Pall Corporation in the United States District Court for the
District of Massachusetts alleging infringement of two of our U.S. patents. Our lawsuit also seeks a preliminary injunction preventing Pall Corporation from manufacturing, using, selling, offering for sale or importing into the United States the
infringing product. As of the date of filing this Annual Report on Form 10-K, the court has dissolved a preliminary injunction against Pall and questioned the validity of the patents in suit. See, Item 3. Legal Proceedings above. We have
appealed this ruling and expect that this litigation will continue for an extended period and that we will incur substantial costs in pursuing this litigation.



Our ability to manufacture and sell our products and develop new products in response to competitive pressures could be restricted or delayed, and we could incur
significant expenses, if we are unable to obtain necessary licenses to the proprietary technology of others.



We license and will continue to license technology used in the manufacture and distribution of our products from third parties. Our inability to acquire
any third-party licenses, or integrate the related third-party technologies into our products, could result in delays in our product developments and enhancements until equivalent technologies can be identified, licensed or integrated. We may also
require new licenses in the future as our business grows and technology evolves. We cannot assure you that these licenses will be available to us on commercially reasonable terms, if at all.



If we infringe on the proprietary technology of others, our business and prospects could
be harmed.



Our commercial success will depend, in part,
on our ability to avoid infringing or misappropriating any patents or other proprietary rights owned by third parties. If we are found to infringe or misappropriate a third partys patent or other proprietary rights, we could be required to pay
damages to such third party, alter our products or processes, obtain a license from the third party or cease activities utilizing such proprietary rights, including making or selling products utilizing such proprietary rights. If we are required to
obtain a license from a third party, there can be no assurance that we will be able to do so on commercially favorable terms, if at all.



We are subject to a variety of environmental laws which could cause us to incur significant expenses.



In addition to other regulatory requirements affecting our business, we are
subject to a variety of federal, state, local and foreign regulatory requirements relating to the use, disposal, clean-up of, and human exposure to, hazardous chemicals. We generate and handle materials that are considered hazardous waste under
applicable law. If we fail to comply with any present or future regulations, we could be subject to future liabilities or the suspension of production. In addition, compliance with these or future laws could restrict our ability to expand our
facilities or build new facilities or require us to acquire costly equipment, incur other significant expenses or modify our manufacturing processes.



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We are currently relocating certain manufacturing operations from our Yonezawa, Japan facility and from the company
from which we acquired our roller brush business into our Billerica, Massachusetts headquarters, research and development and manufacturing facility and relocating certain manufacturing operations from our Allen, texas plant to our Billerica and
Yonezawa facilities. If we are unable to successfully manage there transfers, our ability to deliver product to our customers could be disrupted and our business, financial condition and results of operations could be adversely affected.



In order to enhance the efficiency and cost effectiveness
of our manufacturing operations we are moving several product lines from our Yonezawa, Japan plant to our Billerica facility, from the Sacremento, CA plant of Bentec Scientific LLC to our Billerica facility and from our Allen, Texas facility to our
Billerica and Yonezawa facilities. These product lines involve technically complex manufacturing processes that require considerable expertise to operate. If we are unable to complete these transfers in a systematic manner within established
schedules or if we are unable to successfully operate these relocated manufacturing processes in the destination plant, production may be disrupted and we may not be able to deliver these products to meet customer orders in a timely manner, which
could harm our business.



Terrorist attacks, such as the attacks that
occurred in New York and Washington, D.C. on September 11, 2001, and other acts of violence or war may affect the markets in which we operate and hurt our profitability.



Terrorist attacks may negatively affect our operations and your investment. There can be no assurance that there will not be
further terrorist attacks against the United States or United States businesses. These attacks or armed conflicts may directly impact our physical facilities or those of our suppliers or customers. Our primary facilities include headquarters,
research and development and manufacturing facilities in the United States, sales, research and development and manufacturing facilities in Japan and sales and service facilities in Europe and Asia. Also these attacks have disrupted the global
insurance and reinsurance industries with the result that we may not be able to obtain insurance at historical terms and levels for our facilities. Furthermore, these attacks may make travel and the transportation of our supplies and products more
difficult and more expensive and may ultimately affect the sales of our products in the United States and overseas. As a result of terrorism the United States may enter into an armed conflict, which could have a further impact on our domestic and
international sales, our supply chain, our production capacity and our ability to deliver products to our customers. The consequences of these armed conflicts and instability are unpredictable and we may not be able to foresee events that could have
an adverse effect on our business and your investment.



RISKS
RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR SECURITIES



Our
securities have had only a limited market history, and we cannot assure you that our stock price will not decline.



There has been only a limited public market for our common stock, and an active public market for our common stock may not be sustained. The market price
of our common stock has been and may continue to be subject to significant fluctuations. Among the factors that could affect our stock price are:



| |  |  | quarterly variations in our operating results;
| | - |  | ----------------------------------------------



| |  |  | changes in revenue or earnings estimates or publication of research reports by analysts;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | speculation in the press or investment community;
| | - |  | -------------------------------------------------



| |  |  | strategic actions by us or our competitors, such as acquisitions, divestitures or restructurings;
| | - |  | -------------------------------------------------------------------------------------------------



| |  |  | actions by institutional stockholders;
| | - |  | --------------------------------------



| |  |  | general market conditions; and
| | - |  | ------------------------------



| |  |  | domestic and international economic factors unrelated to our performance.
| | - |  | -------------------------------------------------------------------------



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The stock markets in general, and the markets for high technology stocks in particular, have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may cause the trading price of our common stock to decrease.



Recently enacted changes in the securities laws and regulations are likely to increase our
costs.



The Sarbanes-Oxley Act of 2002 that became law in
July 2002 has required changes in some of our corporate governance, securities disclosure and compliance practices. In response to the requirements of that Act, the Securities and Exchange Commission and the New York Stock Exchange have promulgated
new rules and listing standards covering a variety of subjects. Compliance with these new rules and listing standards has increased our legal and financial and accounting costs, and we expect these increased costs to continue indefinitely. We also
expect these developments to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be forced to accept reduced coverage or incur substantially higher costs to obtain coverage. Likewise, these
developments may make it more difficult for us to attract and retain qualified members of our board of directors, particularly independent directors, or qualified executive officers.



Changes to financial accounting standards may affect our reported results of operations and could result in a decrease in the value of
your shares.



There has been an ongoing public debate as
to whether employee stock option and employee stock purchase plan shares should be treated as a compensation expense and, if so, how to properly value such charges. When we are required to record an expense for our stock-based compensation plans
using the fair value method, we will incur significant compensation charges. Although we are currently not required to record any compensation expense using the fair value method in connection with option grants that have an exercise price at or
above fair market value of our common stock and for shares issued under our employee stock purchase plan, regulations will require us to treat all stock-based compensation as a compensation expense using the fair value method during 2005 and our
results of operations could be adversely affected.



Provisions in our
charter documents, Delaware law and our shareholder rights plan may delay or prevent an acquisition of us, which could decrease the value of your shares.



Our certificate of incorporation and By-Laws, Delaware law and our shareholder rights plan contain provisions that could make it harder for a third
party to acquire us without the consent of our board of directors. These provisions include a classified board of directors and limitations on actions by our stockholders by written consent. In addition, subject to applicable New York Stock Exchange
listing standards, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Our shareholder rights plan will permit our
stockholders to purchase shares of our common stock at a 50% discount upon the occurrence of specified events, including the acquisition by anyone of 15% or more of our common stock, unless such event is approved by our board of directors. Delaware
law also imposes restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. Although we believe these provisions provide for an opportunity to receive a higher bid by requiring
potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by stockholders. If a change of control or change in management is delayed or prevented, the market price of our
common stock could suffer.



Your percentage ownership in us may be diluted
by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.



Subject to applicable New York Stock Exchange listing standards, our board of directors has the authority, without action or vote of our stockholders, to
issue all or any part of our authorized but unissued shares. Issuances of common stock or the exercise of employee and director stock options would dilute your percentage ownership interest, which will have the effect of reducing your influence over
matters on which our stockholders vote. In addition, if the issuances are made at prices that reflect a discount from the then current trading price of our common stock, your interest in the book value of our common stock might be diluted.



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RISKS RELATED TO OUR SEPARATION FROM MILLIPORE



Our pre-separation historical financial information may not be representative of our
results as a stand-alone company and, therefore, may not be reliable as an indicator of our historical or future results.



We have only a limited operating history as an independent company. Prior to our separation from Millipore, Millipore did not account for us, and we were
not operated, as a stand-alone entity. The historical combined financial information incorporated into this report were derived in part from Millipores consolidated financial statements and may not be indicative of our financial position,
results of operations or cash flows in the future nor is it necessarily indicative of what our financial position, results of operations or cash flows would have been had we been a stand-alone entity for all of the periods presented. This is
primarily a result of the following factors:



| |  |  | our historical combined financial statements reflect allocations for periods prior to our separation from Millipore, primarily with respect to general corporate and research
expenses; these allocations may be less than the general corporate and research expenses we will incur in the future as a stand-alone company; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our historical combined financial statements do not fully reflect the significant changes that have occurred and that we expect to occur in the future as a result of our separation
from Millipore, including changes in how we fund our operations, conduct research and tax planning and manage employee matters.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Following our separation from Millipore, we have incurred incremental non-recurring operating costs and expenses associated with increased marketing
expenses related to establishing a new brand identity, legal fees, retention bonuses, increased depreciation due to decreases in the estimated useful lives of fixed assets and leasehold improvements and other separation related costs.



We currently use Millipores membrane manufacturing infrastructure, and our ability
to meet our customers demands will suffer if we do not successfully extend these arrangements or transition our membrane manufacturing requirements to other facilities.



We have entered into transition agreements with Millipore relating to the manufacture and distribution of specified products
for limited periods of time. The manufacture of our membrane products is highly complex and requires sophisticated and costly equipment. While we are entitled to continue to manufacture membrane in Millipores plant until March of 2006, we
might not be able to extend these arrangements or successfully transition the membrane production to a different facility after that date. As a result, any prolonged disruption in the operations of any of our manufacturing facilities or any
unforeseen delays in shifting membrane manufacturing operations to a new facility, whether due to technical or labor difficulties, destruction or damage to the facility or other reasons, could result in increased costs and reduced revenues and
profitability and could harm our prospects.



Following our separation from
Millipore, we do not have access to the membrane research and development resources that were previously available to us, which could limit our research and development activities, thereby inhibiting our ability to develop new membrane products in
response to competitive pressures and harming our business and prospects.



Prior to our separation from Millipore, many research and development projects were conducted through the centralized Millipore research group. Following our separation from Millipore, while our research and
development personnel have been transferred to us in accordance with the terms of the separation agreements, we do not have access to any other resources or personnel in Millipores research group other than in specific limited circumstances
outlined in our research agreement with Millipore. As a result, we will not have access to all of the research and development facilities and resources, including membrane research resources, that were previously available to us, and we may not be
able to manage projects as successfully as we had in the past. If we are unable



41



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to continue to successfully develop new membrane products and technology through internal research and development activities, we may not be able to maintain
our market position or successfully grow our business and our business and prospects may be harmed.



Our agreements with Millipore limit our ability to use Millipores technology to fields of use in the microelectronics industry and may prevent us from expanding our business beyond the microelectronics
industry.



Our use of Millipores technology is
governed by the agreements governing our separation from Millipore, such as the master patent license agreement and the master trade secret and know-how agreement. The licenses granted by these agreements prohibit our use of Millipores
technology in fields of use outside of the microelectronics industry. In general, where technology is used both by Millipore in the manufacture of its products and by us in the manufacture of our products, Millipore retained ownership of the
technology and granted us a license to use the technology limited to fields of use in the microelectronics industry. In some cases, Millipore transferred ownership of the technology to us and retained an exclusive license to the technology in its
fields of use in the biopharmaceutical and related industries. Under the master patent license agreement and the master trade secret and know-how agreement, we may sell products using Millipores technology only to customers in the
microelectronics industry, as defined in the agreements, and we may not transfer the technology except in limited circumstances. These restrictions could limit our ability to expand our business into markets outside the microelectronics industry,
which could limit our growth.



We may have potential business conflicts of
interest with Millipore with respect to our past and ongoing relationships.



Conflicts of interest may arise between Millipore and us in a number of areas relating to our past and ongoing relationships, including:



| |  |  | labor, tax, employee benefit, intellectual property, indemnification and other matters arising from our separation from Millipore;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | employee retention and recruiting;
| | - |  | ----------------------------------



| |  |  | the nature, quality and pricing of membrane manufacturing services Millipore has agreed to provide us;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | business opportunities that may be attractive to both Millipore and us; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | the terms of the non-competition provisions contained in the separation agreements between Millipore and us, which govern Millipores ability to compete with us.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | competition between Millipore and us in areas outside of our separation agreements, especially if Millipore chooses to reestablish a microelectronics business unit, or work with
third party to establish a competitive capability.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable because of our prior affiliation with Millipore and our continuing reliance on Millipore to provide transitional manufacturing
services.



In addition, Millipore may terminate transitional
arrangements that currently generate income for us.



We may be responsible
for certain income tax liabilities arising out of the tax sharing agreement entered into with Millipore in connection with our separation from Millipore.



Millipore received a tax ruling from the Internal Revenue Service to the effect that the distribution of our shares in the 2002 spin-out qualified as a
tax-free distribution for U.S. federal income tax purposes. The tax ruling is binding on the IRS, and can be relied upon by Millipore provided that the factual representations and assumptions made in Millipores request are true. We are not
aware of any facts or circumstances that would



42



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cause such representations and assumptions to be untrue. Our tax sharing agreement with Millipore provides that we will be responsible for certain taxes
imposed on Millipore, us or our respective subsidiaries if we or one or more of our shareholders are responsible for the distributions failure to qualify for tax-free treatment. In addition, under the tax sharing agreement that we entered into
with Millipore, we are responsible for tax liabilities and adjustments to tax liabilities with respect to those Millipore foreign subsidiaries which we acquired pursuant to our separation from Millipore for periods prior to that separation.



Further, under the tax sharing agreement Millipore is entitled
to use net operating losses generated by our business during periods prior to the spin-off; if it should elect to use any of these losses, the Company would be indemnified for loss of these tax attributes.



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



The information called for by this item is set
forth under the heading Market Risk in Managements Discussion and Analysis contained in Item 7 above which information is hereby incorporated by reference.



Item 8.    Financial Statements and Supplementary Data.



The information called for by this item is set forth in the Consolidated
Financial Statements and Schedule Covered by the Report of Independent Registered Public Accounting Firm at the end of this report commencing at the pages indicated below:



|                                                                                                                                      |  |     
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Consolidated Statements of Operations for the years ended December 31, 2004, 2003, and 2002                                           |  | F-2 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                                             |  | F-3 
|Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for the years ended December 31, 2004, 2003, and 2002 |  | F-4 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003, and 2002                                           |  | F-5 
|Notes to Consolidated Financial Statements                                                                                            |  | F-6 
|Report of Independent Registered Public Accounting Firm                                                                               |  | F-37
|Valuation and Qualifying Accounts Schedule for the years ended December 31, 2004, 2003, and 2002                                      |  | F-39
|Quarterly Results of Operations(Unaudited)                                                                                            |  | F-40



All of the foregoing
Consolidated Financial Statements and Schedule are hereby incorporated in this Item 8 by reference.



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



This item is not applicable.



Item 9A.    Controls and Procedures.



EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES



The Company has carried out an evaluation under the supervision and with the participation of management, including the Chief Executive Officer and the
Vice President and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended (Exchange Act). Based upon the Companys evaluation, the Chief Executive Officer and the Vice President and Chief Financial Officer have concluded that, as of December 31, 2004, the disclosure controls and
procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.



43



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It must be borne in mind that there are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives.



MANAGEMENTS REPORT
ON INTERNAL CONTROL OVER FINANCIAL REPORTING



The
management of the Company is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Management has assessed the effectiveness of the
Companys internal control over financial reporting as of December 31, 2004. In making its assessment, management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal
ControlIntegrated Framework.Management concluded that based on its assessment, the Companys internal control over financial reporting was effective as of December 31, 2004. Managements assessment of the effectiveness of the
Companys internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears on page F-29 of this Form 10-K
Annual Report.



Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. All internal
control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.



CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING



There has been no change in the Companys internal control over
financial reporting during the Companys quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



Item 9B.    Other Information.



No information was required to be disclosed in a report on Form 8-K in the
fourth quarter that was not so disclosed.



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PART III



Item 10.    Directors and Executive Officers of Mykrolis.



Directors



Mykrolis has a classified Board of Directors currently consisting of two Class I Directors, two Class II Directors and two Class III Directors. At each
annual meeting of stockholders, directors in one class are elected for a full term of three years to succeed those directors whose terms are expiring. The Class I Directors have terms expiring at the 2007 Annual Meeting, the Class II Directors have
terms expiring at the 2005 Annual Meeting and the Class III Directors have terms expiring at the 2006 Annual Meeting. There are no family relationships between or among any officers or directors of Mykrolis.



The following table sets forth information concerning our directors:



|                    |  |     |  |       |  |                                                                                                   |  |               
|------------------- |  | --- |  | ----- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|Name of Nominee     |  | Age |  | Class |  | Principal Occupation                                                                              |  | Director Since
|Gideon Argov        |  | 48  |  | III   |  | Chief Executive Officer, Mykrolis Corporation                                                     |  | 2004          
|Michael A. Bradley  |  | 56  |  | III   |  | Chief Executive Officer, Teradyne, Inc.                                                           |  | 2001          
|Robert E. Caldwell  |  | 68  |  | I     |  | Retired Vice President & General Manager, Semiconductor Division of Digital Equipment Corporation |  | 2001          
|Michael P.C. Carns  |  | 67  |  | I     |  | Independent Business Consultant                                                                   |  | 2001          
|Daniel W. Christman |  | 62  |  | II    |  | Senior Vice President, International Affairs, U.S. Chamber of Commerce                            |  | 2001          
|Thomas O. Pyle      |  | 65  |  | II    |  | Retired Healthcare Executive                                                                      |  | 2001          



Set forth below are
the principal occupation and business experience during the past five years of each director as well as the names of other publicly held companies of which he serves as a director.



Directors Whose Terms Expire in 2007 (Class I Directors)



Robert E. Caldwellhas served as a director of Mykrolis since 2001
and as Chairman of the Management Development & Compensation Committee of the Board of Directors from 2001 until 2004; he continues as a member of that committee. Mr. Caldwell retired from his position as Vice President and General Manager of
the Semiconductor Division of Digital Equipment Corporation, a supplier of networked computer systems, software and services, in September 1998, a position he had held since 1990. Prior to that, Mr. Caldwell held various engineering and product
management positions at Dickinson Electronics, Motorola, Inc., Mostek Corporation and Fairchild Camera & Instrument Corporation, a semiconductor manufacturer, where he served as General Manager of the Gate Array Division from 1981 through 1983.
Mr. Caldwell has been granted two U.S. patents for silicon wafer processing. Mr. Caldwell received his B.S. and M.S. degrees in physics from Arizona State University.



Michael P.C. Carns has served as a director of Mykrolis and as a member of the Management Development &
Compensation Committee of the Board of Directors since 2001 and as Chairman of that committee since 2004. Mr. Carns retired in the grade of General from the United States Air Force in September 1994 after 35 years of service. General Carns currently
is an independent business consultant. From 2001 through 2003, he served as Vice Chairman of PrivaSource, Inc., a software company focusing on health data privacy and security. From 1995 to 2000, General Carns served as President and Executive
Director of the Center for International Political Economy. From May 1991 until his retirement, General Carns served as Vice Chief of Staff, United States Air Force. From September 1989 until 1991, he served as Director of the Joint Staff, Joint
Chiefs of Staff. General Carns is a director of Engineered Support Systems, Inc. (manufacture and service of integrated military electronics systems) and Rockwell Collins, Inc. (aviation and information technology). He is also a member of the
Department of Defense Science Board and numerous professional and civic organizations. General Carns graduated from the United States Air Force Academy in 1959; from the Harvard Business School in 1967; and from the Royal College of Defence Studies,
London in 1977.



45



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Directors Whose Terms Expire in 2005 (Class II Directors)



Daniel W. Christman has been a Mykrolis director since October 2001,
and from February of 2003 through 2004 was designated as the Presiding Director of the Mykrolis Board of Directors. In 2003 he became a Senior Vice President, International Affairs of the U.S. Chamber of Commerce. From 2001 until 2003 he was the
President and Executive Director of the Kimsey Foundation, Washington, D.C., which has been active in education and community development in the Washington, D.C. area as well as in international issues that focus on the alleviation of human
suffering. He was named to this position in July, 2001, after his retirement as a Lieutenant General from a career in the United States Army that spanned more than 36 years. Immediately prior to his retirement, General Christman served as the
Superintendent of the United States Military Academy at West Point since 1996. From 1994 until 1996, General Christman served as Assistant to the Chairman of the Joint Chiefs of Staff of the United States. General Christmans key command
positions have also included the U.S. Armys Engineer School in the early 1990s, and the U.S. Army Corps of Engineer District in Savannah, Georgia. General Christman also served in President Fords administration as a member of
the National Security Council staff, where he shared responsibility for strategic arms control. General Christman currently serves as a member of the Board of Directors of Ultralife Batteries, Inc., a manufacturer of high energy lithium batteries
for military, industrial and consumer applications and of United Services Automobile Association. General Christman is a graduate of the United States Military Academy at West Point, where he also was an Assistant Professor of Economics. General
Christman holds an MPA degree in public affairs and an MSE degree in civil engineering from Princeton University and a Juris Doctor degree from The George Washington University Law School.



Thomas O. Pyle has served as a director of Mykrolis and a Member of
the Audit & Finance Committee since 2001; effective January 1, 2005 he became the non-executive Chairman of the Board of Directors. Mr. Pyle retired from his position as Senior Advisor to the Boston Consulting Group in 1997, a position he had
held since 1992, other than from January to April of 1993 when he served on the White House Task Force on Healthcare Reform and from October 1993 through September 1994 when he served as Chief Executive Officer of MetLife HealthCare. From April 2001
until April 2002 he was Chairman, Chief Executive Officer and director of PrivaSource Incorporated, a software company focusing on health data privacy and security, and was the Chairman and a director of that organization until July 2003. Mr. Pyle
served Harvard Community Health Plan, Inc. as its President, director and Chief Executive Officer from 1978 until 1991. Mr. Pyle received his M.B.A. from the Harvard Business School. He served as a director of Controlled Risk Insurance Company, Ltd.
from 1976 until August 2003 and as its Chairman from 1976 to 1989 and from 2000 until 2002. Mr. Pyle currently serves as a member of the Board of Directors of Medical Education for South African Blacks, a charitable foundation, and as its Treasurer.
He is also a director of the Pioneer Institute, a non-profit public policy research organization.



Directors Whose Terms Expire in 2006 (Class III Directors)



Gideon Argov has been our Chief Executive Officer and a director since November 2004. Prior to joining Mykrolis, Mr.
Argov was a Special Limited Partner at Parthenon Capital, a Boston-based private equity partnership, since 2001. He served as Chairman, Chief Executive Officer and President of Kollmorgen Corporation from 1991 to 2000. From 1988 to 1991 he served as
Chief Executive Officer of High Voltage Engineering Corporation. Prior to 1988, he led engagement teams in consulting at Bain and Company. He is a director of Helix Technology, Inc. and Fundtech Corporation.



Michael A. Bradleyhas served as a director of Mykrolis and as
Chairman of the Audit & Finance Committee of the Board of Directors since 2001. Mr. Bradley has been the Chief Executive Officer of Teradyne, Inc since May of 2004. Prior to that he served a President of Teradyne, Inc. since May of 2003 and as
President, Semiconductor Test Division of Teradyne since March of 2001. Mr. Bradley served as the Chief Financial Officer of Teradyne, Inc. from 1999 until 2001 and as a Vice President of Teradyne since 1992. Prior to that, Mr. Bradley held
various finance, marketing, sales and management positions with Teradyne and worked in the audit practice group of the public accounting firm of Coopers and Lybrand. Mr. Bradley was appointed to Teradynes Management Committee in 1994 and its
Executive Committee in 1996. Mr. Bradley received his A.B. degree from Amherst College and an M.B.A. from the Harvard Business School.



46



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Executive Officers



Information called for by this item with respect to registrants executive officers is set forth under Executive Officers of Mykrolis in
Item 1 of this report.



Section 16(a) Beneficial Ownership Reporting
Compliance



Section 16(a) of the Securities Exchange Act
of 1934 requires the Companys directors and officers and persons who own more than 10 percent of Mykrolis Common Stock to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports
of changes in ownership of Mykrolis common stock. Mykrolis is required to disclose in its proxy statement any failure to file these reports by the required due dates. All of these filing requirements were satisfied in a timely manner.



Code of Ethics



The Company has adopted a code of ethics, the Mykrolis Code of Conduct, that applies to all of our employees including our
chief executive officer, chief financial officer and controller. A copy of the Mykrolis Code of Conduct is posted on our website at http://www.Mykrolis.com, under Investor RelationsGovernance. The Mykrolis Code of Conduct is
available in print to any stockholder that requests a copy. A copy of the Mykrolis Code of Conduct may be obtained by contacting Peter W. Walcott, the Companys Vice President & General Counsel at the Companys headquarters. The
Company intends to comply with the requirements of Item 10 of Form 8-K with respect to any waiver of the provisions of the Mykrolis Code of Conduct applicable to the registrants Chief Executive Officer, Chief Financial Officer or Controller by
posting notice of any such waiver at the same location on our website.



Audit Committee



The Board of Directors has a
standing Audit & Finance Committee, which provides the opportunity for direct contact between the Companys independent registered public accounting firm and the directors. The Board of Directors has adopted and amended a written charter
for the Audit & Finance Committee, a copy of which is posted on the Companys web site http://www.Mykrolis.com under Investor RelationsGovernance. The responsibilities of the Audit & Finance Committee include
selection, appointment, compensation and oversight of the Companys independent registered public accounting firm as well as reviewing the scope and results of audits and reviewing the Companys internal accounting control policies and
procedures. The Audit & Finance Committee held seven meetings during 2004. The current members of the Audit & Finance Committee are Messrs. Bradley, Christman and Pyle, each of whom has been determined by the Board of Directors to be
independent as defined under Section 303A.02 of the New York Stock Exchanges listing standards. The Board of Directors has determined that Michael A. Bradley, the Chairman of the Audit & Finance Committee, possesses the
attributes of an audit committee financial expert as that term is defined in the rules of the Securities and Exchange Commission.



