MKS INSTRUMENTS INC, 424B1, 1999-03-30

MKS INSTRUMENTS INC
424B1, 1999-03-30
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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<PAGE> 1

Filed Pursuant to Rule 424b(1)
File No. 333-71363

6,500,000 SHARES

[MKS LOGO]

COMMON STOCK

MKS Instruments, Inc. is offering 6,000,000 shares of its common stock and
the selling stockholders are selling an additional 500,000 shares. This is MKS's
initial public offering and no public market currently exists for its shares. We
have been approved for quotation on the Nasdaq National Market under the symbol
"MKSI" for the shares we are offering.

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

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.

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

<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price $14.00 $91,000,000
Discounts and Commissions to Underwriters $ 0.98 $ 6,370,000
Proceeds to MKS $13.02 $78,120,000
Proceeds to the Selling Stockholders $13.02 $ 6,510,000
</TABLE>

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

MKS has granted the underwriters a 30-day option to purchase up to an
additional 975,000 shares of common stock to cover over-allotments.

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

NATIONSBANC MONTGOMERY SECURITIES LLC
DONALDSON, LUFKIN & JENRETTE
LEHMAN BROTHERS

The date of this prospectus is March 30, 1999

<PAGE> 2
MKS INSTRUMENTS, INC.
PROSPECTUS COVER
MARCH 2, 1999

INSIDE FRONT COVER (PG. 2):

This page is produced in four-color process. Amidst a dark background, the MKS
logo appears at the top right of the page, and to the top left is the phrase "A
Wide Range of Products Made Using MKS Process Control Instruments." Two
paragraphs describing the role MKS plays in complex advanced materials
manufacturing processes also appear on this page, and are as follows:

(first paragraph) "MKS Surrounds the Process. Technologically complex,
gas-related manufacturing processes are used to create such products as
semiconductor devices, flat panel displays, fiber optic cables, solar panels,
magnetic and optical storage media, and gas lasers. These processes build up
very thin layers of materials, step by step, through the interaction of specific
gases and materials inside tightly controlled process chambers. Maintaining
control of these complex steps throughout the entire manufacturing process is
critical to maximizing uptime, yield and throughput (second paragraph) MKS's
process control instruments are integrated into many gas-related
processes--managing the flow rates of gases entering and exiting the process
chamber; controlling the gas composition and pressure inside the chamber;
analyzing and monitoring the composition of the gases; and isolating the gases
from the outside environment."

In the center of the page is a photo montage, displaying images of semiconductor
devices, flat panel displays, fiber optic cables, solar panels, magnetic and
optical storage media and gas lasers. Each of these images has a text label
adjacent to it.

MKS, MKS Instruments, Baratron and ORION are trademarks of MKS. This prospectus
contains trademarks, service marks and trade names of companies and
organizations other than MKS.

INSIDE SPREAD (PGS. 3 AND 4):

These pages are produced in four-color process. The main focus of the spread is
the illustration of a typical process chamber, with numerous MKS products
surrounding the chamber. At the top of the illustration, centered across the two
pages, is the title "MKS Instruments...Surrounding the Process." Each product is
described in a brief paragraph, and the paragraphs appear on both sides of the
illustration--left and right columns. The paragraphs are as follows:

DIRECT LIQUID INJECTION SUBSYSTEMS
For use in the delivery of a wide variety of new materials to the process
chamber that cannot be delivered using conventional thermal-based mass flow
controllers.

AUTOMATIC PRESSURE CONTROLLERS WITH INTEGRATED BARATRON(R) PRESSURE TRANSDUCERS
A compact, integrated measurement and control package for use in controlling
upstream or downstream process chamber pressure.

ULTRA-CLEAN MASS FLOW CONTROLLERS
For the precise measurement and control of mass flow rates of inert or corrosive
gases and vapors into the process chamber.

ULTRA-CLEAN MINI-BARATRON(R) PRESSURE TRANSDUCERS
For use in gas cabinets to feed ultra-pure gases to critical process systems.

PRESSURE CONTROL VALVES
To precisely control the flow of gases to a process chamber in a wide range of
flow rates.

GAS BOX RATE OF RISE CALIBRATORS
For fast verification of mass flow controller accuracy and repeatability during
a process.

DIGITAL COLD CATHODE IONIZATION AND CONVECTION VACUUM GAUGES
A variety of indirect pressure gauges for measuring very low chamber pressures
and conveying information digitally to host computers.

ORION(R) PROCESS MONITORS AND RESIDUAL GAS ANALYZERS
For the analysis of the composition of background and process gases inside the
process chamber.

PRESSURE SWITCHES
Provide protection of vacuum equipment and processes by signaling when
atmospheric pressure has been achieved.

BARATRON(R) PRESSURE MEASURING INSTRUMENTS
For the accurate measurement and control of a wide range of process pressures.

IN-SITU DIAGNOSTICS ACCESS VALVE
Enables accurate calibration and diagnostics of vacuum gauges and pressure
transducers while directly mounted on the process chamber.

EXHAUST THROTTLE VALVES AND AUTOMATIC PRESSURE CONTROLLERS
For isolation and downstream control of process chamber pressures and pressure
control within the exhaust systems.

HIGH VACUUM VALVES
To isolate the process chamber from both the pumps and atmospheric gases.

HEATED PUMPING LINES
To reduce contaminants in the vacuum pump and pump exhaust stream.

VAPOR SUBLIMATION TRAP
To collect by-products and particulates that could otherwise contaminate devices
in the process chamber and damage vacuum pumps.

Prices of products shown above range from $200 to $80,000.

The above graphic depicts a generalized process chamber with a number of MKS's
manufactured products shown.
<PAGE> 3

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. IN THIS PROSPECTUS, "MKS," "WE,"
"US" AND "OUR" REFER TO MKS INSTRUMENTS, INC. (UNLESS THE CONTEXT OTHERWISE
REQUIRES).

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 7
S Corporation and Termination of S Corporation Status....... 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Capitalization.............................................. 15
Dilution.................................................... 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 28
Management.................................................. 45
Certain Transactions........................................ 52
Principal and Selling Stockholders.......................... 53
Description of Capital Stock................................ 54
Shares Eligible for Future Sale............................. 56
Underwriting................................................ 57
Legal Matters............................................... 59
Experts..................................................... 59
Additional Information...................................... 59
Index to Consolidated Financial Statements.................. F-1
</TABLE>

<PAGE> 4

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read this entire prospectus carefully. Unless otherwise indicated,
all information contained in this prospectus assumes that the underwriters will
not exercise their over-allotment option. This prospectus contains forward-
looking statements, which involve risks and uncertainties. MKS's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under "Risk
Factors" and elsewhere in this prospectus. All information contained in this
prospectus reflects an amendment to MKS's Articles of Organization to be
effected prior to the closing of this offering to convert the shares of Class A
common stock and Class B common stock into a single class of common stock.

