DUPONT PHOTOMASKS INC, 424B1, 1996-06-14

DUPONT PHOTOMASKS INC
424B1, 1996-06-14
SPECIAL INDUSTRY MACHINERY, NEC

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<PAGE>
Filed pursuant to Rule 424(b)(1)
File No. 333-3386

PROSPECTUS

4,000,000 SHARES
DUPONT PHOTOMASKS, INC.
COMMON STOCK
-----------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THE OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK
OF THE COMPANY. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.

PRIOR TO THE OFFERING, E.I. DU PONT DE NEMOURS AND COMPANY ("DUPONT") INDIRECTLY
OWNED 100% OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK, AND UPON
COMPLETION OF THE OFFERING, DUPONT WILL INDIRECTLY OWN 72% OF THE
OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK (OR 70% IF THE
UNDERWRITERS' OVERALLOTMENT OPTION IS EXERCISED IN FULL) AND
WILL CONTINUE TO CONTROL THE COMPANY. SEE "PRINCIPAL
STOCKHOLDER AND STOCK OWNERSHIP" AND "TRANSACTIONS AND
RELATIONSHIP BETWEEN THE COMPANY AND DUPONT."

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

THE COMMON STOCK HAS BEEN APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL
MARKET UNDER THE SYMBOL "DPMI."

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON
PAGE 7 HEREOF.
-----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

PRICE $17 A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO THE
PUBLIC COMMISSIONS (1) COMPANY (2)
--------------- --------------- ---------------
<S> <C> <C> <C>
Per Share.................................................. $17.00 $1.19 $15.81
Total (3).................................................. $68,000,000 $4,760,000 $63,240,000
</TABLE>

- ------------
(1) THE COMPANY AND DUPONT HAVE AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST
CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF
1933.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $660,000.
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 600,000
ADDITIONAL SHARES OF COMMON STOCK AT THE PRICE TO PUBLIC LESS UNDERWRITING
DISCOUNTS AND COMMISSIONS FOR THE PURPOSE OF COVERING OVERALLOTMENTS, IF
ANY. IF THE UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO THE COMPANY
WILL BE $78,200,000, $5,474,000 AND $72,726,000, RESPECTIVELY. SEE
"UNDERWRITERS."

------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY DAVIS POLK & WARDWELL, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT JUNE 19, 1996, AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY & CO.
INCORPORATED

COWEN & COMPANY

NEEDHAM & COMPANY, INC.
<PAGE>
JUNE 13, 1996
<PAGE>

[Graphic description of photomask process and uses]

<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE IMPLY THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------

UNTIL JULY 8, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------

THE COMPANY INTENDS TO FURNISH TO ITS STOCKHOLDERS ANNUAL REPORTS CONTAINING
AUDITED CONSOLIDATED FINANCIAL STATEMENTS CERTIFIED BY INDEPENDENT PUBLIC
ACCOUNTANTS AND QUARTERLY REPORTS CONTAINING UNAUDITED CONSOLIDATED FINANCIAL
DATA FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR FOLLOWING THE END OF EACH
SUCH QUARTER.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 7
Use of Proceeds............................................................................................ 12
Dividend Policy............................................................................................ 13
Dilution................................................................................................... 13
Capitalization............................................................................................. 14
Selected Combined Financial Data........................................................................... 15
Pro Forma Combined Financial Statements.................................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 23
Business................................................................................................... 33
Management................................................................................................. 48
Transactions and Relationship Between the Company and DuPont............................................... 56
Principal Stockholder and Stock Ownership.................................................................. 60
Description of Capital Stock............................................................................... 62
Shares Eligible for Future Sale............................................................................ 64
Underwriters............................................................................................... 66
Legal Matters.............................................................................................. 67
Experts.................................................................................................... 67
Additional Information..................................................................................... 67
Index to Combined Financial Statements..................................................................... F-1
</TABLE>

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

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS," AND FINANCIAL STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL REFERENCES HEREIN, UNLESS THE CONTEXT
OTHERWISE REQUIRES, TO (I) THE "COMPANY" OR "DPI" MEAN DUPONT PHOTOMASKS, INC.
AND ASSUME THE COMPLETION OF THE COMPANY'S ACQUISITION OF THE PHOTOMASK
BUSINESSES AS DESCRIBED HEREIN UNDER "TRANSACTIONS AND RELATIONSHIP BETWEEN THE
COMPANY AND DUPONT -- REALIGNMENT OF PHOTOMASK BUSINESS;" (II) "DUPONT" MEAN
E.I. DU PONT DE NEMOURS AND COMPANY; AND (III) "DCEO" MEAN DUPONT CHEMICAL AND
ENERGY OPERATIONS, INC., A WHOLLY OWNED SUBSIDIARY OF DUPONT. UNLESS THE CONTEXT
OTHERWISE REQUIRES, THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT THE
UNDERWRITERS DO NOT EXERCISE THEIR OVERALLOTMENT OPTION. SEE "UNDERWRITERS." THE
COMPANY'S FISCAL YEAR ENDS JUNE 30.

THE COMPANY

Based on worldwide sales, DuPont Photomasks, Inc. is the largest U.S.
photomask manufacturer and one of the two largest photomask manufacturers in the
world. Photomasks are high-purity quartz or glass plates containing precision
images of integrated circuits and are used as masters by semiconductor
manufacturers to optically transfer these images onto semiconductor wafers. The
Company develops and uses advanced technology to manufacture a broad range of
photomasks based on customer-supplied design data, including photomasks that
meet the tightest design specifications required by semiconductor manufacturers
today. Since 1991, DPI has operated globally with established manufacturing
facilities in North America, Europe and Asia. The Company is the only photomask
manufacturer in the world that also manufactures and markets both photoblanks
and pellicles, the principal components of photomasks, facilitating the
Company's ability to ensure an adequate supply of quality components. The
Company sells its products to approximately 200 customers in 20 different
countries. The Company believes that it is the principal merchant photomask
supplier for many of its customers, including AMD, Delco/General Motors,
Digital, Hyundai, LG Semicon, Lucent Technologies Inc. (formerly AT&T), Micron
Technology, Motorola, National Semiconductor, Philips, Samsung, Seagate and
SGS-Thomson. The Company serves its global customer base from eight ISO
9002-qualified manufacturing facilities and numerous customer service centers.

The market for photomasks consists primarily of semiconductor manufacturers
in North America, Europe and Asia. Growth in the photomask market has not always
correlated with increases in semiconductor sales. During the mid-1980's through
the early 1990's, the photomask industry experienced an extended period of slow
growth, primarily as a result of several advances in semiconductor and photomask
design and production methods that significantly reduced the number of masks as
well as the precision requirements of masks required to produce a semiconductor
device. The Company believes that the efficiencies gained from these advances in
semiconductor and photomask design and production methods have been largely
realized. In the last two years, growth in demand for photomasks has resumed.
The Company expects that growth in semiconductor design activity, which has been
driven by accelerating trends in the semiconductor industry toward customization
of semiconductor designs and the proliferation of semiconductor applications,
will substantially increase the demand for photomasks. Furthermore, increasing
device complexity and decreasing feature size of semiconductor designs are
changing the nature of the photomask industry and its role in the semiconductor
manufacturing process. The Company believes that photomasks are reemerging as a
critical and enabling technology in the semiconductor manufacturing process.

According to industry sources, the total worldwide market for photomasks was
approximately $1.3 billion in 1995. The photomask market in North America,
Europe and non-Japan Asia is estimated to have been approximately 50% of the
worldwide market over the last five years, and merchant photomask sales in these
regions are estimated to have been in excess of $375 million in 1995.

DuPont entered the photomask market in 1986. Its strategy focused on
establishing a global presence that would enable it to respond to the needs of
multinational semiconductor manufacturers. As part of this strategy, DuPont (i)
purchased assets of numerous captive photomask operations, (ii) acquired
merchant photomask companies and (iii) constructed its own "greenfield"
manufacturing sites in Round Rock, Texas

4
<PAGE>
and Ichon, Republic of Korea ("Korea"). DPI is also the majority owner of a
joint venture that is constructing a new photomask manufacturing facility in
Shanghai, China, which will expand the Company's capacity to serve the growing
needs of semiconductor manufacturers in Asia. In addition, the Company is
planning to construct a photomask manufacturing facility on a "greenfield" site
near Glasgow, Scotland primarily to meet the growing needs of semiconductor
manufacturers in the United Kingdom and the Republic of Ireland. The Company
believes that it is one of the two largest merchant suppliers in North America
and the largest merchant supplier in Europe and non-Japan Asia. The Company has
consistently been an industry leader in developing the most advanced photomasks
and believes it is the principal merchant supplier, outside Japan, of leading
edge photomasks. The Company intends to strengthen its position as a leading
supplier of photomasks by providing the finest service and most advanced
technology. To achieve this objective, the Company intends to capitalize on its
global manufacturing presence, advance its technological leadership, expand
strategic relationships with its customers, leverage its integrated position and
pursue strategic relationships with key suppliers.

RELATIONSHIP WITH DUPONT

DuPont, through its wholly owned subsidiary DCEO, currently owns 100% of the
Company's outstanding Common Stock. Upon completion of the Offering, DuPont will
continue to own indirectly approximately 72% (or 70% if the Underwriters'
overallotment option is exercised in full), of the Company's outstanding Common
Stock. See "Principal Stockholder and Stock Ownership." As a result of its
ownership interest, DuPont will be able to control the vote on most matters
submitted to stockholders, including the election of directors and the approval
of extraordinary corporate transactions. See "Risk Factors -- Control by and
Relationship with DuPont." DuPont has advised the Company that it expects to
reduce its ownership interest in the Company over time, subject to prevailing
market and other conditions. See "Risk Factors -- Effect of Sales of Substantial
Amounts of Common Stock" and "Shares Eligible for Future Sale." Historically,
the Company has derived certain tangible and intangible benefits from being a
subsidiary of DuPont. The Company and DuPont have entered into a number of
agreements for the purpose of defining their ongoing relationship. While these
agreements will continue to provide the Company with certain benefits, the
Company is only entitled to the ongoing assistance of DuPont for a limited time
and it may not enjoy benefits from its relationship with DuPont beyond the term
of the agreements. See "Risk Factors -- No Independent Operating History Prior
to the Offering" and "Transactions and Relationship Between the Company and
DuPont."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered................ 4,000,000 shares

Common Stock to be outstanding after
the Offering....................... 14,500,000 shares (1)

Use of Proceeds..................... The Company will retain an amount, currently
estimated at $9.1 million, of the estimated net
proceeds of the Offering; such that, upon the
consummation of the Offering, it will have
approximately $18 million in cash and cash
equivalents, which will be available for general
corporate purposes, including working capital and
capital expenditures. The Company will use the
remaining $53.5 million as well as the net proceeds
from any exercise of the Underwriters' overallotment
option to repay indebtedness owed to DCEO. See "Use
of Proceeds."
Nasdaq Symbol....................... DPMI
</TABLE>

- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans.

5
<PAGE>
SUMMARY COMBINED FINANCIAL DATA

<TABLE>
<CAPTION>
PRO FORMA, AS
PRO FORMA, AS ADJUSTED, FOR
NINE MONTHS ENDED ADJUSTED, FOR THE NINE
YEAR ENDED JUNE 30 MARCH 31 THE YEAR MONTHS ENDED
------------------------------- -------------------- ENDED JUNE MARCH 31,
1993 1994 1995 1995 1996 30, 1995 (1) 1996 (1)
--------- --------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Total Sales..................... $ 118,896 $ 134,548 $ 161,514 $ 116,670 $ 152,192 $ 161,514 $ 152,192
Cost of Goods Sold.............. 112,224 107,456 117,022 85,745 98,717 115,368 97,724
Selling, General and
Administrative Expense......... 18,630 20,750 21,803 16,017 18,164 22,585 19,214
Research and Development Expense
-- Net......................... 8,337 8,131 8,777 6,385 6,955 7,260 6,113
Other Operating (Income) Expense
-- Net......................... 8,497 2,940 3,490 2,317 3,219 3,156 2,941
--------- --------- --------- --------- --------- ------------- -------------
Operating Profit (Loss)......... (28,792) (4,729) 10,422 6,206 25,137 13,145 26,200
Interest Expense................ 9,196 5,814 6,957 5,054 5,091 59 102
Exchange (Gain) Loss............ (430) 322 (493) (476) 228 (665) (68)
--------- --------- --------- --------- --------- ------------- -------------
Income (Loss) Before Income
Taxes and Minority Interest.... (37,558) (10,865) 3,958 1,628 19,818 13,751 26,166
Provision for Income Taxes...... -- -- -- -- 1,899 3,712 9,158
--------- --------- --------- --------- --------- ------------- -------------
Income (Loss) Before Minority
Interest....................... (37,558) (10,865) 3,958 1,628 17,919 10,039 17,008
Minority Interest in Income
(Loss) of Majority Owned Joint
Venture........................ -- -- (161) (82) (483) (161) (483)
--------- --------- --------- --------- --------- ------------- -------------
Net Income (Loss)............... $ (37,558) $ (10,865) $ 4,119 $ 1,710 $ 18,402 $ 10,200 $ 17,491
--------- --------- --------- --------- --------- ------------- -------------
--------- --------- --------- --------- --------- ------------- -------------
Pro Forma Net Income Per Share.. $ 0.70 $ 1.20
Pro Forma Weighted Average
Shares Outstanding............. 14,606 14,606
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA (1) ADJUSTED (1)
--------- ------------- --------------
<S> <C> <C> <C>
(IN THOUSANDS)
STATEMENT OF FINANCIAL POSITION DATA:
Cash and Cash Equivalents............................................... $ 8,891 $ 8,891 $ 18,000
Working Capital......................................................... 13,250 25,818 34,927
Net Property, Plant and Equipment....................................... 114,231 114,231 114,231
Total Assets............................................................ 190,347 194,849 203,958
Long Term Borrowings.................................................... 8,987 8,987 8,987
DuPont Master Notes..................................................... 162,320 53,471 --
Owner's Net Investment/Shareholders' Equity............................. (36,472) 79,077 141,657
Unrealized Holding Gains................................................ 9,350 9,350 9,350
</TABLE>

- ------------------------------
(1) The Summary Combined Pro Forma Financial Data are derived from the
Company's Pro Forma Combined Financial Statements appearing elsewhere in
this Prospectus. The Pro Forma Combined Financial Statements were prepared
by the Company to illustrate the estimated effects of the Offering and
related transactions described in the Notes to the Pro Forma Combined
Financial Statements as if they had occurred as of July 1, 1994 for
purposes of the pro forma combined statements of operations and as of March
31, 1996 for purposes of the pro forma combined statement of financial
position. See "Pro Forma Combined Financial Statements."

6
<PAGE>
RISK FACTORS

PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER INFORMATION SET
FORTH IN THIS PROSPECTUS.

RAPID TECHNOLOGICAL CHANGE; CAPITAL INTENSIVE INDUSTRY

The photomask industry is characterized by rapid technological change and
new product introduction and enhancements that have required photomask
manufacturers to make significant and ongoing capital investments. In
particular, as semiconductor pattern sizes continue to decrease, the demand for
more technologically advanced photomasks is likely to increase, including
photomasks using optical proximity correction and phase-shift technologies. As a
result, the Company must continue to enhance its existing products and to
develop and manufacture new products and upgrades with improved capabilities.
The Company's inability to anticipate, respond to or utilize changing
technologies could have a material adverse effect on the Company's business and
results of operations.

The development and manufacture of future generations of photomasks is
expected to require additional research and development expenditures
significantly greater than those required in the past. If the Company is unable
to generate sufficient funds from its operations, borrowings or outside sources,
the Company may be forced to reduce the amount of its investments in research
and development of new technologies, which could hinder the Company's ability to
maintain its technological leadership and could eventually lead to a material
adverse effect on the Company's business or results of operations. In addition,
technological changes leading to the commercial availability of alternate
methods of transferring circuit designs onto semiconductor wafers without the
use of photomasks, including direct write lithography, would have an adverse
effect on the Company's business or results of operations. See "Business --
Industry Background" and "-- Products and Technology."

RELATIONSHIP WITH AND DEPENDENCE ON SEMICONDUCTOR INDUSTRY

Substantially all the Company's sales are derived from semiconductor and
electronic component manufacturers that correspondingly depend on the demand for
end-products or systems that use such semiconductors and components. Growth in
the demand for semiconductors, however, may not necessarily lead to an increase
in the demand for photomasks. Changes in semiconductor designs or applications,
such as a reduction in customization, increased standardization or other
technological and manufacturing advances, could reduce demand for photomasks
even if the demand for semiconductors increases. Throughout the mid-1980's and
the early 1990's, the photomask industry experienced an extended period of slow
growth despite overall growth in the semiconductor market, primarily as a result
of several advances in semiconductor and photomask design and production methods
that significantly reduced the number of masks as well as the precision
requirements of masks required to produce a semiconductor device. There can be
no assurance that technological and manufacturing advances in the semiconductor
industry will not have a material adverse effect on the demand for photomasks.
See "Business -- Industry Background."

In addition, contractions or downturns in the semiconductor industry will
likely lead to a decrease in the demand for photomasks. The semiconductor
industry is highly cyclical and has been subject to significant economic
downturns at various times, characterized by reduced product demand and excess
production capacity. Prior semiconductor downturns have adversely affected the
Company's operating results. There can be no assurance that any future downturns
will not be severe or that any such downturn would not have a material adverse
effect on the Company's business or results of operations. See "-- Recent
Losses" and "Business -- Industry Background."

CONCENTRATION OF CUSTOMERS

In fiscal 1995, the Company's four largest customers, in the aggregate,
accounted for approximately 41% of the Company's sales and the Company's 10
largest customers, in the aggregate, accounted for approximately 66% of sales.
The loss of, or a significant reduction of orders from, any of the Company's
major customers could have a material adverse effect on the Company's business
or results of operations. See "Business -- Customers" and Note 4 to the Combined
Financial Statements.

7
<PAGE>
CONCENTRATION OF AND DEPENDENCE ON SUPPLIERS

The Company relies on a limited number of photomask equipment manufacturers
to develop and supply the equipment used in the photomask manufacturing process.
There are currently lead times of approximately nine to 18 months between the
order and the delivery of certain photomask imaging and inspection equipment,
including electron beam and laser beam photomask imaging systems. There can be
no assurance that equipment manufacturers will successfully develop or deliver
on a timely basis such imaging and inspection equipment. Failure to develop on a
timely basis such equipment could have a material adverse effect on the
Company's business or results of operations. In addition, the Company does not
have long term supply agreements with any of its raw materials suppliers, and it
has historically relied primarily on one supplier for the quartz plates used in
the manufacture of photoblanks, which are a key component in the manufacture of
photomasks. Any disruption in the Company's supply relationships or any delays
in the shipment of supplies or equipment, particularly the supply of quartz
plates, could result in delays or reductions in product shipments by the Company
or increases in product costs that could have a material adverse effect on the
Company's operating results in any given period. In the event of such
disruption, there can be no assurance that the Company could develop alternative
sources within reasonable time frames or, if developed, that such sources would
provide such supplies or equipment at prices comparable with those charged by
the Company's suppliers prior to such disruption. See "Business -- Products and
Technology -- Photoblanks and Pellicles" and "-- Global Manufacturing and
Operations."

COMPETITION; REVERSAL OF CONSOLIDATION TREND

The photomask industry is highly competitive. The Company's ability to
compete in this market is primarily based on product quality, delivery to
schedule performance, pricing, technical capabilities, the location and capacity
of its manufacturing facilities and technical service. Significant competitors
include other independent manufacturers of photomasks, including Photronics,
Inc. ("Photronics"), Compugraphics International Limited ("Compugraphics") in
Europe and Dai Nippon Printing Co. Ltd. ("DNP"), Hoya Corp., Taiwan Mask
Corporation and Toppan Printing Company, Ltd. ("Toppan") in Asia. The Company's
competitors can be expected to continue to develop and introduce new and
enhanced products, any of which could cause a decline in market acceptance of
the Company's products or a reduction in the Company's prices as a result of
intensified price competition. The Company and its competitors have in the past
had excess production capacity resulting from a number of factors, including
improved semiconductor and photomask design and manufacturing efficiencies, that
led to depressed prices. Although the demand for photomasks has recently
increased, there can be no assurance that demand will not decline or that
pressure to reduce prices will not resume, each of which could have a material
adverse effect on the Company's business or results of operations. See "Business
- -- Industry Background."

In addition, Photronics has indicated in its filings with the Securities and
Exchange Commission that it intends to increase its international presence. To
that end, it has made, among other undertakings, certain acquisitions in Europe
and is constructing a manufacturing facility in Singapore. There can be no
assurance that increased competition on an international level from Photronics
or any other photomask manufacturer will not have a material adverse effect on
the Company's business or results of operations. See "Business -- Global
Manufacturing and Operations" and "-- Competition."

The Company also competes with a limited number of captive photomask
operations when such operations have excess capacity. Beginning in the
mid-1980's, a trend developed toward the divestiture or closing of captive
photomask operations by semiconductor manufacturers. There can be no assurance
that this trend will continue or that it will not reverse, thereby increasing
competition and reducing the demand for photomasks produced by independent
photomask suppliers like the Company. In particular, as photomasks continue to
reemerge as a critical and enabling technology in the semiconductor
manufacturing process, there can be no assurance that semiconductor
manufacturers will not form new captive operations to ensure that their
photomask needs are met, particularly for advanced and leading edge photomasks.
See "Business -- Competition."

8
<PAGE>
GROWTH BY ACQUISITION

The Company's growth has been achieved, in large part, by means of
acquisitions. The Company from time to time evaluates and enters into
negotiations with respect to potential acquisitions, and the Company may make
additional acquisitions in the future. There can be no assurance that the
Company will be able to locate suitable acquisition opportunities, that it will
be able to obtain the necessary financing for any future acquisitions, that it
will be able to effectively and profitably integrate into the Company any
operations that are acquired in the future or that any future acquisitions will
not have a material adverse effect on the Company's operating results or on the
market price of the Company's Common Stock, particularly during the periods
immediately following such acquisitions. In addition, to the extent that the
Company is unable to locate suitable acquisition opportunities, future revenues
will depend upon the Company's existing business. See "-- Recent Losses,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- DuPont Photomasks."

MANUFACTURING RISKS

The Company's manufacturing processes are highly complex, require the use of
expensive and technologically sophisticated equipment and materials and are
continuously subject to modification in an effort to improve manufacturing
yields and product quality. Minute impurities or other difficulties in the
manufacturing process can lower manufacturing yields and make products
unmarketable. Moreover, manufacturing leading edge photomasks is relatively more
complex and time-consuming than manufacturing high-volume, less advanced
photomasks, which may lead to general delays in the manufacturing of all levels
of photomasks. The Company has, on occasion, experienced manufacturing
difficulties and capacity limitations that have delayed the Company's ability to
deliver products within the time frames contracted for by some or all of its
customers. There can be no assurance that the Company will not experience these
or other manufacturing difficulties, increased costs or production capacity
constraints in the future, any of which could result in a loss of customers or
could otherwise have a material adverse effect on the Company's business or
results of operations. See "Business -- Global Manufacturing and Operations."

DEPENDENCE ON MANAGEMENT AND TECHNICAL PERSONNEL

The Company's continued success depends upon, in part, key managerial,
engineering and technical personnel, as well as the Company's ability to
continue to attract and retain additional personnel. The loss of certain key
personnel could have a material adverse effect on the Company's business or
results of operations. There can be no assurance that the Company can retain its
key managerial, engineering and technical employees. The Company's growth may be
dependent on its ability to attract new highly skilled and qualified personnel.
There can be no assurance that its recruiting efforts to attract and retain such
personnel will be successful. In addition, there can be no assurance that
modification of employee compensation plans from those previously provided by
DuPont to those currently provided by the Company will not cause certain
employees to terminate their employment with the Company. See "Business --
Employees" and "Management -- Compensation of Company Employees."

SIGNIFICANT INTERNATIONAL OPERATIONS

Approximately 44% of the Company's sales in fiscal 1995 and approximately
42% of the Company's sales for the nine months ended March 31, 1996 were derived
from sales in foreign markets. The Company expects sales from foreign markets to
continue to represent a significant portion of total sales. The Company operates
three manufacturing facilities as well as sales and technical support service
centers in Europe and Asia. In addition, DPI is currently participating in the
construction of a manufacturing facility in Shanghai, China as part of a joint
venture arrangement with the Shanghai Institute of Metallurgy and intends to
construct a photomask manufacturing facility on a "greenfield" site near
Glasgow, Scotland. Certain risks are inherent in international operations,
including exposure to currency exchange rate fluctuations, political and
economic conditions, unexpected changes in regulatory requirements, exposure to
different legal standards, particularly with respect to intellectual property,
future import and export restrictions, difficulties in staffing and managing
operations, difficulties in collecting receivables and potentially adverse tax
consequences. There can be no assurance that the above factors will not have a
material adverse effect on the Company's business or results of operations. See
"Business -- Global Manufacturing and Operations."

9
<PAGE>
Prior to the Offering, DuPont managed the Company's exposure to fluctuations
in foreign currency exchange rates as part of DuPont's overall management of
exchange rate exposure for DuPont and its subsidiaries, as a whole, and no
separate hedging of the Company's foreign currency exchange exposure was
undertaken. However, following the Offering, the Company plans to independently
monitor its foreign currency exchange rate exposure and may attempt to reduce
such exposure in the future by hedging. There can be no assurance that the
Company will establish foreign currency exchange rate exposure controls, or if
established, that such controls will be adequate to eliminate, or even mitigate,
the impact of foreign currency exchange rate fluctuations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Other Matters."

NO INDEPENDENT OPERATING HISTORY PRIOR TO THE OFFERING

Prior to the Offering, the Company has been a wholly owned subsidiary of
DuPont, through DCEO, and has had no independent operating history. As a result,
following the Offering, the Company will be required to develop financial,
management, administrative, research and other resources previously provided by
DuPont, which are necessary to operate successfully as an independent public
company. In addition, the Company will have to develop its own system of
internal controls to ensure the reliability of its financial reporting. Although
the Company and DuPont have entered into several agreements that are, in part,
intended to ease the Company's transition to an independent public company,
there can be no assurance that the Company will be able to develop these
resources and controls. In particular, as a wholly owned subsidiary of DuPont,
the Company has benefited from its ability to finance its operations and growth,
in part, through funding provided by DuPont at favorable rates. Although the
Company will have access, subject to certain conditions, to a $30 million credit
facility provided by DuPont, there can be no assurance that alternative sources
of financing will be available upon the expiration of such facility in January
1998 or that alternative sources of funding will be available if DPI's borrowing
requirements exceed the amount of the facility. In addition, there can be no
assurance that even if funding is available, that the terms thereof will be
attractive to the Company. If such financing is not available, the Company may
be materially limited in its ability to fund capital expenditures and other
investments. See "-- Rapid Technological Change; Capital Intensive Industry,"
"-- Control by and Relationship with DuPont" and "Transactions and Relationship
Between the Company and DuPont -- Credit Facility."