Procedures for Recommending Nominees to the Board of Directors



Under the Companys By-Laws any stockholder of record of Mykrolis may nominate candidates for election to the Board of Directors or present other
business at an annual meeting if a written notice is delivered to the Secretary of Mykrolis at the Companys principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary of the preceding years
annual meeting. Such written notice must set forth: (i) as to each person whom the stockholder proposes to nominate for election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for
election of directors pursuant to the Securities Exchange Act of 1934, as amended, (including such persons written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other
business to be brought before the meeting, (a) a brief description of the business, (b) the reasons for conducting such business and (c) any material interest in such business of such stockholder and the beneficial owner, if any, on whose
behalf the proposal is made; and (iii) as to the stockholder and the beneficial owner, if any, on whose behalf the



47



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nomination or proposal is made, (a) the name and address of such stockholder and such beneficial owner and (b) the number of shares of common stock that
are held of record by such stockholder and owned beneficially by such beneficial owner.



Item 11.    Executive Compensation.



Compensation of Directors



Non-employee
directors are reimbursed for their out-of-pocket expenses incurred in connection with services as a director. During 2004 each non-employee director received an annual retainer of $21,000 plus $1,250 for each board or committee meeting attended. In
addition, the Presiding Director received an annual retainer of $7,000 and any non-employee director who served as chairman of a committee of the board received an annual retainer of $3,500. Effective January 1, 2005, the directors cash
compensation was increased as follows: annual retainer$25,000; annual retainer for committee chairman$8,000 for Chairman of Audit & Finance Committee and $5,000 for Chairman of Management Development & Compensation Committee; per
meeting fees: board of directors meetings$2,000; committee meetings $1,250. In addition, effective January 1, 2005 the Board of Directors elected a non-executive Chairman of the Board who is to receive an annual retainer of $40,000, payable
quarterly, in addition to the basic directors retainer. Effective April 25, 2005 the directors compensation was further amended so that each director will receive an increased annual retainer of $50,000 in lieu of all fees for attendance at
meetings of the Board of Directors and committees thereof. Directors also receive equity compensation under the 2001 Non-Employee Director Stock Option Plan, as amended, in the form of initial and annual stock option grants. Upon initial election to
the Board of Directors each director was granted an option to acquire 10,000 shares of the Companys common stock at the closing price on the New York Stock Exchange on the date of grant. In October 2002, the 2001 Non-Employee Director Stock
Option Plan was amended prospectively to increase the size of both the initial and the annual option grants to 15,000 and 10,000 Mykrolis shares, respectively. All options granted under the 2001 Non-Employee Director Stock Option Plan carry an
exercise price equal to 100% of fair market value on the date of grant, become exercisable in three equal annual installments beginning one year following the date of grant, and expire no later than ten years following the date of grant (subject to
special provisions in the case of termination of service, retirement or death).



Messrs. Zadel and Argov, the only employee directors during 2004, received no compensation for their service as a director.



48



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Compensation of Executive Officers



The following table sets forth compensation information for each Chief Executive Officer and the four other executive
officers of Mykrolis who, based on compensation from Mykrolis and its subsidiaries, were the most highly compensated for the year ended December 31, 2004. All information set forth in this table reflects compensation earned by these individuals for
services with Mykrolis and its subsidiaries with respect to each of the last three fiscal years of the Company. For ease of reference, we collectively refer to these executive officers throughout this section as the named executive
officers.



Summary Compensation Table



|                            |  |      |  |                     |         |                        |             |   |           |                                  |  |                              |        |                                    |   |                            |  |         |  |   |        
|--------------------------- |  | ---- |  | ------------------- | ------- | ---------------------- | ----------- | - | --------- | -------------------------------- |  | ---------------------------- | ------ | ---------------------------------- | - | -------------------------- |  | ------- |  | - | -------
|                            |  |      |  | Annual Compensation |         | Long Term Compensation
|Name and Principal Position |  | Year |  | Salary ($)          |         |                        | Bonus($)(4) |   |           | Other AnnualCompen-sation ($)(6) |  | RestrictedStockAwards ($)(7) |        | SecuritiesUnderlyingOptions (#)(8) |   | All OtherCompen-sation (9)
|C. William Zadel(1),        |  | 2004 |  | $                   | 679,614 |                        |             | $ | 1,118,266 |                                  |  |                              | 0      |                                    |   | 0                          |  | 0       |  | $ | 171,693
|Chairman and Chief          |  | 2003 |  | $                   | 544,961 | (2)                    |             | $ | 392,838   |                                  |  |                              | 0      |                                    |   | 0                          |  | 76,000  |  | $ | 58,430 
|Executive Officer           |  | 2002 |  | $                   | 555,646 | (2)                    |             | $ | 486,203   | (4)                              |  |                              | 0      |                                    |   | 0                          |  | 134,580 |  | $ | 53,439 
|                            |  |      |  |                     |         |                        |            
|Gideon Argov(1),            |  | 2004 |  | $                   | 34,615  |                        |             |   | 0         |                                  |  |                              | 0      |                                    | $ | 580,000                    |  | 450,000 |  | $ | 2,132  
|Chief Executive Officer     |  | 2003 |  |                     | 0       |                        |             |   | 0         |                                  |  |                              | 0      |                                    |   | 0                          |  | 0       |  |   | 0      
|                            |  | 2002 |  |                     | 0       |                        |             |   | 0         |                                  |  |                              | 0      |                                    |   | 0                          |  | 0       |  |   | 0      
|                            |  |      |  |                     |         |                        |            
|Jean-Marc Pandraud,         |  | 2004 |  | $                   | 296,658 |                        |             | $ | 424,934   |                                  |  |                              | 0      |                                    | $ | 511,600                    |  | 0       |  |   | 83,828 
|President and Chief         |  | 2003 |  | $                   | 249,483 | (3)                    |             | $ | 143,011   |                                  |  |                              | 0      |                                    |   | 0                          |  | 60,000  |  | $ | 48,174 
|Operating Officer           |  | 2002 |  | $                   | 236,923 | (2)                    |             | $ | 305,193   | (5)                              |  |                              | 0      |                                    |   | 0                          |  | 90,000  |  | $ | 24,351 
|                            |  |      |  |                     |         |                        |            
|Bertrand Loy                |  | 2004 |  | $                   | 225,273 |                        |             | $ | 277,712   |                                  |  |                              | 0      |                                    | $ | 374,747                    |  | 0       |  | $ | 45,418 
|Vice President, Treasurer   |  | 2003 |  | $                   | 199,586 | (3)                    |             | $ | 93,316    |                                  |  |                              | 0      |                                    |   | 0                          |  | 55,000  |  | $ | 51,429 
|and Chief Financial Officer |  | 2002 |  | $                   | 189,538 | (2)                    |             | $ | 203,462   | (5)                              |  |                              | 0      |                                    |   | 0                          |  | 55,000  |  | $ | 17,151 
|                            |  |      |  |                     |         |                        |            
|Peter W. Walcott            |  | 2004 |  | $                   | 219,940 |                        |             | $ | 271,071   |                                  |  |                              | 0      |                                    | $ | 374,747                    |  | 0       |  | $ | 57,894 
|Vice President, Secretary   |  | 2003 |  | $                   | 199,586 | (3)                    |             | $ | 88,877    |                                  |  |                              | 0      |                                    |   | 0                          |  | 50,000  |  | $ | 29,906 
|and General Counsel         |  | 2002 |  | $                   | 189,538 | (2)                    |             | $ | 203,462   | (5)                              |  |                              | 0      |                                    |   | 0                          |  | 55,000  |  | $ | 23,106 
|                            |  |      |  |                     |         |                        |            
|John Gerard Mackay          |  | 2004 |  | $                   | 213,478 |                        |             | $ | 245,500   |                                  |  | $                            | 99,981 |                                    | $ | 358,120                    |  | 0       |  | $ | 45,898 
|Vice President              |  | 2003 |  | $                   | 177,246 | (3)                    |             | $ | 81,180    |                                  |  | $                            | 82,358 |                                    |   | 0                          |  | 35,000  |  | $ | 28,346 
|Worldwide Sales & Marketing |  | 2002 |  | $                   | 159,231 | (2)                    |             | $ | 127,626   | (5)                              |  |                              | 0      |                                    |   | 0                          |  | 40,000  |  | $ | 11,645 

---

|(1) | Mr. Zadel served as our Chairman and Chief Executive Officer until November 21, 2004, at which time he retired as Chief Executive Officer, continuing as chairman of the Board until
December 31, 2004 at which time he retired from that position as well. Mr. Argov has served as of Chief Executive Officer since November 21, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Indicated amounts reflect the reduction in base salary of 20% for the Chief Executive Officer and 15% for the other named executive officers implemented in November of 2001.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Indicated amounts reflect the November 2002 reinstatement of one-half of the 15% reduction in base salary for the named executive officers other than the Chief Executive Officer;
reinstatement of the balance of the salary reduction for the other named executive officers and of the entire of the salary reduction for the Chief Executive Officer was deferred until the quarter following the first quarter in which the Company
achieved a profit at the operating income line. Since the Company achieved a profit at the operating income line during the fourth quarter of 2003, the base salaries of the Chief Executive Officer and the other named executive officers were fully
restored in January 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Amounts listed under this column are the variable incentive compensation component of target cash compensation earned during the indicated fiscal year, calculated as described under
Management Development & Compensation Committee Report on Executive Compensation below.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | For 2002, payment of the following portions of the listed variable incentive compensation earned with respect to 2002 were deferred until the quarter following the first quarter in
which the Company achieved a profit at the operating income line as follows: Mr. Zadel$486,203; Mr. Pandraud$255,693; Mr. Loy$170,462; Mr. Walcott$170,462; and Mr. Mackay$108,518. Since the Company achieved a profit at
the operating income line during the fourth quarter of 2003, these deferred amounts were paid in January 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Except for overseas allowances to Mr. Mackay, none of the perquisites and other benefits paid to each named executive officer exceeded the lesser of $50,000 or 10% of the total
annual salary and bonus received by each named executive officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



49



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|(7) | Restricted stock is awarded by the Management Development & Compensation Committee and relates to the total cash compensation of the named executive officer for the current
year. These awards are comprised 50% of restricted stock with time based restrictions that lapse proportionately over 3 years on the anniversary of the award date and 50% of restricted shares with performance based restrictions that lapse in
accordance with the preceding schedule to the extent that the performance goals under the Mykrolis Incentive Plan are achieved; otherwise the restrictions shall remain in place until the 4thanniversary of the award date when they shall lapse. All restricted stock reported have the right to receive dividends; the Company has never paid a cash
dividend. These awards were made on November 21, 2004 to Mr. Argov and on December 9, 2004 to Messrs. Pandraud, Loy, Walcott and Mackay. The number of restricted shares awarded and aggregate restricted stock holdings and value at year end are
as follows: Mr. Argov50,000 shares with a value of $708,500, Mr. Pandraud40,000 shares with a value of $566,800, Mr. Loy29,300 shares with a value of $415,181, Mr. Walcott29,300 shares with a value of $415,181, and Mr.
Mackay28,000 shares with a value of $396,760.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Stock options are granted and restricted stock is awarded by the Management Development & Compensation Committee and relate to the total cash compensation of the named executive
officer for the current year. (See Stock Option Grants in Fiscal 2004 and Management Development & Compensation Committee Report on Executive Compensation below).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes: (a) amounts contributed by the Company under the Mykrolis Corporation Savings & Investment Plan, a tax-qualified prototype Section 401(k) profit sharing/defined
contribution plan (the Savings Plan) with respect to 2004, 2003 and 2002 to: Mr. Zadel of $13,617, $39,886 and $39,975, respectively; Mr. Argov of $1,907.44 (2004 only), Mr. Pandraud of $13,617, $35,295 and $19,672,
respectively; Mr. Loy of $13,617, $40,318 and $14,918, respectively; Mr. Walcott of $13,617, $20,117 and $14,918, respectively; (b) Company matching contributions with respect to compensation deferred pursuant to the Savings Plan
a tax-qualified plan under Section 401(k) of the Internal Revenue Code for 2004, 2003 and 2002 to: Mr. Zadel of $4,414.65, $6,000 and $5,500, respectively; Mr. Pandraud of $7,038.83, $5,575 and $2,803, respectively; Mr. Loy of $4,441.13, $8,744 and
$2,234, respectively; and Mr. Walcott of $5,904.70, $5,817 and $5,268, respectively; (c) total amounts deferred under the Companys non-qualified supplemental defined contribution and savings plans to provide certain executives with
benefits that would otherwise be lost by reason of restrictions imposed by the Internal Revenue Code limiting the amount of compensation which may be deferred under the Savings Plan for the accounts of: Mr. Zadel of $144,751.27, $10,360 and $7,964,
Mr. Pandraud of $54,605.88, $5,932 and $1,877, Mr. Loy of $23,013.14, $1,337 and $0, and Mr. Walcott of $31,581.43, $2,942 and $2,921, respectively, with respect to 2004, 2003 and 2002, respectively; (d) Amounts paid during 2004 for
premiums on term life insurance for the benefit of Mr. Zadel of $1,950, Mr. Argov of $225, Mr. Pandraud of $1,950, Mr. Loy of $1,794, Mr. Walcott of $1,754; (e) Amounts paid during 2004 for long term disability coverage for the benefit
of Mr. Zadel of $6,960, Mr. Pandraud of $6,616, Mr. Loy of $2,553, and Mr. Walcott of $5,036.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Stock Option Grants in 2004



The following table shows all grants of options to acquire shares of Mykrolis common stock to the named executive officers during the fiscal year ended December 31, 2004:



|                   |  |                                                   |  |                                                             |        |                              |         |                |  |                                                                                                   |           |  |   |           
|------------------ |  | ------------------------------------------------- |  | ----------------------------------------------------------- | ------ | ---------------------------- | ------- | -------------- |  | ------------------------------------------------------------------------------------------------- | --------- |  | - | ----------
|                   |  | Individual Grants                                
|Name               |  | Number ofSecuritiesUnderlyingOptionsGranted(#)(1) |  | Percent of TotalOptionsGranted toEmployees inFiscal 2003(2) |        | ExercisePrice PerShare($)(3) |         | ExpirationDate |  | Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(4)
|                   |  |                                                   |  |                                                             | 5% ($) |                              | 10% ($)
|C. William Zadel   |  | 0                                                 |  | 0                                                           |        | 0                            |         |               |  |                                                                                                   |          |  |   |          
|Gideon Argov       |  | 450,000                                           |  | 80                                                          |        | 11.60                        |         | 11/21/2011     |  | $                                                                                                 | 7,344,000 |  | $ | 10,174,500
|Jean-Marc Pandraud |  | 0                                                 |  | 0                                                           |        | 0                            |         |               |  |                                                                                                   |          |  |   |          
|Bertrand Loy       |  | 0                                                 |  | 0                                                           |        | 0                            |         |               |  |                                                                                                   |          |  |   |          
|Peter W. Walcott   |  | 0                                                 |  | 0                                                           |        | 0                            |         |               |  |                                                                                                   |          |  |   |          
|John Gerard Mackay |  | 0                                                 |  | 0                                                           |        | 0                            |         |               |  |                                                                                                   |          |  |   |          

---

|(1) | All of these options are subject to the terms of either the Mykrolis Corporation 2001 Equity Incentive Plan or the 2003 Employment Inducement and Acquisition Stock Option Plan and
to the terms of the standard Non-Qualified Stock Option Grant Agreement between the named executive officer and Mykrolis and are exercisable only after they vest.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Percentage is based on options covering a total of 559,500 shares granted to all Mykrolis employees during fiscal 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(3) | All options were granted at an exercise price equal to the fair market value of the Companys common stock on the date of grant.
|--- | --------------------------------------------------------------------------------------------------------------------------------



50



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|(4) | The amounts shown on this table represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term. These gains are based on
assumed rates of stock appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date. The gains shown are net of the option exercise price, but do not include deductions for taxes or other
expenses associated with the exercise. Actual gains, if any, on stock option exercises will depend on the future performance of the Companys common stock, the option holders continued employment through the option period and the date on
which the options are exercised.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fiscal 2004 Option Exercises
and Year-End Option Values



The following table contains
certain information regarding stock option exercises and stock options held as of December 31, 2004 by the named executive officers.



|                   |  |                               |  |                     |           |                                                                      |           |                                                                     |         |               |   |           |  |   |          
|------------------ |  | ----------------------------- |  | ------------------- | --------- | -------------------------------------------------------------------- | --------- | ------------------------------------------------------------------- | ------- | ------------- | - | --------- |  | - | ---------
|                   |  | SharesAcquired OnExercise (#) |  | ValueRealized($)(1) |           | Number of SecuritiesUnderlying UnexercisedOptions At Fiscal Year-End |           | Value of Unexercised In-The-Money Options At Fiscal Year-End ($)(2)
|Name               |  |                               |  | Exercisable         |           | Unexercisable                                                        |           | Exercisable                                                         |         | Unexercisable
|C. William Zadel   |  | 211,510                       |  | $                   | 1,755,624 |                                                                      | 1,007,656 |                                                                     | 0       |               | $ | 5,329,981 |  | $ | 0        
|Gideon Argov       |  | 0                             |  |                     | 0         |                                                                      | 0         |                                                                     | 450,000 |               |   | 0         |  | $ | 1,156,500
|Jean-Marc Pandraud |  | 49,557                        |  | $                   | 553,023   |                                                                      | 377,322   |                                                                     | 60,000  |               | $ | 1,180,668 |  | $ | 370,200  
|Bertrand Loy       |  | 71,474                        |  | $                   | 476,381   |                                                                      | 170,184   |                                                                     | 40,000  |               | $ | 177,184   |  | $ | 234,800  
|Peter W. Walcott   |  | 1,880                         |  | $                   | 11,092    |                                                                      | 209,856   |                                                                     | 37,500  |               | $ | 498,141   |  | $ | 228,375  
|John Gerard Mackay |  | 69,461                        |  | $                   | 434,136   |                                                                      | 88,408    |                                                                     | 40,915  |               | $ | 204,425   |  | $ | 194,172  

---

|(1) | Value Realized is based on the difference between the option exercise price and the fair market value at the time of exercise.
|--- | ------------------------------------------------------------------------------------------------------------------------------

|(2) | Value is based on the difference between the option exercise price and the fair market value at December 31, 2004 ($14.17).
|--- | ---------------------------------------------------------------------------------------------------------------------------



Management Development & Compensation Committee Interlocks and Insider Participation



Until the resignation of Richard A. Aurelio on November
11, 2004, the members of the Management Development & Compensation Committee were Michael P.C. Carns, Robert E. Caldwell and Richard A. Aurelio. No member of the Management Development & Compensation Committee was at any time during fiscal
year 2004 an officer or employee of Mykrolis or any subsidiary of Mykrolis, nor has any member of the Management Development & Compensation Committee had any relationship with Mykrolis requiring disclosure under Item 404 of Regulation S-K under
the Securities Act of 1933.



During fiscal 2004, no executive
officer of Mykrolis has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity, one of whose executive officers served as a director of or member of the Management
Development & Compensation Committee of Mykrolis.



Change of Control
Agreements



There are currently effective agreements with
Messrs. Pandraud, Loy, Walcott and Mackay as well as four other executive officers, to provide them with certain severance benefits in the event of a Change of Control of Mykrolis. In substance, a Change of Control shall be deemed
to have occurred when any person becomes the beneficial owner, directly or indirectly, of 15% or more of the Companys then outstanding Common Stock, if those members who constituted a majority of the Board of Directors cease to be so, or if an
agreement for the merger or other acquisition of the Company is executed and required approval by the stockholders is received.



The executive officers who have entered into agreements with Mykrolis will be provided with benefits in the event that their employment with Mykrolis is
terminated pursuant to or following a Change of Control. Each agreement provides that if the executive officer remains in the Companys employ for at least 6 months following an event giving rise to an impending Change of Control or, pursuant
to or following such a Change of Control, the employment of the executive officer is terminated, the executive officer will then receive the severance benefits.



51



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Generally, these benefits include: a lump sum termination payment at a rate equal to two times the highest amount of target total cash compensation during
the previous 3 years (if such provisions had been triggered during 2004, the amounts payable to Messrs. Pandraud, Loy, Walcott and Mackay would have been $771,311, $563,183, $549,850 and $533,695, respectively), plus medical, dental and life
insurance benefits and the vesting of all unvested stock options and restricted stock awards.



Management Development & Compensation Committee Report on Executive Compensation



Overview and Philosophy



The Management Development & Compensation Committee is comprised solely of non-employee directors of the Company. The Management Development &
Compensation Committee is responsible for administering the Companys executive compensation program and reviewing and making recommendations to the Board of Directors with respect to the Companys overall compensation policy as well as
the specific compensation of executive officers and other senior management. In connection with these responsibilities, the Committee has authority to administer the Mykrolis 2001 Equity Incentive Plan and the 2003 Employment Inducement and
Acquisition Stock Option Plan including recommending the grant of stock options and other awards thereunder.



The Companys executive compensation program is intended to attract and retain talented executives and senior management by offering competitive
compensation opportunities. The Company pursues a compensation philosophy that emphasizes the combination of performance-based cash compensation and stock-based compensation. We intend to provide competitive target total cash compensation (base
salary plus variable incentive compensation) for competitive performance, superior total cash compensation for superior performance and reduced total cash compensation for less than competitive performance. We believe that this will foster a
performance-oriented environment by tying a significant portion of each executives cash compensation to the achievement of objectives that are important to the Company and are thus expected to enhance shareholder value. The objectives of the
executive compensation policies are to:



| |  |  | attract, retain, motivate and reward high caliber executives;
| | - |  | -------------------------------------------------------------



| |  |  | foster teamwork and support the achievement of the Companys financial and strategic goals through performance based financial incentives;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | promote the achievement of strategic objectives which lead to long-term growth in shareholder value;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | encourage strong financial performance by tying variable compensation to the achievement of core financial performance metrics and leveraging incentive programs through stock- based
compensation; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | align the interests of executive officers with those of the Company and its shareholders by making incentive compensation dependent upon Company performance.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



The Companys executive compensation
program is currently comprised of three principal components: base salary; variable incentive compensation under the Mykrolis Incentive Plan; and equity incentive in the form of stock options or stock awards granted under the Mykrolis 2001 Equity
Incentive Plan.



Target Total Cash Compensation



Target total cash compensation for each executive is
established based on comparable, competitive marketplace data. This data was provided by the Management Development & Compensation Committees third party compensation consultant. In fiscal 2004 the Committee used pay level data for
positions of similar scope and responsibility to those of the Companys executives from two sources: (a) proxy analysis of thirteen public companies which are manufacturers of semiconductor components, equipment and related
technologically advanced materials identified by the compensation consultant and approved by the Committee; and (b) a broad group of semiconductor and semiconductor equipment companies drawn by the committees compensation consultant
from the SC/CHiPS Executive and Senior Management Total Compensation Survey. Target total cash compensation was determined by positioning executive compensation at approximately the median 50thpercentile total direct compensation indicated by these two data sources. Specific target total cash compensation for executives was approved based upon the
recommendation of the Committees compensation consultant.



52



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Base Salary and Variable Incentive Compensation



Once target total cash compensation has been established for each executive,
the total cash compensation is divided into a base salary portion and a variable incentive compensation portion. The variable incentive compensation portion is provided by awards under the Mykrolis Incentive Plan. Generally, the higher the level of
responsibility of the executive within the Company, the greater the portion of that executives target total cash compensation that consists of the variable incentive compensation component.



The variable incentive compensation component is designed to provide
executive officers and other employees with a potential cash award based on the achievement of annual financial and operating objectives. A number of Company performance objectives as well as individual objectives are used; certain of the Company
performance objectives have been stable from year to year while others have been subject to annual reassessment. These Company performance objectives are weighted based upon their relative priority to the Company. The Company performance objectives,
their relative weighting and the award formulae are approved in advance by the Management Development & Compensation Committee and are designed to dovetail with operating plans approved by the Mykrolis Board of Directors. During 2004, the
Companys performance with respect to identified objectives was measured against the Companys 2004 budget for those objectives.



A minimum level of Company performance is required before any award is earned under the Mykrolis Incentive Plan. During 2004, awards for executive
officers and senior employees were based two-thirds on Company performance objectives and one-third on individual objectives. Other employees were eligible to receive awards equal to lesser percentages of their base salary based solely upon the
Company performance objectives. If a minimum level of Company performance is achieved, achievement of the Company performance objectives are assessed independently so that an award can be earned with respect to one performance objective even if
performance with respect to another objective does not qualify for an award. For 2004 awards under the Mykrolis Incentive Plan are calculated based upon the Companys performance during the fiscal year with respect to each performance objective
using sliding scales of multipliers which increase with the Companys level of performance. The Companys absolute performance against budget was calculated separately and then combined to arrive at an overall Company performance
multiplier. Achievement of individual performance objectives by executives and senior employees is assessed and a personal performance multiplier determined from that assessment. This individual performance multiplier is multiplied by the overall
Company performance multiplier and applied to the weighted individual target award to determine the individual award. The sum of the corporate performance award and the individual performance award is designed to provide competitive total target
cash compensation if the Company achieves competitive performance.



For 2004 the Companys performance objectives were reported revenue versus budget, reported earnings per share versus budget and year end cash balance versus budget (subject to adjustment to generally eliminate extraordinary
transactions); the weighting of these objectives were: 30% revenue growth, 40% earnings per share and 30% modified ending cash. For fiscal 2004, our executive officers were eligible to receive an incentive compensation award ranging from 40% to 70%
of base salary in the event that the Company achieved competitive performance with respect to the performance objectives and the individual objectives were achieved. Awards were subject to elimination of the Company was not profitable for the entire
year and awards to the top officers were limited to 10% of actual 2004 operating income.



For fiscal 2004, the Companys performance was strong exceeding target competitive performance and justified a variable incentive compensation award of 2.3 times the target award for competitive performance.
Based upon this performance, an aggregate of $10,075,185 was earned by employees and executive officers under the MIP; of this amount $2,327,733 was earned by the named executive officers listed in the compensation table.



Equity Incentive



In past years the Company has granted stock options annually to a group of
key employees including executive officers under the Mykrolis 2001 Equity Incentive Plan; in 2004 the Company replaced stock option grants with awards of restricted stock. The purpose of these grants and awards is to allow executives and



53



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employees to participate in the success of the Company as measured by the stock markets assessment of the Companys performance and thus to align
their interests with those of Mykrolis stockholders. Since stock options under the 2001 Equity Incentive Plan are granted at fair market value, the recipient of an option generally is only rewarded if the market price of the Companys common
stock appreciates. In addition, annual option grants and restricted stock awards carry vesting periods (or restriction periods) designed to encourage the retention of executive officers and other recipients. The number of options granted to each
recipient generally is determined on the basis of the level of participation in variable incentive compensation that varies depending on the participants level of responsibility. While the Company made stock option grants covering an aggregate
of 309,500 shares under the 2003 Employment Inducement and Acquisition Stock Option Plan, during 2004, the annual equity award was changed to an award of an aggregate of 542,204 shares of restricted shares of Mykrolis common stock to executives and
a group of key employees. These grants and awards amounted to approximately 2.9% of the Companys outstanding common stock. The Committee determined to make this shift to restricted stock, based upon the recommendation of its compensation
consultant because we believe that with the commencement of so-called fair value accounting for stock options under SFAS 123(R), restricted stock awards represent a more efficient long term incentive compensation vehicle, delivering more
value to the awardee at lower cost to the Company than alternative vehicles.