MKS INSTRUMENTS, INC.

We are a leading worldwide developer, manufacturer and supplier of
instruments and components used to measure, control and analyze gases in
semiconductor manufacturing and similar industrial manufacturing processes. We
sold products to over 4,000 customers in 1998. In addition to semiconductors,
our products are used in processes to manufacture a diverse range of products,
such as flat panel displays, solar cells, gas lasers, fiber optic cables,
diamond thin films and coatings for food packagings.

The ability of semiconductor device manufacturers to offer integrated
circuits with smaller geometries and greater functionality at higher speeds
requires continuous improvements in semiconductor process equipment and process
controls. Manufacturing a semiconductor, or a similar industrial product,
requires hundreds of process steps, many of which involve the precise
measurement and control of gases. In the fabrication of semiconductors, for
example, these process steps take place within a process chamber. Specific gas
mixtures at precisely controlled pressures are used in the process chamber to
control the required process atmosphere and are used as a source of material to
manufacture a semiconductor.

Given the complexity of the semiconductor manufacturing process, the value
of the products manufactured and the significant cost of semiconductor
manufacturing equipment and facilities, significant importance is placed upon:

- uptime, which is the amount of time that semiconductor manufacturing
equipment is available for processing

- yield, which is the ratio of acceptable output to total output

- throughput, which is the aggregate output that can be processed per hour

The design and performance of instruments that control the pressure or flow
of gases are becoming more critical to the semiconductor manufacturing process
since they directly affect uptime, yield and throughput. In addition, the
increasing sophistication of semiconductor devices requires an increase in the
number of components and subsystems used in the design of semiconductor
manufacturing process tools. To address manufacturing complexity, improve
quality and reliability, and ensure long-term service and support, semiconductor
device manufacturers and semiconductor capital equipment manufacturers are
increasingly seeking to reduce their supplier base and are, therefore, choosing
to work with suppliers that provide a broad range of integrated, technologically
advanced products backed by worldwide service and support.

4
<PAGE> 5

We believe that we offer the widest range of pressure and vacuum
measurement and control products serving the semiconductor industry. Our
products measure pressures from as low as one trillionth of atmospheric pressure
to as high as two hundred times atmospheric pressure. Our objective is to be the
leading worldwide supplier of instruments and components used to measure,
control and analyze gases in semiconductor and other advanced thin-film
processing applications and to help semiconductor device manufacturers achieve
improvements in their return on investment capital. Our strategy to accomplish
this objective includes:

- extending our technology leadership

- continuing to broaden our comprehensive product offering

- building upon our close working relationships with customers

- expanding the application of our existing technologies to related markets

- leveraging our global infrastructure and world class manufacturing
capabilities

For over 25 years, we have focused on satisfying the needs of semiconductor
capital equipment manufacturers and semiconductor device manufacturers. As a
result, we have established long-term relationships with many of our customers.
We sell our products primarily to:

- semiconductor capital equipment manufacturers

- semiconductor device manufacturers

- industrial manufacturing companies

- university, government and industrial research laboratories

Our customers include Applied Materials, Inc., Lam Research Corporation,
Novellus Systems, Inc., Tokyo Electron Limited, Inc., Air Products and
Chemicals, Inc. and Motorola, Inc. We sell our products primarily through our
direct sales force located in 22 offices worldwide.

MKS Instruments, Inc. is a Massachusetts corporation organized in June
1961. Our principal executive offices are located at Six Shattuck Road, Andover,
MA 01810, and our telephone number is (978) 975-2350.

5
<PAGE> 6

THE OFFERING

Common stock offered by MKS........... 6,000,000 shares

Common stock offered by the selling
stockholders.......................... 500,000 shares

Common stock to be outstanding after
this offering......................... 24,053,167 shares

Use of proceeds....................... For distributions to current
stockholders and general corporate
purposes. See "Use of Proceeds" and "S
Corporation and Termination of S
Corporation Status."

Nasdaq National Market symbol......... MKSI

The common stock to be outstanding after this offering is based on shares
outstanding as of December 31, 1998 and excludes 2,132,575 shares of common
stock issuable upon the exercise of options outstanding as of such date at a
weighted average exercise price of $5.19 per share. See "Capitalization" and
Note 8 of Notes to Consolidated Financial Statements.

SUMMARY CONSOLIDATED FINANCIAL DATA

MKS has been treated as an S corporation for federal income tax purposes
since July 1, 1987. As an S corporation, MKS has not been subject to federal,
and certain state, income taxes. The pro forma net income reflects the provision
for income taxes that would have been recorded had MKS been a C corporation,
assuming an effective tax rate of 39.0% for 1994 and 1995, and 38.0% for 1996,
1997 and 1998. As a result of terminating its S corporation status upon the
closing of this offering, MKS will record a one-time non-cash credit to
historical earnings for additional deferred taxes. If this credit to earnings
had occurred at December 31, 1998, the amount would have been approximately $3.9
million. This amount is expected to increase through the closing of this
offering and is excluded from pro forma net income. See Notes 2 and 9 of Notes
to Consolidated Financial Statements.

Pro forma balance sheet data set forth below reflects the liability for the
distribution of an estimated $35.9 million, calculated as of December 31, 1998,
of cumulative undistributed S corporation taxable income for which stockholders
of record on the day prior to the date of this prospectus have been or will be
taxed. The pro forma net income per share for 1998 set forth below reflects the
effect of an assumed issuance of sufficient shares to fund this distribution as
of January 1, 1998. The distribution will be made out of the proceeds of this
offering. The actual amount to be distributed is expected to be $40.0 million
which is the estimated balance of the accumulated adjustments account as of the
day prior to the closing of this offering, subject to adjustments. See "S
Corporation and Termination of S Corporation Status." The pro forma as adjusted
balance sheet data reflects the sale of 6,000,000 shares of common stock at the
initial public offering price of $14.00 per share, after deducting the
underwriting discount and estimated offering expenses payable by MKS. THE
HISTORICAL NET INCOME PER SHARE DATA SET FORTH BELOW DOES NOT INCLUDE PROVISIONS
FOR FEDERAL INCOME TAXES BECAUSE PRIOR TO THE CLOSING OF THIS OFFERING, MKS WAS
TREATED AS AN S CORPORATION FOR FEDERAL INCOME TAX PURPOSES.