Following the Offering, the Company will need to manage the risks associated
with the operation of its business, including general liability, property,
workers' compensation, catastrophic medical and business interruption. To manage
these risks, the Company intends to obtain insurance prior to the consummation
of the Offering. However, there can be no assurance that the Company will be
able to obtain insurance adequate to cover its risks and failure to secure such
insurance could have a material adverse effect on the Company should an
uninsured event occur.

FLUCTUATIONS IN QUARTERLY AND ANNUAL EARNINGS

The Company's quarterly and annual operating results are affected by a wide
variety of factors that could adversely affect sales or profitability or lead to
significant variability of operating results, which in turn could result in
volatility in the market price of the Company's Common Stock. These factors
include the volume and timing of orders shipped. Since the Company's business is
characterized by short term orders and shipment schedules without a significant
backlog for products, substantially all of the Company's sales in any quarter
are dependent upon orders received during that quarter, which limits the
Company's ability to respond to a changing business environment. In addition,
changes in the mix of products sold, market acceptance of the Company's and its
customers' products, competitive pricing pressures, the Company's ability to
meet increasing demand and delivery schedules, fluctuations in manufacturing
yields, fluctuations in currency exchange rates, cyclical semiconductor industry
conditions, the Company's access to advanced process technologies and the timing
and extent of product and process development costs could also affect operating
results. Moreover, the Company is limited in its ability to reduce costs quickly
in response to any revenue shortfalls due to the need to make ongoing and
significant capital investments. As a result of the foregoing and other factors,
there can be no assurance that the Company will not experience material adverse
fluctuations in future operating results on a quarterly or annual basis. Results
of operations in any period therefore should not be considered indicative of the
results to be expected for any future period, and

10
<PAGE>
fluctuations in operating results may also result in fluctuations in the market
price of the Company's Common Stock. See "-- Rapid Technological Change; Capital
Intensive Industry" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Quarterly Results of Operations."

RECENT LOSSES

Although the Company had net income of $4.1 million for the year ended June
30, 1995, and net income of $18.4 million for the nine months ended March 31,
1996, the Company reported losses before income taxes of $10.9 million and $37.6
million for fiscal 1994 and 1993, respectively. An important reason for these
losses was that fixed costs increased faster than sales as the Company added
capacity in the early 1990's. The Company anticipates adding capacity in the
near future. There can be no assurance that sales will increase correspondingly
as fixed costs increase or that the Company will be able to sustain
profitability in the future. See "-- Rapid Technological Change; Capital
Intensive Industry" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

CONTROL BY AND RELATIONSHIP WITH DUPONT

Upon the completion of the Offering, DuPont, through DCEO, will own
approximately 72% of the outstanding Common Stock (or 70% if the Underwriters'
overallotment option is exercised in full). As a result, DuPont will have
sufficient voting power to control the direction and policies of the Company,
including mergers, consolidations, the sale of all or substantially all of the
assets of the Company and the election of the Board of Directors of the Company,
and to prevent or cause a change in control of the Company. See "Principal
Stockholder and Stock Ownership."

Historically, the Company has derived certain tangible and intangible
benefits from being a subsidiary of DuPont. Subsequent to the consummation of
this Offering, the relationship between the Company and DuPont will be defined
pursuant to several transitional agreements. While these agreements will
continue to provide the Company with certain benefits, the Company is only
entitled to the ongoing assistance of DuPont for a limited time and it may not
enjoy benefits from its relationship with DuPont beyond the term of the
agreements, including benefits derived from DuPont's reputation, research and
development, supply of raw materials, trade names and trademarks and credit
support. There can be no assurance that the Company upon termination of such
assistance from DuPont will be able to provide adequately such services
internally or obtain favorable arrangements from third parties to replace such
services. See "-- No Independent Operating History Prior to the Offering" and
"Transactions and Relationship Between the Company and DuPont."

EFFECT OF SALES OF SUBSTANTIAL AMOUNTS OF COMMON STOCK

Subject to the restrictions described herein under "Shares Eligible for
Future Sale" and applicable law, DuPont will be free to sell any and all of the
shares of Common Stock of the Company that it indirectly owns. DuPont has
advised the Company that it expects to reduce its ownership interest in the
Company over time, subject to prevailing market and other conditions. No
predictions can be made as to the effect, if any, that market sales of such
shares, or the availability of such shares for future sale, will have on the
market price of the Common Stock. Sales of a significant number of such shares
in the public market could adversely affect prevailing market prices for the
Common Stock and could impair the Company's future ability to raise capital
through an offering of equity securities, which in turn could adversely affect
the Company's business or results of operations. Each of the Company and DCEO
has agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated, subject to certain exceptions. See
"Shares Eligible for Future Sale" and "Underwriters."

ABSENCE OF PRIOR PUBLIC TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq National
Market, there can be no assurance that an active trading market will develop or
be sustained after the Offering, or that purchasers of Common Stock will be able
to resell their Common Stock at prices equal to or greater than the initial
public offering price.

11
<PAGE>
The initial public offering price was determined by negotiations among the
Company and the Underwriters and may not be indicative of the prices that may
prevail in the public market. See "Underwriters." Furthermore, the market price
of the Common Stock may be highly volatile. Factors such as announcements of
fluctuations in the Company's or its competitors' operating results and market
conditions for growth stocks or technology stocks in general could have a
significant impact on the future price of the Common Stock. In particular, the
common stock of many technology companies have experienced extreme price and
volume fluctuations, which have at times been unrelated to the operating
performance of such companies whose stock prices were affected.

DILUTION INCURRED BY INVESTORS

The public offering price of $17.00 per share is substantially higher than
the net tangible book value per share of the Common Stock. Accordingly,
investors participating in the Offering will incur immediate and substantial
dilution in the amount of $6.87 per share. See "Dilution."

NO ANTICIPATED DIVIDENDS

The Company does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."

PROPRIETARY INFORMATION AND INTELLECTUAL PROPERTY

The Company believes that the success of its business depends primarily on
its proprietary technology, information and processes and know-how, rather than
on patents or trademarks. Much of the Company's proprietary information and
technology relating to manufacturing processes is not patented and may not be
patentable. There can be no assurance that the Company will be able to
adequately protect its technology, that competitors will not be able to develop
similar technology independently, that the claims allowed on any patents held by
the Company will be sufficiently broad to protect the Company's technology or
that foreign intellectual property laws will adequately protect the Company's
intellectual property rights. In addition, any litigation in the future to
enforce patents issued to the Company, to protect trade secrets or know-how
possessed by the Company or to defend the Company against claimed infringement
of the rights of others could have a material adverse effect on the Company's
business or operating results. See "Business -- Intellectual Property."

ENVIRONMENTAL MATTERS

Federal, state, local and foreign laws and regulations impose various
environmental controls on, among other things, the discharge of pollutants into
the air and water and the handling, use, storage, disposal and clean-up of solid
and hazardous wastes. As a result, the Company will incur costs, on an ongoing
basis, associated with environmental regulatory compliance. In addition, more
stringent environmental laws and regulations may be enacted in the future, which
may require the Company to expend additional amounts on environmental compliance
or may require modifications in the Company's operations. Any failure by the
Company to adequately comply with such laws and regulations could subject the
Company to significant future liabilities. See "Business -- Environmental
Matters."

USE OF PROCEEDS

The estimated net proceeds from the sale of the Common Stock offered hereby,
after deducting estimated offering expenses and the underwriting discounts and
commissions payable by the Company, are approximately $63 million. The Company
will retain an amount, currently estimated at $9.1 million, of such proceeds;
such that, upon the consummation of the Offering, it will have approximately $18
million in cash and cash equivalents, which will be available for general
corporate purposes, including working capital and capital expenditures.

The Company will use the remaining $53.5 million of such proceeds to repay
indebtedness owed to DCEO under a master note agreement, which is payable on
demand and currently bears interest at 5.38% (the "Master Note"). The
indebtedness incurred by the Company from time to time under the Master Note was
used for acquisitions, capital expenditures and working capital. If the
Underwriters' overallotment option is exercised in full, the net proceeds from
the sale of such shares of Common Stock by the Company, estimated to be
approximately $9 million, will also be used to repay indebtedness owed to DCEO
under the

12
<PAGE>
Master Note. The remaining balance owed under the Master Note, upon completion
of the repayment described above, will be contributed as equity capital to the
Company by DCEO. See "Transactions and Relationship Between the Company and
DuPont -- Realignment of Photomask Business."

DIVIDEND POLICY

The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of dividends, if any, will be
subject to the discretion of the Company's Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, statutory
restrictions and other factors deemed to be relevant by the Board of Directors.
See "Risk Factors -- No Anticipated Dividends."

DILUTION

The net tangible book value of the Company as of March 31, 1996 was $(31.3)
million, or $(2.98) per outstanding share of Common Stock after giving effect to
the issuance of one million shares to DCEO for nominal consideration subsequent
to March 31, 1996. The net tangible book value per share represents the amount
of total tangible assets less total liabilities of the Company, divided by the
number of shares of Common Stock outstanding following the realignment of the
photomask business as described herein but prior to the Offering. After giving
effect to the sale by the Company of 4,000,000 shares of Common Stock in the
Offering at an initial public offering price of $17.00 per share, after
deduction of underwriting discounts and commissions and estimated offering
expenses and following the capital contribution by DCEO described under "Use of
Proceeds," the pro forma net tangible book value of the Company at March 31,
1996, would have been $146.9 million, or $10.13 per outstanding share of Common
Stock. This represents an immediate dilution in net tangible book value of $6.87
per share to the purchasers of shares of Common Stock in the Offering. Dilution
is determined by subtracting net tangible book value per share of Common Stock
after the Offering from the amount of cash paid by a new investor for a share of
Common Stock. The following table illustrates the dilution per share of Common
Stock:

<TABLE>
<S> <C> <C>
Initial public offering price per share................... $ 17.00
Net tangible book value per share......................... $ (2.98)
Increase in net tangible book value per share attributable
to capital contributions by DCEO......................... 11.01
Increase in net tangible book value per share attributable
to investors in the Offering............................. 2.10
Pro forma net tangible book value per share after the
Offering................................................. 10.13
---------
Dilution to new investors................................. $ 6.87
---------
---------
</TABLE>

The following table summarizes, on the basis of the assumptions referred to
above, the number of shares to be retained by DuPont and to be purchased by new
investors in the Offering, and the total consideration and the average price per
share paid by DuPont and the new investors:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- --------------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DuPont........................... 10,500,000 72% $ 88,427,000 59% $ 8.42
New Investors.................... 4,000,000 28 62,580,000 41 $ 15.65
------------ --- -------------- ---
Total (1).................... 14,500,000 100% $ 151,007,000 100%
------------ --- -------------- ---
------------ --- -------------- ---
</TABLE>

- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans.

13
<PAGE>
CAPITALIZATION

The following table sets forth the combined capitalization of the Company as
of March 31, 1996, pro forma as of March 31, 1996 assuming the capital
contributions by DCEO and as adjusted to reflect the Offering at a public
offering price of $17.00 per share and the application of the estimated net
proceeds as described herein under "Use of Proceeds."

<TABLE>
<CAPTION>
PRO FORMA, AS
ACTUAL PRO FORMA (1) ADJUSTED (1)
---------- ------------- --------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Short Term Borrowings (2).............................................. $ 4,691 $ 4,691 $ 4,691
---------- ------------- --------------
---------- ------------- --------------
Long Term Borrowings (2)............................................... $ 8,987 $ 8,987 $ 8,987
DuPont Master Notes (3)................................................ 162,320 53,471 --
Owner's Net Investment/Shareholders' Equity:
Owner's Net Investment............................................... (36,472) 79,077 --
Common Stock, $.01 par value; 25,000,000 shares authorized;
14,500,000 shares issued and outstanding for pro forma, as adjusted
(4)................................................................. -- -- 145
Additional Paid-in Capital........................................... -- -- 141,512
Unrealized Holding Gains............................................. 9,350 9,350 9,350
---------- ------------- --------------
Total Capitalization................................................... $ 144,185 $ 150,885 $ 159,994
---------- ------------- --------------
---------- ------------- --------------
</TABLE>

- ------------------------
(1) See "Pro Forma Combined Financial Statements."

(2) For a description of the Company's borrowings, see Note 15 to the Combined
Financial Statements for the nine months ended March 31, 1996.

(3) For a description of the Master Note, see "Use of Proceeds."

(4) Excludes shares of Common Stock granted under the Company's employee benefit
plans.

14
<PAGE>
SELECTED COMBINED FINANCIAL DATA

The following tables set forth selected combined historical and pro forma
financial data of the Company. The historical statement of operations data for
the three years ended June 30, 1995 and the nine months ended March 31, 1996 and
the historical statement of financial position data as of June 30, 1995 and 1994
and March 31, 1996 have been derived from the Combined Financial Statements
audited by Price Waterhouse LLP, independent accountants. The results for the
nine months ended March 31, 1995 have been derived from the unaudited combined
financial statements also appearing herein. The unaudited combined financial
statements, in the opinion of management, include all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of the
results for the unaudited period. The results for the nine months ended March
31, 1996 are not necessarily indicative of results to be expected for the full
fiscal year. The pro forma financial data have been derived from the Pro Forma
Combined Financial Statements which were prepared by the Company to illustrate
the estimated effects of the Offering and related transactions described in the
Notes to the Pro Forma Combined Financial Statements as if the Offering and
related transactions had occurred as of July 1, 1994 for purposes of the pro
forma combined statements of operations and as of March 31, 1996 for purposes of
the pro forma combined statement of financial position. The Pro Forma Combined
Financial Statements do not purport to represent what the results of operations
or financial position of the Company would actually have been if the Offering
and related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. The following data should be read in conjunction with, and are
qualified by reference to, the Combined Financial Statements, the Pro Forma
Combined Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
PRO FORMA,
PRO FORMA, AS AS ADJUSTED,
NINE MONTHS ENDED ADJUSTED, FOR FOR THE NINE
YEAR ENDED JUNE 30 MARCH 31 THE YEAR MONTHS ENDED
---------------------------------- ---------------------- ENDED JUNE MARCH 31,
1993 1994 1995 1995 1996 30, 1995 (1) 1996 (1)
---------- ---------- ---------- ---------- ---------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Sales....................... $ 118,896 $ 134,548 $ 161,514 $ 116,670 $ 152,192 $ 161,514 $ 152,192
Cost of Goods Sold................ 112,224 107,456 117,022 85,745 98,717 115,368 97,724
Selling, General and
Administrative Expense........... 18,630 20,750 21,803 16,017 18,164 22,585 19,214
Research and Development Expense
-- Net........................... 8,337 8,131 8,777 6,385 6,955 7,260 6,113
Other Operating (Income) Expense
-- Net........................... 8,497 2,940 3,490 2,317 3,219 3,156 2,941
---------- ---------- ---------- ---------- ---------- ------------- ------------
Operating Profit (Loss)........... (28,792) (4,729) 10,422 6,206 25,137 13,145 26,200
Interest Expense.................. 9,196 5,814 6,957 5,054 5,091 59 102
Exchange (Gain) Loss.............. (430) 322 (493) (476) 228 (665) (68)
---------- ---------- ---------- ---------- ---------- ------------- ------------
Income (Loss) Before Income Taxes
and Minority Interest............ (37,558) (10,865) 3,958 1,628 19,818 13,751 26,166
Provision for Income Taxes........ -- -- -- -- 1,899 3,712 9,158
---------- ---------- ---------- ---------- ---------- ------------- ------------
Income (Loss) Before Minority
Interest......................... (37,558) (10,865) 3,958 1,628 17,919 10,039 17,008
Minority Interest in Income (Loss)
of Majority Owned Joint
Venture.......................... -- -- (161) (82) (483) (161) (483)
---------- ---------- ---------- ---------- ---------- ------------- ------------
Net Income (Loss)................. $ (37,558) $ (10,865) $ 4,119 $ 1,710 $ 18,402 $ 10,200 $ 17,491
---------- ---------- ---------- ---------- ---------- ------------- ------------
---------- ---------- ---------- ---------- ---------- ------------- ------------
Pro Forma Net Income Per Share.... $ 0.70 $ 1.20
Pro Forma Weighted Average Shares
Outstanding...................... 14,606 14,606
</TABLE>

15
<PAGE>

<TABLE>
<CAPTION>
MARCH 31, 1996
JUNE 30 -----------------------------------------
---------------------- PRO FORMA, AS
1994 1995 ACTUAL PRO FORMA (1) ADJUSTED (1)
---------- ---------- ---------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Cash and Cash Equivalents..................... $ 3,924 $ 8,412 $ 8,891 $ 8,891 $ 18,000
Working Capital............................... 22,853 16,405 13,250 25,818 34,927
Net Property, Plant and Equipment............. 112,043 113,124 114,231 114,231 114,231
Total Assets.................................. 160,901 171,701 190,347 194,849 203,958
Long Term Borrowings.......................... 6,704 4,265 8,987 8,987 8,987
DuPont Master Notes........................... 140,846 125,570 162,320 53,471 --
Owner's Net Investment/Shareholders' Equity... (7,229) 5,082 (36,472) 79,077 141,657
Unrealized Holding Gains...................... -- -- 9,350 9,350 9,350
</TABLE>

- ------------------------
(1) The Selected Combined Pro Forma Financial Data are derived from the
Company's Pro Forma Combined Financial Statements appearing elsewhere in
this Prospectus. The Pro Forma Combined Financial Statements were prepared
by the Company to illustrate the estimated effects of the Offering and
related transactions described in the Notes to the Pro Forma Combined
Financial Statements as if they had occurred as of July 1, 1994 for purposes
of the Pro Forma Combined Statements of Operations and as of March 31, 1996
for purposes of the Pro Forma Combined Statement of Financial Position. See
"Pro Forma Combined Financial Statements."

SELECTED FIVE-YEAR DATA
(IN THOUSANDS)

<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED JUNE 30
----------------------------------------------------------
1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Total Sales.......................................... $ 105,229 $ 119,522 $ 118,896 $ 134,548 $ 161,514
Net Income (Loss).................................... (33,725) (35,429) (37,558) (10,865) 4,119
Total Assets......................................... 189,935 185,298 176,953 160,901 171,701
Third Party Borrowings............................... 34,621 35,533 3,731 8,090 7,225
DuPont Master Notes.................................. 126,236 136,786 142,841 140,846 125,570
</TABLE>

16
<PAGE>
PRO FORMA COMBINED FINANCIAL STATEMENTS

The following tables set forth Pro Forma Combined Financial Statements of
the Company for the year ended June 30, 1995 and as of and for the nine months
ended March 31, 1996. The pro forma financial statements were prepared by the
Company to illustrate the estimated effects of the Offering and related
transactions described in the Notes to Pro Forma Combined Financial Statements
as if they had occurred as of July 1, 1994 for purposes of the pro forma
combined statements of operations and as of March 31, 1996 for purposes of the
pro forma combined statement of financial position. The Pro Forma Combined
Financial Statements do not purport to represent what the results of operations
or financial position of the Company would actually have been if the Offering
and related transactions had in fact occurred on such dates or to project the
results of operations or financial position of the Company for any future period
or date. The Pro Forma Combined Financial Statements should be read together
with the Combined Financial Statements of the Company and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION AS OF MARCH 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING
HISTORICAL PRO FORMA ADJUSTMENTS PRO FORMA ADJUSTMENTS
---------- --------------------- --------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents.............................. $ 8,891 $ $ 8,891 $ 9,109(2)
Accounts Receivable, Trade -- Net...................... 29,580 29,580
Accounts Receivable, Related Parties................... 2,331 2,331
Accounts and Notes Receivable, Miscellaneous........... 3,405 3,405
Inventories............................................ 8,158 8,158
Deferred Income Taxes.................................. 2,484(3) 2,484
Prepaid Expenses and Other Current Assets.............. 472 472
---------- ---------- --------- ------------
Total Current Assets................................... 52,837 2,484 55,321 9,109
Net Property, Plant and Equipment...................... 114,231 114,231
Accounts Receivable, Related Parties -- Non-Current.... 1,835 1,835
Deferred Income Taxes.................................. 2,156 2,018(3) 4,174
Other Assets........................................... 19,288 19,288
---------- ---------- --------- ------------
Total Assets....................................... $190,347 $ 4,502 $194,849 $ 9,109
---------- ---------- --------- ------------
---------- ---------- --------- ------------
LIABILITIES, DUPONT MASTER NOTES AND
OWNER'S NET INVESTMENT / SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable, Trade................................ $ 4,791 $ $ 4,791 $
Accounts Payable, Related Parties...................... 15,867 (8,129)(4) 7,738
Accounts Payable, Miscellaneous........................ 1,740 1,740
Short Term Borrowings.................................. 4,691 4,691
Other Accrued Liabilities.............................. 12,498 (1,955)(1) 10,543
---------- ---------- ---------
Total Current Liabilities.......................... 39,587 (10,084) 29,503
Long Term Borrowings................................... 8,987 8,987
Deferred Income Taxes.................................. 7,886(3) 7,886
Other Liabilities...................................... 5,526 5,526
Minority Interest in Net Assets of Majority Owned
Joint Venture......................................... 1,049 1,049
DuPont Master Notes.................................... 162,320 (108,849)(4) 53,471 (53,471)(2)
Owner's Net Investment / Shareholders' Equity.......... (36,472) 115,549 (1)(3)(4) 79,077 62,580(2)
Unrealized Holding Gains............................... 9,350 9,350
---------- ---------- --------- ------------
Total Liabilities, DuPont Master Notes and Owner's
Net Investment / Shareholders' Equity............. $190,347 $ 4,502 $194,849 $ 9,109
---------- ---------- --------- ------------
---------- ---------- --------- ------------

<CAPTION>
PRO FORMA,
AS ADJUSTED
-----------

<S> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents.............................. $ 18,000
Accounts Receivable, Trade -- Net...................... 29,580
Accounts Receivable, Related Parties................... 2,331
Accounts and Notes Receivable, Miscellaneous........... 3,405
Inventories............................................ 8,158
Deferred Income Taxes.................................. 2,484
Prepaid Expenses and Other Current Assets.............. 472
-----------
Total Current Assets................................... 64,430
Net Property, Plant and Equipment...................... 114,231
Accounts Receivable, Related Parties -- Non-Current.... 1,835
Deferred Income Taxes.................................. 4,174
Other Assets........................................... 19,288
-----------
Total Assets....................................... $203,958
-----------
-----------
LIABILITIES, DUPONT MASTER NOTES AND
OWNER'S NET INVESTMENT / SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable, Trade................................ $ 4,791
Accounts Payable, Related Parties...................... 7,738
Accounts Payable, Miscellaneous........................ 1,740
Short Term Borrowings.................................. 4,691
Other Accrued Liabilities.............................. 10,543
-----------
Total Current Liabilities.......................... 29,503
Long Term Borrowings................................... 8,987
Deferred Income Taxes.................................. 7,886
Other Liabilities...................................... 5,526
Minority Interest in Net Assets of Majority Owned
Joint Venture......................................... 1,049
DuPont Master Notes.................................... --
Owner's Net Investment / Shareholders' Equity.......... 141,657
Unrealized Holding Gains............................... 9,350
-----------
Total Liabilities, DuPont Master Notes and Owner's
Net Investment / Shareholders' Equity............. $203,958
-----------
-----------
</TABLE>

See Notes to Pro Forma Combined Statement of Financial Position

17
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENT OF FINANCIAL POSITION

1. Adjustment reflects the retention of certain Company related payroll
liabilities by DuPont.

2. Adjustments reflect the Offering and the repayment of a portion of the
Master Note with the net proceeds of the Offering. The Company intends to
retain sufficient proceeds to have approximately $18 million in cash and
cash equivalents after the Offering.

3. Adjustments reflect deferred taxes arising from the fact that, following the
Offering, DPI's tax return will not be consolidated with that of DuPont's.
As a result, net operating losses, which were previously utilized by DuPont
and were assumed to be available solely for determining taxes under the
separate taxpayer approach in SFAS 109, will not be available to offset
deferred tax liabilities. Certain future tax benefits, aggregating $3.6
million, are included in Accounts Payable, Related Parties since such
amounts will be paid to DuPont when utilized pursuant to the terms of the
Tax Indemnification Agreement described herein. See "Transactions and
Relationship Between the Company and DuPont -- Tax Indemnification
Agreement."

4. Adjustments to the Master Note and Accounts Payable, Related Parties reflect
the contribution to capital by DCEO of the balances remaining outstanding
under the Master Note and Accounts Payable, Related Parties that were not
repaid with the proceeds of the Offering.