Chief Executive Officer Compensation



The Management Development & Compensation Committee generally relies upon the same factors in determining the compensation of the Chief Executive Officer as it does for the other executive officers described
above, using a combination of base salary and variable incentive compensation tied to the achievement of financial performance objectives. During 2004, the Company had two Chief Executive Officers: C. William Zadel served until November 21, 2004
when he retired from that position and was replaced by Gideon Argov. Mr. Zadels base salary for 2004 was determined based upon the recommendation of the Committees compensation consultant and an evaluation of the same semiconductor
industry competitive marketplace data referred to above. While this analysis indicated that Mr. Zadels total cash compensation was above the target median level suggested by the two data sources, this compensation level was deemed appropriate
by the Mykrolis Board of Directors because the composite total cash compensation of the executive group as a whole was nevertheless slightly below the median level, it was viewed as a mechanism to retain Mr. Zadels services until a successor
could be selected and based on the challenges he had met in managing the Companys operations through an extended and severe industry downturn, while completing the separation of operations from Millipore and the challenges for 2004 to
establish a solid base of profitability for the Company while positioning it for extraordinary future growth. During 2004 Mr. Zadel received no grant of options or award of restricted stock. Mr. Argovs cash and equity compensation was
determined by negotiation between the Committee and Mr. Argov in connection with his acceptance of the Committees offer of employment and is within the target 50thpercentile median level of compensation from the two data sources described above. Effective November 21, 2004, Mr. Argov was awarded 50,000 shares of
restricted stock in lieu of participation in the MIP for 2005 and options to acquire 450,000 shares of the Companys common stock.



Internal Revenue Code Section 162(m)



The Mykrolis Management Development & Compensation Committee is aware of the potential impact upon the Company of Section 162(m) of the Internal
Revenue Code, which prohibits public companies from deducting certain executive remuneration in excess of $1,000,000. While reserving the right of the Company to offer such compensation arrangements as may be from time-to-time necessary to attract
and retain top-quality management, the Committee intends generally to structure such arrangements, where feasible, so as to minimize or eliminate the impact of the limitations of Section 162(m) of the Code.



The Management Development & Compensation Committee



Michael P.C. Carns,
Chairman

Robert E. Caldwell



54



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Comparative Stock Performance



The comparative stock performance line graph below compares the cumulative stockholder return on the common stock of
Mykrolis (MYK) for the period from the commencement of trading on the New York Stock Exchange following its initial public offering, August 10, 2001, through December 31, 2004 with the cumulative total return on (i) the Total Return Index for The
New York Stock Exchange (the NYSE Composite Index) through December 31, 2002, (ii) the Philadelphia Semiconductor Index (SOX), which is a published industry index, through December 31, 2004 and (iii) the Standard & Poors 500 Index
through December 31, 2004. The SOX contains 16 companies in the semiconductor and semiconductor equipment industries. The cumulative total return computations set forth in the performance graph assume the investment of $100 in the Companys
common stock, the NYSE Composite Index, the Standard & Poors 500 Index and the SOX Index on August 10, 2001. Since the NYSE Composite was changed in 2003 to exclude closed end funds, derivatives and limited partnerships in order to avoid double
counting stocks held in the portfolios of those entities and since recalculated data for the NYSE Composite for prior periods is not available, the Company has excluded the restructured NYSE Composite for 2003 and 2004 and added the Standard &
Poors 500 Index as a substitute broad market index. Prior to August 10, 2001, the Companys common stock was not registered under the Exchange Act.



|                 |  |           |  |            |  |            |  |            |  |           
|---------------- |  | --------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|                 |  | 8/10/2001 |  | 12/31/2001 |  | 12/31/2002 |  | 12/31/2003 |  | 12/31/2004
|MYK              |  | 100.00    |  | 106.67     |  | 48.67      |  | 107.20     |  | 94.47     
|NYSE Comp. Index |  | 100.00    |  | 96.95      |  | 77.73      |  |            |  |           
|Sox Index        |  | 100.00    |  | 94.63      |  | 49.71      |  | 94.54      |  | 74.82     
|S&P 500          |  | 100.00    |  | 95.38      |  | 74.30      |  | 95.61      |  | 106.02    



LOGO



55



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Item 12.    Security Ownership of Certain Beneficial Owners and Management.



Ownership of Mykrolis Common Stock by Directors and Management



The following table sets forth information concerning the
number of shares of Mykrolis Common Stock, $0.01 par value, beneficially owned, directly or indirectly, by each director, each of the five most highly compensated named executive officers and all directors and executive officers as a group as of
March 31, 2005. This information is based on information provided by each director and executive officer and the listing of such securities is not necessarily an acknowledgment of beneficial ownership. Unless otherwise indicated by footnote, the
director, nominee or officer held sole voting and investment power over such shares.



|                                                                                          |  |                                                    |     |  |           
|----------------------------------------------------------------------------------------- |  | -------------------------------------------------- | --- |  | ----------
|Name of Beneficial Owner                                                                  |  | Amount and Nature of Shares Beneficially Owned (1) |     |  | % of Class
|Michael A. Bradley                                                                        |  | 31,666                                             |     |  | *         
|Robert E. Caldwell                                                                        |  | 61,170                                             |     |  | *         
|Michael P.C. Carns                                                                        |  | 31,666                                             |     |  | *         
|Daniel W. Christman                                                                       |  | 34,166                                             | (2) |  | *         
|Gideon Argov                                                                              |  | 50,000                                             |     |  | *         
|Bertrand Loy                                                                              |  | 187,879                                            | (3) |  | *         
|John Gerard Mackay                                                                        |  | 118,495                                            | (3) |  | *         
|Jean-Marc Pandraud                                                                        |  | 455,642                                            | (3) |  | *         
|Thomas O. Pyle                                                                            |  | 39,669                                             | (4) |  | *         
|Peter W. Walcott                                                                          |  | 245,156                                            | (3) |  | *         
|C. William Zadel                                                                          |  | 1,067,284                                          |     |  | 2.5       
|All Directors and Executive Officers as a Group(16 persons including those listed above): |  | 3,017,414                                          | (5) |  | 4.3       

---

|* | None of these officers or directors owns as much as 1.0% of Mykrolis common stock.
|- | ----------------------------------------------------------------------------------

|(1) | Included in the shares listed as beneficially owned are the following number of shares subject to acquisition through the exercise of stock options under Mykrolis stock option plans
and under options converted from Millipore Corporation stock options which the following executive officers have the right to acquire within 60 days following January 31, 2005: Mr. Mr. Bradley31,666 shares, Mr. Caldwell58,818 shares,
Mr. Carns31,666 shares, Mr. Christman31,666 shares, Mr. Mackay90,283 shares; Mr. Loy113,309 shares, Mr. Pandraud,381,072 shares, Mr. Pyle31,666 shares, Mr. Walcott212,356 shares, and Mr.
Zadel1,007,656 shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 500 shares held in the name of Mr. Christmans wife as to which he disclaims beneficial ownership.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Includes restricted stock which is subject to forfeiture and other restrictions which lapse in accordance with the schedule specified in footnote 7 to the Summary Compensation Table
above, as follows: Mr. Argov50,000 shares, Mr. Pandraud40,000 shares, Mr. Loy29,300 shares, Mr. Walcott29,300 shares, and Mr. Mackay28,000 shares; all officers and directors as a group263,900 shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Included in the shares listed as beneficially owned are 8,003 Mykrolis phantom shares distributed on February 27, 2002 with respect to deferred compensation phantom stock units for
Millipore Corporation common stock credited to the deferred compensation account of Mr. Pyle under a plan maintained by Millipore Corporation for its directors (Mr. Pyle served as a director of Millipore Corporation until August 2001); these
Mykrolis phantom stock units are payable only in cash upon Mr. Pyles retirement or earlier termination of service from the Mykrolis Board of Directors.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 1,584,756 shares subject to acquisition by executive officers and directors within 60 days following March 31, 2005 through the exercise of stock options.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



56



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Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys directors and officers and persons who own more than 10 percent of Mykrolis Common Stock to file with the Securities and Exchange Commission and the New York Stock Exchange initial reports of ownership and reports of changes in
ownership of Mykrolis common stock. Mykrolis is required to disclose in its proxy statement any failure to file these reports by the required due dates. All of these filing requirements were satisfied in a timely manner.



Other Principal Holders of Mykrolis Common Stock



As of March 31, 2005, the following persons are believed by Mykrolis to be
the beneficial owners of more than 5% of Mykrolis common stock, the Companys only class of voting securities.



|                                     |  |                                         |     |  |                 |  
|------------------------------------ |  | --------------------------------------- | --- |  | --------------- | -
|Name and address of beneficial owner |  | Amount and natureof beneficialownership |     |  | Percentof class |  
|Babson Capital Management LLC        |  | 3,176,550                               | (1) |  | 7.6             | %
|One Memorial Drive                   |  |                                         |     |  |                 |  
|Cambridge, MA 02142-1300             |  |                                         |     |  |                 |  
|                                     |  |                                        
|Barclays Global Investors NA         |  | 2,864,614                               | (2) |  | 6.85            | %
|45 Fremont St.                       |  |                                         |     |  |                 |  
|San Francisco, CA 94105              |  |                                         |     |  |                 |  
|                                     |  |                                        
|Cooke & Bieler, L.P.                 |  | 2,649,260                               | (3) |  | 6.3             | %
|1700 Market Street                   |  |                                         |     |  |                 |  
|Philadelphia, PA 19103               |  |                                         |     |  |                 |  
|                                     |  |                                        
|Primecap Management Company          |  | 5,135,856                               |     |  | 12.28           | %
|225 South Lake Avenue, #400          |  |                                         |     |  |                 |  
|Pasadena, CA 91101                   |  |                                         |     |  |                 |  
|                                     |  |                                        
|T. Rowe Price Associates, Inc.       |  | 5,141,609                               | (4) |  | 12.2            | %
|100 East Pratt Street                |  |                                         |     |  |                 |  
|Baltimore, MD 21202                  |  |                                         |     |  |                 |  
|                                     |  |                                        
|The TCW Group, Inc.                  |  | 3,420,890                               | (5) |  | 8.2             | %
|865 South Figueroa St.               |  |                                         |     |  |                 |  
|Los Angeles, CA 90017                |  |                                         |     |  |                 |  
|                                     |  |                                        
|Vanguard Horizon Funds               |  | 2,126,410                               | (6) |  | 5.08            | %
|Vanguard Capital Opportunity Fund    |  |                                         |     |  |                 |  
|100 Vanguard Blvd.                   |  |                                         |     |  |                 |  
|Malvern, PA 19355                    |  |                                         |     |  |                 |  

---

|(1) | Of the shares reported as beneficially owned by Babson Capital Management LLC, a registered investment advisor, it has sole voting power with respect to 3,170,350 shares, shared
voting power with respect to 6,200 shares, sole dispositive power with respect to 3,170,350 shares and shared dispositive power with respect to 0 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Of the shares reported as beneficially owned by Barclays Global Investors NA, a bank, it has sole voting power with respect to 2,527,659 shares, shared voting power with respect to
0 shares, sole dispositive power with respect to 2,864,614 shares and shared dispositive power with respect to 0 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Of the shares reported as beneficially owned by Cooke & Bieler LP, a registered investment advisor, it has sole voting power with respect to 0 shares, shared voting power with
respect to 1,331,655 shares, sole dispositive power with respect to 0 shares and shared dispositive power with respect to 2,649,260 shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Of the shares reported as beneficially owned by T.Rowe Price Associates, Inc., a registered investment advisor, it has sole voting power with respect to 1,803,600 shares, shared
voting power with respect to 0 shares, sole dispositive power with respect to 5,141,609 shares and shared dispositive power with respect to 0 shares.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Of the shares reported as beneficially owned by The TCW Group, Inc., a registered investment advisor, it has sole voting power with respect to 0 shares, shared voting power with
respect to 3,045,100 shares, sole dispositive power with respect to 0 shares and shared dispositive power with respect to 3,420,890 shares.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



57



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|(6) | Of the shares reported as beneficially owned by Vanguard Horizon FundsVanguard Capital Opportunity Fund, registered investment companies, they have sole voting power with
respect to 2,126,410 shares, shared voting power with respect to 0 shares, sole dispositive power with respect to 0 shares and shared dispositive power with respect to 0 shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The foregoing information is based upon Schedule 13G reports filed with the Securities and
Exchange Commission by the above beneficial owners in February and March of 2005, with respect to their holdings of the common stock of Mykrolis Corporation.



The following information is provided as of December 31, 2004, with respect to our compensation plans under which equity securities are authorized for
issuance. The only equity securities currently authorized for issuance under our compensation plans are common stock for awards or options to acquire our common stock.



|                                                              |  |                                                                                          |  |                                                      |       |                                                                                                                                         |        
|------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- |  | ---------------------------------------------------- | ----- | --------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan category                                                 |  | Number of securitiesto be issued uponexercise of outstandingoptions,
warrants and rights |  | Weighted-averageexercise price ofoutstanding options |       | Number of securitiesremaining availablefor future issuanceunder equitycompensation
plans(excluding securitiesreflected in column (a)(3)
|                                                              |  | (a)                                                                                      |  | (b)                                                  |       | (c)                                                                                                                                    
|Equity compensation plans approved by security holders (1)(2) |  | 7,660,381                                                                                |  | $                                                    | 11.14 |                                                                                                                                         | 666,107
|Equity compensation plans not approved by security holders    |  | 384,539                                                                                  |  | $                                                    | 12.99 |                                                                                                                                         | 68,596 
|                                                              |  |                                                                                          |  |                                                      |       |                                                                                                                                         |        
|Total                                                         |  | 8,044,920                                                                                |  | $                                                    | 11.23 |                                                                                                                                         | 734,703
|                                                              |  |                                                                                          |  |                                                      |       |                                                                                                                                         |        

---

|(1) | Includes options to purchase shares of Mykrolis common stock converted from unvested options to acquire shares of common stock of Millipore Corporation held by our employees and by
those of our directors who previously served as Millipore directors in the aggregate amounts of 1,867,576 and 40,729, respectively; this conversion was made in conjunction with the spin-off distribution by Millipore Corporation of all of its
holdings of Mykrolis common stock on February 27, 2002; this conversion was effected in accordance with a formula designed to preserve the pre-spin intrinsic value of the options; the Millipore plans under which the converted options were originally
issued were approved by Millipore stockholders in 1995 and 1999; the conversions were approved by Millipore Corporation when it was the sole stockholder of Mykrolis.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Includes 613,204 shares of restricted stock awarded in November and December 2004 under the 2001 Equity Incentive Plan.
|--- | -----------------------------------------------------------------------------------------------------------------------

|(3) | Includes shares of Mykrolis common stock available for award or to support option grants under the 2001 Equity Incentive Plan and under the 2003 Employment Inducement and
Acquisition Stock Option Plan each of which contains an evergreen provision that annually increases the number of shares available for award or to support option grants by 1% and 0.25%, respectively, of the number of shares of common
stock outstanding on the date of the Annual Meeting of Stockholders.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The securities issued and available for issue pursuant to equity compensation plans not approved by security holders listed in the table above refers to the Mykrolis Corporation 2003 Employment Inducement and
Acquisition Stock Option Plan which was adopted by the Companys Board of Directors effective as of July 1, 2003. This stock option plan provides for the grant of stock options covering an aggregate of 350,000 shares of the Common Stock, $0.01
par value, of the Company to newly hired (or rehired) employees and to employees of companies acquired by Mykrolis. The plan has a term of ten years and provides that all stock options granted under the plan carry an exercise price of fair market
value on the date of grant. This plan also contains an evergreen provision that annually increases the number of shares available for award or to support option grants by 0.25% of the number of shares of common stock outstanding on the
date of the Annual Meeting of Stockholders during the term of the plan.



Item 13.    Certain Relationships and Related Transactions.



This item is not applicable because since January 1, 2004 no relationships, transactions or loans required to be disclosed by Item 404 of Regulation S-K
under the Securities Act of 1933, as amended, have existed.



58



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Item 14.    Principal Accountant Fees and Services.



PricewaterhouseCoopers LLP, (PricewaterhouseCoopers) independent
registered public accounting firm, has reported on the Companys consolidated financial statements for each of the three years in the period ended December 31, 2004 contained in this report. The Audit & Finance Committee selected
PricewaterhouseCoopers as the Companys independent registered public accounting firm for fiscal 2005 and has also reviewed and approved the scope and nature of the services to be performed for Mykrolis by that firm.



In connection with their examination of and report on the Companys
financial statements, on managements assessment of the effectiveness of the Companys internal controls over financial reporting and on the effectiveness of the internal controls over financial reporting for 2004, PricewaterhouseCoopers
also reviewed the Companys Annual Report on Form 10-K and performed a review of its quarterly financial statements included in the quarterly reports on Form 10-Q filed with the Securities and Exchange Commission.



Principal Accountant Fees and Services



Aggregate fees for professional services rendered for the Company by
PricewaterhouseCoopers as of or for the years ended December 31, 2004 and 2003 were:



|              |  |      |           |      |   |        
|------------- |  | ---- | --------- | ---- | - | -------
|Service       |  | 2004 |           | 2003
|Audit         |  | $    | 2,065,600 |      | $ | 740,101
|Audit Related |  | $    | 68,560    |      | $ | 89,943 
|Tax           |  | $    | 79,113    |      | $ | 37,137 
|All Other     |  |      |          |      |   |       
|              |  |      |           |      |   |        
|Total         |  | $    | 2,213,273 |      | $ | 867,181
|              |  |      |           |      |   |        



The Audit
services for the year ended December 31, 2004 consisted of professional services rendered for the integrated audit of the Companys consolidated financial statements and its internal control over financial reporting, as required by the
Sarbanes-Oxley Act of 2002, the statutory audits of its foreign subsidiaries, and review of documents filed with the Securities and Exchange Commission (SEC). The Audit services for the year ended December 31, 2003 was for the
audit of the Companys consolidated financial statements, the statutory audits of its foreign subsidiaries, and review of documents filed with the SEC.



The fees for Audit Relatedservices as for the years ended December 31, 2004 and 2003 were for audit and assurance related services, consisting of
the audits of the Companys U.S. employee benefit plan, advisory services rendered in connection with the Companys compliance with the Sarbanes-Oxley Act of 2002, and auditing procedures performed in connection with an acquisition.



The fees for Taxservices for the years ended December
31, 2004 and 2003, respectively, were for services related to tax compliance, tax planning and tax advice.



Effective October 1, 2002, the Companys Board of Directors has amended the charter of the Audit & Finance Committee to require the pre-approval
of all non-audit services before any such non-audit services are performed for the Company. The amended charter of the Audit & Finance Committee is posted on the Companys web site http://www.Mykrolis.com under Investor
RelationsGovernance. The Audit & Finance Committee adopted pre-approval policies and procedures with respect to audit and permissible non audit services (Services) effective June 19, 2003. Under this policy Services must
receive either a general pre-approval or a specific pre-approval by the Audit & Finance Committee. The grant of a general pre-approval of Services is limited to identified Services that have been determined not to impair the independence of the
independent auditor and must include a maximum fee level for the Services approved. A request for specific pre-approval must include detailed information concerning the scope of the Services and the fees to be charged. The policy also provides for a
special delegation of pre-approval authority to the Chairman of the Audit & Finance Committee where the commencement of Services is required prior to the next scheduled meeting of the Audit & Finance Committee and it is impractical to
schedule a special meeting; any such pre-approval by the Chairman is subject to review by the full Committee. All of the fees listed for 2004 in the table above received pre-approval by the Audit & Finance Committee.



59



---

PART IV



Item 15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



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



1. Financial Statements.



The Consolidated Financial Statements listed under Item 8 of this report and in the Index to Consolidated Financial Statements on page F-1 of this report
which is incorporated by reference.



2. Financial Statement
Schedules.



The Financial Statement Schedule listed under
Item 8 of this report and in the Index to Consolidated Financial Statements on page F-1 of this report which is incorporated by reference.



3. Exhibits.



A. The following exhibits are incorporated by reference:



|                              |  |                                                                                                              |  |                                                                                             
|----------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------
|Reg. S-K Item 601(b)Reference |  | Document Incorporated                                                                                        |  | Referenced Document on file with the Commission                                             
|(2)                           |  | Form of Master Separation and Distribution Agreement.                                                        |  | Exhibit 2.1 to Form S-1 Registration Statement (No. 333-57182)                              
|                              |  |                                                                                                             
|                              |  | Form of General Assignment and Assumption Agreement.                                                         |  | Exhibit 2.2 to Form S-1 Registration Statement (No. 333-57182)                              
|                              |  |                                                                                                             
|(3)                           |  | Restated Certificate of Incorporation of Mykrolis Corporation                                                |  | Exhibit 3.1 to Form S-1 Registration Statement (No. 333-57182)                              
|                              |  |                                                                                                             
|                              |  | Amended and Restated By-laws of Mykrolis Corporation                                                         |  | Exhibit 3.2 to Form S-1 Registration Statement (No. 333-57182)                              
|                              |  |                                                                                                             
|                              |  | Form of certificate representing shares of Common Stock, $.01 par value per share                            |  | Exhibit 3.3 to Form S-1 Registration Statement (No. 333-57182)                              
|                              |  |                                                                                                             
|                              |  | Form of Common Stock Rights Agreement                                                                        |  | Exhibit 1 to Form 8-K Current Report, filed December 10, 2001 [Commission File No. 001-1611]
|                              |  |                                                                                                             
|(3)                           |  | Form of Common Stock Purchase Right Certificate (included as Annex I to the Form of Common Rights Agreement) |  | Exhibit 2 to Form 8-K Current Report, filed December 10, 2001 [Commission File No. 001-1611]
|                              |  |                                                                                                             
|(3)                           |  | Summary of Common Stock Purchase Rights (included as Annex II to the Form of Common Rights Agreement)        |  | Exhibit 3 to Form 8-K Current Report, filed December 10, 2001 [Commission File No. 001-1611]
|                              |  |                                                                                                             
|(10)                          |  | Form of 2001 Equity Incentive Plan*                                                                          |  | Exhibit 10.1 to Form S-1 Registration Statement (No. 333-57182)                             
|                              |  |                                                                                                             
|                              |  | Letter Agreement with Robert E. Caldwell*                                                                    |  | Exhibit 10.1.1 to Form 10-Q quarterly report for the period ended June 30, 2002             
|                              |  |                                                                                                             
|                              |  | Letter Agreement with Thomas O. Pyle*                                                                        |  | Exhibit 10.1.2 to Form 10-Q quarterly report for the period ended June 30, 2002             
|                              |  |                                                                                                             
|                              |  | Amended and Restated 2001 Employee Stock Purchase Plan*                                                      |  | Exhibit 10.1 to Form 10-K Annual Report for the year ended December 31, 2001                
|                              |  |                                                                                                             
|                              |  | Form of Indemnification Agreement*                                                                           |  | Exhibit 10.4 to Form S-1 Registration Statement (No. 333-57182)                             



---

|* | A management contract or compensatory plan
|- | --------------------------------------------



60



---

|                              |  |                                                                                                                                                                                                      |  |                                                                                     
|----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------
|Reg. S-K Item 601(b)Reference |  | Document Incorporated                                                                                                                                                                                |  | Referenced Document on file with the Commission                                     
|(10)[contd]                  |  | Lease Agreement, dated April 1, 2002 Between Nortel Networks HPOCS Inc. And Mykrolis Corporation, relating to headquarters, R&D and manufacturing facility located at 129 Concord Road
Billerica, MA |  | Exhibit 10.1.3 to Quarterly Report on Form 10-Q, for the period ended March 31, 2002
|                              |  | Lease Agreement dated November 25, 1985 between Roger G. Little, Trustee of SPI Trust, and Millipore Corporation relating to facility located at Patriots Park, Bedford, Massachusetts               |  | Exhibit 10.5 to Form S-1 Registration Statement (No. 333-57182)                     
|                              |  | Lease Agreement dated December 19, 1997 between EBP3, Ltd. and Millipore Corporation relating to manufacturing facility located in Allen, Texas                                                      |  | Exhibit 10.6 to Form S-1 Registration Statement (No. 333-57182)                     
|                              |  | Master Patent License Agreement                                                                                                                                                                      |  | Exhibit 10.8 to Form S-1 Registration Statement (No. 333-57182)                     
|                              |  | Master Patent Grantback License Agreement                                                                                                                                                            |  | Exhibit 10.9 to Form S-1 Registration Statement (No. 333-57182)                     
|                              |  | Master Trademark License Agreement                                                                                                                                                                   |  | Exhibit 10.11 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Master Invention Disclosure Assignment                                                                                                                                                               |  | Exhibit 10.12 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Master Trade Secret and Know-How Agreement                                                                                                                                                           |  | Exhibit 10.13 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Tax Sharing Agreement                                                                                                                                                                                |  | Exhibit 10.14 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Employee Matters Agreement                                                                                                                                                                           |  | Exhibit 10.15 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Master Transitional Services Agreement                                                                                                                                                               |  | Exhibit 10.16 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Membrane Manufacture and Supply Agreement                                                                                                                                                            |  | Exhibit 10.18 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Research Agreement                                                                                                                                                                                   |  | Exhibit 10.19 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Product Distribution Agreement                                                                                                                                                                       |  | Exhibit 10.20 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Millipore Contract Manufacturing Agreement                                                                                                                                                           |  | Exhibit 10.21 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Mykrolis Contract Manufacturing Agreement                                                                                                                                                            |  | Exhibit 10.22 to Form S-1 Registration Statement (No. 333-57182)                    
|                              |  | Standard Form of Agreements Between Owner and Design/Builder, effective as of January 15, 2002, between registrant and SPEC Process Engineering & Construction, as Design/Builder                    |  | Exhibit 10.27 to Form 10-K Annual Report for the year ended December 31, 2002       



61



---

|                              |  |                                                                                                                                                                                                                                               |  |                                                                                   
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------
|Reg. S-K Item 601(b)Reference |  | Document Incorporated                                                                                                                                                                                                                         |  | Referenced Document on file with the Commission                                   
|(10)[contd]                  |  | Supplemental Executive Retirement Plan for Key Salaried Employees of Mykrolis Corporation*                                                                                                                                                    |  | Exhibit 10.28 to Form 10-K Annual Report for the year ended December 31, 2002     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Mykrolis Corporation 2002 Deferred Compensation Plan for Senior Management*                                                                                                                                                                   |  | Exhibit 10.29 to Form 10-K Annual Report for the year ended December 31, 2002     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | 2001 Non-Employee Director Stock Option Plan (As Amended October 1, 2002) *                                                                                                                                                                   |  | Exhibit 10.2 to Form 10-K Annual Report for the year ended December 31, 2002      
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Mykrolis Corporation 2003 Employment Inducement and Acquisition Stock Option Plan*                                                                                                                                                            |  | Exhibit 10.6 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Executive Termination (Change of Control) Agreement with Gerry Mackay*                                                                                                                                                                        |  | Exhibit 10.1 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Executive Termination (Change of Control) Agreement with Jieh Hwa-Shyu*                                                                                                                                                                       |  | Exhibit 10.3 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Indemnification Agreement with Gerry Mackay*                                                                                                                                                                                                  |  | Exhibit 10.2 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Indemnification Agreement with Jieh Hwa Shyu*                                                                                                                                                                                                 |  | Exhibit 10.4 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Letter Agreement with Gerry Mackay*                                                                                                                                                                                                           |  | Exhibit 10.5 to Form 10-Q Quarterly Report for the period ended September 27, 2003
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Letter Agreement, dated May 20, 2004, with Peter Kirlin, Vice President Business Development*                                                                                                                                                 |  | Exhibit 10.1 to Form 10-Q Quarterly Report for the period ended July 3, 2004      
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Intellectual Property Purchase and Sale Agreement by and between Bentec Scientific LLC and Mykrolis Corporation                                                                                                                               |  | Exhibit 10.1 to Form 10-Q Quarterly Report for the period ended October 2, 2004   
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Asset Purchase and Sale Agreement by and between Bentec Scientific LLC and Mykrolis Corporation                                                                                                                                               |  | Exhibit 10.2 to Form 10-Q Quarterly Report for the period ended October 2, 2004   
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Letter Agreement, dated November 18, 2004, between the Company and Gideon Argov*                                                                                                                                                              |  | Exhibit 10.31 to Form 10-K Annual Report for the year ended December 31, 2004     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Letter Agreement, dated November 19, 2004, between the Company and C. William Zadel*                                                                                                                                                          |  | Exhibit 10.33 to Form 10-K Annual Report for the year ended December 31, 2004     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Restricted Stock Award Agreement, dated as of November 21, 2004, between the Company and Gideon Argov*                                                                                                                                        |  | Exhibit 10.32 to Form 10-K Annual Report for the year ended December 31, 2004     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Form of Restricted Stock Award Agreement, dated as of December 9, 2004, between the Company and each of its executive officers*                                                                                                               |  | Exhibit 10.34 to Form 10-K Annual Report for the year ended December 31, 2004     
|                              |  |                                                                                                                                                                                                                                              
|                              |  | Agreement and Plan of Merger by and among Mykrolis Corporation, Stingray Merger Corporation, Extraction Systems, Inc. and the Representative of the Holders of all of the Capital Stock of
Extraction Systems, Inc. dated as of March 3, 2005 |  | Exhibit 10.35 to Form 10-K Annual Report for the year ended December 31, 2004     



---

|* | A management contract or compensatory plan
|- | --------------------------------------------



62



---

|                              |  |                                      |  |                                                                           
|----------------------------- |  | ------------------------------------ |  | --------------------------------------------------------------------------
|Reg. S-K Item 601(b)Reference |  | Document Incorporated                |  | Referenced Document on file with the Commission                           
|(21)                          |  | Subsidiaries of Mykrolis Corporation |  | Exhibit 21 to Form 10-K Annual Report for the year ended December 31, 2004
|(24)                          |  | Power of Attorney                    |  | Exhibit 24 to Form 10-K Annual Report for the year ended December 31, 2004



B. The Company hereby files as exhibits to this Annual Report on Form 10-K the following documents:



|                              |  |                                                                                                                                            
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------
|Reg. S-K Item 601(b)Reference |  | Documents Filed Herewith                                                                                                                   
|(23)                          |  | Consent of Independent Registered Public Accounting Firm                                                                                   
|(31)                          |  | Certifications required by Rule 13a-14(a) in accordance with Section 302 of the Sarbanes-Oxley act of 2002.                                
|(32)                          |  | Certifications required by Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.