HISTORICAL NET INCOME PER SHARE:
Basic..................................................... $ 0.55 $ 1.20 $ 0.69 $ 1.12 $ 0.40
======== ======== ======== ======== ========
Diluted................................................... $ 0.55 $ 1.20 $ 0.69 $ 1.10 $ 0.38
======== ======== ======== ======== ========
PRO FORMA STATEMENT OF INCOME DATA(1):
Pro forma net income........................................ $ 6,590 $ 13,821 $ 8,248 $ 13,806 $ 5,044
Pro forma net income per share:
Basic..................................................... $ 0.37 $ 0.77 $ 0.46 $ 0.76 $ 0.24
======== ======== ======== ======== ========
Diluted................................................... $ 0.37 $ 0.77 $ 0.46 $ 0.76 $ 0.24
======== ======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 11,188 $ 11,188 $ 52,782
Working capital (deficit)................................... 31,493 (4,433) 73,087
Total assets................................................ 96,232 96,232 137,826
Short-term obligations...................................... 12,819 12,819 12,819
Long-term obligations, less current portion................. 13,786 13,786 13,786
Stockholders' equity........................................ 54,826 18,900 96,420
</TABLE>

- ---------------
(1) Data is computed on the same basis as Note 2 of Notes to Consolidated
Financial Statements.

<PAGE> 7

RISK FACTORS

You should consider carefully the risks described below before you decide
to buy our common stock. If any of the following risks actually occur, our
business, financial condition or results of operations would likely suffer. In
such case, the trading price of our common stock could fall, and you may lose
all or part of the money you paid to buy our common stock.

This prospectus contains forward-looking statements that involve risks and
uncertainties. These forward-looking statements are usually accompanied by words
such as "believes," "anticipates," "plans," "expects" and similar expressions.
Our actual results may differ materially from the results discussed in the
forward-looking statements because of factors such as the Risk Factors discussed
below.

OUR BUSINESS DEPENDS SUBSTANTIALLY ON SEMICONDUCTOR INDUSTRY CAPITAL SPENDING
WHICH IS CHARACTERIZED BY PERIODIC FLUCTUATIONS THAT MAY CAUSE A REDUCTION IN
DEMAND FOR OUR PRODUCTS.

We estimate that approximately 60% of our sales during 1997 and 1998 were
to semiconductor capital equipment manufacturers and semiconductor device
manufacturers, and we expect that sales to such customers will continue to
account for a substantial majority of our sales. Our business depends
substantially upon the capital expenditures of semiconductor device
manufacturers, which in turn depend upon the demand for semiconductors and other
products utilizing semiconductors. Periodic reductions in demand for the
products manufactured by semiconductor capital equipment manufacturers and
semiconductor device manufacturers may adversely affect our business, financial
condition and results of operations. Historically, the semiconductor market has
been highly cyclical and has experienced periods of overcapacity, resulting in
significantly reduced demand for capital equipment. For example, in 1996 and
1998 the semiconductor industry experienced a significant decline, which caused
a number of our customers to reduce their orders. We cannot be certain that the
current semiconductor downturn that began in 1998 will not continue. A further
decline in the level of orders as a result of any future downturn or slowdown in
the semiconductor industry could have a material adverse effect on our business,
financial condition and results of operations.

WE DERIVE A SIGNIFICANT PORTION OF OUR REVENUE FROM THE ASIAN MARKETS, AS
DO OUR SEMICONDUCTOR CAPITAL EQUIPMENT CUSTOMERS. THEREFORE, AN ECONOMIC
DOWNTURN IN THE ASIAN MARKETS WOULD LIKELY REDUCE DEMAND FOR OUR PRODUCTS.

The financial markets in Asia, one of our principal international markets,
have experienced significant turbulence. Turbulence in the Asian markets can
adversely affect our net sales and results of operations. Our direct net sales
to customers in Asian markets have been approximately 17% to 18% of total net
sales for the past three years. Our sales include both direct sales to the
semiconductor industry in Asia, as well as to semiconductor capital equipment
manufacturers that derive a significant portion of their revenue from sales to
the Asian semiconductor industry. Turbulence in the Asian markets began to
adversely affect the semiconductor device manufacturers and semiconductor
capital equipment manufacturers in the fourth quarter of 1997 and continued to
adversely affect them in 1998. We expect the turbulence in the Asian markets
will continue to adversely affect sales of semiconductor capital equipment
manufacturers for at least the first quarter of 1999. As a result, for at least
the first quarter we currently expect that our 1999 quarterly net sales and net
income will be less than net sales and net income for the comparable quarter of
1998.

OUR QUARTERLY NET SALES ARE BASED ON SHIPMENTS MADE SHORTLY AFTER CUSTOMER
ORDERS ARE PLACED. AS A RESULT, FLUCTUATIONS IN DEMAND WITHIN A QUARTER WILL
CAUSE A FLUCTUATION IN THAT QUARTER'S NET SALES.

A substantial portion of our shipments occur shortly after an order is
received and therefore we operate with a low level of backlog. As a consequence
of the just-in-time nature of shipments and the low level of backlog, a decrease
in demand for our products from one or more customers could occur with limited
advance notice and could have a material adverse effect on our results of
operations in any particular period.

<PAGE> 8

DUE TO OUR FIXED COSTS WE MAY BE UNABLE TO ADJUST SPENDING QUICKLY ENOUGH TO
COMPENSATE FOR SHORTFALLS IN NET SALES. THEREFORE, OUR OPERATING RESULTS MAY BE
REDUCED IF OUR NET SALES ARE BELOW EXPECTATIONS.

A significant percentage of our expenses are relatively fixed and based in
part on expectations of future net sales. The inability to adjust spending
quickly enough to compensate for any shortfall would magnify the adverse impact
of a shortfall in net sales on our results of operations. Factors that could
cause fluctuations in our net sales include:

- the timing of the receipt of orders from major customers

- shipment delays

- disruption in sources of supply

- seasonal variations of capital spending by customers

- production capacity constraints

- specific features requested by customers

For example, we were in the process of increasing production capacity when
the semiconductor capital equipment market began to experience a significant
downturn in 1996. This downturn had a material adverse effect on our operating
results in the second half of 1996 and the first half of 1997. After an increase
in business in the latter half of 1997, the market experienced another downturn
in 1998, which had a material adverse effect on our 1998 operating results. As a
result of the factors discussed above, it is likely that we will in the future
experience quarterly or annual fluctuations and that, in one or more future
quarters, our operating results will fall below the expectations of public
market analysts or investors. In any such event, the price of our common stock
could decline significantly.

THE LOSS OF NET SALES TO ANY ONE OF OUR MAJOR CUSTOMERS WOULD LIKELY HAVE A
MATERIAL ADVERSE EFFECT ON US.

Our five largest customers in 1996, 1997 and 1998 accounted for
approximately 26%, 32% and 24%, respectively, of our net sales. The loss of a
major customer or any reduction in orders by such customers, including
reductions due to market or competitive conditions, would likely have a material
adverse effect on our business, financial condition and results of operations.
During 1998, one customer, Applied Materials, Inc., accounted for approximately
16% of our net sales. While we have entered into a purchase contract with
Applied Materials, Inc. which expires in 2000 unless it is extended by mutual
agreement, none of our significant customers, including Applied Materials, Inc.,
has entered into an agreement requiring it to purchase any minimum quantity of
our products. The demand for our products from our semiconductor capital
equipment customers depends in part on orders received by them from their
semiconductor device manufacturer customers.