18
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1995
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ---------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales......................................... $ 155,146 $ $ 155,146 $ $ 155,146
Sales to Related Parties...................... 6,368 6,368 6,368
---------- ---------------- -------------
Total Sales................................... 161,514 161,514 161,514
Cost of Goods Sold............................ 117,022 (1,654)(1) 115,368 115,368
---------- ------------- ---------------- -------------
Gross Profit.................................. 44,492 1,654 46,146 46,146
Selling, General and Administrative Expense... 21,803 782(2) 22,585 22,585
Research and Development Expense -- Net....... 8,777 (1,517)(3) 7,260 7,260
Other Operating (Income) Expense -- Net....... 3,490 (334)(4) 3,156 3,156
---------- ------------- ---------------- -------------
Operating Profit.............................. 10,422 2,723 13,145 13,145
Interest Expense.............................. 6,957 (4,444)(5) 2,513 (2,454)(5) 59
Exchange (Gain) Loss.......................... (493) (172)(6) (665) (665)
---------- ------------- ---------------- ------------ -------------
Income Before Income Taxes and Minority
Interest..................................... 3,958 7,339 11,297 2,454 13,751
Provision for Income Taxes.................... -- 3,050(7) 3,050(7) 662(7) 3,712
---------- ------------- ---------------- ------------ -------------
Income Before Minority Interest............... 3,958 4,289 8,247 1,792 10,039
Minority Interest in Income (Loss) of Majority
Owned Joint Venture.......................... (161) (161) (161)
---------- ------------- ---------------- ------------ -------------
Net Income.................................... $ 4,119 $ 4,289 $ 8,408 $ 1,792 $ 10,200
---------- ------------- ---------------- ------------ -------------
---------- ------------- ---------------- ------------ -------------
Pro Forma Net Income Per
Common Share................................. $ 0.70
Pro Forma Weighted Average Shares
Outstanding.................................. 14,606(8)
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

19
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA OFFERING PRO FORMA,
HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
---------- ------------- ------------- ------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Sales.......................................... $ 145,471 $ $ 145,471 $ $ 145,471
Sales to Related Parties....................... 6,721 6,721 6,721
---------- ------------- --------------
Total Sales.................................... 152,192 152,192 152,192
Cost of Goods Sold............................. 98,717 (993)(1) 97,724 97,724
---------- ------------- ------------- --------------
Gross Profit................................... 53,475 993 54,468 54,468
Selling, General and Administrative Expense.... 18,164 1,050(2) 19,214 19,214
Research and Development Expense -- Net........ 6,955 (842)(3) 6,113 6,113
Other Operating (Income) Expense -- Net........ 3,219 (278)(4) 2,941 2,941
---------- ------------- ------------- --------------
Operating Profit............................... 25,137 1,063 26,200 26,200
Interest Expense............................... 5,091 (3,574)(5) 1,517 (1,415)(5) 102
Exchange (Gain) Loss........................... 228 (296)(6) (68) (68)
---------- ------------- ------------- ------------- --------------
Income Before Income Taxes and Minority
Interest...................................... 19,818 4,933 24,751 1,415 26,166
Provision for Income Taxes..................... 1,899 6,764(7) 8,663(7) 495(7) 9,158
---------- ------------- ------------- ------------- --------------
Income before Minority Interest................ 17,919 (1,831) 16,088 920 17,008
Minority Interest in Income (Loss) of Majority
Owned Joint Venture........................... (483) (483) (483)
---------- ------------- ------------- ------------- --------------
Net Income..................................... $ 18,402 $ (1,831) $ 16,571 $ 920 $ 17,491
---------- ------------- ------------- ------------- --------------
---------- ------------- ------------- ------------- --------------
Pro Forma Net Income Per
Common Share.................................. $ 1.20
Pro Forma Weighted Average Shares
Outstanding................................... 14,606(8)
</TABLE>

See Notes to Pro Forma Combined Statements of Operations

20
<PAGE>
NOTES TO PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JUNE 30, 1995 MARCH 31, 1996
------------- ------------------
<C> <S> <C> <C> <C>
1. Adjustments to cost of goods sold reflect the following:
Changes in benefit plans............................................ (a) $ (567) $ (335)
Elimination of DuPont allocated overhead expenses................... (b) (3,086) (1,761)
Additional contracted services and employees........................ (c) 1,999 1,103
------------- -------
$ (1,654) $ (993)
------------- -------
------------- -------

2. Adjustments to selling, general and administrative expense reflect the following:
Changes in benefit plans............................................ (a) $ (111) $ (100)
Elimination of DuPont allocated overhead expenses................... (b) (6,573) (3,572)
Additional contracted services and employees........................ (c) 6,566 4,047
Stock Performance Plan.............................................. (d) 900 675
------------- -------
$ 782 $ 1,050
------------- -------
------------- -------

3. Adjustments to research and development expense reflect the following:
Changes in benefit plans............................................ (a) $ (34) $ (29)
Elimination of DuPont allocated overhead expenses................... (b) (1,966) (1,063)
Additional contracted services and employees........................ (c) 483 250
------------- -------
$ (1,517) $ (842)
------------- -------
------------- -------

4. Adjustments to other operating expense reflect the following:
Elimination of DuPont allocated overhead expenses................... (b) $ (560) $ (396)
Additional contracted services and employees........................ (c) 226 118
------------- -------
$ (334) $ (278)
------------- -------
------------- -------
</TABLE>

5. Adjustment to interest expense, at a weighted average interest rate of 5% and
4% for the year ended June 30, 1995 and the nine months ended March 31, 1996,
respectively, reflects the reductions in the DuPont Master Note from the
contribution to capital by DCEO of the balance of the Master Note not repaid
with proceeds of the Offering and the partial repayment of the Master Note
with estimated net proceeds from the Offering.

6. Adjustment to exchange (gain) loss reflects the payment of dividends to
DuPont de Nemours (Deutschland) GmbH by DuPont Photomasks GmbH & Co. KG and
the refinancing of DuPont Photomasks (France) S.A.'s Master Note to U.S.
Dollars.

7. Federal, state and foreign income taxes have been computed using an estimated
combined effective rate of 27% for the year ended June 30, 1995 and 35% for
the nine months ended March 31, 1996. For the year ended June 30, 1995, the
estimated combined effective rate differs from the U.S. statutory rate
primarily due to the Company's tax exemption in Korea. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

8. The number of shares have been computed based on the Offering and the
realignment of the photomask business as described under "Transactions and
Relationship Between the Company and DuPont -- Realignment of Photomask
Business" in this Prospectus. The number of shares includes the estimated
number of shares of restricted stock to be issued under DPI's Stock
Performance Plan.
- ------------------------
Footnotes:

a. CHANGES IN BENEFIT PLANS. The Company will not continue to provide DuPont's
postretirement or postemployment benefits to employees and will replace
DuPont's defined benefit pension plan with a

21
<PAGE>
defined contribution retirement plan. The impact of these changes in
benefits will be the elimination of benefits expense related to discontinued
DuPont plans of $1,491 for the year ended June 30, 1995 and $1,145 for the
nine months ended March 31, 1996, and the addition of expense related to the
Company's defined contribution retirement plan of $779 for the year ended
June 30, 1995 and $681 for the nine months ended March 31, 1996. See
"Management -- Compensation of Company Employees."

b. ELIMINATION OF DUPONT ALLOCATED OVERHEAD EXPENSES. Represents the
elimination of DuPont allocated overhead expenses that are not expected to
be incurred by the Company following the Offering.

c. ADDITIONAL CONTRACTED SERVICES AND EMPLOYEES. Represents the addition of
services to be provided by third parties or DuPont pursuant to transitional
administrative services agreements with DuPont and its subsidiaries and
additional employees assumed to be hired by the Company to replace those
services previously provided by DuPont. See "Transactions and Relationship
Between the Company and DuPont -- Administrative Services Agreements."

d. STOCK PERFORMANCE PLAN. Represents the compensation expense the Company
will recognize related to restricted stock granted under its Stock
Performance Plan. The Company estimates that it will recognize approximately
$1,800 of expense related to the Plan during the two years following the
Offering. See "Management -- Compensation of Company Employees --
Compensation of DPI Employees in 1996 -- Stock Performance Plan."

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with the Combined
Financial Statements of the Company appearing elsewhere in this Prospectus.
Prior to the Offering, DPI was reincorporated in Delaware, and DuPont's foreign
photomask operations were realigned so that these operations would be conducted
by wholly owned subsidiaries of DPI. See "Transactions and Relationship Between
the Company and DuPont -- Realignment of Photomask Business." The pro forma
information, which is presented herein to facilitate additional analysis, should
be read in conjunction with the Pro Forma Combined Financial Statements
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
references to years with respect to the Company's financial condition and
results of operations in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" are to fiscal years.

OVERVIEW

DuPont, which currently owns, through DCEO, 100% of the outstanding Common
Stock of DPI, entered the photomask market in 1986 with the acquisition of Tau
Laboratories, a merchant photomask supplier whose principal customers were
Delco/General Motors and Motorola. From this base, DuPont embarked on a strategy
to establish a global presence that would enable it to respond to the needs of
multi-national semiconductor manufacturers. As part of this strategy, DuPont (i)
purchased assets of numerous captive photomask operations, (ii) acquired
merchant photomask companies and (iii) constructed "greenfield" sites in Round
Rock, Texas (1987) and Ichon, Korea (1991). In addition, the Company is
currently participating in the construction of a manufacturing facility in
Shanghai, China as part of a joint venture arrangement and is planning to
construct a "greenfield" site near Glasgow, Scotland. See "Business -- DuPont
Photomasks."

During the late 1980's and early 1990's, the photomask market was relatively
flat. While growth in semiconductor manufacturing and new semiconductor designs
generated demand for new photomasks throughout this period, the Company believes
that this underlying growth was offset by advances in semiconductor and
photomask design and production methods that significantly reduced the number of
photomasks required to manufacture a semiconductor device, thereby slowing the
growth of photomask unit sales. See "Business -- Industry Background." The
Company believes that the weak market conditions during this period, in part,
led to the poor financial performance of several merchant photomask
manufacturers, including the Company, which had net losses of $10.9 million and
$37.6 million in 1994 and 1993, respectively. See "Risk Factors -- Recent
Losses."

Since 1993, growth in the photomask market has resumed. The Company's total
sales grew from $118.9 million in 1993 to $161.5 million in 1995. This increase
of approximately 36% was primarily the result of an accelerating trend in the
semiconductor industry toward semiconductor device customization, which
generates demand for new photomasks, and semiconductor device complexity, which
increases the value and number of photomask layers needed to produce a
semiconductor device. In addition, the proliferation of semiconductor devices
into new products and markets contributed to the increase in total sales. See
"Business -- Industry Background." The Company's sales also became more
diversified internationally. North American sales amounted to approximately 65%
of the Company's total sales in 1993 compared to 56% in 1995, while sales in
Europe and Asia accounted for approximately 20% and 15% of sales, respectively,
in 1993 compared to 26% and 18% in 1995. Sales in Europe grew approximately 73%
from 1993 to

23
<PAGE>
1995 from $24.2 million to $42.0 million. The increase in European sales was
primarily attributable to increased growth from certain of the Company's major
customers and the impact of a full year of sales to an affiliate of Philips
Electronics N.V. ("Philips") following the acquisition of selected photomask
manufacturing assets from Philips in mid-1993. Sales in Asia grew approximately
69% from 1993 to 1995 from $17.4 million in 1993 to $29.5 million in 1995, as a
result of the growth experienced by semiconductor manufacturers in Korea. The
Company expects net sales from foreign markets to continue to represent a
significant portion of total sales. Certain risks are inherent in international
operations, including exposure to currency exchange rate fluctuations. See "Risk
Factors -- Significant International Operations" and "-- Other Matters."

Due to the capital intensive nature of photomask manufacturing operations,
at a given level of manufacturing capacity, a high proportion of the Company's
operating costs remains relatively constant as sales volumes increase or
decrease. To the extent that the Company has underutilized production capacity,
profit margins increase or decrease significantly, as sales volumes increase or
decrease. In the early 1990's, the Company had excess capacity; therefore, as
total sales increased from 1993 to 1995, fixed costs associated with
manufacturing remained relatively unchanged, and the Company's gross margins
over the period benefited from this operating leverage. In addition, fixed costs
were reduced by the closure of two of the Company's photomask facilities and the
subsequent consolidation of production into other facilities. The Company has,
for the most part, fully utilized its existing capacity, and anticipates that
fixed operating costs will increase as it adds capacity to position itself for
future growth. See "Risk Factors -- Rapid Technological Change; Capital
Intensive Industry," "Risk Factors -- Recent Losses" and "Business -- Industry
Background."

RESULTS OF OPERATIONS

The following table sets forth the Company's combined statement of
operations data as a percentage of sales for the periods indicated.

<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
FISCAL YEARS ENDED JUNE 30 31
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Sales................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold.......................................... 94.4 79.9 72.5 73.5 64.9
----- ----- ----- ----- -----
Gross Profit................................................ 5.6 20.1 27.5 26.5 35.1
Selling, General and Administrative Expense................. 15.7 15.4 13.5 13.7 11.9
Research and Development Expense -- Net..................... 7.0 6.0 5.4 5.5 4.6
Other Operating (Income) Expense -- Net..................... 7.1 2.2 2.2 2.0 2.1
----- ----- ----- ----- -----
Operating Profit (Loss)..................................... (24.2) (3.5) 6.4 5.3 16.5
Interest Expense............................................ 7.7 4.3 4.2 4.3 3.3
Exchange (Gain) Loss........................................ (0.4) 0.2 (0.3) (0.4) 0.2
----- ----- ----- ----- -----
Income (Loss) Before Income Taxes and Minority Interest..... (31.5) (8.0) 2.5 1.4 13.0
Provision for Income Taxes.................................. -- -- -- -- 1.2
----- ----- ----- ----- -----
Income (Loss) Before Minority Interest...................... (31.5) (8.0) 2.5 1.4 11.8
Minority Interest in Income (Loss) of Majority Owned Joint
Venture.................................................... -- -- -- (0.1) (0.3)
----- ----- ----- ----- -----
Net Income (Loss)........................................... (31.5)% (8.0)% 2.5% 1.5% 12.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

YEAR ENDED JUNE 30, 1995 COMPARED TO YEAR ENDED JUNE 30, 1994

TOTAL SALES. Total sales is comprised primarily of photomask sales to
semiconductor manufacturers and, to a lesser extent, photoblank and pellicle
sales to other photomask manufacturers. Total sales also includes sales to
related parties, including sales to DuPont operations acting as distributors and
a partnership with DNP. These related party sales have historically accounted
for less than 5% of total sales. Total

24
<PAGE>
sales increased 20.0% from $134.5 million in 1994 to $161.5 million in 1995. Of
the total sales in 1995, less than 10% represents sales of photoblanks and
pellicles to other photomask suppliers. Overall, sales in North America
increased from $81.7 million in 1994 to $90.1 million in 1995; sales in Europe
increased from $31.1 million in 1994 to $42.0 million in 1995; and sales in Asia
increased from $21.7 million in 1994 to $29.5 million in 1995. In addition to a
general increase in demand for most types of photomasks, the increase in total
sales reflects a shift in demand toward the Company's more advanced photomasks,
which tend to have higher average selling prices. This shift in demand reflects
the trend toward greater utilization of more complex semiconductor devices with
finer line-widths. See "Business -- Industry Background."

COST OF GOODS SOLD. Cost of goods sold consists of material, labor,
depreciation and manufacturing and service overhead. Cost of goods sold
increased from $107.5 million in 1994 to $117.0 million in 1995. However, as a
percentage of total sales, cost of goods sold decreased from 79.9% in 1994 to
72.5% in 1995. As a result, gross profit as a percentage of total sales
increased from 20.1% in 1994 to 27.5% in 1995. The improvement primarily
reflects the Company's improved capacity utilization. In addition, the Company
increased the proportion of internally-sourced photoblanks and pellicles used in
its photomask manufacturing, which improved capacity utilization in the
manufacture of these materials. As a result, photoblank and pellicle costs as a
percentage of sales were reduced and margins on photomasks improved. Gross
profit was also improved by lower depreciation and amortization costs of $1.3
million and $1.2 million, respectively, as equipment and intangibles associated
with acquisitions in the late 1980's became fully depreciated and amortized. The
Company does not anticipate that benefits from decreased depreciation and
amortization costs will recur in the near future, as the Company invests in new
capacity to meet anticipated growth in photomask demand. See "Risk Factors --
Rapid Technological Change; Capital Intensive Industry" and "-- Recent Losses."

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense includes salaries of sales personnel, marketing expense,
general and administrative expense and finished product distribution expense.
Selling, general and administrative expense increased from $20.8 million in 1994
to $21.8 million in 1995. However, selling, general and administrative expense
decreased as a percentage of sales from 15.4% in 1994 to 13.5% in 1995. The
percentage decrease resulted primarily from greater efficiencies associated with
sales volume increases. General and administrative expense principally include
allocated costs for services provided by centralized DuPont organizations. These
allocated costs are not necessarily indicative of the costs that would have been
incurred by the Company if the Company had been an independent company. See Note
2 to the Pro Forma Combined Statements of Operations and Note 3 to the Combined
Financial Statements appearing elsewhere in this Prospectus.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense consists
primarily of employee cost, cost of material consumed, depreciation of
equipment, engineering related costs and the Company's allocated share of
DuPont's central research and development costs. Research and development
expense for 1995 was $8.8 million compared to $8.1 million in 1994, reflecting
the Company's continuing focus on developing advanced photomasks. However, as a
percentage of sales, research and development expense declined slightly compared
to the prior year, reflecting increased sales. Research and development expense
is net of funds the Company received from customers, industry groups such as
SEMATECH Inc. ("SEMATECH") and the Joint European Submicron Strategic Initiative
("JESSI") and governmental sources in the amount of $1.6 million and $0.5
million for 1994 and 1995, respectively. The Company's allocated share of
DuPont's central research and development costs was $2.4 million and $2.0
million in 1994 and 1995, respectively. The Company anticipates that research
and development expense will continue to increase in absolute terms in the
future, reflecting the Company's strategy of advancing its technological
leadership. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry" and "Business -- Research and Development."

OTHER OPERATING (INCOME) EXPENSE. Other operating (income) expense consists
primarily of miscellaneous costs not directly related to the manufacture of the
Company's products. Historically, a significant portion of this item has been
the expense associated with the early retirement of equipment resulting from

25
<PAGE>
technological obsolescence. The timing and amount of these retirements are
uncertain and difficult to predict. Other operating expense for 1994 was $2.9
million compared to $3.5 million in 1995. This increase reflects additional
pre-production costs associated with the Company's joint venture in Shanghai,
China.

INTEREST EXPENSE. The Company's interest expense increased from $5.8
million in 1994 to $7.0 million in 1995, reflecting higher interest rates. The
primary source of interest expense is the Company's Master Notes arrangement
with DuPont. As part of the Realignment of DuPont's photomask business, the
DuPont Master Notes were consolidated into a single Master Note. See
"Transactions and Relationship Between the Company and DuPont -- Realignment of
Photomask Business." A portion of the net proceeds from the Offering will be
used to repay indebtedness under the Master Note. Any remaining balance under
the Master Note will be contributed as equity capital to the Company by DCEO.
See "Use of Proceeds," "-- Liquidity and Capital Resources" and "Transactions
and Relationship Between the Company and DuPont -- Credit Facility." Interest
expense also includes amounts paid pursuant to other long-term borrowings and
capital leases. See Notes 8, 15 and 16 to the Combined Financial Statements.

EXCHANGE (GAIN) LOSS. Exchange (Gain) Loss consists of gains and losses
resulting from the remeasurement of the Company's monetary assets and
liabilities denominated in foreign currencies into U.S. Dollars, which is the
Company's functional currency. The Company incurred a $0.3 million exchange loss
in 1994 compared to a $0.5 million exchange gain in 1995 primarily due to
fluctuations of the U.S. Dollar compared to the German Mark and French Franc.
The Company does not currently hedge against foreign exchange risks. See "Risk
Factors -- Significant International Operations" and "-- Other Matters."

PROVISION FOR INCOME TAXES. Tax expense has been allocated by applying the
asset and liability method set forth in SFAS 109 to each of the Company's
operations as if it were a separate taxpayer. Under this approach the Company's
effective tax rate was 0% in 1994 and 1995, as a result of net operating loss
carryforwards in the U.S. and Europe and a Korean tax exemption, pursuant to
which the Company is exempt from paying taxes on earnings arising from current
investments in Korea. In actuality, the Company's results were included in the
consolidated tax returns filed by DuPont and the tax benefits of prior years
losses were realized by DuPont. See Note 10 to the Combined Financial
Statements. The Company will continue to enjoy the full benefits of the tax
exemption in Korea until 2001 and a partial benefit thereafter until the tax
exemption terminates in 2003.

YEAR ENDED JUNE 30, 1994 COMPARED TO YEAR ENDED JUNE 30, 1993

TOTAL SALES. Total sales increased 13.2% from $118.9 million in 1993 to
$134.5 million in 1994, reflecting generally stronger demand for most types of
photomasks. Overall, sales in North America increased from $77.3 million in 1993
to $81.7 million in 1994; sales in Europe increased from $24.2 million in 1993
to $31.1 million in 1994; and sales in Asia increased from $17.4 million in 1993
to $21.7 million in 1994. An increase in the sales of more advanced photomasks,
which have higher average selling prices, also contributed to the total sales
increase in this period. This shift in demand for more advanced photomasks
reflects the trend toward greater utilization of more complex semiconductor
devices with finer line-widths. See "Business -- Industry Background." In
addition, total sales increased approximately $5 million from the full year
impact of sales to Philips pursuant to a supply agreement executed in mid-1993
in connection with the purchase of selected photomask manufacturing equipment
from Philips.

COST OF GOODS SOLD. Cost of goods sold decreased from $112.2 million in
1993 to $107.5 million in 1994. The principal reasons for this decrease were the
retirement of assets and staff reductions associated with the Company's shutdown
of its Danbury, Connecticut and Nijmegen, The Netherlands photomask
manufacturing facilities in 1993. In addition, lower amortization charges of
$1.3 million relating to intangibles associated with acquisitions in the late
1980's that became fully amortized contributed to the decrease. As a result of
the foregoing and the benefits of improved capacity utilization described above,
cost of goods sold, as a percentage of total sales, decreased from 94.4% in 1993
to 79.9% in 1994, and gross profits as a percentage of net sales increased from
5.6% in 1993 to 20.1% in 1994. See "-- Overview."

26
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased from $18.6 million in 1993 to $20.8 million in
1994. However, as a percentage of total sales, selling, general and
administrative expense decreased from 15.7% in 1993 to 15.4% in 1994, reflecting
greater efficiencies associated with sales volume increases.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
decreased slightly from $8.3 million in 1993 to $8.1 million in 1994. As a
percentage of sales, research and development expense declined from 7.0% in 1993
to 6.0% in 1994, reflecting increased sales. Research and development expense is
net of funds the Company received from customers, industry groups and
governmental sources in the amount of $1.9 million and $1.6 million for 1993 and
1994, respectively. The Company's allocated share of DuPont's central research
and development costs was $2.3 million and $2.4 million in 1993 and 1994,
respectively.

OTHER OPERATING (INCOME) EXPENSE. Other operating expense decreased from
$8.5 million in 1993 to $2.9 million in 1994. The decrease was primarily due to
a $5.2 million expense in 1993 related to the shutdown of photomask
manufacturing facilities in Danbury, Connecticut and Nijmegen, The Netherlands.

INTEREST EXPENSE. Interest expense decreased from $9.2 million in 1993 to
$5.8 million in 1994 primarily due to a decrease in external borrowings by the
Company's Korean operations.

EXCHANGE (GAIN) LOSS. The Company incurred a $0.3 million exchange loss in
1994 compared to a $0.4 million exchange gain in 1993. The major component of
the loss in 1993 was a weakening of the U.S. Dollar against the German Mark.

NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995

TOTAL SALES. Total sales increased 30.4% from $116.7 million in the nine
months ended March 31, 1995 to $152.2 million in the nine months ended March 31,
1996. Overall, sales in North America, Europe and Asia increased from $65.5
million, $30.3 million and $20.9 million, respectively, in the nine months ended
March 31, 1995 to $88.8 million, $37.5 million and $25.9 million, respectively,
in the nine months ended March 31, 1996. A continued increase in the demand for
more advanced photomasks, which have higher average selling prices, was the
primary contributor to the increase in total sales during this period. This
shift in demand for more advanced photomasks reflects the trend toward greater
utilization of more complex semiconductor devices with finer line-widths. See
"Business -- Industry Background." The increase in total sales during this
period also reflects the overall increase in demand for photomasks. In addition,
approximately $7 million of photomask sales to Lucent Technologies (formerly
AT&T) were generated during the nine months ended March 31, 1996 as a result of
a supply agreement executed in connection with the purchase of selected
photomask manufacturing equipment from an affiliate of AT&T (the "AT&T
Acquisition").

COST OF GOODS SOLD. Cost of goods sold increased 15.2% from $85.7 million
in the nine months ended March 31, 1995 to $98.7 million in the nine months
ended March 31, 1996, resulting primarily from increased sales. As a percentage
of sales, cost of goods sold decreased from 73.5% in the nine months ended March
31, 1995 to 64.9% in the nine months ended March 31, 1996. The decrease was
primarily due to continued improvements in capacity utilization and increased
use of internally sourced photoblanks and pellicles. As a result, gross profit
as a percentage of total sales increased from 26.5% in the nine months ended
March 31, 1995 to 35.1% in the nine months ended March 31, 1996.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 13.8% from $16.0 million in the nine months
ended March 31, 1995 to $18.2 million in the nine months

27
<PAGE>
ended March 31, 1996. The increase was due largely to increases in selling
expenses corresponding to increased sales. Selling, general and administrative
expense as a percentage of total sales was 11.9% for the nine months ended March
31, 1996 compared with 13.7% for the corresponding period of the prior year.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense for the
nine months ended March 31, 1996 increased to $7.0 million compared to $6.4
million in the same period in the prior year. As a percentage of sales, research
and development expense declined from 5.5% in the nine months ended March 31,
1995 to 4.6% in the nine months ended March 31, 1996, reflecting increased
sales. Research and development expense is net of funds the Company received
from customers, industry groups and government sources in the amount of $0.4
million and $0.1 million for the nine months ended March 31, 1995 and the nine
months ended March 31, 1996, respectively. The Company's allocated or charged
share of DuPont's central research and development was $1.4 million and $1.1
million for the nine months ended March 31, 1995 and 1996, respectively. Such
allocations terminated on December 31, 1995, and the Company will thereafter
only incur such charges pursuant to the Research, Development and Consulting
Agreement with DuPont. See "Transactions and Relationship Between the Company
and DuPont -- Research, Development and Consulting Agreement."

OTHER OPERATING (INCOME) EXPENSE. Other operating expense increased from
$2.3 million in the nine months ended March 31, 1995 to $3.2 million in the nine
months ended March 31, 1996. The increase was due largely to pre-production
costs associated with the Company's joint venture in Shanghai, China.

INTEREST EXPENSE. Interest expense was essentially flat at $5.1 million for
both the nine months ended March 31, 1995 and the nine months ended March 31,
1996.

EXCHANGE (GAIN) LOSS. Exchange loss was $0.2 million for the nine months
ended March 31, 1996 compared to a $0.5 million exchange gain for the same
period in the prior year. The loss in the current year was primarily
attributable to the fluctuation of the U.S. Dollar against the German Mark.

PROVISION FOR INCOME TAXES. The Company's provision for income taxes was
$1.9 million for the nine months ended March 31, 1996. The Company had no
provision for income taxes for the nine months ended March 31, 1995.

MINORITY INTEREST IN INCOME (LOSS) OF MAJORITY OWNED JOINT VENTURE. The
Minority Interest impact of the Company's joint venture with the Shanghai
Institute of Metallurgy was ($0.5 million) for the nine months ended March 31,
1996 compared to ($0.1 million) for the same period in the prior year,
reflecting increased pre-operating losses from, and partner funding of, the
joint venture.