63



---

SIGNATURES



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



|                      |  |                      |  |                                     
|--------------------- |  | -------------------- |  | ------------------------------------
|                      |  | MYKROLIS CORPORATION
|                      |  |                     
|Dated: April 13, 2005 |  | By                   |  | /s/ GIDEON ARGOV                    
|                      |  |                      |  | Gideon Argov Chief Executive Officer



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



|                                                                  |  |                                                       |  |               
|----------------------------------------------------------------- |  | ----------------------------------------------------- |  | --------------
|Signature                                                         |  | Title                                                 |  | Date          
|                                                                  |  |                                                      
|/s/ GIDEON ARGOVGideon Argov                                      |  | Chief Executive Officer and Director                  |  | April 13, 2005
|                                                                  |  |                                                      
|/s/ BERTRAND LOY.Bertrand Loy                                     |  | Vice President, Treasurer and Chief Financial Officer |  | April 13, 2005
|                                                                  |  |                                                      
|/s/ ROBERT HAMMOND.Robert Hammond                                 |  | Corporate Controller and Chief Accounting Officer     |  | April 13, 2005
|                                                                  |  |                                                      
|MICHAEL A. BRADLEY*Michael A. Bradley                             |  | Director                                              |  | April 13, 2005
|                                                                  |  |                                                      
|ROBERT E. CALDWELL*Robert E. Caldwell                             |  | Director                                              |  | April 13, 2005
|                                                                  |  |                                                      
|MICHAEL P.C. CARNS*Michael P.C. Carns                             |  | Director                                              |  | April 13, 2005
|                                                                  |  |                                                      
|DANIEL W. CHRISTMAN*Daniel W. Christman                           |  | Director                                              |  | April 13, 2005
|                                                                  |  |                                                      
|THOMAS O. PYLE*Thomas O. Pyle                                     |  | Chairman of the Board, Director                       |  | April 13, 2005
|                                                                  |  |                                                      
|*By        /s/ PETER W. WALCOTTPeter W. Walcott,
Attorney-in-Fact |  |                                                       |  |               



64



---

MYKROLIS CORPORATION



INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



|                                                                                                                                     |  |     
|------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|Consolidated Statements of Operations for the years ended December 31, 2004, 2003 and 2002                                           |  | F-2 
|                                                                                                                                     | 
|Consolidated Balance Sheets at December 31, 2004 and 2003                                                                            |  | F-3 
|                                                                                                                                     | 
|Consolidated Statements of Shareholders Equity and Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002 |  | F-4 
|                                                                                                                                     | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002                                           |  | F-5 
|                                                                                                                                     | 
|Notes to Consolidated Financial Statements                                                                                           |  | F-6 
|                                                                                                                                     | 
|Report of Independent Registered Public Accounting Firm                                                                              |  | F-37
|                                                                                                                                     | 
|Valuation and Qualifying Accounts Schedule for the years ended December 31, 2004, 2003 and 2002                                      |  | F-39
|                                                                                                                                     | 
|Quarterly Results of Operations(Unaudited)                                                                                           |  | F-40



F-1



---

MYKROLIS CORPORATION



CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                         |  | Year ended December 31,               |        
|                                                         |  | 2004                                  |         |   | 2003 |   |         | 2002 | 
|                                                         |  | (In thousands, except per share data) |        
|Net sales                                                |  | $                                     | 289,230 |   |      | $ | 185,898 |      |  | $ | 178,449 |  
|Cost of sales                                            |  |                                       | 151,321 |   |      |   | 105,269 |      |  |   | 118,783 |  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Gross profit                                             |  |                                       | 137,909 |   |      |   | 80,629  |      |  |   | 59,666  |  
|Selling, general and administrative expenses             |  |                                       | 75,737  |   |      |   | 64,795  |      |  |   | 67,809  |  
|Research and development expenses                        |  |                                       | 25,739  |   |      |   | 19,110  |      |  |   | 19,685  |  
|Restructuring and other charges                          |  |                                       | (213    | ) |      |   | 2,111   |      |  |   | 5,182   |  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Operating income (loss)                                  |  |                                       | 36,646  |   |      |   | (5,387  | )    |  |   | (33,010 | )
|Other income (expense), net                              |  |                                       | 2,289   |   |      |   | 2,260   |      |  |   | 3,367   |  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes                        |  |                                       | 38,935  |   |      |   | (3,127  | )    |  |   | (29,643 | )
|Income tax expense                                       |  |                                       | 9,338   |   |      |   | 4,977   |      |  |   | 2,118   |  
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                        |  | $                                     | 29,597  |   |      | $ | (8,104  | )    |  | $ | (31,761 | )
|                                                         |  |                                       |         |   |      |   |         |      |  |   |         |  
|Basic income (loss) per share                            |  | $                                     | 0.71    |   |      | $ | (0.20   | )    |  | $ | (0.80   | )
|Shares used in computing basic income (loss) per share   |  |                                       | 41,491  |   |      |   | 39,939  |      |  |   | 39,628  |  
|Diluted income (loss) per share                          |  | $                                     | 0.68    |   |      | $ | (0.20   | )    |  | $ | (0.80   | )
|Shares used in computing diluted income (loss) per share |  |                                       | 43,240  |   |      |   | 39,939  |      |  |   | 39,628  |  



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



F-2



---

MYKROLIS CORPORATION



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------- | - | ---- | - | -------- | -
|                                                                                                                                             |  | December 31,                     |        
|                                                                                                                                             |  | 2004                             |         |   | 2003 |  
|                                                                                                                                             |  | (In thousands except share data) |        
|ASSETS                                                                                                                                       |  |                                  |         |   |      |   |          |  
|Current assets:                                                                                                                              |  |                                  |         |   |      |   |          |  
|Cash and cash equivalents                                                                                                                    |  | $                                | 88,185  |   |      | $ | 70,503   |  
|Marketable securities                                                                                                                        |  |                                  | 42,228  |   |      |   |         |  
|Accounts receivable (less allowance for doubtful accounts of $258 in 2004 and $559 in 2003)                                                  |  |                                  | 62,456  |   |      |   | 46,698   |  
|Inventories                                                                                                                                  |  |                                  | 41,835  |   |      |   | 38,771   |  
|Deferred income taxes                                                                                                                        |  |                                  | 1,517   |   |      |   | 664      |  
|Other current assets                                                                                                                         |  |                                  | 2,834   |   |      |   | 5,726    |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|Total current assets                                                                                                                         |  |                                  | 239,055 |   |      |   | 162,362  |  
|Marketable securities                                                                                                                        |  |                                  |        |   |      |   | 14,266   |  
|Restricted cash                                                                                                                              |  |                                  | 1,502   |   |      |   | 1,782    |  
|Property, plant and equipment, net                                                                                                           |  |                                  | 65,564  |   |      |   | 71,033   |  
|Deferred income taxes                                                                                                                        |  |                                  | 5,050   |   |      |   | 3,411    |  
|Goodwill                                                                                                                                     |  |                                  | 24,148  |   |      |   | 17,317   |  
|Other intangible assets (less accumulated amortization of $24,406 in 2004 and $22,490 in 2003)                                               |  |                                  | 8,867   |   |      |   | 7,622    |  
|Other assets                                                                                                                                 |  |                                  | 6,782   |   |      |   | 5,962    |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|Total assets                                                                                                                                 |  | $                                | 350,968 |   |      | $ | 283,755  |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                         |  |                                  |         |   |      |   |          |  
|Current liabilities:                                                                                                                         |  |                                  |         |   |      |   |          |  
|Current portion of capital lease obligation                                                                                                  |  | $                                | 54      |   |      | $ | 78       |  
|Accounts payable                                                                                                                             |  |                                  | 14,887  |   |      |   | 12,613   |  
|Accrued income taxes                                                                                                                         |  |                                  | 19,944  |   |      |   | 11,227   |  
|Accrued expenses                                                                                                                             |  |                                  | 32,904  |   |      |   | 24,781   |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|Total current liabilities                                                                                                                    |  |                                  | 67,789  |   |      |   | 48,699   |  
|Long-term portion of capital lease obligation                                                                                                |  |                                  |        |   |      |   | 55       |  
|Other liabilities                                                                                                                            |  |                                  | 11,605  |   |      |   | 11,912   |  
|Minority interest                                                                                                                            |  |                                  | 59      |   |      |   | 61       |  
|Commitments and contingencies (note 17)                                                                                                      |  |                                  |         |   |      |   |          |  
|Shareholders equity:                                                                                                                        |  |                                  |         |   |      |   |          |  
|Preferred stock, par value $.01 per share, 5,000,000 shares authorized; no shares issued and outstanding                                     |  |                                  |        |   |      |   |         |  
|Common stock, par value $.01 per share, 250,000,000 shares authorized; 41,950,828 and 40,648,773 shares issued and outstanding,
respectively |  |                                  | 420     |   |      |   | 406      |  
|Additional paid-in capital                                                                                                                   |  |                                  | 351,518 |   |      |   | 330,515  |  
|Accumulated deficit                                                                                                                          |  |                                  | (71,858 | ) |      |   | (101,455 | )
|Unearned compensation                                                                                                                        |  |                                  | (7,630  | ) |      |   |         |  
|Accumulated other comprehensive loss                                                                                                         |  |                                  | (935    | ) |      |   | (6,438   | )
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|Total shareholders equity                                                                                                                   |  |                                  | 271,515 |   |      |   | 223,028  |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  
|Total liabilities and shareholders equity                                                                                                   |  | $                                | 350,968 |   |      | $ | 283,755  |  
|                                                                                                                                             |  |                                  |         |   |      |   |          |  



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



F-3



---

MYKROLIS CORPORATION



CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

AND COMPREHENSIVE INCOME (LOSS)



(In thousands)



|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|----------------------------------------------------------------------------------- |  | ------------- |  | -------------------------- | --- |  | ---------------------------------- | ------- | - | ---------------------- | - | -------- | --------------------------------------------- |  | - | -------------------------- | - |  | - | --- | - |  | - | ------- | - |  | - | ---- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                    |  |               |  | Additional Paid-In Capital |     |  | Accumulated Deficit                |         |   | Unearned Compensation  |   |          | Accumulated Other Comprehensive Income (Loss) |  |   | Total Shareholders Equity |  
|                                                                                    |  | Common Shares |  |                            |     |  | UnrealizedGain (Loss) onSecurities |         |   | TranslationAdjustments |   |          | MinimumPensionLiability                       |  |   | Total                      |   | 
|                                                                                    |  | Shares        |  | Amount                     |     |  |                                    |         |   |                        |   |         
|Balance December 31, 2001                                                           |  | 39,500        |  |                            | 395 |  |                                    | 326,618 |   |                        |   | (61,590  | )                                             |  |   |                           |   |  |   | (10 | ) |  |   | (21,866 | ) |  |   |     |   |  |   | (21,876 | ) |  |   | 243,547 |  
|Comprehensive income (loss) :                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Net loss                                                                            |  |               |  |                            |     |  |                                    |         |   |                        |   | (31,761  | )                                             |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | (31,761 | )
|Foreign currency translations                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   | 7,413   |   |  |   |      |   |  |   | 7,413   |   |  |   | 7,413   |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                            |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | (24,348 | )
|Stock-based compensation                                                            |  |               |  |                            |     |  |                                    | 1,103   |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 1,103   |  
|Net transfers to Millipore Corporation                                              |  |               |  |                            |     |  |                                    | (9,518  | ) |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | (9,518  | )
|Issuance of common stock-employee stock purchase plan and exercise of stock options |  | 224           |  |                            | 2   |  |                                    | 1,858   |   |                        |   |         |                                               |  |   |                           |   |  |   |    |   |  |   |        |   |  |   |     |   |  |   |        |   |  |   | 1,860   |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance December 31, 2002                                                           |  | 39,724        |  | $                          | 397 |  | $                                  | 320,061 |   |                        | $ | (93,351  | )                                             |  |   |                           |   |  | $ | (10 | ) |  | $ | (14,453 | ) |  |   |     |   |  | $ | (14,463 | ) |  | $ | 212,644 |  
|Comprehensive income (loss) :                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Net loss                                                                            |  |               |  |                            |     |  |                                    |         |   |                        |   | (8,104   | )                                             |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | (8,104  | )
|Foreign currency translations                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   | 8,333   |   |  |   |      |   |  |   | 8,333   |   |  |   | 8,333   |  
|Additional minimum pension liability                                                |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   | (221 | ) |  |   | (221    | ) |  |   | (221    | )
|Unrealized loss on marketable securities                                            |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   | (87 | ) |  |   |         |   |  |   |      |   |  |   | (87     | ) |  |   | (87     | )
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Total comprehensive loss                                                            |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | (79     | )
|Stock based compensation                                                            |  |               |  |                            |     |  |                                    | 17      |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 17      |  
|Issuance of common stock-employee stock purchase plan and exercise of stock options |  | 592           |  |                            | 6   |  |                                    | 5,534   |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 5,540   |  
|Issuance of common stock for acquisition                                            |  | 333           |  |                            | 3   |  |                                    | 4,903   |   |                        |   |         |                                               |  |   |                           |   |  |   |    |   |  |   |        |   |  |   |     |   |  |   |        |   |  |   | 4,906   |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance December 31, 2003                                                           |  | 40,649        |  | $                          | 406 |  | $                                  | 330,515 |   |                        | $ | (101,455 | )                                             |  |   |                           |   |  | $ | (97 | ) |  | $ | (6,120  | ) |  | $ | (221 | ) |  | $ | (6,438  | ) |  | $ | 223,028 |  
|Comprehensive income (loss) :                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Net income                                                                          |  |               |  |                            |     |  |                                    |         |   |                        |   | 29,597   |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 29,597  |  
|Foreign currency translations                                                       |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   | 5,905   |   |  |   |      |   |  |   | 5,905   |   |  |   | 5,905   |  
|Additional minimum pension liability                                                |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   | (412 | ) |  |   | (412    | ) |  |   | (412    | )
|Unrealized gain on marketable securities                                            |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   | 10  |   |  |   |         |   |  |   |      |   |  |   | 10      |   |  |   | 10      |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Total comprehensive income                                                          |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 35,100  |  
|Stock based compensation                                                            |  |               |  |                            |     |  |                                    | 91      |   |                        |   |          |                                               |  |   | 153                        |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 244     |  
|Issuance of common stock-employee stock purchase plan and exercise of stock options |  | 1,301         |  |                            | 14  |  |                                    | 10,654  |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   | 10,668  |  
|Issuance of restricted stockunearned compensation                                  |  |               |  |                            |     |  |                                    | 7,783   |   |                        |   |          |                                               |  |   | (7,783                     | ) |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |        |  
|Proceeds and other adjustments under tax sharing agreement with Millipore           |  |              |  |                            |    |  |                                    | 2,475   |   |                        |   |         |                                               |  |   |                           |   |  |   |    |   |  |   |        |   |  |   |     |   |  |   |        |   |  |   | 2,475   |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  
|Balance December 31, 2004                                                           |  | 41,950        |  | $                          | 420 |  | $                                  | 351,518 |   |                        | $ | (71,858  | )                                             |  | $ | (7,630                     | ) |  | $ | (87 | ) |  | $ | (215    | ) |  | $ | (633 | ) |  | $ | (935    | ) |  | $ | 271,515 |  
|                                                                                    |  |               |  |                            |     |  |                                    |         |   |                        |   |          |                                               |  |   |                            |   |  |   |     |   |  |   |         |   |  |   |      |   |  |   |         |   |  |   |         |  



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



F-4



---

MYKROLIS CORPORATION



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                   |  | Year ended December 31, |        
|                                                                                                   |  | 2004                    |         |   | 2003 |   |         | 2002 | 
|                                                                                                   |  | (In thousands)          |        
|Cash flows from operating activities:                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                                                                                  |  | $                       | 29,597  |   |      | $ | (8,104  | )    |  | $ | (31,761 | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:           |  |                         |         |   |      |   |         |      |  |   |         |  
|(Income) loss on equity method investments                                                         |  |                         | (601    | ) |      |   | (587    | )    |  |   | 37      |  
|Amortization of premium on available for sale marketable securities                                |  |                         | 484     |   |      |   | 128     |      |  |   |        |  
|Restructuring and other charges                                                                    |  |                         |        |   |      |   | 534     |      |  |   | 1,683   |  
|Impairment losses on long-lived assets                                                             |  |                         | 1,031   |   |      |   | 531     |      |  |   | 971     |  
|Gain on termination of post-retirement benefits                                                    |  |                         | (1,976  | ) |      |   |        |      |  |   |        |  
|Depreciation                                                                                       |  |                         | 9,397   |   |      |   | 9,653   |      |  |   | 9,178   |  
|Amortization of intangible assets                                                                  |  |                         | 1,916   |   |      |   | 1,540   |      |  |   | 1,674   |  
|Stock based compensation                                                                           |  |                         | 244     |   |      |   |        |      |  |   | 1,103   |  
|Deferred income taxes                                                                              |  |                         | (786    | ) |      |   | 2,633   |      |  |   | 390     |  
|Change in operating assets and liabilities:                                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Increase in accounts receivable, net                                                               |  |                         | (12,565 | ) |      |   | (2,953  | )    |  |   | (2,104  | )
|(Increase) decrease in inventories                                                                 |  |                         | (1,579  | ) |      |   | 5,853   |      |  |   | 20,981  |  
|Decrease in accounts payableMillipore Corporation                                                 |  |                         |        |   |      |   |        |      |  |   | (1,928  | )
|Increase in accounts payable                                                                       |  |                         | 2,047   |   |      |   | 1,490   |      |  |   | 4,530   |  
|Decrease (increase) other operating assets                                                         |  |                         | 36      |   |      |   | 1,925   |      |  |   | (1,644  | )
|Increase in other operating liabilities                                                            |  |                         | 16,848  |   |      |   | 2,284   |      |  |   | 4,371   |  
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                          |  |                         | 44,093  |   |      |   | 14,927  |      |  |   | 7,481   |  
|Cash flows from investing activities:                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Purchase of marketable securities                                                                  |  |                         | (48,447 | ) |      |   | (14,477 | )    |  |   |        |  
|Proceeds from the sale of marketable securities                                                    |  |                         | 20,000  |   |      |   |        |      |  |   |        |  
|Acquisition of a business and certain net assets                                                   |  |                         | (7,439  | ) |      |   | (4,530  | )    |  |   |        |  
|Deposit for purchase of certain assets                                                             |  |                         |        |   |      |   | (3,002  | )    |  |   |        |  
|Additions to property, plant and equipment                                                         |  |                         | (4,154  | ) |      |   | (3,755  | )    |  |   | (17,949 | )
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                              |  |                         | (40,040 | ) |      |   | (25,764 | )    |  |   | (17,949 | )
|Cash flows from financing activities:                                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|Reclassification (assignment) of restricted cash                                                   |  |                         | 280     |   |      |   | (159    | )    |  |   | (1,608  | )
|Net transfers from Millipore Corporation                                                           |  |                         |        |   |      |   |        |      |  |   | 1,457   |  
|Payments under capital leases                                                                      |  |                         | (79     | ) |      |   | (77     | )    |  |   | (25     | )
|Proceeds from issuance of common stock for employee stock purchase plan and stock option exercises |  |                         | 10,668  |   |      |   | 5,540   |      |  |   | 1,860   |  
|Proceeds under tax sharing agreement with Millipore                                                |  |                         | 1,255   |   |      |   |         |      |  |   |         |  
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                          |  |                         | 12,124  |   |      |   | 5,304   |      |  |   | 1,684   |  
|Effect of foreign exchange rates on cash and cash equivalents                                      |  |                         | 1,505   |   |      |   | 1,951   |      |  |   | 38      |  
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                               |  |                         | 17,682  |   |      |   | (3,582  | )    |  |   | (8,746  | )
|Cash and cash equivalents at beginning of period                                                   |  |                         | 70,503  |   |      |   | 74,085  |      |  |   | 82,831  |  
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                                         |  | $                       | 88,185  |   |      | $ | 70,503  |      |  | $ | 74,085  |  
|                                                                                                   |  |                         |         |   |      |   |         |      |  |   |         |  
|Supplemental disclosure of cash flow information:                                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Cash paid during the year for :                                                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Income Taxes                                                                                       |  | $                       | 1,694   |   |      | $ | 460     |      |  | $ | 2,013   |  
|Interest                                                                                           |  | $                       | 2       |   |      | $ | 2       |      |  | $ | 2       |  
|                                                                                                   |  |                         |        
|Supplemental disclosure of non-cash activity:                                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|Non-cash issuance of common stock related to compensation plans                                    |  | $                       | 7,783   |   |      | $ |        |      |  | $ |        |  
|Non-cash transfers to Millipore                                                                    |  | $                       |        |   |      | $ |        |      |  | $ | 10,975  |  
|Issuance of common stock related to acquisition                                                    |  | $                       |        |   |      | $ | 4,906   |      |  | $ |        |  



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



F-5



---

MYKROLIS CORPORATION



NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS



(In thousands except
share and per share data)



1.    Company



Prior to March 31, 2001, Mykrolis
Corporations (the Company) business was operated as a fully integrated business unit of Millipore Corporation (Millipore). On March 31, 2001, Millipore transferred to the Company substantially all of the assets and
liabilities associated with its microelectronics business (the Separation). The Company completed its initial public offering of 7.0 million shares of common stock on August 9, 2001. The Company retained $75.0 million of the net proceeds
and paid the balance to Millipore as repayment of amounts outstanding as intercompany loans incurred by the Company in connection with the Separation. After the initial public offering, Millipore owned 32.5 million shares or approximately 82.3% of
the Companys total outstanding common stock. On February 27, 2002 (the Distribution Date), Millipore completed the spin-off of the Company through the distribution to its shareholders of all of the 32.5 million shares of the
Companys common stock owned by Millipore on that date. Effective February 28, 2002 the Company became a fully independent company.



2.    Summary of Significant Accounting Policies



Fiscal Year



The Companys fiscal year is the 365-366 day period that commences on January 1 and ends on December 31. Each fiscal quarter ends on the Saturday
nearest the calendar month end and generally contains 13 weeks consisting of 88-94 days. Fiscal year 2004 comprises the 366 day period from January 1 to December 31, 2004 with fiscal quarters ending April 3, July 3, October 2 and December 31. Fiscal
year 2003 comprises the 365 day period from January 1 to on December 31, 2003 with fiscal quarters ended March 29, June 28, September 27 and December 31. Fiscal year 2002 comprises the 365 day period from January 1 to on December 31, 2002 with
fiscal quarters ended March 30, June 29, September 28 and December 31.



Principles of Consolidation



The consolidated
financial statements include the accounts of the Company and of its consolidated subsidiaries. Intercompany balances and transactions have been eliminated. Investments in affiliated companies that are 20%50% owned entities are accounted for
under the equity method of accounting.



Reclassifications



Certain reclassifications have been made to prior year
statements to conform to the current year presentation.



Use
of Estimates



The preparation of financial statements
requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our judgments and
estimates, including those related to revenues, accounts receivable, inventories, long-lived assets and goodwill, deferred tax assets, income tax contingencies, warranty obligations, restructuring charges, accrued pension, and litigation
contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.



F-6



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



Translation of Foreign Currencies



Assets and liabilities recorded in foreign currencies are translated into
U.S. dollars at exchange rates on the balance sheet date. Net sales and expenses are translated at the average exchange rates prevailing during the year. Translation adjustments resulting from this process are charged or credited to other
comprehensive income (loss), a component of shareholders equity. Aggregate transaction gains and losses are included in the consolidated statements of operations as a component of other income (expense), net. Foreign currency translation
adjustments relating to permanently invested equity in foreign operations are recorded separately as a component of other comprehensive income (loss). The Company has no foreign operations where local currency is not the functional currency.