Attempts to lessen the adverse effect of any loss or reduction through the
rapid addition of new customers could be difficult because prospective customers
typically require lengthy qualification periods prior to placing volume orders
with a new supplier. Our future success will continue to depend upon:

- our ability to maintain relationships with existing key customers

- our ability to attract new customers

- the success of our customers in creating demand for their capital
equipment products which incorporate our products

OUR INABILITY TO CONVINCE SEMICONDUCTOR DEVICE MANUFACTURERS TO SPECIFY THE USE
OF OUR PRODUCTS TO OUR CUSTOMERS, WHO ARE SEMICONDUCTOR CAPITAL EQUIPMENT
MANUFACTURERS, WOULD WEAKEN OUR COMPETITIVE POSITION.

The markets for our products are highly competitive. Our competitive
success often depends upon factors outside of our control. For example, in some
cases, particularly with respect to mass flow controllers, semiconductor device
manufacturers may direct semiconductor capital equipment manufacturers to use a
specified supplier's product in their equipment. Accordingly, for such products,
our success will depend in part on our ability to have semiconductor device
manufacturers specify that our

8
<PAGE> 9

products be used at their semiconductor fabrication facilities. In addition, we
may encounter difficulties in changing established relationships of competitors
that already have a large installed base of products within such semiconductor
fabrication facilities.

IF OUR PRODUCTS ARE NOT DESIGNED INTO SUCCESSIVE NEW GENERATIONS OF OUR
CUSTOMERS' PRODUCTS, WE WILL LOSE SIGNIFICANT NET SALES DURING THE LIFESPAN OF
THOSE PRODUCTS.

New products designed by semiconductor capital equipment manufacturers
typically have a lifespan of five to ten years. Our success depends on our
products being designed into new generations of equipment for the semiconductor
industry. We must develop products that are technologically current so that they
are positioned to be chosen for use in each successive new generation of
semiconductor equipment. If our products are not chosen by our customers, our
net sales may be reduced during the lifespan of our customers' products.

FAILURE BY US TO IDENTIFY AND REMEDIATE ALL MATERIAL YEAR 2000 RISKS COULD CAUSE
A SIGNIFICANT DISRUPTION TO OUR BUSINESS. WE COULD BE REQUIRED TO EXPEND
SIGNIFICANT INTERNAL RESOURCES ON YEAR 2000 REMEDIATION OR THE YEAR 2000
PROBLEMS OF OUR SUPPLIERS COULD CAUSE A DELAY IN SUPPLYING GOODS AND SERVICES TO
US. FURTHERMORE, YEAR 2000 PROBLEMS OF OUR CUSTOMERS COULD CAUSE THEM TO DELAY
PAYMENT FOR PRODUCTS THAT WE HAVE SHIPPED TO THEM.

We have implemented a multi-phase Year 2000 project consisting of
assessment and remediation, and testing following remediation. We cannot,
however, be certain that we have identified all of the potential risks. Failure
by us to identify and remediate all material Year 2000 risks could adversely
affect our business, financial condition and results of operations. We have
identified the following risks you should be aware of:

- we cannot be certain that the entities on whom we rely for certain goods
and services that are important for our business will be successful in
addressing all of their software and systems problems in order to operate
without disruption in the year 2000 and beyond

- our customers or potential customers may be affected by Year 2000 issues
that may, in part:

-- cause a delay in payments for products shipped

-- cause customers to expend significant resources on Year 2000
compliance matters, rather than investing in our products

- we have not developed a contingency plan related to the failure of our or
a third-party's Year 2000 remediation efforts and may not be prepared for
such an event

Further, while we have made efforts to notify our customers who have
purchased potential non-compliant products, we cannot be sure that customers who
purchased such products will not assert claims against us alleging that such
products should have been Year 2000 compliant at the time of purchase, which
could result in costly litigation and divert management's attention.

WE INTEND TO EXPAND OUR BUSINESS OUTSIDE OF THE SEMICONDUCTOR INDUSTRY TO THE
MANUFACTURE OF, AMONG OTHER THINGS, HARD COATINGS TO MINIMIZE WEAR ON CUTTING
TOOLS, A MARKET IN WHICH WE HAVE LIMITED EXPERIENCE. IF WE FAIL TO SUCCESSFULLY
PENETRATE SUCH MARKETS, OUR NET SALES WILL CONTINUE TO BE VULNERABLE TO THE
DOWNTURNS IN THE SEMICONDUCTOR INDUSTRY.

We plan to build upon our experience in manufacturing and selling gas
measurement, control and analysis products used by the semiconductor industry by
designing and selling such products for applications in other industries which
use production processes similar to those used in the semiconductor industry.
For example, we plan to expand our business to the manufacture of, among other
things, hard coatings to minimize wear on cutting tools. Any failure by us to
penetrate additional markets would limit our ability to reduce our vulnerability
to downturns in the semiconductor industry and could have a material adverse
effect on our business, financial condition and results of operations.

<PAGE> 10

We have limited experience selling our products in certain markets outside
the semiconductor industry. We cannot be certain that we will be successful in
the expansion of our business outside the semiconductor industry. Our future
success will depend in part on our ability to:

- identify new applications for our products

- adapt our products for such applications

- market and sell such products to customers

THE SEMICONDUCTOR INDUSTRY IS SUBJECT TO RAPID DEMAND SHIFTS WHICH ARE DIFFICULT
TO PREDICT. AS A RESULT, OUR INABILITY TO EXPAND OUR MANUFACTURING CAPACITY IN
RESPONSE TO THESE RAPID SHIFTS MAY CAUSE A REDUCTION IN OUR MARKET SHARE.

During 1999, we plan to add manufacturing capacity to our Austin, Texas
operations and further equip our cleanroom facilities in Andover and Methuen,
Massachusetts. Our ability to increase sales of certain products depends in part
upon our ability to expand our manufacturing capacity for such products in a
timely manner. If we are unable to expand our manufacturing capacity on a timely
basis or to manage such expansion effectively, our customers could seek such
products from others and our market share could be reduced. Because the
semiconductor industry is subject to rapid demand shifts which are difficult to
foresee, we may not be able to increase capacity quickly enough to respond to a
rapid increase in demand in the semiconductor industry. Additionally, capacity
expansion could increase our fixed operating expenses and if sales levels do not
increase to offset the additional expense levels associated with any such
expansion, our business, financial condition and results of operations could be
materially adversely affected.

SALES TO FOREIGN MARKETS CONSTITUTE APPROXIMATELY 30% OF OUR NET SALES.
THEREFORE, OUR NET SALES AND RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED
BY DOWNTURNS IN ECONOMIC CONDITIONS IN COUNTRIES OUTSIDE OF THE UNITED STATES.