QUARTERLY RESULTS OF OPERATION

The following table sets forth certain unaudited quarterly financial data
for each of the last eight fiscal quarters ended March 31, 1996, and such data
as a percentage of the Company's total sales. Such information is derived from
the unaudited combined financial statements of the Company that include, in the

28
<PAGE>
opinion of management, all normal recurring adjustments necessary for a fair
presentation of the information set forth therein. Operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
1994 1994 1994 1995 1995 1995 1995 1996
-------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total Sales.............. $35,537 $ 38,715 $ 37,617 $ 40,338 $44,844 $ 46,039 $ 50,279 $ 55,874
Cost of Goods Sold....... 27,152 28,132 28,185 29,428 31,277 32,192 31,151 35,374
Selling, General and
Administrative
Expense................. 5,144 5,136 5,058 5,823 5,786 5,869 6,316 5,979
Research and Development
Expense -- Net.......... 1,747 2,018 2,026 2,341 2,392 2,458 2,450 2,047
Other Operating (Income)
Expense -- Net.......... 732 507 1,107 703 1,173 633 1,614 972
-------- --------- -------- --------- -------- --------- -------- ---------
Operating Profit......... 762 2,922 1,241 2,043 4,216 4,887 8,748 11,502
Interest Expense......... 1,438 1,597 1,660 1,797 1,903 1,832 1,634 1,625
Exchange (Gain) Loss..... 314 49 (137) (388) (17) 230 78 (80)
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Income Taxes and
Minority Interest....... (990) 1,276 (282) 634 2,330 2,825 7,036 9,957
Provision for Income
Taxes................... -- -- -- -- -- 454 472 973
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Minority Interest....... (990) 1,276 (282) 634 2,330 2,371 6,564 8,984
Minority Interest in
Income (Loss) of
Majority Owned Joint
Venture................. -- -- (6) (76) (79) (55) -- (428)
-------- --------- -------- --------- -------- --------- -------- ---------
Net Income (Loss)........ $ (990) $ 1,276 $ (276) $ 710 $ 2,409 $ 2,426 $ 6,564 $ 9,412
-------- --------- -------- --------- -------- --------- -------- ---------
-------- --------- -------- --------- -------- --------- -------- ---------

AS A PERCENTAGE OF TOTAL
SALES:
Total Sales.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold....... 76.4 72.7 74.9 73.0 69.8 69.9 61.9 63.3
Selling, General and
Administrative
Expense................. 14.5 13.3 13.5 14.4 12.9 12.8 12.6 10.7
Research and Development
Expense -- Net.......... 4.9 5.2 5.4 5.8 5.3 5.3 4.9 3.7
Other Operating (Income)
Expense -- Net.......... 2.1 1.3 2.9 1.7 2.6 1.4 3.2 1.7
-------- --------- -------- --------- -------- --------- -------- ---------
Operating Profit......... 2.1 7.5 3.3 5.1 9.4 10.6 17.4 20.6
Interest Expense......... 4.0 4.1 4.4 4.5 4.2 3.9 3.2 3.0
Exchange (Gain) Loss..... 0.9 0.1 (0.4) (1.0) -- 0.5 0.2 (0.2)
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Income Taxes and
Minority Interest....... (2.8) 3.3 (0.7) 1.6 5.2 6.2 14.0 17.8
Provision for Income
Taxes................... -- -- -- -- -- 1.0 0.9 1.7
-------- --------- -------- --------- -------- --------- -------- ---------
Income (Loss) Before
Minority Interest....... (2.8) 3.3 (0.7) 1.6 5.2 5.2 13.1 16.1
Minority Interest in
Income (Loss) of
Majority Owned Joint
Venture................. -- -- -- (0.2) (0.2) (0.1) -- (0.7)
-------- --------- -------- --------- -------- --------- -------- ---------
Net Income (Loss)........ (2.8)% 3.3% (0.7)% 1.8% 5.4% 5.3% 13.1% 16.8%
-------- --------- -------- --------- -------- --------- -------- ---------
-------- --------- -------- --------- -------- --------- -------- ---------
</TABLE>

Quarterly sales have increased sequentially in every quarter over the last
five quarters primarily because of stronger demand for photomasks and the shift
in demand toward advanced photomasks as described above. The Company derives a
significant portion of its sales revenues from sales to relatively few
semiconductor manufacturers. The loss of, or a significant reduction of orders
from, any of the Company's major customers could have a material adverse effect
on the Company's business or results of operations, particularly on a quarterly
basis. See "Risk Factors -- Concentration of Customers." In addition, the
Company's quarterly and annual operating results are affected by a wide variety
of factors that affect sales or profitability. These factors include the volume
and timing of orders shipped. Since the Company's business is characterized by
short term orders and shipment schedules without a significant backlog for
products, substantially all of the Company's sales in any quarter are dependent
upon orders received during that quarter. See "Risk Factors -- Fluctuations in
Quarterly and Annual Earnings."

LIQUIDITY AND CAPITAL RESOURCES

Cash used by operations was $2.4 million in 1993, and cash provided by
operations was $12.4 million in 1994, $29.0 million in 1995 and $36.3 million
for the nine months ended March 31, 1996. These increases were primarily the
result of higher sales volume, which led to improved net income. The Company
believes that cash provided by operations will be the Company's primary source
of liquidity.

The Company's working capital was $22.9 million at June 30, 1994, $16.4
million at June 30, 1995 and $13.3 million at March 31, 1996. The decrease in
working capital for the nine months ended March 31, 1996

29
<PAGE>
principally reflects higher related party payables for amounts paid by DuPont on
behalf of the Company and billed to the Company on a monthly basis, partially
offset by increases in trade receivables and inventory, all resulting from the
increased level of sales and business activity during the period. The decrease
in 1995 was partially caused by lower prepaid expenses resulting from a change
in the manner in which the Company pays one of its suppliers for its services.
Prior to June 1995, the Company prepaid certain amounts owed to such supplier;
however, since such time, the Company has paid such supplier on a monthly, as
billed, basis. In addition, accounts payable increased by $6.0 million in 1995
as a result of a deferred payment to AT&T pursuant to the AT&T Acquisition.

Cash flows used for investing activities were $22.1 million in 1993, $11.7
million in 1994, $18.6 million in 1995 and $18.8 million for the nine months
ended March 31, 1996. The Company's most significant use of cash for investing
activities was for purchases of property and equipment. Such purchases totalled
$18.1 million in 1993, $5.0 million in 1994, $14.9 million in 1995 and $13.7
million for the nine months ended March 31, 1996. See "Risk Factors -- Rapid
Technological Change; Capital Intensive Industry."

Cash provided by financing activities was $24.5 million in 1993, and cash
used for financing activities was $2.9 million in 1994, $7.0 million in 1995 and
$16.7 million for the nine months ended March 31, 1996. As a participant in
DuPont's central cash management system, the Company has used cash provided by
operations to repay borrowings from DuPont pursuant to the Master Note. As of
March 31, 1996, the Company had borrowings of $162.3 million under the Master
Note. Part of the net proceeds from the Offering will be used to repay
indebtedness under the Master Note, and any remaining balance under the Master
Note will be contributed as equity capital to the Company by DCEO. See "Use of
Proceeds."

Cash and cash equivalents were $3.9 million at June 30, 1994, $8.4 million
at June 30, 1995 and $8.9 million at March 31, 1996. The Company will retain an
amount, currently estimated at $9.1 million, of the net proceeds of the
Offering; such that, at the date the Offering is consummated, the Company will
have cash and cash equivalents totalling approximately $18 million. The Company
intends to use these proceeds for general corporate purposes, including capital
expenditures and working capital. See "Use of Proceeds."

The Company's ongoing cash requirement will be for capital expenditures,
research and product development and working capital. The Company's capital
expenditures for 1995 were $18.9 million. The Company expects capital
expenditures to be approximately $30 million in 1996, $19.7 million of which has
been spent, and it expects that capital expenditures in 1997 will be
approximately $42 million. The capital expenditures for 1996 and 1997 will be
used primarily to expand the Company's manufacturing capacity and advance the
Company's technical capability. The Company expects that cash from operations
and the credit agreement with DCEO will be sufficient to fund capital
expenditures, product development and working capital requirements. See "Risk
Factors -- Rapid Technological Change; Capital Intensive Industry," "Risk
Factors -- No Independent Operating History Prior to the Offering," "Risk
Factors -- Recent Losses" and "-- Overview."

The Company and DCEO have entered into a two-year credit agreement,
effective as of January 1, 1996, pursuant to which DCEO has agreed, subject to
certain conditions, to provide a revolving credit/ working capital facility to
the Company in an aggregate amount of up to $30 million. The credit facility
will serve as a back-up to cash from operations and provide financing for
general capital spending and corporate purposes and ongoing working capital
needs. The credit agreement contains, among other things, covenants restricting
the Company's ability to incur additional debt above a certain threshold. See
"Transactions and Relationship Between the Company and DuPont -- Credit
Facility."

The Company believes that its available funds following the Offering and its
access to the credit facility will be sufficient to meet its cash requirements
through at least fiscal 1997. See "Risk Factors -- Rapid Technological Change;
Capital Intensive Industry."

OTHER MATTERS

The Company is currently negotiating an agreement with three other companies
that, if consummated, would result in the formation of a limited liability
company that would develop advanced photomask fabrication technologies. The
Company believes that through its participation it will be able to help meet the

30
<PAGE>
future technology needs of the semiconductor industry for advanced photomasks.
There can be no assurance that final agreements will be executed or that, if
executed, will yield results that are favorable to the Company. See "Business --
Strategy -- Advance Technological Leadership" and "Business -- Strategy --
Expand Strategic Relationships with Customers."

Foreign operations are subject to certain risks inherent in conducting
business abroad, including price and currency exchange controls, fluctuation in
the relative value of currencies and restrictive governmental actions. Changes
in the relative value of currencies occur from time to time and may, in certain
instances, have a material effect on the Company's results of operations. The
Combined Financial Statements reflect remeasurements of monetary items
denominated in foreign currencies to U.S. Dollars, the Company's functional
currency. Monetary assets and liabilities are remeasured at the exchange rates
in effect at the end of the applicable period. Exchange gains or losses are
included in Exchange (Gain) Loss in income in the period in which they occur.
Non-monetary assets, which are principally inventories and plant, property and
equipment, are remeasured at historical exchange rates, and income and expenses
are remeasured at average exchange rates in effect during the applicable period,
except for expenses related to balance sheet amounts, which are measured using
historical exchange rates.

Prior to the Offering, DuPont managed the Company's exposure to fluctuations
in foreign currency exchange rates as part of its overall management of exchange
rate exposure of DuPont and its subsidiaries, as a whole, and no separate
hedging of the Company's foreign exchange rate exposure was undertaken.
Accordingly, the Combined Financial Statements do not reflect any hedging
activities. However, following the Offering, the Company plans to independently
monitor its foreign exchange rate exposure and may attempt to reduce such
exposure in the future by hedging. The risks associated with foreign operations
have not, to date, had a material adverse impact on the Company's liquidity and
results of operations. There can, however, be no assurance that such risks will
not have a material adverse impact on the Company's liquidity and results of
operations in the future. See Note 17 to the Combined Financial Statements for
the three years ended June 30, 1995 for geographical financial data concerning
the Company's operations. See "Risk Factors -- Significant International
Operations."

The effects of inflation are experienced by the Company through increases in
the cost of labor, services and raw materials. In general, these costs have been
anticipated by periodic increases in the prices of its products.

DISCUSSION OF PRO FORMA

The Pro Forma Combined Statement of Financial Position estimates the effect
that the following transactions would have had on the Company's financial
position had they occurred as of March 31, 1996: (i) the Offering and the use of
net proceeds as described under "Use of Proceeds"; (ii) the contribution by DCEO
of the remaining balance outstanding under the Master Note and certain accounts
payable relating to the Master Note; and (iii) other adjustments described in
the Notes to the Combined Pro Forma Financial Statements. The principal effects
on the Company's financial position would have been (i) a net increase in cash
and cash equivalents of $9.1 million resulting from the Company's retaining a
portion of the net proceeds of the Offering sufficient to ensure that it has
approximately $18 million of cash and cash equivalents following the Offering;
(ii) a decrease in amounts outstanding under the Master Note resulting from the
use of the net proceeds from the Offering to repay $53.5 million outstanding
under the Master Note; (iii) an increase of $3.4 million in deferred income
taxes arising from the fact that the Company's tax return will not be
consolidated with DuPont's following the Offering; and (iv) an increase in the
Owner's Net Investment/Shareholder's Equity of $115.5 million, which represents
the contribution by DCEO of the remaining balance outstanding under the Master
Note and certain accounts payable described above and retention by DuPont of
certain payroll liabilities. See "Use of Proceeds."

The Pro Forma Combined Statements of Operations estimate the effects that
the following would have had on the Company's results of operations had they
occurred as of July 1, 1994: (i) the discontinuance of DuPont's post-retirement
and post-employment benefits and the replacement of DuPont's defined benefit
pension plan with the Company's defined contribution pension plan; (ii) the
elimination of DuPont allocated

31
<PAGE>
overhead expenses that are not expected to be incurred by the Company following
the Offering; (iii) the cost of services to be provided by third parties or
DuPont pursuant to transitional administrative services agreements with DuPont
and its subsidiaries and additional employees assumed to be hired by the Company
to replace those services previously provided by DuPont; and (iv) recognition of
expenses relating to the Company's Stock Performance Plan. See "Management --
Compensation of DPI Employees in 1996 -- Stock Performance Plan" and
"Transactions and Relationship Between the Company and DuPont -- Administrative
Services Agreements." The principal effect of these adjustments would have been
a decrease in costs of goods sold by, and a corresponding increase in gross
profit of, $1.7 million for 1995 and $1.0 million for the nine months ended
March 31, 1996. In addition, selling, general and administrative expense would
have increased by $0.8 million for 1995 and $1.1 million for the nine months
ended March 31, 1996, and research and development expense would have decreased
by $1.5 million for 1995 and $0.8 million for the nine months ended March 31,
1996. As a result of these adjustments, operating profit would have increased by
$2.7 million for 1995 and $1.1 million for the nine months ended March 31, 1996.
Furthermore, because of the repayment and contribution of the Master Note as
described above, interest expense would have decreased $6.9 million for 1995 and
$5.0 million for the nine months ended March 31, 1996. Consequently, net income
(offset by increases in provision for income taxes) would have been increased by
$6.1 million for 1995 and decreased by $0.9 million for the nine months ended
March 31, 1996.

The Pro Forma Combined Financial Statements do not purport to represent what
the results of operations or financial position of the Company would actually
have been had the events described above in fact occurred on the applicable
dates or to project the results of operations or financial position of the
Company for any future period. See Pro Forma Combined Financial Statements
appearing elsewhere in this Prospectus.

32
<PAGE>
BUSINESS

Based on worldwide sales, DuPont Photomasks, Inc. is the largest U.S.
photomask manufacturer and one of the two largest photomask manufacturers in the
world. Photomasks are high-purity quartz or glass plates containing precision
microscopic images of integrated circuits and are used as masters by
semiconductor manufacturers to optically transfer these images onto
semiconductor wafers. The Company develops and uses advanced technology to
manufacture a broad range of photomasks based on customer-supplied design data,
including photomasks that meet the tightest design specifications required by
semiconductor manufacturers today. Since 1991, DPI has operated globally with
established manufacturing facilities in North America, Europe and Asia. The
Company is the only photomask manufacturer in the world that also manufactures
and markets both photoblanks and pellicles, the principal components of
photomasks, facilitating the Company's ability to ensure an adequate supply of
quality components. The Company sells its products to approximately 200
customers in 20 different countries. The Company believes that it is the
principal merchant photomask supplier for many of its customers, including AMD,
Delco/General Motors, Digital, Hyundai, LG Semicon, Lucent Technologies Inc.
(formerly AT&T), Micron Technology, Motorola, National Semiconductor, Philips,
Samsung, Seagate and SGS-Thomson. The Company serves its global customer base
from eight ISO 9002-qualified manufacturing facilities and numerous customer
service centers.

INDUSTRY BACKGROUND

Semiconductors are the basic building blocks used to create an increasing
variety of electronic products and systems. Continuous improvements in
semiconductor processing and design technologies have led to smaller, more
complex and more reliable devices at a lower cost per function. As performance
has increased and size and cost have decreased, semiconductors have expanded
beyond their original primary applications, such as computer systems, to a wide
array of additional applications such as telecommunications systems, automotive
products, consumer goods and industrial automation and control systems. In
addition, systems users and designers have demanded semiconductors with more
functionality, higher levels of performance, greater reliability and shorter
design cycles, all in smaller packages at lower costs. The demand for
semiconductors has also expanded geographically with the emergence of new
markets, particularly in Asia. As a result, semiconductor sales have increased
substantially over time, though with significant cyclical variations in growth
rates. According to industry sources, worldwide semiconductor sales increased
from approximately $30 billion in 1985 to over $150 billion in 1995. See "Risk
Factors -- Relationship with and Dependence on Semiconductor Industry."

The market for photomasks is primarily comprised of semiconductor
manufacturers in North America, Europe and Asia. Growth in the photomask market
has not always correlated with increases in semiconductor sales, since demand
for photomasks is driven principally by new semiconductor designs rather than
sales. While growth in semiconductor manufacturing and new semiconductor designs
generated demand for new photomasks from the mid-1980's through the early
1990's, the Company believes that this underlying growth was offset by
semiconductor and photomask design and manufacturing efficiencies. First,
cost-effective and powerful workstations and CAD tools enabled integrated
circuit designers to perfect semiconductor designs through computer simulation,
thereby significantly reducing the need to produce numerous iterations of
photomasks. Second, ultra-thin protective covers called pellicles began to be
widely used in the mid-1980's to protect photomask surfaces from contamination,
thereby prolonging the life of photomasks. Third, the need for backup photomask
sets was significantly reduced by improved production cycle time that enabled
lead times for replacement photomasks to fall from several days to 24 hours. See
"Risk Factors -- Relationship with and Dependence on Semiconductor Industry."

Photomask manufacturers increased production capacity significantly in the
mid-1980's, failing to anticipate the offsetting effect of these efficiencies on
the growing underlying demand for new photomasks. The resulting excess capacity
created a competitive environment that led to depressed prices. See "Risk
Factors -- Competition; Reversal of Consolidation Trend." The excess capacity
was further exacerbated by the advent of reduction photolithography in the
mid-1980's. Reduction photolithography, which allowed the

33
<PAGE>
use of photomasks with features five times larger than the image being etched
onto the semiconductor wafer, resulted in a significant relaxation of photomask
specifications and, consequently, extended the life of existing photomask
technology and manufacturing facilities.

Partly as a result of the excess capacity and depressed prices caused by the
factors described above, the merchant photomask market in the United States and
Europe began in 1985 to consolidate as a number of merchant suppliers acquired
other merchant photomask manufacturers. Concurrently with this consolidation
trend, semiconductor manufacturers began to divest their captive photomask
operations by selling such operations to independent photomask merchants.
Consequently, the share of the market served by the remaining independent
merchants has increased significantly. The Company believes that the
consolidation of photomask manufacturers was primarily caused by the significant
capital requirements and competitive pricing pressures of the photomask market
as a whole as well as the poor financial performance of some merchant suppliers.
The number of significant independent manufacturers in North America and Europe
decreased from approximately 14 in the mid-1980's to five in 1994. The Company
believes that, in addition to excess capacity and competitive pricing, the other
cause of the divestiture trend was the emergence of reliable independent
photomask manufacturers, such as the Company, enabling semiconductor
manufacturers to divest or limit new investment in their photomask facilities.
See "Risk Factors -- Rapid Technological Change; Capital Intensive Industry" and
"-- Competition; Reversal of Consolidation Trend."

The Company believes that in the last two years growth in demand for
photomasks has resumed. According to industry sources, the total worldwide
market for photomasks was approximately $1.3 billion in 1995. The photomask
market in North America, Europe and non-Japan Asia is estimated to have been
approximately 50% of the worldwide market over the last five years, and merchant
photomask sales in these regions are estimated to have been in excess of $375
million in 1995.

The Company believes that the impact of CAD efficiencies, mask
pelliclization, reduced cycle time and reduction photolithography technology
that negatively affected photomask industry growth throughout the mid-1980's and
the early 1990's has largely dissipated, and consequently, prices for photomasks
have stabilized. As a result, the Company expects that growth in semiconductor
design activity and demand will drive current photomask industry growth without
the offsetting influences that previously existed. The following factors are
expected to be particularly important:

-CUSTOMIZATION OF SEMICONDUCTOR DESIGNS. Increasing demand for
semiconductors including application specific integrated circuits (ASICs),
application specific standard products (ASSPs), embedded microcontrollers
and a growing variety of memory products has generated demand for
photomasks as each new type of semiconductor device requires additional new
photomasks.

-INCREASING DEVICE COMPLEXITY. As the complexity of semiconductor devices
has increased in response to continued efforts to improve the functionality
of these devices through greater transistor densities and smaller feature
sizes, the number of photomasks used in the manufacture of a single
integrated circuit has also increased. For example, the number of
photomasks typically required for the manufacture of microprocessors in
1991 was 14 as compared to 22 photomasks for the currently most advanced
generation of microprocessors.

-DECREASING SIZE OF SEMICONDUCTOR DESIGNS. The semiconductor industry's
growth is driven by its ability to produce smaller and more powerful
semiconductor chips at lower costs. Development of increasingly small
design features is likely to generate increased demand for high-value,
advanced photomasks that can accurately and reliably replicate intricate
design features.

-NEW WAFER FABRICATION FACILITIES. Semiconductor manufacturers have
announced plans to increase investment significantly in new
state-of-the-art wafer fabrication facilities and upgrades of existing
facilities. New wafer fabrication facilities are likely to utilize improved
lithography equipment which typically increases demand for technologically
advanced photomasks.

-PROLIFERATION OF SEMICONDUCTOR APPLICATIONS. Semiconductor devices of all
types are continuing to proliferate into new products, including cellular
telephones, pagers, automobiles, medical products,

34
<PAGE>
household appliances and other electronic consumer products. In addition,
the demand for semiconductor devices from traditional markets such as
personal computers is growing significantly as semiconductor content in
electronic systems increases and as personal computers expand into new
market segments such as home use.

The Company believes that certain of these trends are changing the nature of
the photomask industry and its importance in the semiconductor manufacturing
process. Photomasks are reemerging as a critical and enabling technology in the
semiconductor manufacturing process, and the photomask market is expected to
experience greater growth as a result. Semiconductor design rules have recently
advanced so that even "5X" reduction ratios require photomasks with submicron
features. Future semiconductor devices are expected to require features below
the resolution limit of existing photolithography equipment. Advanced photomask
technologies such as phase shift and optical proximity correction masks can
extend the optical resolution of existing photolithography equipment, thereby
delaying the significant investment required for new semiconductor manufacturing
equipment. In addition, as semiconductor line widths become as small as the
wavelength of the illumination sources in optical lithography, the semiconductor
manufacturing process becomes increasingly dependent on high-precision
photomasks with tighter specifications and tolerances. Future generations of
wafer lithography equipment are expected to increase the need for high precision
photomasks, thereby further increasing demand for advanced photomasks that have
tighter specifications. All of these changes in the semiconductor industry are
increasing the already important role of photomasks and driving the need for the
continuing development of advanced photomasks.

DUPONT PHOTOMASKS

DuPont entered the photomask market in 1986 with the acquisition of Tau
Laboratories, a merchant photomask supplier whose principal customers were
Delco/General Motors and Motorola. From this base, DuPont embarked on a strategy
to establish a global presence that would enable it to respond to the needs of
multi-national semiconductor manufacturers. As part of this strategy, DuPont
purchased assets of numerous captive photomask operations and acquired several
merchant photomask companies. Such acquisitions include Gould AMI (1987), Master
Images (1987), Motorola (1987), Symbios Logic (1988), Nanomask (1988),
SGS-Thomson/Texas (1989), National Semiconductor (1990), Philips/Nijmegen
(1990), Rexotech (1990), Perkin Elmer ALO (1990), Tektronix (1991),
Philips/Hamburg (1993) and AT&T (1995). In addition, DPI constructed its own
"greenfield" sites in Round Rock, Texas (1987) and Ichon, Korea (1991). The
Company is currently participating in the construction of a manufacturing
facility in Shanghai, China as part of a joint venture and is planning to
construct a photomask manufacturing facility on a "greenfield" site near
Glasgow, Scotland. The Company has established a large, worldwide manufacturing
structure that can supply the needs of the leading global semiconductor
manufacturers. Based on sales in North America, the Company believes that it is
one of the two largest photomask suppliers in North America, and the Company
believes that it is the largest photomask supplier in Europe and non-Japan Asia
based on sales in such regions. See "Risk Factors -- Competition; Reversal of
Consolidation Trend" and "-- Growth by Acquisition."

DPI's photomask technology spans the full array of semiconductor
requirements, including dynamic and static memory, microprocessors,
microcontrollers, application specific integrated circuits (ASICs), application
specific standard products (ASSPs) and analog and discrete devices. The Company
also manufactures photomasks for thin film heads used in disk drives, multichip
modules and flat panel displays. Customers for these products include
Micromodule, Philips, Seagate and Xerox. In addition, the Company has
consistently been an industry leader in developing the most advanced photomasks.
In order to maintain and enhance its technological leadership, the Company has
strategic relationships with key customers in developing leading edge photomasks
and with leading equipment suppliers such as Etec Systems Inc. ("Etec") and KLA
Instruments Corporation ("KLA") in developing equipment capable of producing
such leading edge photomasks. Outside Japan, the Company believes that it is
currently the principal independent supplier of leading edge photomasks,
including phase shift, optical proximity correction and advanced specification
photomasks. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry."

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<PAGE>
The Company believes that it is the principal photomask supplier of many of
the leading, global semiconductor manufacturers. The Company sells its products
to approximately 200 customers in 20 different countries, and its customers are
among the largest worldwide semiconductor and electronics manufacturers,
including AMD, Delco/General Motors, Digital, Fujitsu, Hyundai, LG Semicon,
Lucent Technologies (formerly AT&T), Micron Technology, Motorola, National
Semiconductor, Philips, Samsung, Seagate, SGS-Thomson and Texas Instruments. The
Company believes that its customers have come to rely on DPI to meet their
photomask needs on a timely basis and to make mask production process
improvements necessary to keep pace with their own technological advances. As a
result, the Company believes that most of its primary customers view DPI as a
strategic partner in the semiconductor manufacturing process. See "Risk Factors
- -- Concentration of Customers."

The Company is the only photomask manufacturer in the world that also
manufactures and markets the principal components of photomasks: photoblanks and
pellicles. The Company produces and supplies between 70% and 80% of the
photoblanks and the pellicles it uses to manufacture photomasks. As a result,
the Company believes it has a competitive advantage because of its ability to
manage the supply, quality and costs of these component materials. See "Risk
Factors -- Concentration of and Dependence on Suppliers."

STRATEGY

The Company's objective is to be the world's premier supplier of photomasks,
providing superior service and advanced technology, by implementing the
following strategies.

CAPITALIZE ON GLOBAL MANUFACTURING PRESENCE. The Company's global
manufacturing presence enables it to respond to the needs of its customers, many
of which have facilities located throughout the world. The Company believes that
delivery of photomasks on a timely basis is important to its customers because
it reduces their cycle times. Photomask suppliers that have global operations
should have a competitive advantage because proximity to their customers'
worldwide facilities makes rapid delivery more feasible. Since 1991, DPI has
operated globally with established manufacturing facilities in North America,
Europe and Asia. The Company intends to capitalize on this global strategic
position by continuing to invest in each of these regions in order to expand its
existing manufacturing base and participate in regional market growth.

ADVANCE TECHNOLOGICAL LEADERSHIP. To meet the demands of leading global
semiconductor manufacturers, the Company has continually invested in research
and development and the advanced equipment necessary to produce leading edge
photomasks. The Company intends to continue to develop leading edge photomasks
and advance its technological leadership by beta testing new manufacturing
equipment and developing manufacturing processes to produce the next generation
of photomasks. For example, the Company's facility in Round Rock, Texas is
specifically designed to pioneer the most advanced technologies at the earliest
stage of development. As a result, this facility operates both as a
manufacturing and research and development facility. The Company cascades
technological advancements from Round Rock to its other facilities as the
customers served by these facilities begin to demand these advancements. The
Company's other facilities often enhance the processes that were initially
developed in Round Rock and subsequently share these enhancements with all the
Company's facilities, thereby enabling the Company to reduce redundancies and
inconsistencies in manufacturing development. The Company also is currently
negotiating an agreement with three other companies that, if consummated, would
result in the formation of a limited liability company that would develop
advanced photomask fabrication technologies. See "Management's Discussion and
Analysis of Results of Operations -- Other Matters." DPI also intends to
continue to participate in research and development projects supported by
SEMATECH, JESSI and other organizations focused on advancing semiconductor
technology. DPI believes that by advancing its technological leadership it will
strengthen its position as a strategic partner to its primary customers. In
addition, DPI believes that by manufacturing and selling advanced products, it
should be able to increase sales of other types of photomasks. Typically, a set
of photomasks for each semiconductor device contains one or two advanced levels,
which are considered critical by the customer. The photomasks that comprise the
rest of the set are

36
<PAGE>
typically less critical. In order to obtain proper alignment of the photomasks,
however, the entire set is typically manufactured by a single supplier. As a
result, DPI believes that the ability to manufacture critical levels should
generate additional photomask sales.