Cash and Cash Equivalents



The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are primarily comprised of money market funds. The carrying amounts approximate fair value due to the short maturities of these instruments.



The Companys policy is to place its cash and cash equivalents with high
quality financial institutions to limit the amount of credit exposure.



The Company has placed on deposit certain cash balances to secure facilities lease obligations. The Company classifies these cash balances as restricted cash.



Accounts Receivable



The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments based
upon specific identification, by customer. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.



Inventories



The Company values its inventories at lower of cost or market on a first-in,
first-out (FIFO) basis. Cost includes material, labor and applicable manufacturing overhead costs.



The Company adjusts the cost basis of our inventory to reflect its net realizable value, if lower than cost. Reserves are provided for estimated excess
and obsolete inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. The Company fully reserves for inventories deemed obsolete.
Quarterly reviews of all inventory items are performed to identify excess and obsolete inventories on-hand by comparing on-hand balances to recent historical usage as well as anticipated or forecasted demand, based upon input from sales, R&D and
marketing functions. If estimates of future demand or actual market conditions are less favorable than those previously projected, additional inventory write-downs may be required.



Long-Lived Assets and Goodwill



The Company periodically evaluates the recoverability of long-lived assets whenever events and changes in circumstances
indicate that the carrying value of an asset or class of assets may not be fully recoverable and exceeds its fair value. For long-lived assets the Company intends to hold and use, if the carrying amount of the



F-7



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



asset exceeds the sum of undiscounted cash flows expected to result from the use of the asset over its useful life, an impairment loss will be recorded. The
amount of the impairment loss is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. Assets held for sale are valued at fair value less costs to sell the asset.



The Company tests goodwill for impairment annually or whenever events and
changes in circumstances occur. The Company assesses fair value of the applicable reporting unit by measuring discounted cash flows and comparable company analysis and tests for impairment as the difference between the resulting implied fair value
of goodwill compared to its recorded carrying value of net assets.



Property, plant and equipment are recorded at cost. Expenditures for maintenance and repairs are charged to expense while the costs of significant improvements, which extend the life of the underlying asset, are capitalized. Assets are
depreciated primarily using straight-line methods over estimated useful lives. Upon retirement or sale, the cost of assets disposed and the related accumulated depreciation are eliminated and related gains or losses are reflected in income. The
estimated useful lives of the Companys depreciable assets are as follows:



|                               |  |                                                    
|------------------------------ |  | ---------------------------------------------------
|Leasehold Improvements         |  | Shorter of the life of the lease or the improvement
|Buildings and Improvements     |  | 10-31 Years                                        
|Production and Other Equipment |  | 3-15 Years                                         
|Software                       |  | 3 years                                            



Goodwill and other
intangible assets mainly resulted from the Companys acquisition of Bentec in 2004, Aeronex in 2003 and Tylan General, Inc. in 1997. Other intangible assets consist primarily of patents, acquired technology, customer list, trade names and
licenses. These intangible assets are recorded at estimated fair values at date of acquisition and amortized as follows:



|                               |  |                               |  |                           |  |              
|------------------------------ |  | ----------------------------- |  | ------------------------- |  | -------------
|                               |  | Bentec & Aeronex Acquisitions |  | Tylan General Acquisition |  | Other        
|Estimated Useful Life          |  |                               |  |                           |  |              
|Patents                        |  | 4-8 years                     |  | 5-12 years                |  | 13 years     
|Unpatented technology          |  |                              |  | 5-7 years                 |  |             
|Trademarks / tradenames        |  | 9 years                       |  | 5 years                   |  | 15 years     
|Customer relationships & other |  | 7-8 years                     |  |                          |  | 3 years      
|                               |  |                               | 
|Method                         |  | Economicconsumption period    |  | Straight-line             |  | Straight-line



Under the economic
consumption period method, the amortization of each group of intangible assets is directly based on the pattern of after-tax cash flows over the deemed economic life of the group of intangible assets. This method of amortization is more accelerated
in early years than a straight-line amortization method and more accurately reflects the pattern in which the economic benefits of the intangible assets related to the Bentec and Aeronex acquisitions are expected to be consumed.



Deferred Tax Assets



The Companys valuation allowance against the U.S. deferred tax assets
is based on an assessment of historical pre-tax income (loss) and projected pre-tax income (loss) for early future periods. In addition, there is a valuation allowance against the deferred tax assets in certain foreign subsidiaries based on our
assessment of



F-8



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



historical pre-tax income and projected pre-tax income for early future periods. The Company currently expects there will be sufficient pre-tax income during
2005 to realize deferred tax assets in these foreign subsidiaries. The Company currently forecasts pre-tax income in the U.S. and in addition, has undertaken tax-planning initiatives designed to generate future U.S. taxable income however due to the
early future period uncertainty a full valuation remains on the U.S. deferred tax assets at December 31, 2004. As future taxable income is generated in the U.S. against which these tax assets may be applied, some portion or all of the valuation
allowance will be reversed and consequently an increase in net income will be reported in future years.



Income Tax Contingencies



Tax contingencies are recorded for probable exposures involving tax positions taken that could be challenged by taxing authorities. These probable
exposures result from the varying application of statutes, rules, regulations and interpretations. The Companys estimate of the value of its tax contingencies contains assumptions based on past experiences and judgments about potential actions
by taxing jurisdictions. It is reasonably likely that the ultimate resolution of these matters may be greater or less than the amount currently accrued.



Net Sales



Net sales consist of revenue from sales of products net of trade discounts and allowances. The Company recognizes revenue upon shipment, primarily FOB
shipping point, when evidence of an arrangement exists, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured through historical
collection results and regular credit evaluations. In most transactions, the Company has no obligations to customers after the date products are shipped other than pursuant to warranty obligations. In the event that significant post-shipment
obligations or uncertainties exist such as customer acceptance, revenue recognition is deferred as appropriate until such obligations are fulfilled or the uncertainties are resolved. Costs incurred for shipping and handling are included in revenues
and cost of sales.



Research and Development Costs



Research and development expenses consist primarily of
salaries and related expense for personnel engaged in research and development, fees paid to consultants, material cost for test units and other expense related to the design, development, testing and enhancement of products. All research and
development costs are expensed as they are incurred.



Other
Income (Expense)



Other income (expense), net includes
foreign currency transaction exchange gains and losses, interest income and expense, income and losses on investments in 20%50% owned entities accounted for under the equity method and royalty income from Nihon Millipore (see Note
16-Transactions with Millipore). On a periodic basis, equity method investments and other investments are reviewed to determine if impairment exists.



Earnings (Loss) Per Share



Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the
reporting period. Diluted earnings (loss) per share is based on the weighted average number of common shares and dilutive common equivalent shares assumed during the period,



F-9



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



calculated using the treasury stock method which determines additional common shares that are issuable upon exercise of outstanding stock options and
restricted stock. Shares used to compute diluted loss per share exclude common share equivalents if their inclusion would have an anti-dilutive effect.



Concentration of Credit Risk



Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of accounts receivable. The Company
performs ongoing credit evaluations of its customers and generally does not require collateral. The Companys customers are concentrated in the semiconductor industry, and a limited number of customers account for a significant portion of the
Companys revenues. The Company regularly monitors the creditworthiness of its customers and believes that it has adequately provided for exposure to potential credit losses.



Warranty Obligations



At the time revenue is recognized, the Company provides for estimated cost of product warranties as provided for under contractual arrangements. Warranty
obligations are affected by product failure rates and service delivery costs incurred in correcting a product failure. Should such failure rates or costs differ from these estimates, accrued warranty costs would be adjusted in the period that such
events or costs become known.



Restructuring and Other
Charges



During 2003, 2002 and 2001, the Company recorded
charges to operations in connection with restructuring programs. The related reserves reflect estimates, including those pertaining to severance, facility exit costs and asset impairments. The Company reassesses the reserve requirements to complete
each restructuring program at the end of each reporting period. Actual experience may be different from these estimates.



Pension Obligations



The Company has pension costs and credits, which are developed from actuarial valuations. Inherent in these valuations are key assumptions, including
discount rates, compensation increases, healthcare costs and expected return on plan assets, which are usually updated on an annual basis at the beginning of each fiscal year. The Company is required to consider current market conditions in making
these key assumptions. Changes in the related pension costs or credits may occur in the future due to changes in assumptions.



Other Comprehensive Income (Loss)



Comprehensive income (loss) includes net income (loss) and the change in accumulated other comprehensive income (loss). The Companys accumulated
other comprehensive income (loss) shown on the consolidated balance sheets consists of foreign currency translation adjustments which are not adjusted for income taxes since they relate to indefinite investments in non-U.S. operations, unrealized
losses on available-for-sale marketable securities and certain pension adjustments.



3.    Stock Based Compensation



The Companys employee stock compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and related interpretations.
Under this method, no compensation expense is recognized as long as the exercise price equals or



F-10



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



exceeds the market price of the underlying stock on the date of the grant. The Company elected the disclosure-only alternative permitted under SFAS No. 123,
Accounting for Stock-Based Compensation (SFAS 123), as amended by SFAS 148, for fixed stock-based awards to employees. All non-employee stock-based awards are accounted for at fair value and recorded as compensation expense
over the period of service in accordance with SFAS 123 and related interpretations.



In the fourth quarter of 2004, the Company accelerated the vesting of certain unvested stock options awarded to employees, officers and other eligible participants under the Companys various stock option plans.
In addition, the board of directors approved the lapsing of all restrictions on shares subject to certain out-of-the-money stock options granted to employees in December 2003. As such, the Company fully vested options to purchase 1,161,040 shares of
the Companys common stock with exercise prices greater than or equal to $13.49 per share. The acceleration of the vesting of these options did not result in a charge based on generally accepted accounting principles. For pro forma disclosure
requirements under SFAS 123, the Company recognized $10,540 of stock-based compensation for all options whose vesting was accelerated. These modifications were made in anticipation of adopting SFAS No. 123(R) (SFAS 123(R)) issued on
December 16, 2004. SFAS 123(R) supersedes APB Opinion No. 25 and its related implementation guidance and requires the fair value of share based payments such as stock options be recognized in the financial statements as compensation expense. SFAS
123(R) becomes effective for the Company on July 3, 2005. These actions were undertaken to produce a more favorable impact on the Companys results of operations upon adoption of SFAS 123(R).



The following pro forma information regarding net income (loss) has been
calculated as if the Company had accounted for its employee stock options and stock purchase plan under the fair value method under SFAS 123.



For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period. The
Companys pro forma information follows:



|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                                            |  | Year Ended December 31 |        
|                                                                                                                                            |  | 2004                   |         |   | 2003 |   |         | 2002 | 
|Net income (loss), as reported                                                                                                              |  | $                      | 29,597  |   |      | $ | (8,104  | )    |  | $ | (31,761 | )
|Add: Stock-based compensation included in net loss, net of related tax effects                                                              |  |                        |         |   |      |   | 17      |      |  |   | 588     |  
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                        | (24,207 | ) |      |   | (14,398 | )    |  |   | (15,770 | )
|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Pro forma net loss                                                                                                                          |  | $                      | 5,390   |   |      | $ | (22,485 | )    |  | $ | (46,943 | )
|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Basic income (loss) per share:                                                                                                              |  |                        |         |   |      |   |         |      |  |   |         |  
|As reported                                                                                                                                 |  | $                      | 0.71    |   |      | $ | (0.20   | )    |  | $ | (0.80   | )
|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Pro forma                                                                                                                                   |  | $                      | 0.13    |   |      | $ | (0.56   | )    |  | $ | (1.18   | )
|Diluted income (loss) per share:                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|As reported                                                                                                                                 |  | $                      | 0.68    |   |      | $ | (0.20   | )    |  | $ | (0.80   | )
|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  
|Pro forma                                                                                                                                   |  | $                      | 0.12    |   |      | $ | (0.56   | )    |  | $ | (1.18   | )
|                                                                                                                                            |  |                        |         |   |      |   |         |      |  |   |         |  



F-11



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



The fair value of options granted under both the Companys stock-based plan were estimated at
grant date using a Black-Scholes option pricing model with the following weighted-average assumptions:



|                                        |  |         |  |         |  |        
|--------------------------------------- |  | ------- |  | ------- |  | -------
|                                        |  | 2004    |  | 2003    |  | 2002   
|Average risk-free interest rate         |  | 3.6%    |  | 3.2%    |  | 4.0%   
|Range of expected life of option grants |  | 5 years |  | 5 years |  | 5 years
|Expected volatility of underlying stock |  | 71%     |  | 69%     |  | 80%    
|Dividend rate                           |  | $0      |  | $0      |  | $0     



The weighted average
estimated fair value of stock options granted during the years ended December 31, 2004, 2003 and 2002 was $ 12.63 per share, 9.03 per share and $5.13 per share, respectively.



During 2004, the Company issued an option to purchase 25,000 shares of its common stock to a non-employee. This option vests
over 4 years; 25% after year 1, quarterly thereafter and expires in 7 years. The Company accounts for this option in accordance with EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than Employees and FIN
28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans an interpretation of APB Opinions No. 15 and 25, for Acquiring, or in Conjunction with Selling, Goods or Services. Accordingly, variable plan
accounting is used, whereby stock-based compensation expense is re-measured at each reporting date from the date of grant until the option is exercised, and incorporates the then-current fair market value of the Companys common stock,
volatility of underlying stock, risk free rates, and contractual life of the options into the Black-Scholes option pricing model. This was only an option grant and was not tied to any other agreements with this individual.



4.    Basic and Diluted Earnings (Loss) per Share



The following table sets forth the computation of basic and diluted earnings
(loss) per share for the year ended December 31, 2004, 2003 and 2002:



|                                            |  |      |            |      |   |            |      |  |   |            |  
|------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                            |  | 2004 |            | 2003 |   |            | 2002 | 
|Numerator:                                  |  |      |            |      |   |            |      |  |   |            |  
|Net income (loss)                           |  | $    | 29,597     |      | $ | (8,104     | )    |  | $ | (31,761    | )
|                                            |  |      |            |      |   |            |      |  |   |            |  
|Denominator:                                |  |      |            |      |   |            |      |  |   |            |  
|Basic weighted average shares outstanding   |  |      | 41,490,529 |      |   | 39,938,831 |      |  |   | 39,628,052 |  
|Diluted weighted average shares outstanding |  |      | 43,239,571 |      |   | 39,938,831 |      |  |   | 39,628,052 |  
|Net income (loss) per share:                |  |      |            |      |   |            |      |  |   |            |  
|Basic .                                     |  | $    | 0.71       |      | $ | (0.20      | )    |  | $ | (0.80      | )
|Diluted                                     |  | $    | 0.68       |      | $ | (0.20      | )    |  | $ | (0.80      | )



Stock options covering
2,738,264, 8,395,888, and 8,016,375 shares for the years ended December 31, 2004, 2003 and 2002, respectively, were not included in the computation of diluted earnings (loss) per share because to do so would have been antidilutive for the period.



F-12



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



5.    Statement of Operations Information



|                                              |  |                         |       |      |   |       |  |   |       |  
|--------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | ----- | -
|                                              |  | Year Ended December 31, |      
|                                              |  | 2004                    |       | 2003 |   | 2002  | 
|Included in costs and operating expenses      |  |                         |       |      |   |       |  |   |       |  
|Depreciation of property, plant and equipment |  | $                       | 9,397 |      | $ | 9,653 |  | $ | 9,178 |  
|                                              |  |                         |       |      |   |       |  |   |       |  
|Other income (expense)                        |  |                         |       |      |   |       |  |   |       |  
|Gain on foreign currency transactions         |  |                         | 561   |      |   | 567   |  |   | 1,632 |  
|Royalty income from Millipore Corporation     |  |                         | 358   |      |   | 536   |  |   | 553   |  
|Interest income and other                     |  |                         | 768   |      |   | 570   |  |   | 1,220 |  
|Income (loss) from equity method investments  |  |                         | 602   |      |   | 587   |  |   | (38   | )
|                                              |  |                         |       |      |   |       |  |   |       |  
|Other income (expense), net                   |  | $                       | 2,289 |      | $ | 2,260 |  | $ | 3,367 |  
|                                              |  |                         |       |      |   |       |  |   |       |  



6.    Acquisitions



During
the third quarter of 2004, the Company completed the acquisition of Bentec Scientific LLC, a privately held manufacturer of polyvinyl alcohol (PVA) roller brushes used in post-chemical mechanical planarization (CMP) clean
applications. The purchase price was $10,441 including cash paid of $4,820, a deposit of $3,002 paid during the fourth quarter of 2003, forgiveness of a loan payable to the Company of $54 and future amounts of $2,566 withheld until certain
conditions are satisfied and to secure the sellers indemnity obligations. The Bentec acquisition was accounted for under the purchase method of accounting and Bentecs results of operations are included in the Company consolidated
financial statements since August 12, 2004, the date of purchase. The aggregate purchase price included transaction costs of $100 and cash of $10,341 of which $2,566 has been withheld until certain conditions are satisfied and to secure the
sellers indemnity obligations. The transaction also includes agreements for the seller to manufacture products for the Company at raw material cost until January 2005 and for the Company to pay an aggregate of $400 for research and development
services over three years plus up to $2,075 for new product developments when and if delivered. These costs, other than inventory purchases, will be expensed as incurred.



The following table summarizes the estimated fair values of the assets acquired at the date of acquisition.



|                                                 |  |   |       
|------------------------------------------------ |  | - | ------
|Current assets                                   |  | $ | 372   
|Property, plant and equipment                    |  |   | 154   
|Intangible assets                                |  |   | 3,140 
|Goodwill                                         |  |   | 6,775 
|                                                 |  |   |       
|Total purchase price including acquisition costs |  | $ | 10,441
|                                                 |  |   |       



The $3,140 of acquired
intangible assets included $840 of patent core technologies (6-year economic consumption life), $400 patent completed technologies (4-year economic consumption life), and $1,900 of customer relationships (8-year economic consumption life). The
$6,775 of goodwill was assigned to the Companys liquid products reporting unit and primarily relates to synergies the Company expects to realize by providing sales and marketing channels for the PVA roller brushes especially in Asia and Japan
and is expected to be deductible for tax purposes but will not be realized until the Company utilizes existing tax-loss carryforwards in the U.S.



During the fourth quarter of 2003, the Company acquired the business and certain of the assets and liabilities of Aeronex, Inc., a privately held company
that developed, manufactured and marketed gas purification



F-13



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



components and systems. The Aeronex products complement the Companys line of gas purifiers. The Aeronex acquisition was accounted for under the
purchase method of accounting and Aeronexs results of operations are included in our consolidated financial statements since October 27, 2003, the date of purchase.



The aggregate purchase price was $9,436 and included common stock valued at $4,906, cash of $4,309 and transaction costs of
$ 221. The value of the 333,333 common shares issued was determined based on the average market price of Mykrolis common shares over the two days before, day of and two days after the terms of the acquisition were agreed to and announced.



The following table summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acquisition.



|                                                 |  |   |       |  
|------------------------------------------------ |  | - | ----- | -
|Current assets                                   |  | $ | 1,725 |  
|Property, plant and equipment                    |  |   | 1,030 |  
|Intangible assets                                |  |   | 4,180 |  
|Goodwill                                         |  |   | 2,863 |  
|Liabilities assumed                              |  |   | (362  | )
|                                                 |  |   |       |  
|Total purchase price including acquisition costs |  | $ | 9,436 |  
|                                                 |  |   |       |  



The $4,180 of acquired
intangible assets included $1,180 for core technologies (9-year economic consumption life), $1,510 for two specific product lines (6-year economic consumption life), $1,210 for customer relationships (8-year economic consumption life), and $280 for
tradenames (8-year economic consumption life).



The $2,863 of
goodwill was assigned to the Companys gas microcontamination reporting unit and is expected to be deductible for tax purposes but will not be realized until the Company utilizes existing tax-loss carryforwards in the U.S.



7.    Goodwill and Other Intangible Assets



The Company tests goodwill for impairment annually or whenever events and
changes in circumstances occur. The Company determined that for purposes of these assessments, the Companys business consists of liquid products, gas delivery and gas microcontamination products reporting units. The Company estimated the gas
delivery and gas microcontamination reporting units fair value and compared it to the carrying value of the reporting units net assets. The annual impairment test for the liquid products reporting unit was not required since Bentec
Scientific LLC was acquired in the third quarter of 2004 and no events or changes in circumstances triggering impairment testing occurred through December 31, 2004. As of December 31, 2004 and 2003, the liquid products, gas delivery and gas
microcontamination products reporting units fair value exceeded the value of net assets, and therefore goodwill was not impaired.



As of December 31, 2004, goodwill amounted to $24,148. The change in the carrying value of goodwill for the year ended December 31, 2004 is as follows:



|                                             |  |   |       
|-------------------------------------------- |  | - | ------
|Balance as of December 31, 2003              |  | $ | 17,317
|Goodwill acquired during 2004                |  |   | 6,775 
|Adjustment to Aeronex goodwill acquired 2003 |  |   | 56    
|                                             |  |   |       
|Balance as of December 31, 2004              |  | $ | 24,148
|                                             |  |   |       



F-14



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



Other identifiable intangible assets of $8,867 and $7,622 (net of accumulated amortization) at
December 31, 2004 and 2003, respectively, are summarized in the following table by major intangible asset class.



|                               |  |                      |        |                         |   |                      |  |                         |        |  |   |       
|------------------------------ |  | -------------------- | ------ | ----------------------- | - | -------------------- |  | ----------------------- | ------ |  | - | ------
|                               |  | As of December 31,  
|                               |  | 2004                 |        | 2003                   
|                               |  | Gross carryingamount |        | Accumulatedamortization |   | Gross carryingamount |  | Accumulatedamortization
|Patents                        |  | $                    | 18,165 |                         | $ | 12,437               |  | $                       | 16,925 |  | $ | 10,966
|Unpatented technology          |  |                      | 8,505  |                         |   | 8,505                |  |                         | 8,505  |  |   | 8,505 
|Trademarks / tradenames        |  |                      | 3,186  |                         |   | 2,956                |  |                         | 3,186  |  |   | 2,901 
|Customer relationships & other |  |                      | 3,417  |                         |   | 508                  |  |                         | 1,496  |  |   | 118   
|                               |  |                      |        |                         |   |                      |  |                         |        |  |   |       
|                               |  | $                    | 33,273 |                         | $ | 24,406               |  | $                       | 30,112 |  | $ | 22,490
|                               |  |                      |        |                         |   |                      |  |                         |        |  |   |       



Total amortization
expense for the years ended December 31, 2004, 2003 and 2002 was $1,916, $1,540 and $1,674, respectively. Estimated amortization expense for the fiscal years 2005 to 2009 is $2,382, $2,565, $1,736, $891 and $580 respectively.



8.    Marketable securities



Reclassification of Certain Securities



During the fourth quarter of 2004, the Company concluded that it was
appropriate to classify investments in auction rate securities as current investments in marketable securities as the stated maturity dated for these securities are greater then three months from the purchase date. For the quarters ended July 3,
2004 and October 2, 2004, such investments had been classified as cash and cash equivalents. Accordingly, the classification of these securities has been revised to report these securities as current investments in a separate line item on the
Consolidated Balance Sheet as of December 31, 2004. The Company also made corresponding adjustments to the Consolidated Statement of Cash Flows for the period ended December 31, 2004, to reflect the gross purchases and sales of these securities as
investing activities rather than as a component of cash and cash equivalents. This change in classification does not affect previously reported cash flows from operations or from financing activities in the previously reported Consolidated
Statements of Cash Flows, or the previously reported Consolidated Statements of Income for any period.



As of July 3, 2004 and October 2, 2004, $5,000 and $20,000, respectively, of these current investments were originally classified as cash and cash
equivalents on the Condensed Consolidated Balance Sheets. For the fiscal quarters ended July 3, 2004 and October 2, 2004, net cash used in investing activities related to these current investments of $(5,000) and $(15,000), respectively, were
included in the changes in cash and cash equivalents in the Condensed Consolidated Statements of Cash Flows.



Current Investments



Marketable securities consist of government securities, high-grade corporate bonds and auction rate securities. The Company classifies these investments
as available-for-sale and records them at fair market value. Marketable securities reported as short term represent investments that mature within one year from the balance sheet date. Long-term marketable securities represent investments with
maturity dates greater than one year from the balance sheet date. At the time that the maturity dates of these investments become one year or less, the securities are reclassified to short term. Unrealized gains or losses on the Companys
available-for-sale securities



F-15



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



are included in accumulated other comprehensive loss as a component of shareholders equity. Investments in auction rate securities are recorded at
cost, which approximates fair market value due to their variable interest rates. Auction rate securities are typically reset every 35 days, and, despite the long-term nature of their stated contractual maturities, these securities can be quickly
liquidated. As of December 31, 2004, there are no unrealized gains (losses) or realized gains (losses) from these investments have been recorded. In addition, all income generated from these investments was recorded as interest income.



The following is a summary of marketable securities as of December 31,
2004 and 2003:



|                                    |  |      |        |                |   |     |                     |  |   |       
|----------------------------------- |  | ---- | ------ | -------------- | - | --- | ------------------- |  | - | ------
|                                    |  | Cost |        | UnrealizedLoss |   |     | EstimatedFair Value
|December 31, 2004                   |  |      |        |                |   |     |                     |  |   |       
|U.S. Treasury and agency securities |  | $    | 10,000 |                | $ | (33 | )                   |  | $ | 9,967 
|Corporate bonds                     |  |      | 12,315 |                |   | (54 | )                   |  |   | 12,261
|Auction rate securities             |  |      | 20,000 |                |   |    |                     |  |   | 20,000
|                                    |  |      |        |                |   |     |                     |  |   |       
|Total short term investments        |  | $    | 42,315 |                | $ | (87 | )                   |  | $ | 42,228
|                                    |  |      |        |                |   |     |                     |  |   |       



|                                    |  |      |        |                |   |     |                     |  |   |       
|----------------------------------- |  | ---- | ------ | -------------- | - | --- | ------------------- |  | - | ------
|                                    |  | Cost |        | UnrealizedLoss |   |     | EstimatedFair Value
|December 31, 2003                   |  |      |        |                |   |     |                     |  |   |       
|U.S. Treasury and agency securities |  | $    | 10,000 |                | $ | (56 | )                   |  | $ | 9,944 
|Corporate bonds                     |  |      | 4,353  |                |   | (31 | )                   |  |   | 4,322 
|                                    |  |      |        |                |   |     |                     |  |   |       
|Total long term investments         |  | $    | 14,353 |                | $ | (87 | )                   |  | $ | 14,266
|                                    |  |      |        |                |   |     |                     |  |   |       



9.    Restricted Cash



At
December 31, 2004 and 2003, the Company had cash collateratization totaling $1,502 and $1,782, respectively. This collateral related to a security deposit under a lease for the Companys corporate headquarters, research and development and
manufacturing facility as well as other security deposits and was invested in certificates of deposit and money market funds at December 31, 2004.