International sales, which include sales by our foreign subsidiaries, but
exclude direct export sales which were less than 10% of our total net sales,
accounted for approximately 30% of net sales in 1996, 27% of net sales in 1997
and 32% of net sales in 1998. We anticipate that international sales will
continue to account for a significant portion of our net sales. In addition,
certain of our key domestic customers derive a significant portion of their
revenues from sales in international markets. Therefore, our sales and results
of operations could be adversely affected by economic slowdowns and other risks
associated with international sales.

UNFAVORABLE EXCHANGE RATE FLUCTUATIONS MAY LEAD TO LOWER GROSS MARGINS OR MAY
CAUSE US TO RAISE PRICES WHICH COULD RESULT IN REDUCED SALES.

Exchange rate fluctuations could have an adverse effect on our net sales
and results of operations and we could experience losses with respect to our
hedging activities. Unfavorable currency fluctuations could require us to
increase prices to foreign customers which could result in lower net sales by us
to such customers. Alternatively, if we do not adjust the prices for our
products in response to unfavorable currency fluctuations, our results of
operations could be adversely affected. In addition, sales made by our foreign
subsidiaries are denominated in the currency of the country in which these
products are sold and the currency we receive in payment for such sales could be
less valuable at the time of receipt as a result of exchange rate fluctuations.
While we enter into forward exchange contracts and local currency purchased
options to reduce currency exposure arising from these sales and associated
intercompany purchases of inventory, we cannot be certain that our efforts will
be adequate to protect us against significant currency fluctuations or that such
efforts will not expose us to additional exchange rate risks.

<PAGE> 11

COMPETITION FOR PERSONNEL IN THE SEMICONDUCTOR AND INDUSTRIAL MANUFACTURING
INDUSTRIES IS INTENSE. WE DO NOT TYPICALLY HAVE EMPLOYMENT AGREEMENTS WITH OUR
EMPLOYEES AND THEREFORE WE CANNOT BE SURE THAT WE WILL BE ABLE TO RETAIN THEM,
WHICH IS AN IMPORTANT FACTOR IN ACHIEVING FUTURE SUCCESS.

Our success depends to a large extent upon the efforts and abilities of a
number of key employees and officers, particularly those with expertise in the
semiconductor manufacturing and similar industrial manufacturing industries. The
loss of key employees or officers could have a material adverse effect on our
business, financial condition and results of operations. We believe that our
future success will depend in part on our ability to attract and retain highly
skilled technical, financial, managerial and marketing personnel. Competition
for such personnel is intense, and we cannot be certain that we will be
successful in attracting and retaining such personnel. We are the beneficiary of
key-man life insurance policies on John R. Bertucci, Chairman, Chief Executive
Officer and President, in the amount of $7.2 million.

OUR PROPRIETARY TECHNOLOGY, WHICH INCLUDES 49 PATENTS AND 8 PENDING PATENT
APPLICATIONS, IS IMPORTANT TO THE CONTINUED SUCCESS OF OUR BUSINESS. OUR FAILURE
TO PROTECT THIS PROPRIETARY TECHNOLOGY MAY SIGNIFICANTLY IMPAIR OUR COMPETITIVE
POSITION.

Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:

- we will be able to protect our technology adequately

- competitors will not be able to develop similar technology independently

- any of our pending patent applications will be issued

- intellectual property laws will protect our intellectual property rights

- third parties will not assert that our products infringe patent,
copyright or trade secrets of such parties

PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY LITIGATION.

Litigation may be necessary in order to enforce our patents, copyrights or
other intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement. Such litigation could result in substantial costs and
diversion of resources and could have a material adverse effect on our business,
financial condition and results of operations.

TRADING IN OUR SHARES COULD BE SUBJECT TO EXTREME PRICE FLUCTUATIONS AND YOU
COULD HAVE DIFFICULTY TRADING YOUR SHARES.

The market for shares in newly public technology companies is subject to
extreme price and volume fluctuations. These broad market fluctuations may
materially and adversely affect the market price of our common stock. In
addition, although our common stock will be quoted on the Nasdaq National
Market, an active trading market may not develop and be sustained after this
offering.

YOU WILL EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF
YOUR INVESTMENT.

Purchasers of common stock in this offering will incur immediate and
substantial dilution of $9.99 in the pro forma net tangible book value per share
of common stock from the initial public offering price of $14.00 per share.

<PAGE> 12

AFTER THIS OFFERING ONE STOCKHOLDER, ALONG WITH MEMBERS OF HIS FAMILY, WILL HAVE
CONTROLLING INTEREST IN MKS AND WILL BE ABLE TO EFFECT IMPORTANT CORPORATE
ACTIONS WITHOUT THE APPROVAL OF OTHER STOCKHOLDERS.

Upon consummation of this offering, John R. Bertucci, Chairman, Chief
Executive Officer and President of MKS, and members of his family will, in the
aggregate, beneficially own approximately 70% of our outstanding common stock.
As a result, these stockholders, acting together, will be able to take any of
the following actions without the approval of our public stockholders:

- amend our Articles of Organization in certain respects or approve a
merger, sale of assets or other major corporate transaction

- defeat any non-negotiated takeover attempt that may be beneficial to our
public stockholders

- determine the amount and timing of dividends paid to themselves and to
our public stockholders

- otherwise control our management and operations and the outcome of all
matters submitted for a stockholder vote, including the election of
directors

CERTAIN PROVISIONS OF OUR ARTICLES OF ORGANIZATION, OUR BY-LAWS AND
MASSACHUSETTS LAW COULD DISCOURAGE POTENTIAL ACQUISITION PROPOSALS AND COULD
DELAY OR PREVENT A CHANGE IN CONTROL OF MKS.

Anti-takeover provisions could diminish the opportunities for stockholders
to participate in tender offers including tender offers at a price above the
then current market value of the common stock. Such provisions may also inhibit
increases in the market price of the common stock that could result from
takeover attempts. For example, while we have no present plans to issue any
preferred stock, the Board of Directors, without further stockholder approval,
may issue preferred stock that could have the effect of delaying, deterring or
preventing a change in control of MKS. The issuance of preferred stock could
adversely affect the voting power of the holders of common stock including the
loss of voting control to others. In addition, our By-Laws will provide for a
classified Board of Directors consisting of three classes. This classified board
could also have the effect of delaying, deterring or preventing a change in
control of MKS.

FUTURE SALES BY OUR EXISTING STOCKHOLDERS COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK.

Sales of our common stock in the public market following this offering
could adversely affect the market price of the common stock. All of the shares
offered under this prospectus will be freely tradable in the open market, and:

- 17,553,165 additional shares may be sold after the expiration of 180-day
lock-up agreements

- approximately 1,100,000 additional shares may be sold upon the exercise
of stock options after the expiration of 180-day lock-up agreements

<PAGE> 13

S CORPORATION AND TERMINATION OF S CORPORATION STATUS

MKS has been treated as an S corporation for federal income tax purposes
since July 1, 1987. As a result, MKS currently pays no federal, and certain
state, income tax, and all of the earnings of MKS are subject to federal, and
certain state, income taxation directly at the stockholder level. MKS's S
corporation status will terminate upon the closing of this offering, at which
time MKS will become subject to corporate income taxation under Subchapter C of
the Internal Revenue Code and applicable state income taxation law. Pro forma
statement of income data set forth in this prospectus has been adjusted to
include pro forma income tax provisions as if MKS had been a C corporation
during the relevant periods.