EXPAND STRATEGIC RELATIONSHIPS WITH CUSTOMERS. The Company has developed
strategic relationships with certain of its customers, and it intends to expand
these relationships by increasing its shared activities with some of the world's
leading semiconductor manufacturers, including joint investment in the research
and development of advanced photomasks. DPI believes that the expansion of these
relationships will enable it to share the risks and benefits of developing the
next generation of photomasks. In addition, relationships with customers provide
the Company with valuable know-how and position it as the key supplier to these
customers.

LEVERAGE INTEGRATED POSITION. The Company is the only photomask
manufacturer in the world that also manufactures photoblanks and pellicles, the
principal components of photomasks. As a result, the Company believes it has a
competitive advantage because of its ability to manage the supply, quality and
costs of these component materials. In addition, DPI intends to use this
capability to develop the advanced photoblanks and pellicles necessary for the
production of the next generation of photomasks. For example, the Company is
currently developing numerous component material enhancements, including
embedded attenuated photoblanks and improved deep ultraviolet (DUV) pellicles,
as part of an integrated effort to develop more advanced photomasks.

PURSUE STRATEGIC RELATIONSHIPS WITH KEY SUPPLIERS. The Company believes
that its strategic relationships with leading equipment suppliers help ensure
that it can provide its customers with early access to the most advanced
photomasks. As a result, delays between any advances in semiconductor devices
and advances in photomasks can be minimized. DPI works closely with equipment
suppliers, including Etec and KLA, and with materials suppliers, in some cases
under the auspices of Sematech. For example, the Company regularly beta tests
new pattern generation and inspection equipment, providing it with
"time-to-market" advantages.

37
<PAGE>
PRODUCTS AND TECHNOLOGY

PHOTOMASKS. Photomasks are high-purity quartz or glass plates containing
precision, microscopic images of integrated circuits that are used as masters
(equivalent to "negatives" in a photographic process) to optically transfer such
microscopic images of circuit patterns onto semiconductor wafers during the
fabrication of semiconductor integrated circuits and discrete devices. In
producing a semiconductor, a photomask is usually placed in a photolithography
tool, called a stepper, to make numerous reproductions of the pattern image on
semiconductor wafers. This reproduction is typically accomplished by
transferring light through the photomask onto a photoresist that was spin-coated
onto the surface of the semiconductor wafer. The areas of the photoresist that
have been exposed to light are then dissolved by chemical developers and
subjected to further processing, such as etching, ion implantation and metal
deposition. Successive steps of lithography, deposition and processing gradually
create the multiple layers of conducting, semiconducting and insulating patterns
that make up the millions of transistors found in a modern semiconductor device.

[Diagram of use of photomask in semiconductor lithography]

38
<PAGE>
Photomasks are manufactured by the Company in accordance with semiconductor
design data provided on a confidential basis by its customers. The final design
of each integrated circuit results in a set of precise individual circuit
patterns to be imaged onto a series of typically 10 to 22 separate photomask
levels. The complete set of patterned photomasks is required to manufacture the
customer's integrated circuit design. Upon receipt of a customer's circuit
design, the Company converts the design to pattern data, which are used to
control an electron or laser beam that exposes the circuit pattern onto a thin
layer of photosensitive polymer, called a photoresist, covering the opaque
chrome layer of the photoblank. The exposed areas are dissolved by chemical
developers, and the thin chrome layer of the photoblank is etched to replicate
the customer design pattern on the photomask. Subsequently, the photomask is
inspected for defects, its critical dimensions are confirmed and any defects are
repaired. Pellicles are then mounted onto the masks, and the masks are delivered
to the customer.

[Flow chart of typical photomask manufacturing process]

The Company manufactures a broad range of photomasks for varying customer
applications, including applications requiring the use of leading edge
photomasks. The Company produces 4" by 4" through 7" by 7" photomasks at
reduction ratios ranging from 1:1 to 10:1, which can be used on 1:1 projection
aligners and steppers, 5:1 reduction steppers and 4:1 step and scan systems. The
Company's products are compatible with nearly all semiconductor lithography
technologies, ranging from G-Line and I-Line to DUV lithography, which is
expected by the Company to become the principal advanced lithography technology
during the next decade. The Company manufactures these products using multiple
production techniques, including electron beam and laser exposure as well as
lower cost optical exposure techniques.

The Company has developed advanced photomask products for customers using
leading edge lithography technologies in three categories: (i) masks with
extremely tight specifications, (ii) phase shift masks and (iii) masks with
optical proximity correction. Advanced specification photomasks permit the
customer to use

39
<PAGE>
a variety of lithography technologies since the high quality and tight
tolerances of the photomask permit greater flexibility in the semiconductor
manufacturing process. Phase shift mask and masks with optical proximity
correction typically require extremely tight specifications coupled with
additional unique characteristics. Phase shift masks are photomasks that alter
the phase of the light passing through the photomask permitting improved depth
of focus and resolution on the wafer. Optical proximity correction masks are
photomasks with submicron features that help minimize optical distortions on the
wafer and therefore permit improved image fidelity. The demand for these
products has grown during the past two years as customers search for cost
effective, less capital intensive methods for improving current semiconductor
fabrication yields and shrinking feature sizes. All three of these product
categories provide opportunities for semiconductor manufacturers to produce more
advanced products with existing lithography equipment. Therefore, these advanced
photomasks are expected by the Company to enable semiconductor manufacturers to
delay significant capital investment in new generation steppers. The Company
estimates that sales of these three product categories was less than 15% of the
Company's total sales for fiscal 1995, but the Company expects that sales of
these products will increase. The Company's current product offerings are as
follows:

[Chart showing the Company's photomask products]

PHOTOBLANKS AND PELLICLES. Photomasks are manufactured from photoblanks,
which are highly polished quartz or glass plates coated with ultra-thin layers
of chrome and photoresist. The photomask is protected from particle
contamination by an ultra-thin, frame-mounted transparent film, called a
pellicle. The pellicle when mounted on the photomask creates a sealed
contamination-free environment for the photomask pattern. Because the Company is
the only photomask manufacturer that also manufactures and markets both
photoblanks and pellicles, it believes that it has a competitive advantage in
managing the supply, quality and cost of its principal component materials.
Photoblanks and pellicles constitute approximately 80% of the materials costs
associated with photomask production. Between 70% and 80% of the Company's
demand for these critical components is internally supplied. Photoblanks and
pellicles are also sold to customers that include Fujitsu, Intel, Motorola and
Siemens AG. The Company is currently one of the major quartz photoblank
suppliers worldwide, and it believes that it is the only commercial supplier of
quartz photoblanks outside Japan. The Company believes that it is also one of
the three largest pellicle suppliers worldwide. In 1992, DPI transferred
pellicle production from its Poughkeepsie, New York facility, where photoblanks
are manufactured, to a new manufacturing facility in Danbury, Connecticut in
order to better meet the quality requirements for future product generations.

40
<PAGE>
The production of photoblanks requires ultra pure chrome deposition on
highly polished and extremely flat quartz or glass substrates. The Company
purchases virgin quartz substrates primarily from Shin Etsu Handotai Co., which
is the world's largest producer of these substrates. In addition, the Company
recycles quartz substrates which have been repolished in order to reduce cost
and dependence on external suppliers. The Company acquires between 20% and 30%
of the photoblanks it uses to manufacture photomasks from Hoya Corp. and others
that serve as a backup to the Company's own production. The quality and
properties of photoblanks strongly affect the yield and quality of photomasks.
The Company's research and development of photoblanks is focused on the optimum
balance of properties among the quartz substrate, the chrome layer and the
resist layer and on contamination-free manufacturing techniques in order to
achieve the characteristics that are needed for the manufacture of advanced
photomasks. This work has resulted in two patents, including one for an
attenuated embedded shifter blank, and a third patent is pending. See "Risk
Factors -- Concentration of and Dependence on Suppliers."

Pellicles are produced from nitrocellulose or other polymer solutions that
the Company prepares or purchases. The ultra thin film is typically precision
coated with an anti-reflective layer to improve optical performance
characteristics. Material properties and manufacturing conditions are carefully
tuned to match the pellicle's light transmission properties with the
requirements of the specific semiconductor lithography application. The Company
has introduced proprietary pellicle films that are specifically designed to
withstand the powerful DUV radiation found in the emerging generation of
advanced steppers. In addition, the Company is developing contamination
resistant features for the pellicle frame assembly. The Company holds five
patents covering various aspects of pellicle technology, with two patents
pending. To assure a backup supply, the Company purchases approximately 20% to
30% of the pellicles it uses to manufacture photomasks from several other
suppliers.

GLOBAL MANUFACTURING AND OPERATIONS

In order to meet the increasing global demand for their products, original
equipment manufacturers (OEMs) are constructing new factories throughout the
world. Semiconductor manufacturers are similarly building wafer fabrication
facilities located near their OEM customers. Semiconductors produced at these
facilities are designed either locally or at separate design centers, which are
sometimes located on different continents. The Company believes that global
semiconductor manufacturers prefer photomask suppliers that can accept orders
and manufacture photomasks in close proximity to their facilities in order to
ensure a more stable and dependable photomask supply. This preference creates a
competitive advantage for photomask companies that have global manufacturing
facilities as well as a telecommunications network capable of rapidly and
securely transmitting semiconductor design data. See "Risk Factors --
Competition; Reversal of Consolidation Trend."

Since 1991, DPI has operated globally with established manufacturing
facilities in North America, Europe and Asia. In North America, the Company
operates photomask manufacturing facilities in Round Rock, Texas; Santa Clara,
California; and Kokomo, Indiana. In Europe, the Company's manufacturing
facilities are located in Rousset, France and Hamburg, Germany, and it is
planning to construct a third photomask manufacturing facility on a "greenfield"
site near Glasgow, Scotland. In Asia, the Company currently operates a
manufacturing facility in Ichon, Korea and is participating in the construction
of a facility with its joint venture partner in Shanghai, China. The Company
believes that its global presence is important for meeting the supply needs of
multi-national customers as it facilitates the Company's ability to supply
quality products to its customers' worldwide locations on a timely basis. Close
proximity to customers is important because of rapid delivery requirements and
the need for frequent personal interactions. As a result, each manufacturing
facility primarily supplies local semiconductor manufacturers. Moreover, each of
the Company's manufacturing facilities is connected by a data transmission
network, which allows these facilities to transfer confidential customer design
data and manufacturing instructions rapidly and coordinate manufacturing
responsibility with the Company's other facilities. By being able to transfer
information throughout the world with this network, the Company is able to
optimize capacity utilization, thereby lowering production costs while providing
effective customer service on a local level. In addition, a trend is developing
whereby semiconductor manufacturers in certain regions are beginning to
specialize in certain technologies. For example, semiconductor manufacturers in
Korea are rapidly assuming global leadership in

41
<PAGE>
DRAMS. Because of its global network, the Company believes that it is well
positioned to flexibly manage its capacity, enabling it to use all its
manufacturing facilities in order to take advantage of regional opportunities.
See "Risk Factors -- Significant International Operations."

Approximately 26% of the Company's sales in fiscal 1995 were in Europe where
the Company believes that it is the largest photomask supplier. Through its
manufacturing facilities in Germany and France, the Company supplies photomasks
to the major European semiconductor manufacturers, including Alcatel-Mietec,
Atmel/ES(2), Austria Mikrosysteme International AG, Motorola, National
Semiconductor, Philips, SGS-Thomson, TEMIC and Texas Instruments. In addition,
through its planned facility in Glasgow, Scotland, the Company will be able to
serve numerous semiconductor customers of DPI that have established, or are
planning to establish, manufacturing operations in the United Kingdom and the
Republic of Ireland. In addition, this facility will also serve customers in
other European countries.

The Company's photomask sales in Asia have grown significantly. Sales in
Asia grew approximately 69% from fiscal 1993 to fiscal 1995. The Company
supplies photomasks to semiconductor manufacturers principally in Korea,
including Daewoo, Hyundai, LG Semicon and Samsung through its facility in Ichon,
Korea. This facility also serves customers located in Japan, Hong Kong, Taiwan
and Singapore. In addition, the Company is expanding its Asian operations to
China. As part of a joint venture, the Company is participating in the
construction of a manufacturing facility, which it expects will begin producing
photomasks in fiscal 1997. The Company is a majority owner of this joint
venture, and upon completion, this facility will be the first local facility
capable of meeting the high-end photomask needs of semiconductor manufacturers
in China.

The photomask market in Japan is estimated to have been approximately 50% of
the worldwide market over the last five years. The Japanese market is
predominantly served by captive Japanese suppliers and three significant local
independent suppliers. The Company is beginning to serve semiconductor
manufacturers in Japan through its facility in Ichon, Korea.

In 1988, the Company formed a partnership, DuPont Dai Nippon Engineering
("DDE"), with DNP, Japan's largest photomask manufacturer. DDE supplies certain
Japanese semiconductor manufacturers' facilities in the United States, including
Matsushita Ltd., NEC Corp., Sony and Toshiba with photomasks produced at the
Company's facilities in the United States.

The Company's management is committed to the highest quality standards for
its products, a standard maintained in part by continuous improvements to its
production processes and upgrades to its manufacturing equipment. Each of the
Company's manufacturing sites is ISO-9002 qualified. The Company manufactures
photomasks in clean rooms designed to provide a contamination-free, temperature
and humidity controlled environment. These clean rooms are similar to those used
in the manufacture of semiconductors. The Company's historical emphasis on
product research and development has carried over to process technology and has
resulted in the development of world class production facilities equipped with
state-of-the-art manufacturing equipment. The Company believes that it has the
world's largest installed base of photomask equipment. It operates some of the
most advanced types of equipment currently available, including an
ALTA-Registered Trademark- laser pattern generator from Etec as well as 301/331
Series and Starlight-Registered Trademark- inspection equipment from KLA. See
"Risk Factors -- Manufacturing Risks."

CUSTOMERS

The Company is the principal photomask supplier of many of the leading,
global semiconductor manufacturers. The Company believes that its customers have
come to rely on DPI to meet their photomask needs on a timely basis and to make
mask production process improvements necessary to keep pace with

42
<PAGE>
their own technological advances. As a result, the Company believes that most of
its primary customers view DPI as a strategic partner in the semiconductor
manufacturing process. The following table lists the Company's current primary
customers.

<TABLE>
<S> <C>
Alcatel-Mietec Maxim
AMD* Micron Technology*
AMI* Motorola*
Atmel/ES(2) National Semiconductor*
Delco/General Motors* Philips*
Digital* Samsung*
Hexfet/IRC* Seagate*
Hyundai* SGS-Thomson*
Intel Symbios Logic
LG Semicon* Texas Instruments
LSI Logic VLSI Technology
Lucent Technologies (formerly AT&T)*
</TABLE>

- ------------------------
*The Company believes it is the principal merchant photomask supplier for these
customers.

In fiscal 1995, the Company's four largest customers, in the aggregate,
accounted for approximately 41% of the Company's sales, and the Company's
largest 10 customers, in the aggregate, accounted for approximately 66% of
sales. The customers listed in the table above accounted for, in the aggregate,
approximately 80% of sales in fiscal 1995. See "Risk Factors -- Concentration of
Customers" and Note 4 to the Combined Financial Statements.

The Company has entered into multi-year, non-exclusive supply agreements
with some of its customers, including Lucent Technologies (formerly AT&T),
Motorola, Philips and SGS-Thomson. Each agreement is separately negotiated and
therefore specific terms vary. See Note 13 to the Combined Financial Statements
for the Fiscal Year Ended June 30, 1995 and Note 12 to the Combined Financial
Statements for Nine Months Ended March 31, 1996.

WORLDWIDE SALES AND SUPPORT

Because each photomask is unique, the Company works closely with each
customer to define and communicate precisely the specifications required by the
customer. The Company sells and services its products in North America, Europe
and non-Japan Asia principally through its own employees based at its eight
manufacturing sites throughout the world and the facility in Shanghai, China,
which is currently under construction. The Company has sales and service
employees located in Agrate, Italy; Austin, Texas; Beaverton, Oregon; Dallas,
Texas; Edinburgh, Scotland; Fort Collins, Colorado; Lille, France; Munich,
Germany; Orange, California; and Phoenix, Arizona. In addition, the Company uses
DuPont distributors in Taipei, Taiwan and Tokyo, Japan.

DPI has established customer service centers inside several of its
customers' design centers and wafer fabrication facilities, including
SGS-Thomson (Agrate, Italy and Dallas, Texas); Maxim (Beaverton, Oregon); and
Texas Instruments (Dallas, Texas). DPI employees located at these centers
routinely interact with customer engineers to improve the accuracy of the
customers' design data and documentation and ensure that the customers' order
receives the appropriate priority at the manufacturing facility and that routine
problems are resolved promptly. The Company believes that these centers located
in customers' facilities reduce errors and returns and improve on time delivery,
each of which improves customer satisfaction.

COMPETITION

The photomask industry is highly competitive, and most of the Company's
customers utilize more than one photomask supplier. Because of its global
presence, the Company competes with different independent manufacturers in each
local geographic region in which it operates. The Company believes that it is
one of the two largest photomask suppliers in North America and that it is the
largest photomask supplier in Europe and non-Japan Asia. In North America, the
Company competes primarily with Photronics and, to a lesser extent, with other
smaller independent photomask suppliers. In Europe, the Company competes

43
<PAGE>
primarily with Compugraphics and Photronics, and in Asia, the Company primarily
competes with DNP, Hoya Corp., Taiwan Mask Corporation and Toppan. The Company
expects that some of its competitors will expand operations to international
markets in order to better meet the needs of international customers and take
advantage of new growth opportunities. For example, Photronics has, among other
undertakings, made certain acquisitions in Europe and has announced that it
plans to construct a manufacturing facility in Singapore. The Company expects to
face continued competition from these and other suppliers in the future,
including P.K. Ltd. (formerly Anam S&T Co. Ltd.) in Korea. See "Risk Factors --
Competition; Reversal of Consolidation Trend."

Captive operations served approximately 45% of the total worldwide photomask
market during 1995. The Company competes with a limited number of captive
operations when such operations sell excess capacity on the open market.
Beginning in the mid-1980s, a trend developed toward the divestiture or closing
of captive photomask operations by semiconductor manufacturers. As photomasks
continue to reemerge as a critical and enabling technology in the semiconductor
manufacturing process, semiconductor manufacturers may form new captive
operations to ensure that their photomask needs are met, particularly for
advanced and leading edge photomasks. The Company believes that its ability to
develop the most advanced photomasks provides a more cost effective alternative
to the formation of captive operations, which require significant capital
investments and operating costs to develop the requisite manufacturing
expertise. See "Risk Factors -- Competition; Reversal of Consolidation Trend."

On time delivery of defect-free photomasks at competitive prices
historically has been the important competitive factor in the industry. The
Company believes that with the increasing importance of leading edge photomask
technology in the semiconductor manufacturing process, the ability to
manufacture these advanced photomasks will also be an important competitive
factor. See "-- Industry Background."

RESEARCH AND DEVELOPMENT

The photomask industry has been and is expected to continue to be
characterized by rapid technological change. In order to remain competitive, the
Company expects that it will be required to continually anticipate, respond to
and utilize changing technologies. The Company has historically made significant
investments in research and development in order to maintain its technological
leadership. See "Risk Factors -- Rapid Technological Change; Capital Intensive
Industry."

The Company intends to continue to invest in research and development in
order to ensure its technological leadership. The Company is focusing its
research and development in three areas: (i) the enhancement of existing
products by improving manufacturing techniques and technologies; (ii) the
development of leading edge photomask products such as phase shift masks, masks
with optical proximity correction and advanced specification masks; and (iii)
the development of advanced materials needed for the manufacture of leading edge
photomasks. In addition, the Company is currently negotiating an agreement with
three other companies that, if consummated, would result in the formation of a
limited liability company that would develop advanced photomask fabrication
technologies. See "Management's Discussion and Analysis of Results of Operations
- -- Other Matters."

The Company is enhancing its existing products through worldwide integrated
engineering, capital investment for improved capability and beta testing of
leading edge equipment. Product enhancements in the past led to the development
of technology currently used to produce photomasks compatible with 0.5 micron
semiconductor lithography. This technology is providing the platform for the
development of manufacturing technologies consistent with 0.35 micron
semiconductor lithography at high yields and rapid cycle time. The Company has
been a leader in the development of leading edge photomask products, such as
phase shift, optical proximity and advanced specification masks. In addition to
its internal development efforts, the Company has participated in several
development programs supported by SEMATECH in the United States and JESSI in
Europe with respect to advanced products. The Company's research and development
of photomask component materials is also responding to the technology demands of
semiconductor manufacturers through the development of improved materials needed
to produce advanced photomasks. Recent examples of such materials developments
include low stress chrome blanks, pellicles with contamination-control features
and attenuated embedded chrome blanks for phase shift masks. See "-- Products
and Technology."

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<PAGE>
The Company has established a research and development group that consists
of highly trained and experienced personnel who focus on research and
development issues. The capabilities of this group have been augmented by its
access to DuPont's corporate science and engineering resources. There are
certain elements of DuPont's material science expertise and its analytical
capabilities that are relevant to photomask research and development. Following
the Offering, the Company will continue to have access to DuPont's corporate
science and engineering for a period of five years pursuant to a research,
development and consulting agreement between the Company and DuPont, which will
provide the Company with a supplement to its core research and development
program. See "Transactions and Relationship between the Company and DuPont --
Research, Development and Consulting Agreement."

An alternative to photomask lithography is direct-write lithography, which
writes the circuit pattern directly onto the semiconductor wafer without the use
of a photomask. The direct-write method generates patterns onto a wafer slowly
and therefore is not currently useful for high-volume, commercial device
manufacturing. A significant advance in this technology, however, would have a
material adverse effect on the Company's business and results of operations. See
"Risk Factors -- Rapid Technological Change; Capital Intensive Industry."

INTELLECTUAL PROPERTY

Much of the Company's proprietary information and technology relating to
manufacturing processes is not patented and may not be patentable. Certain
aspects of the Company's photoblanks and pellicles technologies are, however,
protected by ten patents or patent applications. They include product patents
for certain types of attenuated, embedded phase shift blanks and DUV pellicles.
While the Company considers its patents to be valuable assets, it does not
believe that its competitive position is dependent on patent protection or that
its operations are dependent on any individual patent. The Company believes
instead that the success of its business depends primarily on its ability to
maintain lead time in developing its proprietary technology, information and
processes and know-how. Nevertheless, the Company attempts to protect its
intellectual property rights with respect to its products and manufacturing
processes through patents, trademarks and trade secrets when appropriate as part
of its ongoing research, development and manufacturing activities. The Company
also relies on non-disclosure agreements with employees and vendors to protect
its proprietary processes.

There can be no assurance that the Company's means of protecting its
proprietary rights will be adequate or that the Company's competitors will not
independently develop similar processes. In addition, there can be no assurance
that third parties will not claim that the Company's current or future products
infringe on their proprietary rights. Any such claim, with or without merit,
could result in costly litigation or might require the Company to enter into
licensing agreements. Such agreements, if required, may not be available on
terms acceptable to the Company or at all. See "Risk Factors -- Proprietary
Information and Intellectual Property."

EMPLOYEES

As of March 31, 1996, the Company had approximately 1,100 employees
worldwide, of whom approximately 10% have engineering or technical degrees,
including Ph.D. degrees. The Company had, as of March 31, 1996, approximately
110 sales, marketing and customer support employees. The Company believes that
it has a good relationship with its employees. There can be no assurance that
the Company can retain its key managerial, engineering and technical employees
or that it can attract similar additional employees in the future. See "Risk
Factors -- Dependence on Management and Technical Personnel."

The Company has no employees who are represented by a union. The Company's
German subsidiary, however, is subject to German law, which binds it, as a
member of a selected industry group, to agreements reached by industry
management and employee representatives.

LEGAL PROCEEDINGS

The Company is not currently involved in any material legal proceedings.

ENVIRONMENTAL MATTERS

The operations of the Company and its ownership of real property are subject
to federal, state, local and foreign environmental laws and regulations that
govern, among other things, the discharge of pollutants into

45
<PAGE>
the air and water and the handling, use, storage, disposal and clean-up of solid
and hazardous wastes. Compliance with such laws and regulations requires the
Company to incur capital expenditures and operating costs in connection with its
ongoing operations. In addition, such laws and regulations may impose
liabilities on owners and operators of businesses and real property without
regard to fault and may be joint and several with other parties. The Company
estimates that capital expenditures relating to environmental matters will be
approximately $260,000 in each of fiscal 1996, 1997 and 1998. In addition, the
Company expects to incur expenses relating to environmental matters of
approximately $1 million in each of fiscal 1996, 1997 and 1998. More stringent
environmental laws and regulations may be enacted in the future, which may
require the Company to expend additional amounts on environmental compliance or
may require modifications in the Company's operations. Although the Company is
unable to predict the extent of its future liability with respect to any
environmental matters, the Company believes, based upon current information,
that environmental liabilities will not be material to its financial condition
or results of operations. See "Risk Factors -- Environmental Matters." With
respect to any environmental contamination present on the Company's
manufacturing sites at the time of the Offering or present at any such site as a
result of the Company's manufacturing operations due to the generation, use,
treatment, storage, or disposal of hazardous waste or hazardous materials prior
to the date of the Offering, the Company will be indemnified by DuPont pursuant
to an agreement between DuPont and the Company effective the date of the
Offering. The Company will be solely responsible for any environmental
liabilities resulting from its operations following the consummation of the
Offering. See "Transactions and Relationship Between the Company and DuPont --
Environmental Indemnification Agreement."

FACILITIES

The Company conducts manufacturing operations throughout the world. Each of
these operations is ISO-9002 qualified. The table below presents certain
information (as of March 31, 1996) relating to the Company's principal
manufacturing and support facilities.