F-16



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



10.    Balance Sheet Information



|                                                   |  |              |         |   |      |   |         |  
|-------------------------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                                   |  | December 31, |        
|                                                   |  | 2004         |         |   | 2003 |  
|Accounts receivable                                |  |              |         |   |      |   |         |  
|Accounts receivable                                |  | $            | 50,388  |   |      | $ | 37,952  |  
|Notes receivable                                   |  |              | 12,326  |   |      |   | 9,305   |  
|Less: allowance for doubtful accounts              |  |              | (258    | ) |      |   | (559    | )
|                                                   |  |              |         |   |      |   |         |  
|Total                                              |  | $            | 62,456  |   |      | $ | 46,698  |  
|                                                   |  |              |         |   |      |   |         |  
|Inventories                                        |  |              |         |   |      |   |         |  
|Raw materials                                      |  | $            | 28,390  |   |      | $ | 27,467  |  
|Work in process                                    |  |              | 8,103   |   |      |   | 8,198   |  
|Finished goods                                     |  |              | 21,401  |   |      |   | 22,510  |  
|Less: inventory reserves                           |  |              | (16,059 | ) |      |   | (19,404 | )
|                                                   |  |              |         |   |      |   |         |  
|Total                                              |  | $            | 41,835  |   |      | $ | 38,771  |  
|                                                   |  |              |         |   |      |   |         |  
|Property, plant and equipment                      |  |              |         |   |      |   |         |  
|Land                                               |  | $            | 2,191   |   |      | $ | 2,110   |  
|Leasehold improvements                             |  |              | 43,693  |   |      |   | 43,282  |  
|Buildings and improvements                         |  |              | 30,622  |   |      |   | 31,107  |  
|Production and other equipment                     |  |              | 55,646  |   |      |   | 57,387  |  
|Construction in progress                           |  |              | 1,427   |   |      |   | 213     |  
|Less: accumulated depreciation                     |  |              | (68,015 | ) |      |   | (63,066 | )
|                                                   |  |              |         |   |      |   |         |  
|Total                                              |  | $            | 65,564  |   |      | $ | 71,033  |  
|                                                   |  |              |         |   |      |   |         |  
|Accrued expenses                                   |  |              |         |   |      |   |         |  
|Accrued employee payroll and benefits              |  | $            | 21,786  |   |      | $ | 15,536  |  
|Accrued warranty                                   |  |              | 1,541   |   |      |   | 1,302   |  
|Accrued restructuring costs (excluding work force) |  |              | 1,413   |   |      |   | 3,074   |  
|Other accrued expenses                             |  |              | 8,164   |   |      |   | 4,869   |  
|                                                   |  |              |         |   |      |   |         |  
|Total                                              |  | $            | 32,904  |   |      | $ | 24,781  |  
|                                                   |  |              |         |   |      |   |         |  
|Other liabilities                                  |  |              |         |   |      |   |         |  
|Retirement benefits                                |  | $            | 10,809  |   |      | $ | 11,256  |  
|Deferred rent                                      |  |              | 796     |   |      |   | 656     |  
|                                                   |  |              |         |   |      |   |         |  
|Total                                              |  | $            | 11,605  |   |      | $ | 11,912  |  
|                                                   |  |              |         |   |      |   |         |  



F-17



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



11.    Income Taxes



The Companys income tax expense is summarized as follows for the year ended December 31:



|                                                        |  |      |        |      |   |         |      |  |   |         |  
|------------------------------------------------------- |  | ---- | ------ | ---- | - | ------- | ---- |  | - | ------- | -
|                                                        |  | 2004 |        | 2003 |   |         | 2002 | 
|Domestic and foreign income (loss) before income taxes: |  |      |        |      |   |         |      |  |   |         |  
|Domestic                                                |  | $    | 16,143 |      | $ | (14,043 | )    |  | $ | (32,654 | )
|Foreign                                                 |  |      | 22,792 |      |   | 10,916  |      |  |   | 3,011   |  
|                                                        |  |      |        |      |   |         |      |  |   |         |  
|                                                        |  | $    | 38,935 |      | $ | (3,127  | )    |  | $ | (29,643 | )
|                                                        |  |      |        |      |   |         |      |  |   |         |  
|Domestic and foreign income tax expense (benefit):      |  |      |        |      |   |         |      |  |   |         |  
|Domestic                                                |  | $    | 1,016  |      | $ | 647     |      |  | $ |        |  
|Foreign                                                 |  |      | 8,322  |      |   | 4,330   |      |  |   | 2,118   |  
|State                                                   |  |      |       |      |   |        |      |  |   |        |  
|                                                        |  |      |        |      |   |         |      |  |   |         |  
|                                                        |  | $    | 9,338  |      | $ | 4,977   |      |  | $ | 2,118   |  
|                                                        |  |      |        |      |   |         |      |  |   |         |  
|Current and deferred income tax expense:                |  |      |        |      |   |         |      |  |   |         |  
|Current                                                 |  | $    | 9,234  |      | $ | 1,690   |      |  | $ | 1,244   |  
|Deferred                                                |  |      | 104    |      |   | 3,287   |      |  |   | 874     |  
|                                                        |  |      |        |      |   |         |      |  |   |         |  
|                                                        |  | $    | 9,338  |      | $ | 4,977   |      |  | $ | 2,118   |  
|                                                        |  |      |        |      |   |         |      |  |   |         |  



A summary of the
differences between the Companys consolidated and combined effective tax rate and the United States statutory federal income tax rate is as follows:



|                                                              |  |       |   |  |        |    |  |       |   
|------------------------------------------------------------- |  | ----- | - |  | ------ | -- |  | ----- | --
|                                                              |  | 2004  |   |  | 2003   |    |  | 2002  |   
|U.S. statutory income tax rate                                |  | 35.0  | % |  | 35.0   | %  |  | 35.0  | % 
|State income tax, net of federal income tax benefit           |  | .8    |   |  | 11.0   |    |  | 2.5   |   
|Impact of foreign operations                                  |  | 2.8   |   |  | (21.3  | )  |  | (0.7  | ) 
|Nondeductible goodwill amortization and other permanent items |  | .3    |   |  | (8.9   | )  |  | (5.3  | ) 
|Valuation allowance                                           |  | (14.9 | ) |  | (174.9 | )  |  | (38.6 | ) 
|                                                              |  |       |   |  |        |    |  |       |   
|Effective tax rate                                            |  | 24.0  | % |  | (159.2 | )% |  | (7.1  | )%
|                                                              |  |       |   |  |        |    |  |       |   



Significant components
of the Companys deferred tax assets and liabilities are as follows:



|                                                          |  |      |         |   |      |   |         |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                          |  | 2004 |         |   | 2003 |  
|Intercompany and inventory related transactions           |  | $    | 8,082   |   |      | $ | 9,004   |  
|Pension benefits                                          |  |      | 3,415   |   |      |   | 3,220   |  
|Post-retirement benefits                                  |  |      | 0       |   |      |   | 639     |  
|Bad debts                                                 |  |      | 86      |   |      |   | 127     |  
|Restructuring                                             |  |      | 622     |   |      |   | 1,333   |  
|Net operating loss carryforwards                          |  |      | 19,131  |   |      |   | 23,030  |  
|Tax credits, including tax credits on unremitted earnings |  |      | 22,907  |   |      |   | 20,518  |  
|Depreciation                                              |  |      | 541     |   |      |   | (488    | )
|Other, net                                                |  |      | 5,278   |   |      |   | 4,451   |  
|                                                          |  |      |         |   |      |   |         |  
|                                                          |  |      | 60,062  |   |      |   | 61,834  |  
|Less: valuation allowance                                 |  |      | (53,495 | ) |      |   | (57,759 | )
|                                                          |  |      |         |   |      |   |         |  
|Net deferred tax asset                                    |  | $    | 6,567   |   |      | $ | 4,075   |  
|                                                          |  |      |         |   |      |   |         |  



F-18



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



At December 31, 2004, the Company has foreign tax credit carry-forwards of approximately $1,267 that
expire in 2011 to 2014, general business tax credits of $1,575 that expire in 2021 to 2024, and alternative minimum tax credits of $50 that have an unlimited carryover period. Net operating loss carry-forwards of $54,661 expire in 2021 to 2024.



The valuation allowance is primarily recorded against foreign
tax credits on unremitted earnings of the Companys foreign subsidiaries of $20,016, other tax credits of $2,891, and U.S. deferred tax assets of $30,587 primarily attributable to net operating losses. The decrease in valuation allowance during
2004 resulted primarily from tax benefits taken by the Company that relate to U.S. net operating losses for which no tax benefit had been previously taken. The valuation allowance and related U.S. deferred tax assets was also reduced by $2,642 to
account for certain post-separation net operating losses generated by the Company that are available for use by its former parent, Millipore. Under the terms of the tax sharing agreement with Millipore entered into in connection with our Separation
from Millipore, the Company is entitled to be paid for tax attributes utilized by Millipore. In the first quarter of 2004, the Company received a payment with respect to these tax attributes of $1,255 from Millipore. As a result, this payment was
recorded as an increase in additional paid-in capital included in stockholders equity. No receivable has been established for any remaining portion of these expunged attributes since the Company continues to review this matter with its former
parent. Upon any cash settlement in the future, the Company will record a similar adjustment to reflect the contribution to capital by Millipore.



The Company currently expects there will be sufficient pre-tax income during 2005 to realize deferred tax assets in these foreign subsidiaries. The
Company currently forecasts pre-tax income in the U.S. and in addition, has undertaken tax-planning initiatives designed to generate future U.S. taxable income however due to the early future period uncertainty, a full valuation remains on the U.S.
deferred tax assets at December 31, 2004. As future taxable income is generated in the U.S. against which these tax assets may be applied, some portion or all of the valuation allowance will be reversed and consequently an increase in net income
will be reported in future years.



At December 31, 2001, the
Company had a $9,000 income tax receivable related to net operating loss carrybacks determined on a separate return basis. In accordance with the tax sharing agreement, during the first quarter of 2002, Millipore decided not to allow the Company to
carryback these net-operating losses. As a result, the receivable was transferred to Millipore during the first quarter of 2002 and is reflected in the consolidated financial statements as a reduction to additional paid in capital included in
shareholders equity.



12.    Stock Plans



Equity Incentive Plan



During 2001, the Company adopted the 2001 Equity Incentive Plan (the
2001 Plan) which was approved by the Companys shareholder. The 2001 Plan provides for the issuance of stock-based and other incentive awards to selected employees, directors, and other persons (including both individuals and
entities) who provide services to the Company or its Affiliates. The Board of Directors determines the term of each option, option price, number of shares for which each option is granted, whether restrictions will be imposed on the shares subject
to options, and the rate at which each option is exercisable. The exercise price for incentive stock options may not be less than the fair market value per share of the underlying common stock on the date granted (110% of fair market value in the
case of holders of more than 10% of the voting stock of the Company). The 2001 Plan contains an evergreen provision, which increases the number of shares in the pool of options available for grant annually by 1% of the number of shares
of common stock outstanding on the date of the Annual Meeting of Stockholders or such lesser amount determined by the Board of Directors.



F-19



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



Prior to the Separation date and in prior years, certain employees of the Company were granted stock
options and restricted stock under Millipores stock-based compensation plan. The Millipore 1999 Stock Incentive Plan (the Millipore Plan) provided for the issuance of stock options and restricted stock to key employees as incentive
compensation. The exercise price of a stock option was equal to the fair market value of Millipores common stock on the date the option was granted and its term was generally ten years and vested over four years. Unvested stock options
outstanding under the Millipore Plan were converted to stock options of the Company at the Distribution. Effective February 28, 2002, these outstanding Millipore options were converted into options to purchase an aggregate of 2,914,313 shares of
Mykrolis common stock at a weighted average exercise price of $7.76 share. The conversion of these stock options was done in such a manner that (1) the aggregate intrinsic value of the options immediately before and after the exchange were the same,
(2) the ratio of the exercise price per option to the market value per option was not reduced, and (3) the vesting provisions and option period of the replacement Company options are the same as the original vesting terms and option period of the
Millipore options. None of these conversion options were issued from shares available for grant under the 2001 Plan.



The Millipore Plan also provided that the restricted stock, which was awarded to key members of senior management at no cost to them, could not be sold,
assigned, transferred or pledged during a restriction period which was normally four years but in some cases less. In most instances, shares were subject to forfeiture should employment terminate during the restriction period. The restricted stock
was recorded at its fair market value on the award date and the related deferred compensation was amortized to selling, general and administrative expenses over the restriction period. The allocated portion of compensation expense attributable to
the Companys employees was $595 in 2001. At December 31, 2001, the Companys employees held 26,182 shares of restricted stock. All of the restricted shares of Millipore held by the Companys employees vested on February 11, 2002.
This modification resulted in an additional compensation charge of $476 in 2002. During 2002, there was also an additional stock based compensation expense of $588 for the termination of two executives.



Employment Inducement and Acquisition Stock Option Plan



During 2003, the Company established the 2003 Employment Inducement and
Acquisition Stock Option Plan (the Employment Inducement Plan). The Employment Inducement Plan provides for the issuance of stock options and other stock-based awards to newly-hired employees and to employees of companies acquired by the
Company. The Employment Inducement Plan has a term of ten years. Options granted under the Employment Inducement Plan have a maximum term of ten years and an exercise price equal to the fair market value of the Companys common stock on the
date of grant. The Board of Directors determines other terms of option grants including, number of shares, restrictions and the vesting period. The Employment Inducement Plan reserves 350,000 shares of common stock. The number of reserved shares
automatically increases annually by 0.25% of the number of shares of common stock outstanding on the date of the Annual Meeting of Stockholders unless otherwise determined by the Board of Directors.



Employees Stock Purchase Plan



During 2001, the Company adopted the 2001 Employee Stock Purchase Plan
(ESPP) as approved by the Companys shareholders. The maximum number of shares which may be issued under the ESPP is 1,000,000 shares of authorized but unissued common stock. The ESPP allows eligible employees to purchase the stock
at 85% of the lesser of the fair market value of the common stock on the Offering Date of such Offering Period, or the fair market value of the shares on the Purchase Date applicable to the shares being purchased during such Offering Period.
Offering Periods consist of twenty-four month periods, commencing on April 1 and October 1



F-20



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



of each year and ending on the second March 31 and September 30, respectively, occurring thereafter. The first day of an Offering Period is the Offering
Date. Each Offering Period consists of four consecutive Purchase Periods of six month durations. The last day of each Purchase Period is the Purchase Date for such Purchase Period.



The ESPP also contained an initial transitional offering (the Initial Plan Offering) which commenced on November
1, 2001 and concluded on March 31, 2002. The Offering Date for the Initial Plan Offering was the first day of the Initial Offering Period and the single Purchase Date for the Initial Plan Offering was the last day of the Initial Offering Period. All
eligible employees were entitled to participate, and could purchase the stock at 85% of the lesser of the fair market value of the shares on the Offering Date of the Initial Plan Offering or the fair market value of the shares on the Purchase Date
of the Initial Plan Offering.



Effective December 9, 2004, the
ESPP was terminated but allowed for a one time shortened offering with a six month purchase period, an offering date of December 9, 2004 and a purchase date of June 9, 2005.



Each employee may purchase up to 10% (up to a maximum of $25,000) of eligible compensation. During the year ended December
31, 2004, 2003 and 2002, 143,473, 123,381 and 50,975 shares of common stock were issued under the ESPP, respectively.



Non-Employee Director Stock Option Plan



During 2001, the Company adopted the 2001 Non-Employee Director Stock Option Plan (the Directors Plan) as approved by the Companys
shareholders. The Directors Plan allows for the issuance of 250,000 shares of common stock. Under the Directors Plan, each Non-Employee Director who was in office prior to the initial public offering of the Companys common stock, was
automatically granted options to purchase 10,000 shares of common stock, unless such Non-Employee Director had previously received such a grant prior to the date of the initial public offering. Each newly elected eligible director is granted options
to purchase 15,000 shares of common stock on the date of his or her first election. Following the initial grant, each director is automatically awarded options to purchase 10,000 shares of common stock for each subsequent year of service as a
director. The exercise price of the stock options may not be less than the fair market value of the stock at the date of grant.



During 2002 this plan was amended to increase the number of granted options each newly elected eligible director receives on the date of his or her first
election from 10,000 in 2001 to 15,000. In addition, the number of options automatically awarded for each subsequent year of service as a director was increased from 5,000 in 2001 to 10,000.



Shareholder Rights Plan



The Board of Directors of the Company adopted a shareholder rights plan (the
Rights Plan) pursuant to which the Company declared a dividend on November 29, 2001 to its shareholders of record on December 31, 2001 of the right to purchase (a Right) one additional share of the Companys common stock
for each share of common stock owned, at a price of $130.00 for each share. The Rights Plan is designed to protect shareholders from attempts by others to acquire the Company on terms or by using tactics that could deny all shareholders the
opportunity to realize the full value of their investment. The Rights are attached to the shares of our common stock until certain triggering events occur. The Rights authorize the holders to purchase shares of our common stock at a 50% discount
from market value upon the occurrence of specified triggering events, including, unless approved by the board of directors, an acquisition by a person or group of specified levels of beneficial



F-21



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



ownership of the Companys common stock or a tender offer for the Companys common stock. The common stock purchase rights are redeemable by us for
$0.01 and will expire in March of 2011. One of the events which will trigger the common stock purchase rights is the acquisition, or commencement of a tender offer, by a person (an Acquiring Person, as defined in the shareholder rights plan), other
than the Company or any subsidiaries of the Company or employee benefit plans, of 15% or more of the outstanding shares of our common stock. An acquiring person may not exercise a common stock purchase right. Until the Distribution of our shares,
Millipore was excluded from the definition of acquiring person.



Restricted Stock Awards and Performance Based Restricted Stock Awards



Restricted stock awards are grants that entitle the holder to shares of common stock as the award vests. During fiscal 2004, 506,254 stock awards with a weighted-average fair value of $12.67 per share were
granted and generally vest ratably over the three to four years. As of December 31, 2004, none of these stock awards are vested.



In 2004, performance based stock awards for the performance period ending December 30, 2005 were granted in the aggregate amount of 106,950 shares with a
weighted average fair value of $12.79 per share. None of these shared performance stock awards were vested at December 31, 2004. Performance based restricted stock awards are a form of stock award in which the vesting of shares received depends on
performance against specified performance targets. The performance period is January 1, 2005 through December 31, 2005. At the end of the performance period, if the performance metrics are met, the entire stock award will vest equally over three
years. If the performance metrics fall below target (i.e. budget), 50% of the award will vest equally over three years and 50% at the end of four years. If the performance metrics fall below threshold (i.e. below budget but above a defined minimum
level), the whole award will vest at the end of four years. The performance metrics established for the performance period will be determined by the Board of Directors or a committee of the Board in its sole discretion. Shares of stock will be
issued as the stock awards vest ratably over the following three to four years.



Restricted stock awards and performance based restricted stock awards are amortized over three to four years using the straight line method. During 2004, $153 was recorded as compensation expense associated with these
awards. For purposes of calculating compensation expense associated with the performance based restricted stock awards, a four year vesting period has been assumed. In the event that the above described performance criteria is achieved during 2005,
these awards will vest over a shorter period as described above and future compensation expense will be accelerated accordingly.



F-22



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



Activity under the Companys plans:



|                                                       |  |            |   |  |              |              |                                |   |      
|------------------------------------------------------ |  | ---------- | - |  | ------------ | ------------ | ------------------------------ | - | -----
|                                                       |  | Shares     |   |  | Option Price |              | Weighted AverageExercise Price
|Options outstanding at January 1, 2002                 |  | 4,162,451  |   |  | $            | 9.10-$15.00  |                                | $ | 12.93
|Options granted                                        |  | 4,728,507  |   |  | $            | 5.20-$15.16  |                                | $ | 7.60 
|Options exercised                                      |  | (132,950   | ) |  | $            | 5.33-$15.00  |                                | $ | 9.77 
|Options expired                                        |  | (8,340     | ) |  | $            | 11.60-$15.00 |                                | $ | 12.75
|Options canceled                                       |  | (733,293   | ) |  | $            | 5.33-$15.16  |                                | $ | 11.49
|                                                       |  |            |   |  |              |              |                                |   |      
|Options outstanding at December 31, 2002               |  | 8,016,375  |   |  | $            | 5.20-$15.16  |                                | $ | 9.97 
|                                                       |  |            |   |  |              |              |                                |   |      
|Options exercisable at December 31, 2002               |  | 2,642,537  |   |  |              |              |                                |   |      
|Shares available for future grant at December 31, 2002 |  | 1,231,102  |   |  |              |              |                                |   |      
|                                                       |  |            |  
|Options outstanding at January 1, 2003                 |  | 8,016,375  |   |  | $            | 5.20-$15.16  |                                | $ | 9.97 
|Options granted                                        |  | 1,406,989  |   |  | $            | 6.97-$15.46  |                                | $ | 14.82
|Options exercised                                      |  | (468,411   | ) |  | $            | 5.33-$15.00  |                                | $ | 10.48
|Options expired                                        |  | (227,717   | ) |  | $            | 5.33-$15.00  |                                | $ | 12.12
|Options canceled                                       |  | (331,348   | ) |  | $            | 5.98-$15.00  |                                | $ | 10.66
|                                                       |  |            |   |  |              |              |                                |   |      
|Options outstanding at December 31, 2003               |  | 8,395,888  |   |  | $            | 5.20-$15.46  |                                | $ | 10.67
|                                                       |  |            |   |  |              |              |                                |   |      
|Options exercisable at December 31, 2003               |  | 3,907,498  |   |  |              |              |                                |   |      
|Shares available for future grant at December 31, 2003 |  | 1,046,704  |   |  |              |              |                                |   |      
|                                                       |  |            |  
|Options outstanding at January 1, 2004                 |  | 8,395,888  |   |  | $            | 5.20-$15.46  |                                | $ | 10.67
|Options granted                                        |  | 619,500    |   |  | $            | 9.88-$16.65  |                                | $ | 12.63
|Options exercised                                      |  | (1,158,582 | ) |  | $            | 5.20-$15.00  |                                | $ | 8.50 
|Options expired                                        |  | (91,862    | ) |  | $            | 5.98-$15.00  |                                | $ | 11.45
|Options canceled                                       |  | (333,228   | ) |  | $            | 5.98-$15.46  |                                | $ | 11.87
|                                                       |  |            |   |  |              |              |                                |   |      
|Options outstanding at December 31, 2004               |  | 7,431,716  |   |  | $            | 5.33-$16.65  |                                | $ | 11.10
|                                                       |  |            |   |  |              |              |                                |   |      
|Options Exercisable at December 31, 2004               |  | 5,787,982  |   |  |              |              |                                |   |      
|Shares available for future grant at December 31, 2004 |  | 734,703    |   |  |              |              |                                |   |      



The following table
summarizes information about stock options at December 31, 2004:



|                         |  |                     |  |                                         |  |                                |       |             |           |                                |   |      
|------------------------ |  | ------------------- |  | --------------------------------------- |  | ------------------------------ | ----- | ----------- | --------- | ------------------------------ | - | -----
|                         |  | Options Outstanding |  |                                         |  | Options Exercisable           
|Range of Exercise Prices |  | Outstanding         |  | Weighted AverageRemaining Life in Years |  | Weighted AverageExercise Price |       | Exercisable |           | Weighted AverageExercise Price
|$5.33-$7.87              |  | 1,876,471           |  | 4.9                                     |  | $                              | 6.64  |             | 1,159,096 |                                | $ | 6.53 
|$8.00-$11.60             |  | 2,816,981           |  | 5.3                                     |  | $                              | 10.20 |             | 2,009,706 |                                | $ | 9.69 
|$12.79-$16.65            |  | 2,738,264           |  | 4.8                                     |  | $                              | 15.11 |             | 2,619,180 |                                | $ | 15.12
|                         |  |                     |  |                                         |  |                                |       |             |           |                                |   |      
|$5.33-$16.65             |  | 7,431,716           |  | 5.1                                     |  | $                              | 11.10 |             | 5,787,982 |                                | $ | 11.51
|                         |  |                     |  |                                         |  |                                |       |             |           |                                |   |      



F-23



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



13.    Employee Retirement Plans



At the Distribution date, the Company assumed responsibility for certain of
the pension benefits and the other post-retirement benefits for employees whose last work assignment prior to the Distribution was with the Company. These employees are collectively referred to as Mykrolis Employees. The pension
liabilities that have been assumed by the Company and the liabilities related to the other post-retirement benefits as well as the related expenses have been reflected in the consolidated financial statements for all years presented.



Savings and Investment Plan and Participation Plan



The majority of the Companys U.S. employees are covered under the
Mykrolis Corporation Savings and Investment Plan (the Savings and Investment Plan), that was adopted by the Company in March 2001. The Savings and Investment Plan allows employees to make certain tax-deferred voluntary contributions upon
hire date. Mykrolis currently matches 50% of participant contributions, up to a maximum of 6% of the participants compensation. Millipore had a similar plan prior to the Separation date where Millipore matched 25% of certain tax-deferred
voluntary contributions after one year of service. The Savings and Investment Plan also has a profit sharing component whereby Mykrolis can make a discretionary contribution based on the Companys performance.



The total combined expenses under the Savings and Investment Plan and
Participation Plan was $3,231 in 2004, $2,676 in 2003, and $2,407 in 2002.



Supplemental Savings and Retirement Plan



Mykrolis offers a Supplemental Savings and Retirement Plan (the Supplemental Plan) to certain senior executives that allows certain salary deferral benefits that would otherwise be lost by reason of
restrictions imposed by the Internal Revenue Code limiting the amount of compensation which may be deferred under tax-qualified plans. The liabilities related to these rights are reflected in the consolidated balance sheets. During the years ended
December 31, 2004, 2003 and 2002, the Companys expense was $83, $23 and $20, respectively.



Japan Retirement and U.S. Post-Retirement Benefit Plans



The employees of the Companys subsidiary in Japan (Nihon Mykrolis) are covered in a defined benefit pension plan. Additionally,
substantially all the Companys U.S. employees were covered under several unfunded defined benefit post-retirement benefit plans. The plans provide medical and life insurance benefits and were, depending on the plan, either contributory or
non-contributory. During the third quarter of 2004, Mykrolis terminated certain unfunded post-retirement medical benefits offered to U.S. retirees. The termination of these benefits resulted in a settlement gain of $805 and a curtailment gain of
$1,171 both of which are recorded as a reduction of selling, general and administration expenses for 2004. This resulted from the reversal of the liabilities associated with these benefits of $1,976.