As soon as practicable following the closing of this offering, MKS intends
to make a distribution to the stockholders of record on the day prior to the
date of this prospectus of $40.0 million, which is the estimated amount of the
"accumulated adjustments account," as defined in Section 1368(a)(1) of the
Internal Revenue Code, as of the day prior to the closing of this offering. The
accumulated adjustments account is equal to the cumulative income of MKS, as
determined for federal income tax purposes, for the period MKS was an S
corporation (from July 1, 1987 through the date of the closing of this offering)
minus any distributions made to stockholders during this period. The accumulated
adjustments account for the period January 1, 1999 through the date of the
closing of this offering will equal a portion of the federal taxable income of
MKS for the entire calendar year 1999, excluding any earnings from its
international subsidiaries, determined by allocating all of the calendar year
1999 taxable income equally to each day in the year and multiplying the daily
taxable income by the number of days from January 1, 1999 through the date of
the closing of this offering. Investors purchasing shares in this offering will
not receive any portion of the distribution.

MKS has entered into a Tax Indemnification and S Corporation Distribution
Agreement with its existing stockholders providing for, among other things, the
indemnification of MKS by such stockholders for any federal and state income
taxes, including interest and penalties, incurred by MKS if for any reason MKS
is deemed to be treated as a C corporation during any period in which it
reported its taxable income as an S corporation. The tax indemnification
obligation of each existing stockholder is limited to the aggregate amount of
all distributions made to such stockholders by MKS since July 1, 1987, minus any
taxes paid by such stockholders on such distributions plus the amount of any
refund of taxes to such stockholders as a result of such a deemed change in tax
status and is limited to each such stockholders' pro rata receipt of the
accumulated adjustments account distributions. The agreement also provides for
the payment, with interest, by the existing stockholders or MKS, as the case may
be, for the difference between the amount to be distributed and the actual
amount of accumulated adjustments account on the day immediately preceding the
closing of this offering. The actual amount of the accumulated adjustments
account on the day prior to the closing of this offering cannot be determined
until MKS calculates the amount of its taxable income for the year ending
December 31, 1999. Furthermore, the amount of the accumulated adjustments
account can be affected by income tax audits of MKS. If any audit increases or
decreases the accumulated adjustments account, MKS or the existing stockholders,
as the case may be, will also be required to make a payment with interest, of
such difference to the other party. MKS's tax returns for 1995, 1996 and 1997
are currently being audited by the Internal Revenue Service and although the
estimated accumulated adjustments account has been adjusted to reflect all
changes that MKS expects to make as a result of the audit, there can be no
assurance that additional adjustments will not be required prior to the
conclusion of the audit. Purchasers of common stock in this offering will not be
parties to the Tax Indemnification and S Corporation Distribution Agreement.

<PAGE> 14

USE OF PROCEEDS

The net proceeds we will receive from the sale of the 6,000,000 shares of
common stock offered by us are estimated to be $77,520,000 ($90,214,500 if the
underwriters' over-allotment option is exercised in full), after deducting the
underwriting discount and estimated offering expenses payable by us at the
initial public offering price of $14.00 per share. We will not receive any of
the proceeds from the sale of shares by the selling stockholders.

We will use $40.0 million of the net proceeds from this offering to pay the
stockholders of record on the day prior to the date of this prospectus the
estimated amount, subject to adjustment, of their undistributed S corporation
earnings as of the day prior to the closing of this offering. See "S Corporation
and Termination of S Corporation Status." We expect to use the remainder of the
net proceeds for general corporate purposes, including working capital, product
development and capital expenditures.

A portion of the net proceeds after the S corporation distribution may also
be used for the acquisition of businesses, products and technologies that are
complementary to those of MKS. There are currently no active negotiations,
commitments or agreements with respect to any acquisition. Pending such uses, we
intend to invest the net proceeds from this offering in short-term,
investment-grade, interest-bearing securities.

DIVIDEND POLICY

We currently intend, subject to our contractual obligations under the Tax
Indemnification and S Corporation Distribution Agreement, to retain earnings for
the continued development of our business. Restrictions or limitations on the
payment of dividends may be imposed in the future under the terms of credit
agreements or under other contractual provisions. In the absence of such
restrictions or limitations, the payment of any dividends will be at the
discretion of our Board of Directors.

<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of MKS (1) as of December
31, 1998, (2) on a pro forma basis to reflect distributions and adjustments in
connection with MKS's S corporation status and (3) as adjusted to reflect the
sale of 6,000,000 shares of common stock by MKS at the initial public offering
price of $14.00 per share and the application of the net proceeds therefrom. See
"Use of Proceeds."

The pro forma data reflects the liability for distribution of an estimated
$35.9 million, calculated as of December 31, 1998, of cumulative undistributed S
corporation taxable income for which stockholders of record on the day prior to
the date of this prospectus have been or will be taxed. The actual amount to be
distributed after the closing of this offering will be $40.0 million, which is
the estimated amount of our cumulative undistributed S corporation taxable
income as of the day prior to the closing of this offering, subject to
adjustment. See "S Corporation and Termination of S Corporation Status" and
Notes 2 and 9 of Notes to Consolidated Financial Statements. The pro forma as
adjusted data have been adjusted to reflect the issuance of 6,000,000 shares of
common stock at the initial public offering price of $14.00 per share, after
deducting the underwriting discount and estimated offering expenses payable by
MKS. The remaining balance in retained earnings represents accumulated earnings
prior to MKS's conversion from a C corporation to an S corporation in 1987,
accumulated income in overseas subsidiaries and differences between book and tax
accumulated income.

<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Long-term obligations, less current portion............ $13,786 $13,786 $ 13,786
Stockholders' equity:
Common stock, no par value; 30,000,000 shares
authorized, 18,053,167 shares issued and
outstanding (actual and pro forma); 24,053,167
shares issued and outstanding (pro forma as
adjusted)......................................... 113 113 113
Additional paid-in capital........................... 48 48 77,568
Retained earnings.................................... 52,479 16,553 16,553
Accumulated other comprehensive income............... 2,186 2,186 2,186
------- ------- --------
Total stockholders' equity........................ 54,826 18,900 96,420
------- ------- --------
Total capitalization......................... $68,612 $32,686 $110,206
======= ======= ========
</TABLE>

The common stock to be outstanding after this offering is based on shares
outstanding as of December 31, 1998 and excludes 2,132,575 shares of common
stock issuable upon the exercise of options outstanding as of such date at a
weighted average exercise price of $5.19 per share. See Note 8 of Notes to
Consolidated Financial Statements.