<TABLE>
<CAPTION>
LOCATION FLOOR SPACE SQUARE FEET TYPE OF INTEREST PRODUCTS
- ------------------------------------------------------ ----------------------- ---------------- --------------
<S> <C> <C> <C>
NORTH AMERICA
Round Rock, Texas................................... 54,000 Owned Photomasks
Santa Clara, California............................. 38,000 Leased Photomasks
Kokomo, Indiana..................................... 42,000 Owned Photomasks
Poughkeepsie, New York.............................. 23,000 Owned Photoblanks
Danbury, Connecticut................................ 55,000 Owned Pellicles
EUROPE
Rousset, France..................................... 24,000 Leased Photomasks
Hamburg, Germany.................................... 22,000 Leased Photomasks
ASIA
Ichon, Korea........................................ 102,000 Owned Photomasks
Shanghai, China..................................... (under construction) Jointly Owned Photomasks
</TABLE>

The facility in Round Rock, Texas not only operates as a manufacturing
facility but also is the Company's primary research and development center. The
Company owns most of the manufacturing equipment at its facilities. The
executive offices of the Company are located at 100 Texas Avenue, Round Rock,
Texas 78664, and its telephone number is (512) 244-0024.

The Company is the majority owner of the joint venture that owns the
facility in Shanghai, China, which is currently under construction. The Company
expects that this facility will be completed and operational in fiscal 1997. In
addition, the Company is planning to construct a photomask manufacturing
facility on a "greenfield" site near Glasgow, Scotland.

Facilities and property located in Santa Clara and Hamburg are leased under
leases that expire in March 1997 and October 2022, respectively. The facility at
Rousset is leased under a lease that expires in April 1998 at which point the
Company has an option to take ownership of the facility upon payment of taxes
and expenses relating to the conveyance. The Company's Santa Clara facility is
in a seismically active area. Although the Company plans to obtain business
interruption insurance, a major catastrophe (such as an

46
<PAGE>
earthquake or other natural disaster) at any of its sites could result in a
prolonged interruption of the Company's North American business. The Company is
currently negotiating an extension of the lease covering the facilities and
property located in Santa Clara and anticipates reaching an agreement with
respect to such lease extension prior to the termination of the present lease.
There can be no assurance, however, that the Company will obtain an extension of
the current lease. In the event that the Company is required to move its
equipment from the facilities at Santa Clara, the costs associated with such a
move would likely be significant.

The Company also maintains customer service data centers in leased
facilities in Beaverton, Oregon and Dallas, Texas.

The Company believes that its facilities are adequate and suitable for their
respective uses.

47
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the name, age (as of March 31, 1996) and
position with the Company of each person who is an executive officer or director
of DPI.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH DPI
- -------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
J. Michael Hardinger 49 Chairman of the Board and Chief Executive Officer
Preston M. Adcox 52 President and Chief Operating Officer
Gerard Cognie 51 Executive Vice President -- European Operations
David S. Gino 38 Executive Vice President -- Finance and Chief Financial Officer
Van H. Leichliter 51 Executive Vice President -- General Counsel and Secretary
Kenneth A. Rygler 52 Executive Vice President -- Marketing and Sales
John L. Doyle 64 Director
John C. Hodgson 52 Director
Charles O. Holliday, Jr. 47 Director
Peter G. Kehoe 52 Director
Gary W. Pankonien 45 Director
John C. Sargent 57 Director
Marshall C. Turner 54 Director
Susan A. Vladuchick 48 Director
</TABLE>

J. MICHAEL HARDINGER. Mr. Hardinger is Chairman of the Board of Directors
and Chief Executive Officer of the Company, positions he assumed as a part of
the global realignment of the photomask business. He joined DuPont in 1970 and
has served in a number of management positions with DuPont, including Vice
President and General Manager of DuPont's Acrylics and Consumer Products
Business from 1990 until 1993. He was Vice President -- DuPont Corporate
Sourcing prior to assuming his position with the Company.

PRESTON M. ADCOX. Mr. Adcox is President and Chief Operating Officer of the
Company. He joined DuPont in 1967 and has held a number of manufacturing and
technology management positions including Business Director of DuPont's high
performance films business from 1982 to 1988. He became a Managing Director in
DuPont's Semiconductor Materials Business in 1988 and has had global
responsibility for DuPont's Photomask Business since that time. He was a member
of the Board of Directors of Etec Systems Inc. from 1990 to early 1995. Since
1988, he has served on the Board of Directors of Semi-Sematech, an organization
representing U.S. equipment and material suppliers to the semiconductor
manufacturing industry.

GERARD COGNIE. Mr. Cognie is Executive Vice President -- European
Operations of the Company. He joined DuPont in 1968 and since 1988 has served as
the Director of Photomask Europe and the Chairman of the Board of DuPont
Photomask (France). He has also served as the Director of Electronics for DuPont
France since 1985.

DAVID S. GINO. Mr. Gino is Executive Vice President, Finance and Chief
Financial Officer of the Company. He joined DuPont in 1987 after serving as
Chief Financial Officer and Controller of Master Images, Inc. until it was
acquired by DuPont in 1987. He has held a number of financial and business
management positions with DuPont's semiconductor materials, imaging systems and
printing and publishing businesses. He was the North American Business Manager
- -- Pressroom Systems for DuPont's Printing and Publishing Business immediately
prior to rejoining the Company in August 1995 as a part of the global
realignment of the photomask business.

48
<PAGE>
VAN H. LEICHLITER. Mr. Leichliter is Executive Vice President and General
Counsel of the Company. He also serves as Corporate Secretary. He joined DuPont
in 1970 as a commercial lawyer and served as Vice President and General Counsel
of DuPont's Endo Laboratories subsidiary from 1978 until 1983. Since then he has
held a number of legal advisory positions with DuPont including most recently
serving as Senior Counsel to DuPont's Fibers Business.

KENNETH A. RYGLER. Mr. Rygler is Executive Vice President -- Marketing and
Sales of the Company. He joined DuPont in 1964 and held numerous sales and
management positions in DuPont's Fabrics and Finishes Department. He held a
number of marketing, sales, planning and business development management
positions in DuPont's Electronic Materials Strategic Business Unit from 1985 to
1991, when he became the Company's Vice President for Marketing and Sales. Mr.
Rygler's involvement in the electronics industry began in 1969.

JOHN L. DOYLE. Mr. Doyle is a private consultant, having retired from the
Hewlett-Packard Company in 1991. At the time of his retirement, he was Executive
Vice President, Business Development with responsibility for Hewlett-Packard's
integrated circuit facilities as well as acquisitions, mergers, planning,
corporate purchasing, manufacturing and engineering. He was also a member of the
Executive Committee. Mr. Doyle was Co-Chief Executive Officer of Hexcel Corp.
from July 1993 to December 1993. Hexcel Corp. filed for bankruptcy under Chapter
11 of the United States Bankruptcy Code in December 1993. He is currently a
director of Xilinx, Inc., Analog Devices, Inc. and Silicon Valley Research. He
became a director of the Company in April 1996.

JOHN C. HODGSON. Mr. Hodgson is the Managing Director/General Manager of
the Electronic Materials Strategic Business Unit of DuPont, a position he
assumed in 1994. He has been with DuPont for 29 years and has served in a
variety of management positions in the X-Ray, Electronics and Diagnostic
businesses in the United States and in Geneva, Switzerland. In 1991, Mr. Hodgson
became the Business Director of Microcircuit and Component Materials for North
America, and from 1993 until assuming his current position, he served as
Managing Director of Microcircuit and Component Materials, worldwide, and
Electronic Materials, Americas. He became a director of the Company in April
1996.

CHARLES O. HOLLIDAY, JR. Since October 1995, Mr. Holliday has been a member
of the Office of the Chief Executive of DuPont and an Executive Vice President
with global responsibility for Electronic Materials, White Pigments & Mineral
Products, Nonwovens, Advanced Fibers Systems, Printing and Publishing, Polymers
and Industrial Packaging and Agricultural Products. He is also Chairman of
DuPont Asia Pacific. Since joining DuPont in 1970 as an engineer at the Old
Hickory, Tennessee Fibers plant, he has held a variety of management positions
in a number of DuPont's businesses. He became President -- Asia Pacific in 1990
and was made Senior Vice President -- DuPont Electronics in 1992. He became a
director of the Company in April 1996.

PETER G. KEHOE. Mr. Kehoe is a DuPont Business Director who, since June
1995, has had responsibility for the initial public offering of the photomasks
business. From 1988 until his current assignment, he was a Business Director in
the Advanced Fiber Systems Strategic Business Unit with global responsibility
for, at various times, Kevlar-Registered Trademark-, Nomex-Registered Trademark-
and Teflon-Registered Trademark-. He joined DuPont in 1973 as a Research
Engineer, and since then he has held a wide variety of technology, manufacturing
and business management responsibilities in DuPont's Chemicals and Fibers
businesses. He became a director of the Company in December 1995.

GARY W. PANKONIEN. Mr. Pankonien is the Chairman and Chief Executive
Officer of DarkHorse Systems, Inc. and 1st Tech Corporation. Both companies
engage in computer engineering design and manufacturing activities. Prior to
starting 1st Tech Corporation, he spent seven years at Compaq Computer
Corporation where he served as the Notebook Computer Design and Operations
Manager for three years. He co-developed and currently holds the patent for the
first notebook computer as well as several other patents. Mr. Pankonien has
twenty years of management experience in the electronics industry and has
extensive experience in off-shore operations. He became a director of the
Company in April 1996.

JOHN C. SARGENT. Mr. Sargent is the Vice President and Treasurer of DuPont.
He joined the Treasury Department of Conoco in 1964 and worked in a number of
financial management positions with Conoco

49
<PAGE>
both in the United States and Europe. He became Vice President and Treasurer of
Conoco in 1981 and also served as Assistant Treasurer and Director of the
Treasury Division of DuPont after Conoco was acquired by DuPont in 1982. He
assumed his present position at DuPont in 1992. He became a director of the
Company in December 1995.

MARSHALL C. TURNER. Mr. Turner is a venture capital investor and consultant
specializing in technology companies. He is General Partner of Taylor & Turner
Associates, Ltd., Principal of Turner Venture Associates and a director of
Alliance Technology Fund, Inc., Remanco International, Inc., the Public
Broadcasting Service and the George Lucas Educational Foundation. From 1983
until 1995, he was a director of six privately held technology companies, in
which Taylor & Turner was an investor, and from 1987 to 1992, he served as a
director and two years as Chairman of the Corporation For Public Broadcasting.
He has taught entrepreneurial management as an adjunct faculty member at the
Stanford University School of Engineering. Mr. Turner became a director in April
1996.

SUSAN A. VLADUCHICK. Since March 1995, Ms. Vladuchick has been the Director
of Human Development, Staffing and Personnel Relations at DuPont. She joined
DuPont as a chemist in 1969 and has worked in research and development, human
resources and manufacturing during the course of her career. In 1989, she became
Plant Manager of the Cape Fear fibers plant, a position she held until 1992 when
she became the Director of Manufacturing for Specialty Chemicals. From 1993
until 1995 she served as the Director of Operations for Medical Products. She
became a director of the Company in April 1996.

BOARD OF DIRECTORS

The Bylaws of the Company (the "Bylaws") provide for a Board of Directors of
not less than one nor more than fifteen directors, with the current number set
at nine. Each member of the Board of Directors holds office until the expiration
of his or her term and until his or her successor is elected and qualified.
Vacancies on the Board of Directors may be filled by the majority vote of
directors then in office or by a sole remaining director. The members of the
Board of Directors were elected by DCEO.

Directors who are officers of the Company receive no additional compensation
for serving on the Board of Directors. Non-employee Directors who are not
affiliated with DuPont will receive an annual fee of $20,000.

NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The purpose of the Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") is to allow the Company to recruit and retain qualified
outside directors to serve on the Company's Board of Directors. Under the
Directors' Plan, each director who is not an employee of the Company or any of
its subsidiaries (and who is not precluded by his or her employer from receiving
such grant) will receive a one-time grant of options to purchase 10,000 shares
of the Company's Common Stock upon the later of first joining the Board of
Directors or the consummation of the Offering (the "IPO Date"). Thereafter, each
non-employee director will receive, during his or her tenure as a director, an
annual grant of options covering 3,000 shares as of the first day of the month
following the annual meeting of stockholders of the Company. Directors who are
first elected to the Board within the 60 day period immediately preceding an
annual meeting of stockholders and who at the time of their election received
the one-time grant of options to purchase 10,000 shares described above, will
not, under the terms of the Plan, receive an additional grant of 3,000 shares as
of the first of the month following such annual meeting. Upon exercise of an
option, payments of the purchase price for the stock subject to the exercise
will be made in cash. Under the terms of the Directors' Plan, no more than 25%
of the total number of shares of stock granted under option may become
exercisable in any given year following the grant. Currently, 250,000 shares
have been reserved for issuance under the Directors' Plan. Each of John L.
Doyle, Gary W. Pankonien and Marshall C. Turner are expected to be granted
options to purchase 10,000 shares of Common Stock under this Plan effective upon
the IPO Date at an exercise price per share equal to the initial public offering
price of Common Stock sold in the Offering. Stock options granted under the
Directors' Plan following the Offering will be exercisable at a price per share
equal to the average of the high and low sale prices of the Common Stock, as
quoted on the NASDAQ National Market, on the date of the grant.

50
<PAGE>
AUDIT COMMITTEE

The Audit Committee of the Board of Directors will meet with the independent
public accountants to discuss the scope and results of their examination of the
books and records of the Company. It will also meet with the Company's
independent public accountants to review the internal audit department's
activities, if and when established, and to discuss the adequacy of the
Company's accounting and control systems. The committee also will review the
audit schedule and consider any issues raised by its members, the independent
public accountants, the internal audit staff, the legal staff or management.
Each year it will recommend to the full Board of Directors the name of an
accounting firm to audit the financial statements of the Company. No member of
the Audit Committee may be an employee or officer of the Company or any of its
subsidiaries. The Audit Committee consists of John L. Doyle, who serves as
chairman of the committee, Marshall C. Turner and John C. Sargent.

COMPENSATION COMMITTEE

The Compensation Committee will review and approve the corporate
organization structure, review performance of corporate officers, establish
overall employee compensation policies and recommend to the Board of Directors
major compensation programs. The committee also will review and approve
compensation of directors and corporate officers, including salary, bonus awards
and stock option and restricted stock award grants and administer the Company's
employee stock option and incentive plan and bonus plan. No member of the
Compensation Committee may be an employee or officer of the Company or any of
its subsidiaries. The Compensation Committee consists of Charles O. Holliday,
Jr., who serves as chairman of the committee, Gary W. Pankonien, Marshall C.
Turner and Susan A. Vladuchick.

COMPENSATION OF COMPANY EMPLOYEES

The Company's officers and employees have been participants in the various
employee benefit plans maintained by DuPont, including, without limitation,
savings plans, health and welfare plans and pension plans and are expected to
continue such participation until the Company adopts its own benefit plans,
anticipated to be effective July 1, 1996. The Company currently expects to adopt
plans that are substantially similar to the existing DuPont plans, except that
effective July 1, 1996, the Company will replace DuPont's defined benefit
pension plan with a defined contribution retirement plan and will discontinue
DuPont's post-retirement medical benefit plan. Until July 1, 1996, the Company
will continue to be charged by DuPont for all amounts contributed or paid by
DuPont on behalf of DPI's employees with respect to the DuPont plans. It is
expected that, beginning July 1, 1996, although employees of the Company will
continue as participants in the DuPont Savings and Investment Plan, they will
receive contributions from the Company thereunder rather than DuPont. See "Risk
Factors -- Dependence on Management and Technical Personnel."

COMPENSATION OF EXECUTIVE OFFICERS DURING 1995

During fiscal 1995, the executive officers named in the tables included
under this caption were employees of DuPont and participated in DuPont's
executive benefit plans, as indicated in the tables.

51
<PAGE>
SUMMARY COMPENSATION TABLE

The following table sets forth the aggregate cash compensation earned by the
Company's chief executive officer and five other most highly compensated
executive officers (the "Named Officers") from DuPont or its subsidiaries
between July 1, 1994 and June 30, 1995. While the Company's fiscal year ended on
June 30, 1995, DuPont pays salary and awards bonuses on a calendar year basis.
The salary and bonus columns include amounts paid by DuPont for services
rendered in the latter six-month period of 1994 and the first six-month period
of 1995, in order to coincide with the Company's 1995 fiscal year.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------
OTHER ANNUAL ALL OTHER
SALARY BONUS COMPENSATION COMPENSATION
NAME YEAR ($) ($) ($) ($)(1)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
J. Michael Hardinger............................... 1995 $ 194,000 $ 157,000 -- $ 5,824
Preston M. Adcox................................... 1995 152,920 66,000 -- 4,579
Gerard Cognie (2).................................. 1995 156,573 42,933 -- 13,315
David S. Gino...................................... 1995 106,750 40,800 -- 5,262
Kenneth A. Rygler.................................. 1995 122,750 47,050 -- 3,685
Van H. Leichliter.................................. 1995 106,340 36,900 -- 6,313
</TABLE>

- ------------------------
(1) Includes contributions made by DuPont to each of the Named Officer's Savings
and Investment Plan.

(2) Mr. Cognie is paid in French Francs. The Dollar figures shown were
calculated using the International Monetary Fund average exchange rate for
1995 of 4.9915 Francs to the Dollar.

The compensation of Messrs. Adcox, Cognie and Rygler is included in the
Company's Combined Financial Statements herein. None of Messrs. Hardinger's,
Gino's and Leichliter's 1995 compensation is included in the Company's Combined
Financial Statements. All executive officers became employees of the Company on
January 1, 1996, except Gerard Cognie who became an employee of the Company's
French subsidiary on March 1, 1996.

DUPONT OPTION GRANTS FOR 1995

The following table sets forth information regarding options to purchase
shares of DuPont's common stock granted to the Named Officers during fiscal
1995.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
------------------------- PRICE APPRECIATION FOR
OPTIONS % OF TOTAL OPTIONS EXERCISE OPTION TERM (5)
GRANTED GRANTED TO DUPONT PRICE EXPIRATION ----------------------
NAME (#)(1)(2) EMPLOYEES FOR 1995 (3) ($/SH) (4) DATE 5% 10%
- ------------------------------------------ ----------- ------------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger...................... 8,000 -- $ 55.50 3/2/2005 $ 279,270 $ 705,960
Preston M. Adcox.......................... 3,250 -- 55.50 3/2/2005 113,636 286,796
Gerard Cognie............................. 800 -- 55.50 3/2/2005 27,972 70,612
David S. Gino............................. 800 -- 55.50 3/2/2005 27,972 70,612
Kenneth A. Rygler......................... 1,700 -- 55.50 3/2/2005 59,440 150,656
Van H. Leichliter......................... -- -- -- -- -- --
</TABLE>

- ------------------------
(1) Stock options become exercisable twelve months after their date of grant.
All of these options were granted on March 3, 1995, and have a term of ten
years.

(2) In January 1995, the DuPont Board of Directors approved the worldwide 1995
DuPont Corporate Sharing Program and awarded to essentially all employees a
grant of options, which is not included in this table, to acquire 100 shares
of DuPont common stock at the fair market value ($57 per share) on the date
of grant.

(3) The options granted to any Named Officer amounted to less than 1% of the
total number of options granted to all DuPont employees in 1995.

52
<PAGE>
(4) The exercise price is the average of the high and low prices of DuPont
common stock as reported on the New York Stock Exchange-Composite
Transactions Tape on the date of grant.

(5) Represents total potential appreciation of approximately 63% and 159% for
assumed annual rates of appreciation of 5% and 10%, respectively, compounded
annually for the ten-year option term.

AGGREGATED OPTION EXERCISES OF DUPONT STOCK IN
1995 AND YEAR-END OPTION VALUES
AS OF JUNE 30, 1995

The following table sets forth information regarding the exercisable and
unexercisable options to acquire DuPont common stock granted to the Named
Officers.

<TABLE>
<CAPTION>
VALUE OF IN-THE-MONEY
NUMBER OF UNEXERCISED UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END JUNE 30, 1995 (1)
SHARES ACQUIRED VALUE ---------------------------- --------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) (#) ($) ($)
- ---------------------------------------- --------------- ------------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Michael Hardinger.................... 500 $ 16,625 33,950 8,100 $ 931,833 $ 107,175
Preston M. Adcox........................ -- -- 13,750 3,350 340,216 44,238
Gerard Cognie........................... -- -- 100 900 3,050 11,775
David S. Gino........................... -- -- 600 900 11,175 11,775
Kenneth A. Rygler....................... -- -- 3,820 1,800 85,925 23,700
Van H. Leichliter....................... 580 8,736 -- 100 -- 1,175
</TABLE>

- ------------------------
(1) The closing price per share of DuPont common stock on June 30, 1995 was
$68.75.

ESTIMATED DUPONT RETIREMENT BENEFITS

The following table shows estimated annual pension benefits payable to
officers and other key employees of the Company assuming retirement from DuPont
on June 30, 1995 at age 65 under the provisions of the DuPont Pension Plan
currently in effect.

<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT
SALARY AND BENEFITS BASED ON SERVICE OF:
VARIABLE --------------------------------------------------------------------
COMPENSATION 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- ------------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 150,000 $ 18,000 $ 28,000 $ 39,000 $ 50,000 $ 60,000 $ 71,000
200,000 26,000 40,000 54,000 68,000 83,000 98,000
250,000 33,000 51,000 69,000 87,000 105,000 124,000
300,000 41,000 62,000 84,000 106,000 128,000 150,000
350,000 48,000 73,000 99,000 125,000 150,000 176,000
400,000 56,000 85,000 114,000 143,000 173,000 203,000
</TABLE>

As of June 30, 1995, the full years of service credited under the DuPont
Retirement Plan for the following individuals were: Mr. Hardinger, 24; Mr.
Adcox, 28; Mr. Gino, 7; Mr. Rygler, 30; and Mr. Leichliter, 24. These
individuals' participation in the DuPont Retirement Plan will terminate as of
the IPO Date. Upon termination, they will either receive a reduced pension
immediately or receive a full pension at a deferred date. They will also receive
health benefits from DuPont, if eligible. Mr. Cognie has 30 years of service and
is covered by the DuPont France Pension Plan.

COMPENSATION OF DPI EMPLOYEES IN 1996

The Company has designed an executive compensation program intended to
attract and motivate officers and key employees of the Company. The Company
believes that executive compensation should be tied to the Company's long term
performance and benefit to its stockholders. As such, a significant portion of
executive management's compensation will be tied to the performance of the
Company's long term total shareholder return. See "Risk Factors -- Dependence on
Management and Technical Personnel."

53
<PAGE>
BASE SALARY. At May 1, 1996, the base salaries for Messrs. Hardinger,
Adcox, Cognie, Gino, Rygler and Leichliter were increased to $290,000, $225,000,
910,000 FFr (approximately $180,000), $145,000, $168,000 and $138,000,
respectively.

BONUS PLAN. The Company will adopt, effective January 1, 1996, an annual
incentive plan (the "Bonus Plan") for officers and employees of the Company and
its subsidiaries. Beginning in August 1996, pursuant to the Bonus Plan, cash
bonuses will be awarded for performance following the close of the fiscal year
for which the services were rendered.

Employees are selected by the Company's Compensation Committee to
participate in the Bonus Plan based on the recommendation of the Chairman of the
Board of Directors. Target bonus grants will be established based on the
position of the employee and computed as a percentage of the employee's salary.
A performance goal based primarily on the Company's earnings and cash flow will
be set by the Board of Directors, and the amount of bonus will be calculated
based on the employee's target bonus grant, the performance of the Company
compared with the performance goal and individual contributions by the employee.
Although the Compensation Committee has the discretion to award what it believes
to be appropriate bonus awards, the Committee will primarily use the preceding
factors in determining the award amounts.

STOCK PERFORMANCE PLAN. The Company will adopt, effective upon the IPO
Date, a Stock Performance Plan to provide additional incentive to those officers
and employees of the Company and its subsidiaries primarily responsible for the
success of the Company and to closely identify their interests with those of the
stockholders. Under the Stock Performance Plan, grants of stock options,
restricted stock or combinations of the two may be awarded to employees
(including those who are directors of the Company) and to individuals performing
services for the Company on a consulting basis. The aggregate number of shares
of stock of the Company which may be made subject to option or restriction under
the Stock Performance Plan will not exceed 2,000,000 shares of which only
300,000 shares may be subject to restricted stock grants. Grantees of restricted
stock awards will have the right to dividends (unless otherwise restricted).

The Stock Performance Plan will be administered by the Compensation
Committee of the Company which will determine the timing and size of stock
option or restricted stock grants, the individuals, if any, who will receive
grants and the terms and conditions of such grants. Upon exercise of an option,
payment of the purchase price for the stock subject to the exercise will be made
in cash. In certain circumstances, the Compensation Committee may establish
conditions under which the Company may elect to make a cash payment to an
employee exercising an option equal to the difference between the option price
and the fair market value of the stock in lieu of executing the option. Under
the terms of the Stock Performance Plan, no more than 25% of the total number of
shares of stock granted under option may become exercisable in any given year
following the grant. Restrictions on restricted stock granted under the Stock
Performance Plan may not lapse before the second anniversary of the date of
grant. Grants to individuals who are not members of the Board of Directors will
be made by the Compensation Committee based on the recommendations of the
Chairman of the Board. Grants to eligible members of the Board of Directors will
be based on the recommendation of the Compensation Committee and will be made in
the sole discretion of the Board of Directors whose members taking action on the
grant shall be ineligible for grants under the Plan.

The Compensation Committee is expected to grant, effective as of the IPO
Date, restricted stock worth $1.8 million to approximately 40 employees of the
Company. In addition, the Compensation Committee is expected to grant stock
options, with an aggregate exercise price of $10.6 million, exercisable at a
price equal to the initial public offering price to approximately 120 employees.
Messrs. Hardinger, Adcox, Cognie, Gino, Rygler and Leichliter will receive
restricted stock worth $242,000, $150,000, $60,800, $48,330, $56,000 and
$46,000, respectively, and stock options with an aggregate exercise price of
$2,475,000, $1,500,000, $500,000, $600,000, $600,000 and $200,000, respectively.
In the case of Messrs. Hardinger, Adcox, Cognie, Gino and Rygler, these grants
represent compensation expected to be paid under the Stock Performance Plan
during the two years following the IPO Date. In the case of Mr. Leichliter, the
grant of stock options represents compensation expected to be paid under the
plan for the year following the IPO Date.

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FOUNDERS' STOCK OPTION PLAN. In 1996, the Company's Board of Directors
approved a Founders' Stock Option Plan pursuant to which the Compensation
Committee intends to award to nearly all employees of the Company and its
subsidiaries, worldwide, effective upon the IPO Date, each a one-time grant of
options to acquire 252 shares of Common Stock at an exercise price per share
equal to the initial public offering price of Common Stock in the Offering. Upon
exercise of an option, payments of the purchase price for the stock subject to
the exercise will be made in cash. Each of the Named Officers is expected to
receive a grant under this Plan. Grants under the Founders' Stock Option Plan
will vest over a four-year period at the rate of 25% of the total grant per
year.

EMPLOYMENT AGREEMENT. DuPont entered into an employment agreement with Mr.
Hardinger dated as of September 21, 1995, whereby he agreed to serve as the
chairman and chief executive officer of the Company. The agreement provides Mr.
Hardinger with: (i) an annual base salary of at least $290,000; and (ii), a
restricted stock grant of Common Stock valued at ten months' base salary at the
IPO Date and $2,475,000 of stock options priced to equal the initial public
offering price of Common Stock sold in the Offering, both pursuant to the
Company's Stock Performance Plan described above. These options will vest
immediately in the event of termination without cause.