F-24



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



The tables below set forth the estimated net periodic cost and funded status of the Nihon Mykrolis
Pension Plan and the U.S. Post-Retirement Benefit Plans.



|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|---------------------------------------------- |  | -------------------------- | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | -
|                                               |  | Nihon MykrolisPension Plan |        |   | U.S. Post-RetirementBenefits |  
|                                               |  | 2004                       |        |   | 2003                         |   |        | 2003 | 
|Change in benefit obligation:                  |  |                            |        |   |                              |   |        |      |  |   |        |  
|Benefit obligation at beginning of year        |  | $                          | 11,610 |   |                              | $ | 9,360  |      |  | $ | 1,506  |  
|Service cost                                   |  |                            | 888    |   |                              |   | 790    |      |  |   | 127    |  
|Interest cost                                  |  |                            | 216    |   |                              |   | 241    |      |  |   | 60     |  
|Actuarial loss (gain)                          |  |                            | 719    |   |                              |   | 588    |      |  |   | (670   | )
|Foreign exchange impact                        |  |                            | 462    |   |                              |   | 1,114  |      |  |   | N/A    |  
|Benefits paid                                  |  |                            | (1,371 | ) |                              |   | (483   | )    |  |   |       |  
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|Benefit obligation at end of year              |  | $                          | 12,524 |   |                              | $ | 11,610 |      |  | $ | 1,023  |  
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|Change in plan assets:                         |  |                            |        |   |                              |   |        |      |  |   |        |  
|Fair value of plan assets at beginning of year |  | $                          | 2,467  |   |                              | $ | 2,133  |      |  |   | N/A    |  
|Actual return on plan assets                   |  |                            | 7      |   |                              |   | (5     | )    |  |   | N/A    |  
|Company contributions                          |  |                            | 294    |   |                              |   | 99     |      |  |   | N/A    |  
|Foreign exchange impact                        |  |                            | 104    |   |                              |   | 240    |      |  |   | N/A    |  
|Settlements                                    |  |                            | (49    | ) |                              |   |        |      |  |   |        |  
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|Fair value of plan assets at end of year       |  | $                          | 2,823  |   |                              | $ | 2,467  |      |  |   | N/A    |  
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|Funded status                                  |  | $                          | (9,701 | ) |                              | $ | (9,143 | )    |  | $ | (1,023 | )
|Unrecognized net loss (gain)                   |  |                            | 2,200  |   |                              |   | 1,662  |      |  |   | (805   | )
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  
|Accrued benefit cost                           |  | $                          | (7,501 | ) |                              | $ | (7,481 | )    |  | $ | (1,828 | )
|                                               |  |                            |        |   |                              |   |        |      |  |   |        |  



Amounts recognized in
the statement of financial position consist of:



|                                     |  |                            |        |   |                              |   |        |      |  |   |        |  
|------------------------------------ |  | -------------------------- | ------ | - | ---------------------------- | - | ------ | ---- |  | - | ------ | -
|                                     |  | Nihon MykrolisPension Plan |        |   | U.S. Post-RetirementBenefits |  
|                                     |  | 2004                       |        |   | 2003                         |   |        | 2003 | 
|Prepaid benefit cost                 |  | $                          |       |   |                              | $ |       |      |  | $ |       |  
|Accrued benefit cost                 |  |                            | (8,143 | ) |                              |   | (7,702 | )    |  |   | (1,828 | )
|Accumulated other comprehensive loss |  |                            | 642    |   |                              |   | 221    |      |  |   |       |  
|                                     |  |                            |        |   |                              |   |        |      |  |   |        |  
|Net amount recognized                |  |                            | (7,501 | ) |                              |   | (7,481 | )    |  |   | (1,828 | )
|                                     |  |                            |        |   |                              |   |        |      |  |   |        |  



F-25



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



The accumulated benefit obligation for the Companys pension plan was $10,966 and $10,169 at
December 31, 2004 and 2003, respectively.



|                                         |  |                            |       |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  
|---------------------------------------- |  | -------------------------- | ----- | - | ---------------------------- | - | ----- | ---- |  | - | ---- | - |  | ---- | --- | - |  | - | --- | -
|                                         |  | Nihon MykrolisPension Plan |       |   | U.S. Post-RetirementBenefits |  
|                                         |  | 2004                       |       |   | 2003                         |   |       | 2002 |  |   | 2003 |   |  | 2002 |    
|Components of net periodic benefit cost: |  |                            |       |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  
|Service cost                             |  | $                          | 888   |   |                              | $ | 790   |      |  | $ | 722  |   |  | $    | 127 |   |  | $ | 204 |  
|Interest cost                            |  |                            | 216   |   |                              |   | 241   |      |  |   | 204  |   |  |      | 60  |   |  |   | 76  |  
|Expected return on plan assets           |  |                            | (18   | ) |                              |   | (16   | )    |  |   | (14  | ) |  |      | N/A |   |  |   | N/A |  
|Amortization of unrecognized gain        |  |                            |      |   |                              |   |      |      |  |   |     |   |  |      | (42 | ) |  |   | (11 | )
|Recognized actuarial loss                |  |                            | 36    |   |                              |   |      |      |  |   | 13   |   |  |      |    |   |  |   |    |  
|SFAS 88 settlement loss                  |  |                            | 241   |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  
|                                         |  |                            |       |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  
|Net periodic benefit cost                |  |                            | 1,363 |   |                              |   | 1,015 |      |  |   | 925  |   |  |      | 145 |   |  |   | 269 |  
|Curtailment cost                         |  |                            |      |   |                              |   |      |      |  |   |     |   |  |      |    |   |  |   |    |  
|                                         |  |                            |       |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  
|Total benefit cost (income)              |  | $                          | 1,363 |   |                              | $ | 1,015 |      |  | $ | 925  |   |  | $    | 145 |   |  | $ | 269 |  
|                                         |  |                            |       |   |                              |   |       |      |  |   |      |   |  |      |     |   |  |   |     |  



|                                                                     |  |                            |     |                              |   |      |  |  
|-------------------------------------------------------------------- |  | -------------------------- | --- | ---------------------------- | - | ---- |  | -
|                                                                     |  | Nihon MykrolisPension Plan |     | U.S. Post-RetirementBenefits
|                                                                     |  | 2004                       |     | 2003                         |   | 2003
|Increase in minimum liability included in other comprehensive income |  | $                          | 412 |                              | $ | 221  |  | 



Assumptions:



|                                                                                                      |  |                            |   |  |                              |   |  |      |  
|----------------------------------------------------------------------------------------------------- |  | -------------------------- | - |  | ---------------------------- | - |  | ---- | -
|                                                                                                      |  | Nihon MykrolisPension Plan |   |  | U.S. Post-RetirementBenefits |  
|                                                                                                      |  | 2004                       |   |  | 2003                         |   |  | 2003 |  
|Weighted average assumptions used to determine benefit obligations at December 31:                    |  |                            |   |  |                              |   |  |      |  
|Discount rate                                                                                         |  | 1.86                       | % |  | 1.87                         | % |  | 6.25 | %
|Rate of compensation increase                                                                         |  | 2.00                       | % |  | 2.00                         | % |  | N/A  |  
|Weighted average assumptions used to determine net periodic benefit cost for years ended December 31: |  |                            |   |  |                              |   |  |      |  
|Discount rate                                                                                         |  | 1.87                       | % |  | 1.87                         | % |  | 6.50 | %
|Expected return on plan assets                                                                        |  | 0.75                       | % |  | 0.75                         | % |  | N/A  |  
|Rate of compensation increase                                                                         |  | 2.00                       | % |  | 2.00                         | % |  | N/A  |  



|                                                        |  |                              |  
|------------------------------------------------------- |  | ---------------------------- | -
|                                                        |  | U.S. Post-RetirementBenefits |  
|                                                        |  | 2003                         |  
|Assumed health care cost trend rates at December 31:    |  |                              |  
|Health care cost trend rate assumed for next year       |  | 8.0                          | %
|Rate to which the cost trend rate is assumed to decline |  | 5.0                          | %
|Year that the rate reaches the ultimate trend rate      |  | 2009                         |  



Plan Assets



At December 31, 2004 and 2003, the Companys
pension plan assets were invested in a Japanese insurance companys guaranteed-return fixed income securities. There is interest rate risk associated with the valuation of



F-26



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



these investments. The long-term rate of return on Japanese pension plan assets was developed through an analysis of historical returns and the funds
current guaranteed return rate. Estimates of future returns are based on a continuation of the existing guaranteed rate of return.



Cash Flows



Contributions



During 2005, the Company expects to contribute $374 to its defined benefit pension plan in Japan.



Estimated Future Benefit Payments



The following benefit payments, which reflect expected future service, as
appropriate, are expected to be paid:



|                |  |                  |      
|--------------- |  | ---------------- | -----
|                |  | Pension Benefits
|2005            |  | $                | 116  
|2006            |  |                  | 179  
|2007            |  |                  | 636  
|2008            |  |                  | 842  
|2009            |  |                  | 469  
|Years 2010-2014 |  |                  | 2,025



14.    Segment
Information



The Company has one reportable segment that
develops, manufactures and sells consumables and capital equipment to semiconductor fabrication companies and other companies using similar manufacturing processes, as well as OEM suppliers to those companies. The Company also provides warranty and
repair services to customers in this segment. The Companys products include consumable products and equipment products that are used in the manufacture of semiconductors and other high precision electronic devices. Consumable products,
including service revenue, accounted for 69%, 71% and 65%, of revenues for the years ended December 31, 2004, 2003 and 2002 respectively, and equipment products accounted for 31%, 29% and 35%, respectively, for these same periods. The Companys
products are sold worldwide through a direct sales force and through distributors in selected regions.



Geographical Information:



The Company attributes net sales and long-lived assets to different geographic areas on the basis of the location of the customer. Net sales for each of
the years ended December 31, 2004, 2003 and 2002 along with long-lived asset information as of December 31, 2003 and 2002 by geographic area in U.S. dollars are presented as follows:



|              |  |                         |         |      |   |         |  |   |        
|------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Net Sales              
|              |  | Year Ended December 31,
|              |  | 2004                    |         | 2003 |   | 2002   
|North America |  | $                       | 76,391  |      | $ | 49,280  |  | $ | 55,344 
|Japan         |  |                         | 107,808 |      |   | 67,511  |  |   | 63,323 
|Taiwan        |  |                         | 40,176  |      |   | 24,403  |  |   | 20,746 
|AsiaOther    |  |                         | 37,355  |      |   | 25,962  |  |   | 21,057 
|Europe        |  |                         | 27,500  |      |   | 18,742  |  |   | 17,979 
|              |  |                         |         |      |   |         |  |   |        
|Total         |  | $                       | 289,230 |      | $ | 185,898 |  | $ | 178,449
|              |  |                         |         |      |   |         |  |   |        



F-27



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



|              |  |                   |        |      |   |       
|------------- |  | ----------------- | ------ | ---- | - | ------
|              |  | Long-Lived Assets
|              |  | 2004              |        | 2003
|North America |  | $                 | 79,421 |      | $ | 76,163
|Japan         |  |                   | 17,908 |      |   | 18,397
|Asia          |  |                   | 979    |      |   | 1,038 
|Europe        |  |                   | 271    |      |   | 374   
|              |  |                   |        |      |   |       
|Total         |  | $                 | 98,579 |      | $ | 95,972
|              |  |                   |        |      |   |       



A reconciliation of
the Companys long lived assets to the consolidated balance sheets as of December 31, 2004 and 2003 is as follows:



|                               |  |      |         |      |   |        
|------------------------------ |  | ---- | ------- | ---- | - | -------
|                               |  | 2004 |         | 2003
|Long-lived assets by geography |  | $    | 98,579  |      | $ | 95,972 
|Current assets                 |  |      | 239,055 |      |   | 162,362
|Marketable securities          |  |      |        |      |   | 14,266 
|Restricted cash                |  |      | 1,502   |      |   | 1,782  
|Deferred income taxes          |  |      | 5,050   |      |   | 3,411  
|Other assets                   |  |      | 6,782   |      |   | 5,962  
|                               |  |      |         |      |   |        
|Total assets                   |  | $    | 350,968 |      | $ | 283,755
|                               |  |      |         |      |   |        



15.    Significant Customers and Concentration of Risk



Historically, the Company has relied on a limited number of customers for a substantial portion of its net sales. During the fiscal years ended December 31, 2004, 2003 and 2002 revenues from one customer represented
14%, 11% and 13%, respectively of total net sales. Accounts receivable for this customer was $8,197, $5,713 and $3,843 at December 31, 2004, 2003 and 2002, respectively. There were no other customers that accounted for more than 10% of revenues or
accounts receivable during any of these years.



16.    Related Party Transactions



Transactions with Millipore



For purposes of
governing certain of the ongoing relationships between the Company and Millipore at and after the Separation and to provide for an orderly transition, the Company and Millipore entered into various agreements at the Separation date. A brief
description of each of the agreements follows.



Master
Separation and Distribution Agreement



The separation
agreement contains the key provisions relating to the Separation, the Companys initial funding, initial public offering and the Distribution. The agreement lists the documents and items that the parties delivered in order to accomplish the
transfer of assets and liabilities from Millipore to the Company, effective on the Separation date. The parties also entered into ongoing covenants that survive the transactions, including covenants to establish interim service level agreements,
exchange information, notify each other of changes in their accounting principles and resolve disputes in particular ways.



General Assignment and Assumption Agreement



The General Assignment and Assumption Agreement identifies the assets that Millipore transferred to the Company and the liabilities that the Company
assumed from Millipore in the Separation. In general, the assets



F-28



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



transferred and the liabilities assumed are those that appear on the consolidated balance sheet, after adjustment for certain assets and liabilities that
were retained by Millipore and for activity that occurs between the balance sheet date and the Separation.



Master Transitional Services Agreement



The Master Transitional Services Agreement governs the terms and conditions upon which interim transitional services are provided to each of the Company
and Millipore. These services include facilities, engineering, information technology, equipment usage, financial accounting, distribution and warehousing and human resources administration. The Company and Millipore will also provide each other
additional services as the Company and Millipore may identify from time to time after the Separation. Specific charges for such services are generally intended to allow the Company providing the service to recover direct costs plus expenses, without
profit.



Membrane Manufacture and Supply Agreement



The Membrane Manufacture and Supply Agreement enables the
Company to manufacture certain membranes in the same production areas and with the same processes as were available to the Company prior to the Separation for both its own use and sale. Under the agreement, Millipore leases this space and
manufacturing equipment to the Company for five years. This agreement also provides for the supply of certain membranes manufactured by either the Company or Millipore to the other party at costs appropriate to that of a third party contract
manufacturer.



Product Distribution Agreement



The Company and Millipore have historically sold products
of the other company within their respective fields of use. The Product Distribution Agreement allows each company to purchase products from the other company at prices representing discounts off published list prices.



Research Agreement



The Research Agreement defines specific research projects that Millipore
will perform for the Company on a contract basis and the process for conducting such research.



Contract Manufacturing Agreements



The Millipore Contract Manufacturing Agreement provides for Millipore to manufacture certain products for resale by the Company at prices subject to annual increases equal to actual increases in Millipores cost
to manufacture these products. There are no minimum or maximum purchase requirements, subject to binding three-month forecasts that may increase or decrease by 25% without penalty. The Company may not resell these products into Millipores
biopharmaceutical business. This agreement has a term of five years, unless terminated by the Company on sixty days prior written notice. The Company has also agreed to manufacture parts for Millipore for use in Millipores products on
substantially similar terms pursuant to the Mykrolis Contract Manufacturing Agreement.



Tax Sharing Agreement



The Company and Millipore entered into a Tax Sharing Agreement, which governs the Companys and Millipores respective rights, responsibilities and obligations after the Distribution with respect to taxes for the



F-29



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



periods ending on or before the Distribution. In addition, the Tax Sharing Agreement provides a basis to allocate any liability for taxes that are incurred
as a result of the restructuring activities undertaken to implement the Separation. If the Distribution fails to qualify as a tax-free distribution under Section 355 of the Internal Revenue Code because of the acquisition of the Companys stock
or assets, or some other actions of the Company, then the Company will be solely liable for any resulting corporate taxes. Under the Tax Sharing Agreement, Millipore is required to indemnify the Company for any loss in tax attributes resulting from
Millipores use in connection with its filing of consolidated group returns for pre-distribution periods. However, the Company is responsible for tax liabilities of Millipore foreign subsidiaries that were transferred to the Company in the
Separation for periods prior to the Separation.



Intellectual Property Agreements



Under the
intellectual property agreements, Millipore transferred to the Company its rights in specified patents, specified trademarks and other intellectual property related to the Companys current business and research and development efforts.
Millipore and the Company will each license the other under selected patents and other intellectual property the right to use those patents and other intellectual property in their respective businesses, subject to field of use restrictions.
Millipore and the Company each have an option, exercisable within the first five years of the agreements, to be licensed under specified patents of the other issued on patent applications with effective filing dates before the Separation date,
subject to field of use restrictions and the payment of a royalty. The Company was also assigned know-how that is used in the manufacture of its products as of the Separation date. The agreements include certain rights to sublicense for both
parties. The Company is licensed to use the Millipore trademark for up to three years with certain field of use limitations.



Royalty Agreement



During 2001, Mykrolis entered into a royalty agreement with Nihon Millipore, which provides Nihon Millipore the right to use certain intellectual property
that was developed by Mykrolis in connection with the bioscience business. As a result of this agreement, $358, $ 535 and $553 in royalty income from Millipore was recognized and recorded in other income (expense), net for the years ended December
31, 2004, 2003 and 2002, respectively. Millipore discontinued usage of distribution and research and development services in Japan and vacated the Japanese manufacturing site in late 2004, therefore, intellectual property royalty income ceased in
the fourth quarter of 2004.



Income and expenses



For the years ended December 31, 2004, 2003 and 2002 the
Company purchased products from Millipore for inclusion in its products sold to third parties totaling $3,986, $3,016 and $ 2,717 respectively. Products sold to Millipore totaled $1,308, $1,587 and $2,010 for the years ended December 31, 2004, 2003
and 2002, respectively.



For the years ended December 31, 2004,
2003 and 2002 services purchased under the transition service agreements between Millipore and the Company are as follows.



|                                    |  |                             |       |                             |   |                             |  |   |      
|----------------------------------- |  | --------------------------- | ----- | --------------------------- | - | --------------------------- |  | - | -----
|Purchased costs                     |  | Year endedDecember 31, 2004 |       | Year endedDecember 31, 2003 |   | Year endedDecember 31, 2002
|Cost of sales                       |  | $                           | 2,815 |                             | $ | 1,986                       |  | $ | 3,884
|Selling, general and administrative |  |                             |      |                             |   | 796                         |  |   | 3,126
|Research and development            |  |                             | 94    |                             |   | 205                         |  |   | 642  
|                                    |  |                             |       |                             |   |                             |  |   |      
|Total                               |  | $                           | 2,909 |                             | $ | 2,987                       |  | $ | 7,652
|                                    |  |                             |       |                             |   |                             |  |   |      



F-30



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



For the year ended December 31, 2004, 2003 and 2002, services provided to Millipore related to
manufacturing, distribution, research and development and management are presented below. Also included in the table below is sublease income from Millipore for manufacturing space they occupy in the Companys Yonezawa, Japan facility of $758,
$758 and $704 for the years ended December 31, 2004, 2003 and 2002, respectively. These costs provided to Millipore are reductions to operating expenses in the Companys consolidated financial statements. Millipore discontinued usage of our
distribution and research and development services in Japan and vacated the Japanese manufacturing site in the fourth quarter of 2004.



|                                    |  |                             |     |                             |   |                             |  |   |      
|----------------------------------- |  | --------------------------- | --- | --------------------------- | - | --------------------------- |  | - | -----
|Costs provided                      |  | Year endedDecember 31, 2004 |     | Year endedDecember 31, 2003 |   | Year endedDecember 31, 2002
|Cost of sales                       |  | $                           | 172 |                             | $ | 479                         |  | $ | 870  
|Selling, general and administrative |  |                             | 634 |                             |   | 817                         |  |   | 880  
|Research and development            |  |                             |    |                             |   |                            |  |   |     
|                                    |  |                             |     |                             |   |                             |  |   |      
|Total                               |  | $                           | 806 |                             | $ | 1,296                       |  | $ | 1,750
|                                    |  |                             |     |                             |   |                             |  |   |      



Net Transfers
To/From Millipore Corporation



After the Separation from
Millipore, any changes to the Companys April 1, 2001 balance sheet were made through additional paid in capital included in shareholders equity. During 2002, these transfers primarily consist of the $9,000 income tax receivable described
in Note 11 above as well as fixed asset adjustments. In addition, during 2004, Millipore notified the Company that certain of the Companys U.S. tax attributes were utilized in connection with Millipores consolidated tax return filings
for periods between the Separation and the Distribution Date. Under the terms of the tax sharing agreement with Millipore in connection with the Separation, the Company is entitled to be paid for tax attributes utilized by Millipore. On March 5,
2004, the Company received a payment with respect to these tax attributes of $1,255 from Millipore. As a result, this payment was recorded as an increase in additional paid-in capital included in stockholders equity.



17.    Commitments and Contingencies



Leases



The Companys capital and operating lease agreements cover sales offices, manufacturing, vehicle, information
technology equipment and warehouse space. These leases have expiration dates through 2014. Certain land and building leases contain renewal options for periods ranging from one to five years and purchase options at fair market value. During 2003,
the Company exited its San Clemente, CA manufacturing facility as part of the 2002 restructuring decision to discontinue the manufacturing of certain gas products. During the fourth quarter of 2003, the Company assumed certain liabilities of
Aeronex, Inc.; which included the assignment of two facility leases in San Diego, CA. During 2002, the Company entered into a 12year lease for its new corporate headquarters, research and development and manufacturing facility. Annual rental
payments under the lease are $2,451 for the first six years and $2,801 for the remaining six years plus basic operating costs and real estate taxes. Upon execution of the lease, the Company was required to issue an irrevocable standby letter of
credit in the initial amount of $1,000 to be reduced by $125 on each of the first six anniversaries of commencement of the lease. This lease also provides the Company with two 5year renewal options at market rent. Under the lease terms
relating to the vacated Bedford, Massachusetts facility, the Company has an option to purchase the facility at fair market value between June 2005 and November 2005, the expiration date of the lease, and the lessor has the option to sell the
facility to the Company at 90% of the then current fair market value prior to November 30, 2005. If the lessor should exercise this option, the Company would be required to purchase this



F-31



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



facility within twelve months following the date of exercise. Rental expense was $8,365 in 2004, $8,434 in 2003 and $8,738 in 2002. The 2004, 2003 and 2002
rental expense includes $324, $280 and $1,164 respectively, of transitional service agreement costs associated with the sharing of space owned by Millipore. The Company leased space in its Tokyo, Japan office to Millipore for research and
development activities until late 2004. Millipore leases space in Bedford, MA to the Company for the manufacturing of membrane which continues to March 2006. At December 31, 2004, future minimum rents payable under non-cancelable leases with initial
terms exceeding one year were as follows:



|                                            |  |               |    |   |                 |   |       
|------------------------------------------- |  | ------------- | -- | - | --------------- | - | ------
|Fiscal Year                                 |  | CapitalLeases |    |   | OperatingLeases
|2005                                        |  | $             | 55 |   |                 | $ | 8,961 
|2006                                        |  |               |   |   |                 |   | 6,216 
|2007                                        |  |               |   |   |                 |   | 4,396 
|2008                                        |  |               |   |   |                 |   | 3,194 
|2009                                        |  |               |   |   |                 |   | 2,599 
|Thereafter                                  |  |               |   |   |                 |   | 11,017
|                                            |  |               |    |   |                 |   |       
|Total minimum lease payments                |  |               | 55 |   |                 | $ | 36,383
|                                            |  |               |    |   |                 |   |       
|Less: amounts representing interest         |  |               | (1 | ) |                 |   |       
|                                            |  |               |    |   |                 |   |       
|Present value of net minimum lease payments |  | $             | 54 |   |                 |   |       
|                                            |  |               |    |   |                 |   |       



The Company has
several sublease agreements that relate primarily to excess facilities exited under various restructuring programs. As of December 31, 2004, future non-cancelable sublease rentals to be received under non-cancelable subleases are as follows: $1,419
during 2005, $27 during 2006, $27 during 2007 and $16 during 2008. There are no subleases extending beyond 2008.



Legal Proceedings



On March 3, 2003 the Company filed a lawsuit against Pall Corporation in the United States District Court for the District of Massachusetts alleging
infringement of two of the Companys U.S. patents by a fluid separation device known as the Pall Photo Kleen EZD-2 filter assembly manufactured and sold by the defendant. The Companys lawsuit also sought a preliminary injunction
preventing the defendant from the manufacture, use, sale, offer for sale or importation into the U.S. of the infringing product. On March 24, 2003 defendant filed an answer denying that its fluid separation device infringed the Companys
patents; defendant also filed a counterclaim seeking a dismissal of the Companys lawsuit, a decree that the Companys patents are invalid and/or not infringed and costs incurred in conducting the litigation. On April 30, 2004, the Court
issued a preliminary injunction against Pall Corporation and ordered Pall to immediately stop making, using, selling, or offering to sell within the U.S., or importing into the U.S., its PhotoKleen EZD-2 Filter Assembly products or any
colorable imitation of those products. On June 21, 2004, the Company filed a motion with the Court to hold Pall Corporation in contempt of court for failing to comply with the terms of the preliminary injunction. Subsequently, Pall filed a
motion to dissolve the preliminary injunction based on two Japanese publications that it alleged raised questions as to the validity of the companys patents. On January 18, 2005, the United States District Court of Massachusetts issued an
order holding Pall Corporation in contempt of court for the violation of the preliminary injunction and ordering Pall to disgorge all profits earned from the sale of its PhotoKleen EZD-2 Filter Assembly products and colorable imitations thereof from
the date the preliminary injunction was issued through January 12, 2005. In addition, Pall was also ordered to reimburse Mykrolis for certain of its attorneys fees associated with the contempt and related proceedings. The Courts order
also dissolved the preliminary



F-32



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



injunction, effective January 12, 2005. On February 17, 2005, the Company filed notice of appeal to the U.S. Circuit Court of Appeals for the Federal Circuit
appealing the portion of the Courts order that dissolved the preliminary injunction Pall filed a notice of appeal to that court with respect to the finding of contempt.



The Company is subject to other claims and legal proceedings which, in the opinion of the Companys management, are
incidental to the Companys normal business operations. In the opinion of the Company, although final settlement of these suits and claims may impact the Companys financial statements in a particular period, they will not, in the
aggregate, have a material adverse effect on the Companys financial position, results of operations or cash flows.



During 2004, in conjunction with the employment and relocation of the Vice President of Business Development, the Company entered into a commitment
with a third-party employee relocation administrator with respect to the sale of property located in Austin, Texas. As a part of this commitment, the Company agreed to indemnify the third-party relocation administrator against any deterioration in
the market value of the property between the officers sale of the real property to the third party relocation administrator and resale to a third party at estimated fair market value. In connection with this indemnification commitment and
other expenses associated with this relocation, the Company recorded a liability of $384 at December 31, 2004.