<PAGE> 16

DILUTION

As of December 31, 1998, MKS had a net tangible book value of $54,826,000,
or $3.04 per share of common stock. After taking into account the sale of the
shares offered hereby by MKS, the pro forma net tangible book value as of
December 31, 1998 would have been $96,420,000, or $4.01 per share. The pro forma
net tangible book value assumes that the proceeds to MKS, net of offering
expenses and commissions, will be approximately $41,594,000. This number has
also been adjusted to take into account the distribution to stockholders of
record on the day prior to the effective date of the registration statement of
the accumulated undistributed S corporation taxable income for which such
taxpayers have been or will be taxed as of December 31, 1998. That amount is
estimated to be $35.9 million as of December 31, 1998. No other changes
occurring after December 31, 1998 have been taken into account. Based on the
foregoing, there would be an immediate increase in net tangible book value to
existing stockholders attributable to new investors of $2.46 per share and the
immediate dilution of $9.99 per share to new investors. The following table
illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $14.00
Net tangible book value per share at December 31, 1998.... $ 3.04
Decrease per share attributable to the S corporation
distribution........................................... (1.49)
Increase per share attributable to new investors.......... 2.46
------
Pro forma net tangible book value per share after this
offering.................................................. 4.01
------
Dilution per share to new investors......................... $ 9.99
======
</TABLE>

The following table sets forth, on a pro forma basis as of December 31,
1998, (1) the number of shares of common stock purchased from MKS, (2) the total
consideration paid to MKS and (3) the average price paid per share by existing
stockholders and by the new investors purchasing shares of common stock in this
offering, at the initial public offering price of $14.00 per share. Underwriting
discounts, commissions and other estimated offering expenses have not been
deducted. Shares owned by existing stockholders will be reduced by the number of
shares sold by them in this offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 18,053,167 75.1% $ 161,000 0.2% $0.009
New investors..................... 6,000,000 24.9 84,000,000 99.8 $14.00
---------- ----- ------------ -----
Total................... 24,053,167 100.0% 84,161,000 100.0%
========== ===== ============ =====
</TABLE>

As of December 31, 1998, there were options outstanding to purchase a total
of 2,132,575 shares of common stock, at a weighted average exercise price of
$5.19 per share and 2,401,793 additional shares reserved for future grants of
issuances under MKS's stock option and stock purchase plans. To the extent that
any of these options are exercised, there will be further dilution to new
investors.

<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected financial data as of December 31, 1997 and 1998 and
for the years ended December 31, 1996, 1997 and 1998 have been derived from
MKS's financial statements, included elsewhere in this prospectus, which have
been audited by PricewaterhouseCoopers LLP, independent accountants, as
indicated in their report. The selected financial data as of December 31, 1994,
1995 and 1996 and for the years ended December 31, 1994 and 1995 are derived
from financial statements, which were also audited by PricewaterhouseCoopers
LLP, not included herein. The data should be read in conjunction with the
Consolidated Financial Statements, including the Notes thereto, and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

MKS has been treated as an S corporation under the applicable provisions of
the Internal Revenue Code since July 1, 1987. As an S corporation, MKS has not
been subject to federal, and certain state, income taxes. The pro forma net
income set forth below reflects the provision for income taxes that would have
been recorded had MKS been a C corporation, assuming an effective tax rate of
39.0% for 1994 and 1995, and 38.0% for 1996, 1997, and 1998. As a result of
terminating its S corporation status upon the closing of this offering, MKS will
record a one-time non-cash credit to historical earnings for additional deferred
taxes. If this credit to earnings had occurred at December 31, 1998, the amount
would have been approximately $3.9 million. This amount is expected to change
through the closing of this offering and is excluded from pro forma net income.
See Notes 2 and 9 of Notes to Consolidated Financial Statements. Pro forma
balance sheet data reflects the liability for the distribution of an estimated
$35.9 million, calculated as of December 31, 1998, of cumulative undistributed S
corporation taxable income for which stockholders of record on the day prior to
the date of this prospectus have been or will be taxed. The actual amount to be
distributed after the closing of this offering will be $40.0 million, the
estimated amount of our cumulative undistributed S corporation taxable income as
of the day prior to the closing of this offering, subject to adjustment. Pro
forma net income per share for 1998 reflects the effect of an assumed issuance
of sufficient shares to fund the distribution, as of January 1, 1998. See "S
Corporation and Termination of S Corporation Status" and Note 2 of Notes to
Consolidated Financial Statements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................... $106,829 $157,164 $170,862 $188,080 $139,763
Cost of sales....................... 59,813 87,703 102,008 107,606 83,784
-------- -------- -------- -------- --------
Gross profit........................ 47,016 69,461 68,854 80,474 55,979
Research and development............ 8,036 10,935 14,195 14,673 12,137
Selling, general and
administrative.................... 26,893 34,420 37,191 41,838 34,707
Restructuring....................... -- -- 1,400 -- --
-------- -------- -------- -------- --------
Income from operations.............. 12,087 24,106 16,068 23,963 9,135
Interest expense, net............... 1,284 1,448 2,286 1,861 1,187
Other income (expense), net......... -- -- (479) 166 187
-------- -------- -------- -------- --------
Income before income taxes.......... 10,803 22,658 13,303 22,268 8,135
Provision for income taxes.......... 800 1,000 800 1,978 949
-------- -------- -------- -------- --------
Net income.......................... $ 10,003 $ 21,658 $ 12,503 $ 20,290 $ 7,186
======== ======== ======== ======== ========
</TABLE>