In the event of termination without cause prior to the second anniversary of
the IPO Date, Mr. Hardinger would receive from DuPont the equivalent of two
years' salary and target bonus and the right to exercise all stock options. In
the event of termination without cause thereafter, Mr. Hardinger will receive
from DuPont a payment equal to one year's base salary and target bonus. In
addition, the other Named Officers and certain other senior management employees
will receive from DuPont in the event of termination without cause within two
years of the IPO Date the equivalent of two years' salary and target bonus. The
Company has no change-in-control arrangements with any of its executive
officers.

DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE

The Certificate and Bylaws provide for indemnification of directors and
officers to the fullest extent permitted by the Delaware General Corporation Law
(the "DGCL") and, to the extent permitted by such law, eliminate or limit the
personal liability of directors and officers to the Company and its stockholders
for monetary damages for certain breaches of fiduciary duty. In addition, the
Company will enter into an indemnification agreement with each of its directors
to the fullest extent permitted by the DGCL, pursuant to which they will be
entitled to advances for the costs of defending actions against them in addition
to that provided by the indemnification provisions in the Certificate and Bylaws
or the Company's directors and officers insurance policy. See "Description of
Capital Stock -- Certain DGCL, Certificate and Bylaws Provisions."

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<PAGE>
TRANSACTIONS AND RELATIONSHIP BETWEEN THE COMPANY AND DUPONT

The Company and DuPont have entered into a number of agreements for the
purpose of defining the ongoing relationship between them. These agreements were
negotiated in the context of a parent-subsidiary relationship and therefore are
not the result of negotiations between independent parties. It is the intention
of the Company and DuPont that such agreements and the transactions provided for
therein, taken as a whole, should accommodate the parties' interests in a manner
that is fair to both parties, while continuing certain mutually beneficial joint
arrangements. However, because of the complexity of the various relationships
between the Company and DuPont (including their subsidiaries), there can be no
assurance that each of such agreements, or the transactions provided for
therein, will be effected on terms at least as favorable to the Company as could
have been obtained from unaffiliated third parties. The agreements summarized in
this section have been filed as exhibits to the Registration Statement of which
this Prospectus forms a part, and the following summaries are qualified in their
entirety by reference to the agreements as filed. While these agreements will
provide the Company with certain benefits, the Company is only entitled to the
ongoing assistance of DuPont for a limited time and it may not enjoy benefits
from its relationship with DuPont beyond the term of the agreements. There can
be no assurance that the Company upon termination of such assistance from DuPont
will be able to provide adequately such services internally or obtain favorable
arrangements from third parties to replace such services. See "Risk Factors --
No Independent Operating History Prior to the Offering" and "-- Control by and
Relationship with DuPont."

Additional or modified arrangements and transactions may be entered into by
the Company, DuPont and their respective subsidiaries after completion of the
Offering. Any such future arrangements and transactions will be determined
through negotiation between the Company and DuPont or their respective
subsidiaries, as the case may be. The Company has adopted a policy that all
future agreements between the Company and DuPont and its subsidiaries will be on
terms that the Company believes are no less favorable to the Company than the
terms the Company believes would be available from unaffiliated parties. In that
regard, the Company intends to follow the procedures provided by the Delaware
General Corporation Law which include a vote to affirm any such future
agreements by a majority of the Company's directors who are not employees of
DuPont (even though such directors may be less than a quorum). There can be no
assurance that any such arrangements or transactions will be the same as that
which would be negotiated between independent parties.

The following is a summary of certain past, present and prospective
arrangements and transactions between the Company and DuPont.

REALIGNMENT OF PHOTOMASK BUSINESS

Prior to the Realignment described below, DuPont's U.S. photomask operations
were conducted by DuPont Photomasks, Inc., a Texas corporation. European
photomask operations were conducted by separate, wholly-owned subsidiaries of
DuPont in their respective countries. Photomask operations in Korea were
conducted by a Korean subsidiary, which was 31% owned by DuPont Photomasks, Inc.
and 69% owned by DuPont and which also conducted DuPont's other non-photomask
business.

In connection with the Offering, DuPont realigned its global photomask
business, pursuant to which certain transactions were undertaken so that
DuPont's foreign photomask operations would reside in subsidiaries wholly owned
by the Company (the "Realignment"). The Company was reincorporated in Delaware
on December 31, 1995. On May 14, 1996, DPI issued one million shares of Common
Stock to DCEO for a nominal amount.

On November 9, 1995, DPI incorporated a new subsidiary in Delaware, DuPont
Photomasks Delaware Inc. ("Photomasks Delaware") and as of March 29, 1996, DPI
had contributed approximately $37 million to Photomasks Delaware. Photomasks
Delaware used such contribution to make loans to Photomasks Korea, Photomasks
Germany and Photomasks France (each, as defined herein) in order to complete the
Realignment. In addition, the amounts owed to DuPont by the Company under
several Master Note agreements were consolidated into a single Master Note on
February 22, 1996. The proceeds from the Offering will, in

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part, be used to repay a portion of the amount outstanding under the Master
Note. The remaining balance under the Master Note will be contributed as equity
capital to the Company by DCEO. See "Use of Proceeds."

On August 31, 1995, DPI incorporated a new wholly owned subsidiary in Korea,
DuPont Photomasks Korea Ltd., and on January 30, 1996, DuPont Korea Ltd.
transferred all of its assets (except for cash) relating to the photomask
business to DuPont Photomasks Korea Ltd. ("Photomasks Korea") for approximately
$37 million, which was based upon an appraisal conducted by an independent third
party. In addition to the transfer of the assets related to the photomask
business in Korea, Photomasks Korea also assumed all of the liabilities relating
to the photomask business, including trade payables, any liabilities relating to
photomask product warranties, and any employee related liabilities or other
claims with regard to employees transferred by DuPont Korea Ltd. to Photomask
Korea. While the manufacturing operations and the title to approximately 75% of
the real property at the Korean manufacturing facility has been transferred to
Photomasks Korea, certain real property at this manufacturing site that is not
used for manufacturing purposes has yet to be transferred pending local
government review. On May 31, 1996, DPI sold its 31% equity interest in DuPont
Korea Ltd. to DuPont for $26.6 million. The proceeds from the sale were
principally used to reduce the balance under the Master Note. In connection with
such sale, to the extent there is a loss, any tax benefit attributable to such
loss will, pursuant to the Tax Indemnification Agreement described below, be for
DuPont's benefit at such time as when DuPont's beneficial ownership of the
Company falls below 50%.

On January 4, 1996, DuPont purchased all the outstanding shares of DuPont
Photomasks (France) S.A. ("Photomasks France") from DuPont de Nemours (France)
S.A. for 81 million FFr (approximately $16.2 million), which was based on an
appraisal by an independent third party. On January 11, 1996, DuPont contributed
such shares to DCEO, and on January 15, 1996, DCEO contributed such shares to
DPI.

In Germany, DuPont's photomask business had been operated through DuPont
Photomasks GmbH & Co. KG ("Photomasks KG") by DuPont de Nemours (Deutschland)
GmbH ("DuPont Germany") and DuPont Photomasks Verwaltungs GmbH ("Photomasks
Germany"). On December 18, 1995, Photomasks KG distributed DM 4.3 million
(approximately $2.95 million) to DuPont Germany. On March 29, 1996, Photomasks
KG distributed DM 6.4 million (approximately $4.3 million) to DuPont Germany,
and Photomasks Delaware and DPI loaned DM 30.2 million (approximately $20.3
million) to Photomasks KG. On April 1, 1996, Photomasks KG redeemed the equity
interest in Photomask KG held by DuPont Germany for DM 30.2 million. Pursuant to
German law, all of the assets and liabilities of Photomasks KG were assumed by
Photomasks Germany. On April 4, 1996, DCEO contributed all of the outstanding
shares of Photomasks Germany to DPI. In April 1996, DM 7.5 million
(approximately $5.2 million) of DPI's loan was converted into equity.

On February 8, 1996, DuPont purchased a 60.5% equity interest in DuPont
Photomasks Company Limited, Shanghai ("Photomasks China") from DuPont China
Holding Company Limited ("DuPont China") for RMB 11.8 million (approximately
$1.4 million). On February 8, 1996, DuPont contributed such equity interest to
DCEO, and DCEO contributed such equity interest to DPI. In connection with this
equity contribution, DPI agreed to guarantee for the benefit of DuPont all
amounts payable in the future by DuPont pursuant to a previous guarantee DuPont
made on behalf of Photomasks China for up to $4.6 million plus interest and
expenses.

On August 28, 1995, DCEO contributed 50,000 shares of Etec preferred stock
to DPI, and such Etec preferred stock by its terms has been converted to
1,025,640 shares of Etec common stock.

ADMINISTRATIVE SERVICES AGREEMENTS

The Company and its subsidiaries, on the one hand, and DuPont and certain
DuPont subsidiaries, on the other hand, will enter into several transitional
administrative services agreements, each effective as of January 1, 1996
(collectively, the "Administrative Services Agreements"), pursuant to which
DuPont will continue to provide various services to the Company, including cash
management, accounting, computer and information systems, telecommunications and
employee benefits administration.

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Each service under the Administrative Services Agreements is provided for a
specified time period, ranging from one to two years. However, the Company and
its subsidiaries may terminate any or all services that it receives under an
Administrative Services Agreement at any time upon 45 days' prior written
notice. Each Administrative Services Agreement shall terminate upon the later of
(i) January 1, 1998 or (ii) the date upon which DuPont owns less than 50% of the
outstanding Common Stock of the Company. See "Risk Factors -- Effects of Sales
of Substantial Amounts of Common Stock." As long as DuPont owns at least 50% of
the outstanding Common Stock of the Company, DPI or its subsidiaries, as the
case may be, may unilaterally extend the period during which DuPont provides any
service for an additional twelve months by providing DuPont at least 45 prior
days' written notice. The Company and its subsidiaries are obligated to take all
steps necessary to obtain its own administrative and support services prior to
the termination of the Administrative Services Agreements.

The Company and its subsidiaries will be obligated to pay fees established
in the Administrative Services Agreements based upon the type and amount of
services rendered. It is estimated that DuPont will charge an annual fee of
approximately $5 million for all of the services that it will provide under the
Administrative Services Agreements. In addition, the Company and its
subsidiaries will reimburse DuPont for any out-of-pocket expenses it incurs in
connection with providing the services. With the exception of the administrative
services agreement entered into by the respective subsidiaries of DuPont and DPI
in Korea, in the absence of gross negligence or willful or reckless misconduct,
DuPont's liability for damages to DPI for any breach of DuPont's obligations
under the Administrative Services Agreements is limited to payments made to
DuPont thereunder. With respect to the administrative services agreement
covering the operations in Korea, DuPont's subsidiary is not required to provide
any guarantee or warranty of any nature and cannot be held liable for any
claims, damages or liabilities of any kind resulting from the furnishing of the
services thereunder.

RESEARCH, DEVELOPMENT AND CONSULTING AGREEMENT

The Company and DuPont have entered into a research, development and
consulting agreement (the "Research, Development and Consulting Agreement")
dated as of January 1, 1996, whereby DuPont will provide to the Company
supplemental technical assistance and consulting with respect to: (i)
state-of-the-art analytical support and consulting on an as needed basis
("Analytical Support") and (ii) research projects addressing specific DPI needs
("Research Project Support"). In exchange for the Analytical Support, DPI will
pay DuPont $100,000 per calendar year. In the event the costs of these services
are estimated to exceed $100,000, the Company can either agree to pay additional
projected costs or elect not to have DuPont provide these additional services.
Compensation for Research Project Support will be determined at the time each
specific project relating thereto is undertaken. The term of the Research,
Development and Consulting Agreement is five years and shall continue on a year
to year basis thereafter until terminated by either of DuPont or the Company
pursuant to certain procedures set forth in the Research, Development and
Consulting Agreement. The Company believes that the Research, Development and
Consulting Agreement will provide the Company with a supplement to its core
research and development program, which is focussed on the advancement of the
product design and manufacturing technologies specific to photomasks, blanks and
pellicles. The core program occasionally requires a more generic laboratory
analysis of materials that are used, or considered for use, in the manufacture
of these products, and DuPont Central Research and Development has the
capability to supplement the Company's core program by providing this analytical
service, or, at times, by pursuing a specific research project with the
objective of altering a certain material property. See "Business -- Research and
Development."

TAX INDEMNIFICATION AGREEMENT

The Company, DuPont and DCEO have entered into a tax indemnification
agreement effective as of the IPO Date (the "Tax Indemnification Agreement"),
pursuant to which the Company will make a payment to DuPont, or DuPont will make
a payment to the Company, as appropriate, of an amount in respect of taxes shown
as due attributable to the operations of the Company on DuPont's consolidated
federal income tax return for the short period ending on the date on which the
Company ceases to be a member of the DuPont consolidated group. DuPont and DCEO
jointly and severally will indemnify the Company and its subsidiaries from
liability for certain matters, including, net of corresponding tax benefits, (i)
any federal, state or

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local income or other taxes attributable to any affiliated or combined group of
which the Company was a member at any time prior to the IPO Date and (ii) any
federal, state or local income or other tax for any period up to and including
the IPO Date. The Company will indemnify DuPont and its subsidiaries from
liability for certain matters, including any federal, state or local income or
other taxes attributable to the operations of the Company following the IPO
Date.

In connection with DPI's sale of its 31% equity interest in DuPont Korea
Ltd. to DuPont, to the extent there is a loss, any tax benefit attributable to
such loss will, pursuant to the Tax Indemnification Agreement, be for DuPont's
benefit at such time as when DuPont's beneficial ownership of the Company falls
below 50%.

The Tax Indemnification Agreement will require payments of claims to be made
within 30 days of the date a written demand for the claim is delivered. Interest
accrues on payments that are not made within 10 days of the final due date at
the rate applicable to the underpayments of the applicable tax. Any disputes
concerning the calculation or basis of determination of any payment provided
under the Tax Indemnification Agreement will be resolved by a law firm or a "big
six" accounting firm selected jointly by the parties.

ENVIRONMENTAL INDEMNIFICATION AGREEMENT

The Company and DuPont have entered into an environmental indemnification
agreement effective as of the IPO Date (the "Environmental Indemnification
Agreement"), pursuant to which DuPont will generally indemnify the Company
against substantially all contingent liabilities relating to any environmental
contamination present on the manufacturing sites of the Company and its
subsidiaries as of the IPO Date or present on any other site as a result of the
manufacturing operations of the Company and its subsidiaries prior to the IPO
Date.

In the event that the parties cannot determine with reasonable certainty
following good faith negotiations whether the contamination was caused by
activities occurring before or after the IPO Date, the Agreement will provide a
mechanism whereby the liability associated with such claim will be allocated
according to the following: DuPont will bear 100 percent of the liability
associated with claims filed by the Company with regard to such contamination
prior to the first anniversary of the IPO Date; DuPont's liability for claims
filed following the first anniversary of the IPO Date will decline at the rate
of 20 percent per year; and DuPont will have no liability for such claims filed
following the fifth anniversary of the IPO Date.

The Environmental Indemnification Agreement will include procedures for
notice and payment of indemnification claims and will generally provide that the
party bearing the majority of the liability will assume the defense of such
claim and will control any negotiation or remediation activities.

CREDIT FACILITY

The Company and DCEO have entered into a credit agreement effective as of
January 1, 1996 (the "Credit Agreement"), pursuant to which DCEO has agreed to
provide a revolving credit/working capital facility (the "Credit Facility") to
the Company in an aggregate amount of up to $30 million. The Credit Facility has
a term of 24 months, and any loans thereunder will bear interest at the
six-month London Interbank Offered Rate (LIBOR) plus 50 basis points, which
shall be adjusted every six months. The amounts loaned under the Credit
Agreement are secured by all the Company's (i) equipment, (ii) accounts
receivable, (iii) instruments, documents and securities owned by DPI and in the
possession of DCEO and (iv) the proceeds of the foregoing. The Credit Facility
will provide financing for general capital spending and corporate purposes and
ongoing working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation -- Liquidity and Capital
Resources."

The Credit Agreement contains various representations, covenants and events
of default typical for financings of a similar size and nature. In addition to
restrictive covenants limiting the ability of the Company and its subsidiaries
to enter into leases and pledge its assets, the Credit Agreement contains the
following restrictive covenants. Without DCEO's prior written consent, DPI will
not incur, create, assume or permit to exist any indebtedness, including
guarantees on indebtedness (in addition to the indebtedness under the Credit
Facility), in excess of $30 million in the aggregate. In addition, without
DCEO's prior written consent, which may not be unreasonably withheld, DPI will
not (a) change its capital structure,

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(b) merge or consolidate with any corporation, (c) amend or change its articles
of incorporation or bylaws or (d) sell, transfer or otherwise dispose of all or
any substantial part of its assets, whether now owned or hereafter acquired,
except for sales of inventory in the ordinary course of business. See "Risk
Factors -- No Independent Operating History Prior to the Offering" and "Risk
Factors -- Control by and Relationship with DuPont."

CORPORATE TRADENAME AND TRADEMARK AGREEMENT

The Company and DuPont have entered into a corporate tradename and trademark
agreement dated as of May 16, 1996 (the "Corporate Tradename Agreement"),
whereby DuPont will license to the Company (i) use of the tradename "DuPont" as
part of the Company's name and (ii) use of the trademark DuPont in Oval as part
of the Company's corporate logotype. DuPont may terminate the Corporate
Tradename Agreement upon 90 days written notice in the event that: (i) DuPont
and/or its affiliates cease to hold 51% of the total outstanding Common Stock of
DPI; (ii) DPI purports to assign or otherwise transfer the Corporate Tradename
Agreement without DuPont's written consent; or (iii) DPI uses the tradename
"DuPont" other than under the terms of the Corporate Tradename Agreement. In
addition, DuPont may terminate the Corporate Tradename Agreement upon 90 days
written notice for any reason after January 1, 2000. Upon termination of the
Corporate Tradename Agreement, DPI will be obligated to: (i) change its name so
that the tradename "DuPont" is omitted therefrom; (ii) cease to use the
tradename "DuPont" or any similar tradename as part of its corporate name or in
any other manner whatsoever; and (iii) cease to use the DuPont in Oval
trademark.

DISTRIBUTOR AGREEMENTS

DPI has entered into separate distributor agreements, each effective as of
January 1, 1996 (the "Distributor Agreements") with DuPont K.K., a Japanese
subsidiary of DuPont, and DuPont Taiwan Limited, a Taiwanese subsidiary of
DuPont (collectively, the "Distributors"). Pursuant to the Distributor
Agreements, DPI has appointed the Distributors to sell DPI's products in their
respective countries. The products will be sold to the Distributors at a
discount, which shall permit the Distributors to earn a pre-tax profit between
2% and 4%. The Distributor Agreements have a term of two years but may be
terminated without cause upon six months' prior written notice. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year Ended June 30, 1994 Compared to Year Ended June 30, 1995 --
Total Sales."

HISTORICAL TRANSACTIONS

The Company borrowed funds for acquisitions, capital expenditures and
working capital from DCEO pursuant to the Master Note. The interest rate charged
has been equal to the rate DuPont pays for its commercial paper borrowings. A
portion of the net proceeds from the Offering will be used to repay indebtedness
owed under the Master Note. Any remaining balance on the Master Note will be
contributed to the Company as equity capital by DCEO. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Prior to the Realignment, DuPont provided significant management functions
and services, including cash management, tax administration, accounting, legal,
data processing, benefit administration and other support services. DPI was
charged and/or allocated expenses for the years ended June 30, 1993, 1994 and
1995 of $12.0 million, $12.5 million and $13.1 million, respectively, and $9.6
million and $8.4 million for the nine months ended March 31, 1995 and 1996,
respectively. The costs of these services have been directly charged and/or
allocated using methods that DuPont management believes are reasonable. Such
charges and allocations are not necessarily indicative of the costs the Company
would have been incurred to obtain these services had it been a separate entity.
Neither DuPont nor the Company has made a study or any attempt to obtain
estimates from third parties to determine what the cost of obtaining such
services from such parties may have been. See Note 3 to Combined Financial
Statements.

PRINCIPAL STOCKHOLDER AND STOCK OWNERSHIP

DuPont, through its wholly owned subsidiary DCEO, currently owns all the
shares of Common Stock of the Company outstanding. Upon completion of the
Offering, DuPont will own approximately 72% of the

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outstanding Common Stock (or 70%, if the Underwriters' overallotment option is
exercised in full). DuPont will, therefore, be able, acting alone, to elect the
entire Board of Directors of the Company and to control the vote on most matters
submitted to a vote of the Company's stockholders, including extraordinary
corporate transactions. DuPont's address is 1007 Market Street, Wilmington, DE
19898. See "Risk Factors -- Control by and Relationship with DuPont."

The following table furnishes information, as of the date hereof and
adjusted to reflect the consummation of the Offering, with respect to shares of
Common Stock beneficially owned by DuPont. In addition, the table sets forth the
number of shares of DPI Common Stock and DuPont common stock beneficially owned
by (i) each executive officer of the Company, (ii) all directors of the Company
as a group and (iii) all directors and executive officers of the Company as a
group. The officers of the Company are expected to have sole voting power and
investment power over the shares to be held by them.

<TABLE>
<CAPTION>
BEFORE THE OFFERING AFTER THE OFFERING
----------------------------- --------------------------------
DPI SHARES PERCENT OF DPI DPI SHARES PERCENT OF DUPONT SHARES
NAME OF BENEFICIALLY SHARES BENEFICIALLY DPI SHARES BENEFICIALLY
BENEFICIAL OWNER OWNED OUTSTANDING OWNED (1) OUTSTANDING (1) OWNED (2)
- --------------------------------------- ------------ --------------- ------------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
DuPont ................................ 10,500,000 100% 10,500,000 72% --
1007 Market Street
Wilmington, DE 19898
J. Michael Hardinger................... -- -- -- -- --
Preston M. Adcox....................... -- -- -- -- --
Gerard Cognie.......................... -- -- -- -- --
David S. Gino.......................... -- -- -- -- --
Kenneth A. Rygler...................... -- -- -- -- --
Van H. Leichliter...................... -- -- -- -- --
All directors (9 persons) (3).......... -- -- -- -- --
All directors and executives officers -- -- -- -- --
as a group (14 persons) (2)...........
</TABLE>

- ------------------------
(1) Excludes shares of Common Stock granted under the Company's employee benefit
plans and any shares of Common Stock purchased pursuant to the Offering.

(2) The directors and executive officers of the Company as a group beneficially
own less than 1% of outstanding shares of DuPont's common stock.

(3) The Company's directors are J. Michael Hardinger; John L. Doyle; John C.
Hodgson; Charles O. Holliday, Jr.; Peter G. Kehoe; Gary W. Pankonien; John
C. Sargent; Marshall C. Turner; and Susan A. Vladuchick.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

In connection with the Realignment, the Company was reincorporated in
Delaware. Pursuant to the Company's Certificate of Incorporation (the
"Certificate"), the Company is authorized to issue 25,000,000 shares of Common
Stock, par value $.01 per share, of which 10,500,000 shares are issued and
outstanding. The Common Stock offered hereby, when issued and sold as
contemplated by this Prospectus, will be validly issued, fully paid and
nonassessable. Upon completion of the Offering, there will be 14,500,000 shares
of Common Stock outstanding.

COMMON STOCK

Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote is
generally required for all actions to be taken by stockholders. Because holders
of Common Stock do not have cumulative voting rights, holders of a majority of
the shares of Common Stock represented at a meeting in person or by proxy can
elect all of the directors. Accordingly, after the Offering, DuPont will be able
to control the vote on most matters submitted to stockholders, including the
election of directors and approval of extraordinary corporate transactions. See
"Risk Factors -- Control by and Relationship with DuPont." In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company and
the liquidation preference of any outstanding preferred stock. The Common Stock
has no preemptive rights and no redemptions, sinking fund or conversion
provisions.

The Common Stock has been approved for quotation on the Nasdaq National
Market. The transfer agent and registrar for the Common Stock will be Chemical
Mellon Shareholder Services, L.L.C.

Holders of Common Stock are entitled to such dividends as may be declared
from time to time by the Board of Directors out of funds legally available
therefor, subject to the dividend and liquidation rights of any preferred stock
that may be issued. See "Dividend Policy."

PREFERRED STOCK

The Certificate authorizes the Board to provide for the issuance, from time
to time, of classes or series of preferred stock, to establish the number of
shares to be included in any such class or series and to fix the designations,
voting powers, preferences and rights of the shares of each such class or series
and any qualifications, limitations or restrictions thereof. Because the Board
has the power to establish the preferences and rights of the shares of any such
class or series of preferred stock, it may afford holders of any preferred stock
preferences, powers and rights (including voting rights), senior to the rights
of holders of Common Stock, which could adversely affect the rights of holders
of Common Stock. There are no shares of preferred stock currently outstanding,
and the Company currently has no intention to issue any shares of preferred
stock.

CERTAIN DGCL, CERTIFICATE AND BYLAWS PROVISIONS

The DGCL authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must exercise
an informed business judgment based on all material information reasonably
available to them. Absent the limitations now authorized by the DGCL, directors
are accountable to corporations and their stockholders for monetary damages for
conduct constituting gross negligence in the exercise of their duty of care. The
DGCL enables corporations to limit available relief to equitable remedies such
as injunction or rescission. The Certificate limits the liability of directors
of the Company to the Company or its stockholders (in their capacity as
directors but not in their capacity as officers) to the fullest extent permitted
by the DGCL. Specifically, directors of the Company will not be personally
liable for monetary damages for breach of a director's fiduciary duty other than
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
violations under Section 174 of the DGCL or any transaction from which the
director derived an improper personal benefit. The inclusion of

62
<PAGE>
these provisions in the Certificate may have the effect of reducing the
likelihood of derivative litigation against the Company's directors and may
discourage or deter stockholders or management from bringing a lawsuit against
the Company's directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefited the Company and its
stockholders. Such provisions do not limit or affect a stockholder's ability to
seek and obtain relief under the Federal securities laws.

In addition, Article VII of the Bylaws requires the Company to indemnify any
current or former director or officer to the fullest extent permitted by the
DGCL. In addition, the Company has agreed to indemnify each director to the
fullest extent permitted by the DGCL pursuant to an Indemnification Agreement
from and against any and all expenses, losses, claims, damages and liabilities
incurred by such director for or as a result of actions taken or not taken while
such director or officer was acting in his or her capacity as a director,
officer, employee or agent of the Company. In addition, the Company maintains
directors and officers liability insurance which insures against liabilities
that directors and officers of the Company may incur in such capacities. The
Company believes that these provisions are necessary to attract and retain
qualified persons as directors and officers. See "Risk Factors -- Dependence on
Management and Technical Personnel."