Product Warranty



The Companys product warranty liability for the years ended December 31, 2004 and 2003 are summarized below.



|                                                                            |  |      |        |   |      |   |        |  
|--------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                            |  | 2004 |        |   | 2003 |  
|Beginning balance                                                           |  | $    | 1,302  |   |      | $ | 1,566  |  
|Accruals for warranty                                                       |  |      | 2,044  |   |      |   | 721    |  
|Accruals related to pre-existing warranties (including changes in estimate) |  |      | (242   | ) |      |   | 66     |  
|Settlements made                                                            |  |      | (1,563 | ) |      |   | (1,051 | )
|                                                                            |  |      |        |   |      |   |        |  
|Ending balance                                                              |  | $    | 1,541  |   |      | $ | 1,302  |  
|                                                                            |  |      |        |   |      |   |        |  



18.    Restructuring and Other Charges



The Company took several restructuring actions in 2003, 2002 and 2001 to better align its cost structure with prevailing market conditions due to the prolonged industry downturn. These actions, which were necessary as
a result of reduced business volume, primarily focused on reducing our workforce and consolidating global facilities.



During 2004, the Company paid $302 for severance costs and $1,682 for leasehold/other costs consisting of lease payments, utility expenses, property taxes
and general maintenance costs associated with the vacant Bedford, MA facility. The Company recorded $146 of accretion to selling, general and administration expenses during 2004 as a non-cash increase in the restructuring reserve as a result of
originally recording the liability at present value. In addition, during 2004, changes to prior estimates occurred resulting in the reversal of $88 in employee severance costs and $125 in facility exit costs. These changes in estimate were primarily
due to lower than expected severance benefits paid and a reduction in estimated lease costs for the Swindon, England and Bedford, MA vacant facilities.



The operating results in 2003 included total restructuring and other charges of $2,111. The Company recorded charges of $1,189 related to employee
severance costs, $352 related to facility exit costs at the Swindon



F-33



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



service facility and $570 related to changes in estimates for prior-year restructuring programs associated with the closing of manufacturing and service
facilities in the United States and England.



During 2002,
restructuring and other charges totaled $5,182. The Company recorded facilities exit costs of $81 and asset impairment charges of $1,683 related to the closure of the San Clemente, CA manufacturing site. Severance costs of $1,708 were recorded for
reduction in force of employees in Europe, Asia and the United States. The Company recorded changes in estimate of $1,710 associated with facility exit costs for the Bedford, MA and Swindon, England sites. Also during 2002, the Company reclassified
$1,638 of accrued restructuring costs from the workforce category to the leasehold/other category. This reclassification was primarily to increase the accrued restructuring costs for the Bedford, MA facility and reduce the accrued restructuring
costs for 2001 reduction in force programs in Japan, Asia, Europe and the United States.



As of December 31, 2004, the total accrued restructuring costs amount to $1,482. Of this amount, the majority of the $69 in severance costs for terminated employees will be paid by the first quarter of 2005. The
facilities-related costs of $1,413 will be substantially paid by the fourth quarter of 2005.



The activity related to the Companys restructuring accruals is shown below:



|                |  |                          |       |                       |   |      |              |  |   |                   |   |             |   |                          |  |   |   |  |   |      
|--------------- |  | ------------------------ | ----- | --------------------- | - | ---- | ------------ |  | - | ----------------- | - | ----------- | - | ------------------------ |  | - | - |  | - | -----
|                |  | 2004 Activity           
|                |  | BalanceDecember 31, 2003 |       | 2004Expense/ (Income) |   |      | CashActivity |  |   | Non-Cash Activity |   | Adjustments |   | BalanceDecember 31, 2004
|Workforce       |  | $                        | 459   |                       | $ | (88  | )            |  | $ | (302              | ) |             | $ |                         |  | $ |  |  | $ | 69   
|Leasehold/Other |  |                          | 3,074 |                       |   | (125 | )            |  |   | (1,682            | ) |             |   | 146                      |  |   |   |  |   | 1,413
|                |  |                          |       |                       |   |      |              |  |   |                   |   |             |   |                          |  |   |   |  |   |      
|                |  | $                        | 3,533 |                       | $ | (213 | )            |  | $ | (1,984            | ) |             | $ | 146                      |  | $ |  |  | $ | 1,482
|                |  |                          |       |                       |   |      |              |  |   |                   |   |             |   |                          |  |   |   |  |   |      



|                 |  |                           |       |             |   |              |  |   |                    |   |  |             |        |   |                           |   |        |   |  |   |      
|---------------- |  | ------------------------- | ----- | ----------- | - | ------------ |  | - | ------------------ | - |  | ----------- | ------ | - | ------------------------- | - | ------ | - |  | - | -----
|                 |  | 2003 Activity            
|                 |  | BalanceDecember 31, 2002  |       | 2003Expense |   | CashActivity |  |   | Non- Cash Activity |   |  | Adjustments |        |   | BalanceDecember 31, 2003 
|Workforce        |  | $                         | 1,992 |             | $ | 1,189        |  | $ | (2,705             | ) |  | $           | (17    | ) |                           | $ |       |   |  | $ | 459  
|Leasehold/Other  |  |                           | 3,789 |             |   | 352          |  |   | (1,309             | ) |  |             | 242    |   |                           |   |        |   |  |   | 3,074
|Asset Impairment |  |                           |      |             |   | 570          |  |   |                   |   |  |             | (570   | ) |                           |   |        |   |  |   |     
|                 |  |                           |       |             |   |              |  |   |                    |   |  |             |        |   |                           |   |        |   |  |   |      
|                 |  | $                         | 5,781 |             | $ | 2,111        |  | $ | (4,014             | ) |  | $           | (345   | ) |                           | $ |       |   |  | $ | 3,533
|                 |  |                           |       |             |   |              |  |   |                    |   |  |             |        |   |                           |   |        |   |  |   |      
|                 | 
|                 |  | 2002 Activity            
|                 |  | Balance December 31, 2001 |       | 2002Expense |   | CashActivity |  |   | Non- Cash Activity |   |  | Adjustments |        |   | Balance December 31, 2002
|Workforce        |  | $                         | 3,813 |             | $ | 1,708        |  | $ | (1,891             | ) |  | $           |       |   |                           | $ | (1,638 | ) |  | $ | 1,992
|Leasehold/Other  |  |                           | 1,987 |             |   | 1,791        |  |   | (1,627             | ) |  |             |        |   |                           |   | 1,638  |   |  |   | 3,789
|Asset Impairment |  |                           |      |             |   | 1,683        |  |   |                   |   |  |             | (1,683 | ) |                           |   |        |   |  |   |     
|                 |  |                           |       |             |   |              |  |   |                    |   |  |             |        |   |                           |   |        |   |  |   |      
|                 |  | $                         | 5,800 |             | $ | 5,182        |  | $ | (3,518             | ) |  | $           | (1,683 | ) |                           | $ |       |   |  | $ | 5,781
|                 |  |                           |       |             |   |              |  |   |                    |   |  |             |        |   |                           |   |        |   |  |   |      



19.    Summarized Financial Information of 50% or Less Owned Investments in Affiliated Companies



KMC is a joint venture between the Company and Kanekita K.K., a Japanese supplier company, in which the Company owns a 40% interest. The Company accounts
for this investment under the equity method of



F-34



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



accounting. During 2004, KMC paid dividends of $31 to the Company. Below is summarized financial information for KMC for the years ended December 31, 2004,
2003 and 2002.



|                                    |  |      |        |      |   |       |  |   |      
|----------------------------------- |  | ---- | ------ | ---- | - | ----- |  | - | -----
|Statement of Operations Information |  | 2004 |        | 2003 |   | 2002 
|Net sales                           |  | $    | 18,699 |      | $ | 9,836 |  | $ | 6,422
|Gross profit                        |  |      | 6,156  |      |   | 2,580 |  |   | 1,684
|Net income                          |  |      | 1,938  |      |   | 275   |  |   | 122  



|                          |  |      |       |      |   |      
|------------------------- |  | ---- | ----- | ---- | - | -----
|Balance Sheet Information |  | 2004 |       | 2003
|Current assets            |  | $    | 9,363 |      | $ | 6,427
|Non current assets        |  |      | 4,954 |      |   | 5,040
|Current liabilities       |  |      | 4,254 |      |   | 2,347
|Non current liabilities   |  |      | 1,937 |      |   | 3,165



20.    Recent
Accounting Pronouncements



In December 2004, the FASB
issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123(R)). SFAS 123 (R) replaces SFAS 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS 123(R) requires that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued.
The provisions of this Statement are effective for the first interim or annual reporting period that begins after June 15, 2005. The Company is currently evaluating the method of adoption and the impact of SFAS 123(R) on the financial position and
results of operations. The Company is required to adopt SFAS 123 (R) in the third quarter of 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. See Note 3 in the
Notes to Consolidated Financial Statements for the pro forma net income and net income per share amounts for the years 2002 through 2004, as if the Company had used a fair value based method under SFAS 123, which is similar to the methods required
under SFAS 123(R) to measure compensation expense for employee stock incentive awards.



In November 2004, the FASB issued SFAS No. 151, Inventory Costsan Amendment of ARB No. 43, Chapter 4 (SFAS 151). SFAS 151 amends ARB 43, Chapter 4, to clarify that abnormal amounts of
idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The provisions of this Statement are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption of the provisions of SFAS 151 is not expected to have a
material impact on the Companys financial position or results of operations.



In March 2004, the FASB approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-01, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain
Investments. EITF 03-01 provides guidance on determining when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. EITF 03-01 also provides new disclosure
requirements for other-than-temporary impairments on debt and equity investments. In September 2004, the FASB delayed until further notice the effective date of the measurement and recognition guidance contained in EITF 03-01. The disclosure
requirements of EITF 03-01 are effective for annual financial statements for fiscal years ending after December 15, 2003. The adoption of EITF 03-01 is not expected to have a material impact on the Companys financial position or results of
operations.



F-35



---

MYKROLIS CORPORATION



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(In thousands except share and per share data)



In December 2004, the FASB issued two FASB Staff Positions (FSP) that provide accounting guidance on
how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax
Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, states that the manufacturers deduction provided for under this legislation should be accounted for as a special deduction instead of a tax
rate change. FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004, allows a company additional time to evaluate the effects of the legislation on
any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109, Accounting for Income Taxes. These FSPs may affect how a company accounts for deferred income taxes. These FSPs are
effective December 21, 2004. The Company is currently evaluating the impact from these FSPs on our results of operations and financial position.



21.    Subsequent event



On March 3, 2005, the Company acquired privately held Extraction Systems, Inc. (Extraction) for $25,000 in cash. Based in Franklin, Massachusetts,
Extractions products are used to measure and remove airborne molecular contaminants in the semiconductor manufacturing process and offer the Company synergies in addressing opportunities in the microcontamination measurement and control
market.



F-36



---

Report of Independent Registered Public Accounting Firm



To the Board of Directors and Shareholders of Mykrolis Corporation:



We have completed an integrated audit of Mykrolis Corporations 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.



Consolidated financial statements and financial statement schedule



In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial position of Mykrolis Corporation and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.



Internal control
over financial reporting



Also, in our opinion,
managements assessment, included in Managements Report on Internal Control over Financial Reporting appearing under Item 9A, that the Company maintained effective internal control over financial reporting as of December 31, 2004 based on
criteria established in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), is fairly stated, in all material respects, based on those criteria. Furthermore,
in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal ControlIntegrated Framework issued by COSO. The
Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on
managements assessment and on the effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness
of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable



F-37



---

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.



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



/s/ PricewaterhouseCoopers LLP



Boston, Massachusetts

March 11, 2005



F-38



---

Valuation and Qualifying Accounts



(In thousands)



|                                            |  |                              |       |                                       |      |   |                          |     |                           |        |   |                         |   |      
|------------------------------------------- |  | ---------------------------- | ----- | ------------------------------------- | ---- | - | ------------------------ | --- | ------------------------- | ------ | - | ----------------------- | - | -----
|Description                                 |  | Balance atbeginning ofperiod |       | Additions(deductions)charged toincome |      |   | Additionschargedto other |     | Deductionsfromreserves(1) |        |   | Balance atend of period
|Allowance for Doubtful Accounts Receivable: |  |                              |       |                                       |      |   |                          |     |                           |        |   |                         |   |      
|Year ended December 31, 2004                |  | $                            | 559   |                                       | 200  |   |                          | 11  |                           | (512   | ) |                         | $ | 258  
|Year ended December 31, 2003                |  |                              | 1,224 |                                       | (117 | ) |                          | 70  |                           | (618   | ) |                         |   | 559  
|Year ended December 31, 2002                |  |                              | 1,670 |                                       | 413  |   |                          | 157 |                           | (1,016 | ) |                         |   | 1,224

---

|(1) | Represents amounts written off, net of recoveries
|--- | -------------------------------------------------



F-39



---

Quarterly Results of Operations (unaudited)



We have experienced, and expect to continue to experience, significant fluctuations in our quarterly results. Our expense levels are based, in part, on expectations of future revenues. If revenue levels in a
particular quarter do not meet expectations, operating results are adversely affected. The following table sets forth our unaudited operating results for our last eight quarters. The information has been derived from our unaudited consolidated
financial statements that, in our opinion, reflect all normal, recurring adjustments necessary for a fair presentation. The operating results for any quarter are not necessarily indicative of results for any future period.



|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|-------------------------------------------------------- |  | ------------------ | ------ | - | ----------- | - | ----------- |  | - | ----------- | - | ------------ | - | ------ | ------------- | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | - |  | - | ------ | -
|                                                         |  | Three Months Ended |       
|                                                         |  | Dec. 31,2004       |        |   | Oct. 2,2004 |   | July 3,2004 |  |   | Apr. 3,2004 |   | Dec. 31,2003 |   |        | Sept. 27,2003 |   |        | June 28,2003 |  |   | Mar. 29,2003 |  
|Net sales                                                |  | $                  | 73,977 |   |             | $ | 71,403      |  | $ | 73,335      |   |              | $ | 70,515 |               | $ | 58,183 |              |  | $ | 44,529       |   |  | $ | 42,678 |   |  | $ | 40,508 |  
|Cost of sales                                            |  |                    | 39,846 |   |             |   | 37,589      |  |   | 37,440      |   |              |   | 36,446 |               |   | 32,838 |              |  |   | 24,383       |   |  |   | 24,072 |   |  |   | 23,976 |  
|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Gross profit                                             |  |                    | 34,131 |   |             |   | 33,814      |  |   | 35,895      |   |              |   | 34,069 |               |   | 25,345 |              |  |   | 20,146       |   |  |   | 18,606 |   |  |   | 16,532 |  
|Selling, general and administrative expenses             |  |                    | 19,802 |   |             |   | 17,210      |  |   | 19,056      |   |              |   | 19,669 |               |   | 16,544 |              |  |   | 15,712       |   |  |   | 16,187 |   |  |   | 16,352 |  
|Research and development expenses                        |  |                    | 6,332  |   |             |   | 6,554       |  |   | 6,556       |   |              |   | 6,297  |               |   | 5,591  |              |  |   | 4,362        |   |  |   | 4,673  |   |  |   | 4,484  |  
|Restructuring and other charges                          |  |                    | (125   | ) |             |   |            |  |   | (88         | ) |              |   |       |               |   | (178   | )            |  |   | 532          |   |  |   | 1,757  |   |  |   |       |  
|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Operating income (loss)                                  |  |                    | 8,122  |   |             |   | 10,050      |  |   | 10,371      |   |              |   | 8,103  |               |   | 3,388  |              |  |   | (460         | ) |  |   | (4,011 | ) |  |   | (4,304 | )
|Other income (expense), net                              |  |                    | 1,098  |   |             |   | 312         |  |   | 405         |   |              |   | 474    |               |   | 610    |              |  |   | (184         | ) |  |   | 1,174  |   |  |   | 660    |  
|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Income (loss) before income taxes                        |  |                    | 9,220  |   |             |   | 10,362      |  |   | 10,776      |   |              |   | 8,577  |               |   | 3,998  |              |  |   | (644         | ) |  |   | (2,837 | ) |  |   | (3,644 | )
|Income tax expense                                       |  |                    | 1,628  |   |             |   | 3,065       |  |   | 3,055       |   |              |   | 1,590  |               |   | 342    |              |  |   | 224          |   |  |   | 2,698  |   |  |   | 1,713  |  
|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Net income (loss)                                        |  | $                  | 7,592  |   |             | $ | 7,297       |  | $ | 7,721       |   |              | $ | 6,987  |               | $ | 3,656  |              |  | $ | (868         | ) |  | $ | (5,535 | ) |  | $ | (5,357 | )
|                                                         |  |                    |        |   |             |   |             |  |   |             |   |              |   |        |               |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Basic net income (loss) per share                        |  | $                  | 0.18   |   |             | $ | 0.18        |  | $ | 0.19        |   |              | $ | 0.17   |               | $ | 0.09   |              |  | $ | (0.02        | ) |  | $ | (0.14  | ) |  | $ | (0.13  | )
|Shares used in computing basic income (loss) per share   |  |                    | 41,865 |   |             |   | 41,696      |  |   | 41,420      |   |              |   | 41,001 |               |   | 40,336 |              |  |   | 39,874       |   |  |   | 39,795 |   |  |   | 39,725 |  
|Diluted net income (loss) per share                      |  | $                  | 0.18   |   |             | $ | 0.17        |  | $ | 0.18        |   |              | $ | 0.16   |               | $ | 0.09   |              |  | $ | (0.02        | ) |  | $ | (0.14  | ) |  | $ | (0.13  | )
|Shares used in computing diluted income (loss) per share |  |                    | 43,076 |   |             |   | 42,698      |  |   | 43,599      |   |              |   | 43,430 |               |   | 42,757 |              |  |   | 39,874       |   |  |   | 39,795 |   |  |   | 39,725 |  



The following table
sets forth our financial information stated as a percentage of net sales for the past eight quarterly periods:



|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   
|-------------------------------------------- |  | ------------ | -- |  | ----------- | - |  | ----------- | -- |  | ----------- | - |  | ------------ | - |  | ------------- | -- |  | ------------ | -- |  | ------------ | --
|                                             |  | Dec. 31,2004 |    |  | Oct. 2,2004 |   |  | July 3,2004 |    |  | Apr. 3,2004 |   |  | Dec. 31,2003 |   |  | Sept. 27,2003 |    |  | June 28,2003 |    |  | Mar. 29,2003 |   
|Net sales                                    |  | 100.0        | %  |  | 100.0       | % |  | 100.0       | %  |  | 100.0       | % |  | 100.0        | % |  | 100.0         | %  |  | 100.0        | %  |  | 100.0        | % 
|Cost of sales                                |  | 53.9         | %  |  | 52.6        | % |  | 51.1        | %  |  | 51.7        | % |  | 56.4         | % |  | 54.8          | %  |  | 56.4         | %  |  | 59.2         | % 
|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   
|Gross profit                                 |  | 46.1         | %  |  | 47.4        | % |  | 48.9        | %  |  | 48.3        | % |  | 43.6         | % |  | 45.2          | %  |  | 43.6         | %  |  | 40.8         | % 
|Selling, general and administrative expenses |  | 26.8         | %  |  | 24.1        | % |  | 26.0        | %  |  | 27.9        | % |  | 28.4         | % |  | 35.3          | %  |  | 37.9         | %  |  | 40.4         | % 
|Research and development expenses            |  | 8.6          | %  |  | 9.2         | % |  | 8.9         | %  |  | 8.9         | % |  | 9.6          | % |  | 9.8           | %  |  | 10.9         | %  |  | 11.1         | % 
|Restructuring and other charges              |  | (0.2         | )% |  |            |   |  | (0.1        | )% |  |            |   |  | (0.3         | ) |  | 1.2           |    |  | 4.1          |    |  |             |   
|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   
|Operating income (loss)                      |  | 10.9         | %  |  | 14.1        | % |  | 14.1        | %  |  | 11.5        | % |  | 5.8          | % |  | (1.0          | )% |  | (9.4         | )% |  | (10.6        | )%
|Other income (expense), net                  |  | 1.5          | %  |  | 0.4         | % |  | 0.6         | %  |  | 0.7         | % |  | 1.0          | % |  | (0.4          | )% |  | 2.8          | %  |  | 1.6          | % 
|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   
|Income (loss) before income taxes            |  | 12.5         | %  |  | 14.5        | % |  | 14.7        | %  |  | 12.2        | % |  | 6.9          | % |  | (1.4          | )% |  | (6.6         | )% |  | (9.0         | )%
|Income tax expense                           |  | 2.2          | %  |  | 4.3         | % |  | 4.2         | %  |  | 2.3         | % |  | 0.6          | % |  | 0.5           | %  |  | 6.3          | %  |  | 4.2          | % 
|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   
|Net income (loss)                            |  | 10.3         | %  |  | 10.2        | % |  | 10.5        | %  |  | 9.9         | % |  | 6.3          | % |  | (1.9          | )% |  | (13.0        | )% |  | (13.2        | )%
|                                             |  |              |    |  |             |   |  |             |    |  |             |   |  |              |   |  |               |    |  |              |    |  |              |   



F-40



---

Revised Quarterly Pro Forma Stock Compensation Expense



The Company has revised the unaudited pro forma disclosures required under
SFAS. No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148 as previously filed in its Form 10-Qs for the periods ended April 3, 2004, July 3, 2004 and October 2, 2004. During the fourth quarter of 2004, the
Company determined that the pro forma compensation expense for certain stock options granted in December 2003 with a vesting period of four years was incorrectly recognized as stock-based compensation for pro forma disclosure purposes only over a
one-year period. This error resulted in an understatement of pro-forma net income and earnings per share as illustrated below.



|                                                                                                                                   |  |                        |        |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | - | ------------------ | - | ------ | ---------------------- |  | - | ------------------ | - |  | ---------------------- | ------ | - | ------------------ | - | ------ | - |  | - | ------ | -
|Quarterly                                                                                                                          |  | ASREPORTEDApr. 3, 2004 |        |   | REVISEDApr. 3,2004 |   |        | ASREPORTEDJuly 3, 2004 |  |   | REVISEDJuly 3,2004 |   |  | ASREPORTEDOct. 2, 2004 |        |   | REVISEDOct. 2,2004 |  
|Net income, as reported                                                                                                            |  | $                      | 6,987  |   |                    | $ | 6,987  |                        |  | $ | 7,721              |   |  | $                      | 7,721  |   |                    | $ | 7,297  |   |  | $ | 7,297  |  
|Add: Stock-based compensation included in net income, net of related tax effects                                                   |  |                        | 12     |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                        | (5,876 | ) |                    |   | (3,763 | )                      |  |   | (5,948             | ) |  |                        | (3,817 | ) |                    |   | (6,777 | ) |  |   | (3,598 | )
|                                                                                                                                   |  |                        |        |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|Pro forma net income                                                                                                               |  | $                      | 1,123  |   |                    | $ | 3,224  |                        |  | $ | 1,773              |   |  | $                      | 3,904  |   |                    | $ | 520    |   |  | $ | 3,699  |  
|                                                                                                                                   |  |                        |        |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|Earnings per share:                                                                                                                |  |                        |        |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|Basic as reported                                                                                                                  |  | $                      | 0.17   |   |                    | $ | 0.17   |                        |  | $ | 0.19               |   |  | $                      | 0.19   |   |                    | $ | 0.18   |   |  | $ | 0.18   |  
|Diluted as reported                                                                                                                |  | $                      | 0.16   |   |                    | $ | 0.16   |                        |  | $ | 0.18               |   |  | $                      | 0.18   |   |                    | $ | 0.17   |   |  | $ | 0.17   |  
|Basic pro forma                                                                                                                    |  | $                      | 0.03   |   |                    | $ | 0.08   |                        |  | $ | 0.04               |   |  | $                      | 0.09   |   |                    | $ | 0.01   |   |  | $ | 0.09   |  
|Diluted pro forma                                                                                                                  |  | $                      | 0.03   |   |                    | $ | 0.07   |                        |  | $ | 0.04               |   |  | $                      | 0.09   |   |                    | $ | 0.01   |   |  | $ | 0.09   |  
|                                                                                                                                   |  |                        |        |   |                    |  
|Note: Shares used in calculations                                                                                                  |  |                        |        |   |                    |   |        |                        |  |   |                    |   |  |                        |        |   |                    |   |        |   |  |   |        |  
|Basic                                                                                                                              |  |                        | 41,001 |   |                    |   | 41,001 |                        |  |   | 41,420             |   |  |                        | 41,420 |   |                    |   | 41,696 |   |  |   | 41,696 |  
|Diluted                                                                                                                            |  |                        | 43,430 |   |                    |   | 43,430 |                        |  |   | 43,599             |   |  |                        | 43,599 |   |                    |   | 42,698 |   |  |   | 42,698 |  



|                                                                                                                                   |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ------------------ | - | ------ | ---------------------- |  | - | ------------------ | - |  | - | ------- | -
|                                                                                                                                   |  | Six months ended       |         |   | Nine months ended  |  
|Year to date                                                                                                                       |  | ASREPORTEDJuly 3, 2004 |         |   | REVISEDJuly 3,2004 |   |        | ASREPORTEDOct. 2, 2004 |  |   | REVISEDOct. 2,2004 |  
|Net income, as reported                                                                                                            |  | $                      | 14,708  |   |                    | $ | 14,708 |                        |  | $ | 22,005             |   |  | $ | 22,005  |  
|Add: Stock-based compensation included in net income, net of related tax effects                                                   |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|Deduct: Total stock-based compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                        | (11,798 | ) |                    |   | (7,580 | )                      |  |   | (18,575            | ) |  |   | (11,178 | )
|                                                                                                                                   |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|Pro forma net income                                                                                                               |  | $                      | 2,910   |   |                    | $ | 7,128  |                        |  | $ | 3,430              |   |  | $ | 10,827  |  
|                                                                                                                                   |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|Earnings per share:                                                                                                                |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|Basic as reported                                                                                                                  |  | $                      | 0.36    |   |                    | $ | 0.36   |                        |  | $ | 0.53               |   |  | $ | 0.53    |  
|Diluted as reported                                                                                                                |  | $                      | 0.34    |   |                    | $ | 0.34   |                        |  | $ | 0.51               |   |  | $ | 0.51    |  
|Basic pro forma                                                                                                                    |  | $                      | 0.07    |   |                    | $ | 0.17   |                        |  | $ | 0.08               |   |  | $ | 0.26    |  
|Diluted pro forma                                                                                                                  |  | $                      | 0.07    |   |                    | $ | 0.16   |                        |  | $ | 0.08               |   |  | $ | 0.25    |  
|                                                                                                                                   |  |                        |         |  
|Note: Shares used in calculations                                                                                                  |  |                        |         |   |                    |   |        |                        |  |   |                    |   |  |   |         |  
|Basic                                                                                                                              |  |                        | 41,207  |   |                    |   | 41,207 |                        |  |   | 41,368             |   |  |   | 41,368  |  
|Diluted                                                                                                                            |  |                        | 43,509  |   |                    |   | 43,509 |                        |  |   | 43,293             |   |  |   | 43,293  |  



F-41