The Certificate contains a provision expressly electing not to be governed
by Section 203 of DGCL. In general, Section 203 of the DGCL restricts certain
business combinations involving interested stockholders (defined as any person
or entity that is the beneficial owner of at least 15% of a corporation's voting
stock or is an affiliate or associate of the corporation and was the owner of
15% or more of the outstanding voting stock of the corporation at any time in
the past three years) or their affiliates (as defined). Because of such
election, Section 203 will not apply to the Company.

63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 14,500,000 shares of
Common Stock outstanding. Of these shares, the 4,000,000 shares sold in the
Offering (4,600,000 shares, if the Underwriters' overallotment option is fully
exercised) will be freely tradeable without restriction under the Securities
Act, unless they are held by an "affiliate" of the Company as that term is
defined in Rule 144 under the Securities Act of 1933 (the "Securities Act").
Shares purchased by affiliates of the Company may generally be sold in
compliance with the volume limitation, availability of public information,
manner of sale and notice of sale requirements of Rule 144.

The 10,500,000 shares of Common Stock that will continue to be owned by DCEO
will be "restricted" securities within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of registration under the
Securities Act or unless an exemption from registration is available, including
the exemptions contained in Rule 144 and Rule 144A under the Securities Act.

In general, under Rule 144, a person (or persons whose shares are
aggregated), including any person who may be deemed an "affiliate" of the
Company, who has beneficially owned restricted shares for at least two years
would be entitled to sell within any three-month period a number of restricted
shares that does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume in the over-the-counter market
during the four calendar weeks preceding such sale, provided that the seller
files a Form 144 with respect to such sale, and complies with certain
requirements concerning availability of public information and manner of sale.
In addition, under Rule 144(k), a person who is not an affiliate of the Company,
and who has not been an affiliate of the Company at any time during the 90 days
preceding any sale, would be entitled to sell restricted shares without regard
to the limitations described above, provided that the restricted shares have
been beneficially owned for at least three years. The Securities and Exchange
Commission (the "Commission") has proposed reducing the three year and two year
restrictions described above to two and one year restrictions, respectively. It
is not known whether this proposal will be adopted. In addition, DCEO would be
permitted to sell its existing shares of stock to qualified institutional buyers
pursuant to the provisions of Rule 144A.

Each of the Company and DCEO has agreed not to sell or otherwise dispose of
any shares of the Common Stock held by them for 180 days after the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated, subject to certain exceptions. See "Underwriters."

DuPont has advised the Company that it expects to reduce its ownership
interest in the Company over time, subject to prevailing market and other
conditions. The Company is unable to estimate the amount, timing or nature of
future sales of outstanding Common Stock. Prior to the Offering, there has been
no market for the Common Stock, and no precise predictions can be made of the
effect, if any, that market sales of shares or the availability of shares for
sale will have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of the Common Stock in the public market may have
an adverse effect on the market price thereof. See "Risk Factors -- Effect of
Sales of Substantial Amounts of Common Stock."

REGISTRATION RIGHTS

Under a Registration Rights Agreement dated as of December 31, 1995 (the
"Registration Rights Agreement") between DCEO and the Company, DCEO and its
assignees ("Holders") will be entitled to certain rights with respect to the
registration of shares they hold under the Securities Act. Subject to certain
limitations (including a minimum registration of over 1,000,000 shares), each
Holder has the right to require the Company to register the sale of all or part
of the shares it holds under the Securities Act (a "demand registration"). The
Holders, in the aggregate, are entitled to request up to five demand
registrations. Each Holder is also entitled to include the shares of Common
Stock it holds in a registered offering of securities by the Company for its own
account, subject to certain conditions and restrictions. The Company will pay
all expenses associated with a registration of shares of Common Stock by a
Holder pursuant to the Registration Rights Agreement, other than underwriting
discounts and commissions, Holders' out-of-pocket expenses or underwriters'
counsel fees and disbursements, if any, relating to such shares. In addition,
the Registration

64
<PAGE>
Rights Agreement contains certain indemnification provisions (i) by the Company
for the benefit of Holders as well as any potential underwriter and (ii) by
Holders for the benefit of the Company and related persons. DCEO and its
assignees may transfer its registration rights under the Registration Rights
Agreement without the prior approval of the Company. The Registration Rights
Agreement also provides that while DCEO owns 50% or more of the Company's Common
Stock, the Company may not grant registration rights to any other person without
DCEO's prior consent. DCEO has no current intention to exercise its registration
rights under the Registration Rights Agreement.

65
<PAGE>
UNDERWRITERS

Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), each of the
Underwriters named below, for whom Morgan Stanley & Co. Incorporated, Cowen &
Company and Needham & Company, Inc. are acting as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite their respective
names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ------------------------------------------------------------------------------------------- ----------
<S> <C>
Morgan Stanley & Co. Incorporated.......................................................... 900,000
Cowen & Company............................................................................ 900,000
Needham & Company, Inc..................................................................... 900,000
Advest, Inc................................................................................ 50,000
CS First Boston Corporation................................................................ 100,000
EVEREN Securities, Inc..................................................................... 50,000
Furman Selz Incorporated................................................................... 50,000
Hambrecht & Quist Incorporated............................................................. 100,000
Janney Montgomery Scott Inc................................................................ 50,000
Kaufman Bros., L.P......................................................................... 50,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................................... 100,000
Montgomery Securities...................................................................... 100,000
Principal Financial Securities, Inc........................................................ 50,000
Prudential Securities Incorporated......................................................... 100,000
Rauscher Pierce Refsnes, Inc............................................................... 50,000
Robertson, Stephens & Company, L.P......................................................... 100,000
Societe Generale Securities Corporation.................................................... 100,000
Smith Barney Inc........................................................................... 100,000
SoundView Financial Group, Inc............................................................. 50,000
Southcoast Capital Corporation............................................................. 50,000
Starr Securities, Inc...................................................................... 50,000
----------
Total.................................................................................. 4,000,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all the shares of Common Stock offered hereby (other than those
covered by the overallotment option described below) if any such shares are
taken.

The Underwriters have reserved up to 150,000 shares of Common Stock for sale
at the initial public offering price to certain employees, officers and
directors of the Company, as such persons have expressed an interest in
purchasing such shares of Common Stock in the Offering. The Company will pay all
fees and disbursements of counsel incurred by the Underwriters in connection
with offering the shares to such persons. The number of shares available for
sale to the general public will be reduced to the extent such persons purchase
such reserved shares. Any reserved shares not so purchased will be offered by
the Underwriters to the general public on the same basis as the other shares
offered hereby.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $.71 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $.10 per share to other Underwriters or to certain other dealers. After the
initial offering of the shares of Common Stock, the offering price and other
selling terms may from time to time be varied by the Underwriters.

66
<PAGE>
The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 600,000
additional shares of Common Stock at the public offering price set forth on the
cover page hereof, less the underwriting discounts and commissions. The
Underwriters may exercise such option to purchase solely for the purpose of
covering overallotments, if any, made in connection with the Offering. To the
extent that such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares offered hereby.

The Company, DuPont and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

Each of the Company and DCEO has agreed in the Underwriting Agreement that
it will not, without the prior written consent of Morgan Stanley & Co.
Incorporated, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Common Stock, for a period of 180 days after
the date of this Prospectus, except under the Company's existing benefit plans
and certain other circumstances.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.

The Representatives of the Underwriters and certain of their affiliates from
time to time provide investment banking and other services to DuPont and to
certain of its affiliates, for which they receive customary fees.

PRICING OF THE OFFERING

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price has been determined by negotiations among the
Company and the Representatives of the Underwriters. Among the factors
considered in determining the initial public offering price were the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. There can, however, be no
assurance that the prices at which the Common Stock will sell in the public
market after the Offering will not be lower than the price at which it is sold
by the Underwriters.

LEGAL MATTERS

The validity of the Common Stock will be passed upon for the Company by Van
H. Leichliter, Executive Vice President, General Counsel and Secretary of the
Company. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Davis Polk & Wardwell of New York, New York.

EXPERTS

The combined financial statements as of June 30, 1995 and 1994 and March 31,
1996 and for each of the three years in the period ended June 30, 1995 and for
the nine months ended March 31, 1996, included in this Prospectus, have been so
included in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby
(including all amendments and supplements thereto, the "Registration
Statement"). As permitted by the rules and regulations of the Commission, this

67
<PAGE>
Prospectus, which is part of the Registration Statement, does not contain all
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to the Registration Statement and such
exhibits and schedules filed as a part of thereof, which may be inspected,
without charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, New
York, New York 10048, and Room 3190, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission, upon payment of prescribed fees or may be examined without charge at
the public reference facility of such office.

Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are summaries of material terms of such
contract, agreement or other document. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.

68
<PAGE>
INDEX TO COMBINED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------

<S> <C>
Report of Independent Accountants.......................................................................... F-2

Combined Statement of Operations -- Fiscal Years Ended June 30, 1993, 1994 and 1995........................ F-3

Combined Statement of Financial Position -- June 30, 1994 and 1995......................................... F-4

Combined Statement of Cash Flows -- Fiscal Years Ended June 30, 1993, 1994 and 1995........................ F-5

Notes to Combined Financial Statements..................................................................... F-6

Report of Independent Accountants.......................................................................... F-20

Combined Statement of Operations -- Nine Months Ended March 31, 1995 (unaudited) and 1996.................. F-21

Combined Statement of Financial Position -- June 30, 1995 and March 31, 1996............................... F-22

Combined Statement of Cash Flows -- Nine Months Ended March 31, 1995 (unaudited) and 1996.................. F-23

Notes to Combined Financial Statements..................................................................... F-24
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of E.I. du Pont de Nemours and Company

In our opinion, the accompanying combined statement of financial position
and the related combined statements of operations and of cash flows present
fairly, in all material respects, the financial position of DuPont Photomasks
Business, a division of E.I. du Pont de Nemours and Company (the "Company"), at
June 30, 1994 and 1995, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, 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 the opinion expressed above.

PRICE WATERHOUSE LLP

Philadelphia, Pennsylvania
April 4, 1996

F-2
<PAGE>
DUPONT PHOTOMASKS BUSINESS

COMBINED STATEMENT OF OPERATIONS (SEE NOTE 1)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------
SEE NOTE 1993 1994 1995
----- ---------- ---------- ----------
<C> <S> <C> <C> <C>
Sales................................................................. $ 115,295 $ 130,497 $ 155,146
3 Sales To Related Parties.............................................. 3,601 4,051 6,368
---------- ---------- ----------
Total Sales........................................................... 118,896 134,548 161,514
Cost of Goods Sold.................................................... 112,224 107,456 117,022
---------- ---------- ----------
Gross Profit.......................................................... 6,672 27,092 44,492
3,7 Selling, General and Administrative Expense........................... 18,630 20,750 21,803
2 Research and Development Expense -- Net............................... 8,337 8,131 8,777
8 Other Operating (Income) Expense -- Net............................... 8,497 2,940 3,490
---------- ---------- ----------
Operating Profit (Loss)............................................... (28,792) (4,729) 10,422
9 Interest Expense...................................................... 9,196 5,814 6,957
Exchange (Gain) Loss.................................................. (430) 322 (493)
---------- ---------- ----------
Income (Loss) Before Income Taxes and Minority Interest............... (37,558) (10,865) 3,958
10 Provision for Income Taxes............................................ -- -- --
---------- ---------- ----------
Income (Loss) Before Minority Interest................................ (37,558) (10,865) 3,958
Minority Interest in Income (Loss) of Majority Owned Joint Venture.... -- -- (161)
---------- ---------- ----------
Net Income (Loss)..................................................... $ (37,558) $ (10,865) $ 4,119
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See pages F-6 to F-19 for Notes to Combined Financial Statements.

F-3
<PAGE>
DUPONT PHOTOMASKS BUSINESS

COMBINED STATEMENT OF FINANCIAL POSITION (SEE NOTE 1)

(DOLLARS IN THOUSANDS)

ASSETS
<TABLE>
<CAPTION>
JUNE 30
------------------------
SEE NOTE 1994 1995
- --------- ----------- -----------
<C> <S> <C> <C>
CURRENT ASSETS
2 Cash and Cash Equivalents...................................................... $ 3,924 $ 8,412
4 Accounts Receivable, Trade -- Net.............................................. 23,273 27,696
3 Accounts Receivable, Related Parties........................................... 3,268 1,846
Accounts and Notes Receivable, Miscellaneous................................... 1,166 1,263
11 Inventories.................................................................... 6,812 6,830
Prepaid Expenses and Other Current Assets...................................... 2,951 695
----------- -----------
Total Current Assets........................................................... 41,394 46,742
----------- -----------
12 Property, Plant and Equipment.................................................. 226,702 251,194
Less: Accumulated Depreciation and Amortization................................ (114,659) (138,070)
----------- -----------
Net Property, Plant and Equipment.............................................. 112,043 113,124
----------- -----------
Accounts Receivable, Related Parties -- Non-Current............................ 910 1,405
----------- -----------
2,3 Other Assets................................................................... 6,554 10,430
----------- -----------
Total Assets................................................................... $ 160,901 $ 171,701
----------- -----------
----------- -----------

LIABILITIES, DUPONT MASTER NOTES AND OWNER'S NET INVESTMENT
<C> <S> <C> <C>

CURRENT LIABILITIES
Accounts Payable, Trade........................................................ $ 3,745 $ 2,923
3 Accounts Payable, Related Parties.............................................. 4,735 8,076
13 Accounts Payable, Miscellaneous................................................ 989 7,255
16 Short Term Borrowings.......................................................... 1,386 2,960
13,14 Other Accrued Liabilities...................................................... 7,686 9,123
----------- -----------
Total Current Liabilities...................................................... 18,541 30,337
15,16 Long Term Borrowings........................................................... 6,704 4,265
13 Other Liabilities.............................................................. 2,039 5,958
Minority Interest in Net Assets of Majority Owned Joint Venture................ -- 489
9 DuPont Master Notes............................................................ 140,846 125,570
Owner's Net Investment......................................................... (7,229) 5,082
----------- -----------
Total Liabilities, DuPont Master Notes, and Owner's Net Investment......... $ 160,901 $ 171,701
----------- -----------
----------- -----------
</TABLE>

See pages F-6 to F-19 for Notes to Combined Financial Statements.

F-4
<PAGE>
DUPONT PHOTOMASKS BUSINESS

COMBINED STATEMENT OF CASH FLOWS (SEE NOTE 1)

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30
----------------------------------
SEE NOTE 1993 1994 1995
----- ---------- ---------- ----------
<C> <S> <C> <C> <C>
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....................... $ 6,981 $ 5,867 $ 3,924
---------- ---------- ----------
CASH PROVIDED BY (USED FOR) OPERATIONS
Net Income (Loss)...................................................... (37,558) (10,865) 4,119
Adjustments to Reconcile Net Income (Loss) to Cash Provided by (Used
for) Operations:
Depreciation........................................................... 23,958 25,504 24,179
Asset Retirements...................................................... 6,813 1,005 603
Amortization........................................................... 3,324 1,988 761
(Increase) Decrease in Operating Assets................................ (354) (5,724) 486
Increase (Decrease) in Operating Liabilities........................... (1,193) 133 (1,159)
Other Noncash Charges and Credits -- Net............................... 2,643 311 42
---------- ---------- ----------
Cash Provided by (Used for) Operations................................. (2,367) 12,352 29,031
---------- ---------- ----------
INVESTMENT ACTIVITIES
Purchases of Property, Plant and Equipment............................. (18,067) (4,953) (14,853)
13 Payments for Acquisitions.............................................. (4,010) (7,109) (4,000)
Miscellaneous -- Net................................................... -- 378 272
---------- ---------- ----------
Cash (Used for) Investment Activities.................................. (22,077) (11,684) (18,581)
---------- ---------- ----------
FINANCING ACTIVITIES
Increase (Decrease) in Borrowings...................................... (31,649) 1,354 (1,591)
Cash Provided by (Paid to) DuPont -- Net............................... 56,150 (4,234) (5,432)
---------- ---------- ----------
Cash Provided by (Used for) Financing Activities....................... 24,501 (2,880) (7,023)
---------- ---------- ----------
Effect of Exchange Rate Changes On Cash................................ (1,171) 269 1,061
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................. $ 5,867 $ 3,924 $ 8,412
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... $ (1,114) $ (1,943) $ 4,488
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

See pages F-6 to F-19 for Notes to Combined Financial Statements.

F-5
<PAGE>
DUPONT PHOTOMASKS BUSINESS

NOTES TO COMBINED FINANCIAL STATEMENTS

(DOLLARS IN THOUSANDS)

NOTE 1 -- BASIS OF PRESENTATION
On June 8, 1995, E. I. du Pont de Nemours and Company ("DuPont") announced
its intention to (i) realign its worldwide Photomasks operations (the
"Business") into a stand-alone entity and (ii) sell shares of the realigned
Business to the public through an initial public offering (See Note 19). The
Business manufactures photomasks for sale to semiconductor and electronic
component manufacturers and manufactures photoblanks and pellicles for both
internal consumption and sale to other photomask producers.

The Combined Financial Statements include the operations of the Business in
the following countries:

<TABLE>
<CAPTION>
NORTH AMERICA EUROPE ASIA PACIFIC
- --------------- ------------------- ------------------------------
<S> <C> <C>
United States France Peoples Republic of China
Germany Republic of Korea
The Netherlands
</TABLE>

Throughout the period covered by the Combined Financial Statements, the
Business's U.S. operations were conducted by DuPont Photomasks, Inc., a wholly
owned subsidiary of DuPont. European operations of the Business were conducted
by separate, wholly owned subsidiaries of DuPont in their respective countries.
During the period June 30, 1992 to April 20, 1993, the Business's Korean
operations were conducted by a wholly owned subsidiary of DuPont Photomasks,
Inc. Subsequent to this period, the Business's operations in the Republic of
Korea ("Korea") were merged with DuPont's non-Photomasks Korean operations to
form a Korean subsidiary owned 31% by DuPont Photomasks, Inc. and 69% by DuPont.
The Business's operations in China are conducted by a Joint Venture formed
September, 1994, which is owned 60.5% by a DuPont wholly owned subsidiary and
39.5% by SIMIC Electronic Company, Ltd., a state-owned enterprise in the Peoples
Republic of China. In this context, no direct ownership relationship existed
among all the various units comprising the Business; accordingly, DuPont and its
subsidiaries' net investment in the Business ("Owner's Net Investment") is shown
in lieu of Stockholder's Equity in the Combined Financial Statements.

Throughout the period covered by the Combined Financial Statements, the
Business was accounted for as a division within DuPont's Electronics Group.
Financial statements have not been previously prepared for the Business. These
Combined Financial Statements have been prepared from DuPont's historical
accounting records.

The assets, liabilities and operating results of DuPont resale operations in
Japan and Taiwan have been excluded from the Combined Financial Statements.
These operations involve distributorships for the Business. Sales to the DuPont
operations in Japan and Taiwan are reported in the Combined Financial Statements
as Sales to Related Parties and are accounted for as if the operations were an
outside distributor for which the Business has guaranteed full recovery of all
costs plus a specified operating margin. Charges of $608, $189 and $76 for the
fiscal years ended June 30, 1993, 1994 and 1995, respectively, were included in
Selling and Distribution Expense with respect to the payments by the Business to
DuPont under the terms of this guarantee.

The Business's manufacturing operations in Korea are conducted at a site
where other DuPont operations not included in the Business are present. At this
shared site, only the assets and liabilities expected to be included in the
Business after completion of the above referenced realignments are included in
the Combined Statement of Financial Position.

F-6
<PAGE>
DUPONT PHOTOMASKS BUSINESS

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 1 -- BASIS OF PRESENTATION (CONTINUED)
centralized staff groups within DuPont, (ii) DuPont's Electronics Group
management expense, (iii) DuPont's general corporate expenses, (iv) pension and
other retirement benefit costs and (v) interest expense. (See Notes 2, 3, 5, 6,
7 and 9 for a description of the allocation methodologies employed). As more
fully described in Notes 2 and 10, current and deferred income taxes and related
tax expense have been allocated to the Business by applying Statement of
Financial Accounting Standards No. 109 ("SFAS 109") to each Business operation
in each country as if it was a separate taxpayer.

All charges and allocations of cost for facilities, functions and services
performed by DuPont organizations outside the defined scope of the Business have
been deemed to have been paid by the Business to DuPont, in cash, in the period
in which the cost was recorded in the Combined Financial Statements. Allocations
of current income taxes payable to the Business are deemed to have been
remitted, in cash, to DuPont in the period the related tax expense was recorded.
Allocations to the Business of current income taxes receivable are deemed to
have been remitted to the Business, in cash, by DuPont in the period to which
the receivable applies only to the extent that a refund of such taxes could have
been recognized by the Business on a stand-alone basis under the law of the
relevant taxing jurisdiction.

All of the allocations and estimates in the Combined Financial Statements
are based on assumptions that DuPont management believes are reasonable under
the circumstances. However, these allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if the Business
had been operated as a separate entity.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF COMBINATION

The Combined Financial Statements include the accounts of the wholly and
majority owned individual members of the Business. The Business's interest in a
50% owned joint venture with Dai Nippon Printing Co., Ltd., located in the
United States, is accounted for under the equity method. All material
transactions and accounts between individual members comprising the Business
have been eliminated in combination.

INCOME RECOGNITION

Sales and related cost of goods sold are included in income when goods are
shipped to the customer except in Korea, where sales and cost of goods sold are
included in income upon customer acceptance in accordance with Korean law.

CASH AND CASH EQUIVALENTS

The Business participated in DuPont's centralized cash management system. In
general, the cash funding requirements of the Business were met by, and all cash
generated by the Business was transferred to, DuPont. In the U.S. and France,
this was accomplished under the terms of interest-bearing loan arrangements
between DuPont's U.S. photomask subsidiary and DuPont and between DuPont's
French photomask subsidiary and DuPont France, S.A. (collectively, the "DuPont
Master Notes"). As part of the realignment of the Business described in Note 1,
the DuPont Master Notes were consolidated into a single master note (See Note
19). Accordingly, the only cash and cash equivalents (cash equivalents are
highly liquid investments with maturities of three months or less at time of
purchase), other than petty cash amounts, included in the Combined Statement of
Financial Position are accounts pertaining to the Business's operations in
Germany, the Netherlands, and, prior to April 20, 1993, Korea that were
conducted through wholly owned DuPont subsidiaries dedicated exclusively to the
Business.

INVENTORIES

Inventories are valued at the lower of cost or market, with cost being
determined by the average cost method. Elements of cost in inventory include raw
materials, direct labor and manufacturing overhead.

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<PAGE>
DUPONT PHOTOMASKS BUSINESS

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT ("PP&E")

PP&E is carried at cost and is depreciated using the straight-line method
over the estimated useful lives of the related assets. Buildings and
improvements are depreciated over 20 years and machinery and equipment over 3 to
10 years. Leasehold improvements are depreciated using the straight-line method
over the term of the lease or the life of the equipment, whichever is less.
Historical cost for a significant portion of PP&E was determined under the
principles set forth in Accounting Principles Board Opinion Number 16.

The gross carrying value of PP&E surrendered, retired, sold or otherwise
disposed of and related accumulated depreciation are eliminated from the
accounts at the date of disposal and any resulting gain or loss is reflected in
income.

Maintenance and repairs are charged to operations; replacements and
betterments are capitalized.

INTANGIBLE ASSETS

Purchased identifiable intangible assets are amortized using the
straight-line method over their estimated useful lives. Goodwill, representing
the excess of cost over fair value of assets acquired and liabilities assumed in
purchase business combinations, is amortized over 5 years using the
straight-line method. The future economic benefit of the carrying value of
intangibles is reviewed periodically through an undiscounted cash flow analysis
and any change in useful life or impairment of value is recorded in the period
such determination is made. Net intangible assets, representing supply
agreements, were $1,250 and $5,193 at June 30, 1994 and 1995, respectively, and
are included in Other Assets (See Note 13).

INCOME TAXES

The taxable income (loss) of each member of the Business was included in
consolidated tax returns of the DuPont entity of which it was a part. As such,
separate income tax returns were not prepared or filed for the Business except
for the Business's operations in Korea prior to April 20, 1993.

For all periods presented, deferred income taxes and related tax expense
have been allocated to the Business by applying the asset and liability approach
set forth in SFAS 109 to each member of the Business as if it were a separate
taxpayer. Under this approach, deferred tax assets and liabilities represent the
expected future tax consequences of carryforwards and temporary differences
between the carrying amounts and the tax bases of assets and liabilities. SFAS
109 generally requires that all expected future events, other than enactment of
changes in tax law or tax rates, be considered in estimating future tax
consequences. Valuation allowances are established to reduce deferred tax assets
by the amount of any tax benefits that, based on available evidence, are not
expected to be realized.

Current tax expense has been determined as if each member of the Business
was a separate taxpayer. Income taxes currently payable are deemed to have been
remitted by the Business to DuPont in the period that the liability arose.
Income taxes currently receivable are deemed to have been received by the
Business from DuPont in the period that a refund could have been recognized by
the Business had the Business been a separate taxpayer.

Under the basis of presentation for these financial statements, no provision
has been made for taxes on cash remittances from the members of the Business to
the DuPont entity of which they are a part. Generally, remittances from a wholly
owned subsidiary to its in-country parent are tax free.

FOREIGN CURRENCY TRANSLATION

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<PAGE>
DUPONT PHOTOMASKS BUSINESS

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(DOLLARS IN THOUSANDS)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liability amounts denominated in foreign currencies are remeasured into U.S.
Dollars at end-of-period exchange rates; foreign currency nonmonetary assets,
principally inventories and PP&E, are remeasured into U.S. Dollars at historical
exchange rates. Income and expenses are remeasured into U.S. Dollars at average
exchange rates in effect during the period, except for expenses related to
balance sheet amounts that are remeasured using historical exchange rates.
Exchange gains and losses from remeasurement of monetary assets and liabilities
are included in income in the period they occur.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. The Business is
party to certain contracts which provide for partial funding of its research and
development costs. Funding under these contracts of $1,942, $1,625 and $451 in
the fiscal years ended June 30, 1993, 1994, and 1995, respectively, has been
recognized as an offset to Research and Development Expense.

PENSIONS

DuPont has noncontributory defined benefit plans covering substantially all
U.S. employees, including the U.S. employees of the Business. The cost of these
plans for active employees was allocated to the Business (See Note 5) and is
principally included in Cost of Goods Sold. Amounts so allocated are not
necessarily indicative of the pension cost that would have been incurred if the
Business had been operated as a separate company.

Pension coverage for employees of DuPont's non-U.S. subsidiaries is
provided, to the extent deemed appropriate, through separate plans. Obligations
under such plans are systematically provided for by depositing funds with
trustees, under insurance policies or by book reserves. The cost of these
non-U.S. plans has been allocated to the Business using methods that DuPont
believes are appropriate to the nature of the plans.

U.S. Pension cost allocated to the Business is deemed to have resulted in a
cash contribution between the Business and DuPont in the period the pension cost
was incurred and, in return, DuPont is deemed to have assumed all responsibility
for pension payments to retirees. Accordingly, no pension related assets or
liabilities related to U.S. plans are included in the Combined Statement of
Financial Position.