<PAGE> 18

THE HISTORICAL NET INCOME PER SHARE DATA SET FORTH BELOW DOES NOT INCLUDE
PROVISIONS FOR FEDERAL INCOME TAXES BECAUSE PRIOR TO THE CLOSING OF THIS
OFFERING, MKS WAS TREATED AS AN S CORPORATION FOR FEDERAL INCOME TAX PURPOSES.
THE PRO FORMA STATEMENT OF INCOME DATA SET FORTH BELOW PRESENTS NET INCOME PER
SHARE DATA AS IF MKS HAD BEEN SUBJECT TO FEDERAL INCOME TAXES AS A C CORPORATION
DURING THE PERIODS PRESENTED.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1994 1995 1996 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
HISTORICAL NET INCOME PER SHARE:
Basic......................................... $0.55 $1.20 $0.69 $1.12 $0.40
===== ===== ===== ===== =====
Diluted....................................... $0.55 $1.20 $0.69 $1.10 $0.38
===== ===== ===== ===== =====
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- ------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF INCOME DATA
(UNAUDITED):
Historical income before income
taxes.............................. $10,803 $22,658 $13,303 $22,268 $8,135
Pro forma provision for income taxes
assuming C corporation tax......... 4,213 8,837 5,055 8,462 3,091
------- ------- ------- ------- ------
Pro forma net income................. $ 6,590 $13,821 $ 8,248 $13,806 $5,044
======= ======= ======= ======= ======
PRO FORMA NET INCOME PER COMMON SHARE:
Basic................................ $ 0.37 $ 0.77 $ 0.46 $ 0.76 $ 0.24
======= ======= ======= ======= ======
Diluted.............................. $ 0.37 $ 0.77 $ 0.46 $ 0.76 $ 0.24
======= ======= ======= ======= ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, 1998
------------------------------------------ ---------------------
1994 1995 1996 1997 ACTUAL PRO FORMA
------- -------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents.............. $ 4,059 $ 3,650 $ 3,815 $ 2,511 $ 11,188 $ 11,188
Working capital
(deficit)................ 25,078 32,202 22,404 30,321 31,493 (4,433)
Total assets............... 72,320 104,511 95,000 106,536 96,232 96,232
Short-term obligations..... 9,246 15,192 16,124 13,852 12,819 12,819
Long-term obligations, less
current portion.......... 14,948 20,462 18,899 15,624 13,786 13,786
Stockholders' equity....... 37,272 48,392 45,498 52,848 54,826 18,900
</TABLE>

18
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion contains forward-looking statements that involve
risks and uncertainties. MKS's actual results could differ materially from those
discussed in the forward-looking statements as a result of certain factors
including those set forth under "Risk Factors" and elsewhere in this prospectus.
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this prospectus.

OVERVIEW

MKS was founded in 1961. MKS develops, manufactures and supplies
instruments and components used to measure, control and analyze gases in
semiconductor manufacturing and similar industrial manufacturing processes.
During 1997 and 1998, MKS estimates that approximately 60% of its net sales were
to semiconductor capital equipment manufacturers and semiconductor device
manufacturers. MKS expects that sales to such customers will continue to account
for a substantial majority of its sales. MKS's customers include semiconductor
capital equipment manufacturers, semiconductor device manufacturers, industrial
manufacturing companies and university, government and industrial research
laboratories. In 1996, 1997, and 1998, sales to MKS's top five customers
accounted for approximately 26%, 32% and 24%, respectively, of MKS's net sales.
During 1998, Applied Materials, Inc. accounted for approximately 16% of MKS's
net sales. MKS typically enters into contracts with its semiconductor equipment
manufacturer customers that provide for quantity discounts. MKS recognizes
revenue, and accrues for anticipated returns and warranty costs, upon shipment.

In the third quarter of 1996, as a result of the downturn in the
semiconductor industry, MKS recorded a restructuring charge of $1.4 million. The
charge was primarily related to a reduction of personnel and the closure of
certain facilities and included the cost of severance, lease commitments and the
write-off of leasehold improvements. During 1998, as a result of the downturn in
the semiconductor industry, MKS reduced its staffing levels by approximately 30%
from its year-end 1997 levels.

A significant portion of MKS's sales are to operations in international
markets. International sales by MKS's foreign subsidiaries, located in Japan,
Korea, Europe, and Canada, were 27.3% and 32.4% of net sales for 1997 and 1998,
respectively. Sales by MKS's Japan subsidiary comprised 15.0% and 15.1% of net
sales in 1997 and 1998, respectively. MKS does not classify export sales made
directly by MKS as international sales. Such export sales have generally been
less than 10% of net sales. MKS currently uses, and plans to continue to use,
forward exchange contracts and local currency purchased options to reduce
currency exposure arising from foreign denominated sales associated with the
intercompany purchases of inventory. Gains and losses on derivative financial
instruments that qualify for hedge accounting are classified in cost of sales.
Gains and losses on derivative financial instruments that do not qualify for
hedge accounting are marked-to-market and recognized immediately in other
income. See Note 3 to Notes to Consolidated Financial Statements.

MKS has been treated as an S corporation for federal income tax purposes
since July 1, 1987. MKS's S corporation status will terminate upon the closing
of this offering, at which time MKS will become subject to federal, and certain
state, income taxation as a C corporation. The pro forma net income reflects a
pro forma effective tax rate of 38.0% to reflect federal and state income taxes
which would have been payable for 1998 had MKS been taxed as a C corporation.
See "S Corporation and Termination of S Corporation Status."

19
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage of
total net sales of certain line items included in MKS's consolidated statement
of income data:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 59.7 57.2 59.9
----- ----- -----
Gross profit................................................ 40.3 42.8 40.1
Research and development.................................... 8.3 7.8 8.7
Selling, general and administrative......................... 21.8 22.3 24.9
Restructuring............................................... 0.8 -- --
----- ----- -----
Income from operations...................................... 9.4 12.7 6.5
Interest expense, net....................................... 1.3 1.0 0.8
Other income (expense), net................................. (0.3) 0.1 0.1
----- ----- -----
Income before income taxes.................................. 7.8 11.8 5.8
Provision for income taxes.................................. 0.5 1.0 0.7
----- ----- -----
Net income.................................................. 7.3% 10.8% 5.1%
===== ===== =====
Pro forma data:
Historical income before income taxes..................... 7.8% 11.8% 5.8%
Pro forma provision for income taxes...................... 3.0 4.5 2.2
----- ----- -----
Pro forma net income...................................... 4.8% 7.3% 3.6%
===== ===== =====
</TABLE>

Year Ended 1998 Compared to 1997

Net Sales. Net sales decreased 25.7% to $139.8 million for 1998 from
$188.1 million for 1997. International net sales were approximately $45.3
million in 1998 or 32.4% of net sales and $51.4 million in 1997 or 27.3% of net
sales. The decrease in net sales was primarily due to decreased sales volume of
MKS's existing products in the United States and in Asia caused by the 1998
downturn in the semiconductor capital equipment market.

Gross Profit. Gross profit as a percentage of net sales decreased to 40.1%
for 1998 from 42.8% in 1997. The change was primarily due to manufacturing
overhead costs being a higher percentage of net sales due to lower sales volume
in 1998.

Research and Development. Research and development expenses decreased
17.3% to $12.1 million or 8.7% of net sales for 1998 from $14.7 million or 7.8%
of net sales for 1997. The decrease was due to reduced spending for development
materials primarily related to certain projects that were completed during 1998.

Selling, General and Administrative. Selling, general and administrative
expenses decreased 17.0% to $34.7 million or 24.9% of net sales for 1998 from
$41.8 million or 22.3% of net sales for 1997. The decrease was due primarily to
a decrease of approximately $4.2 million in compensation expense resulting from
the reduction in personnel during 1998 and reduced incentive compensation.
Additionally, expenses were reduced as a result of lower spending on
advertising, travel, and other selling and administrative costs.

Interest Expense, Net. Net interest expense decreased to $1.2 million for
1998 from $1.9 million for 1997 primarily due to lower debt outstanding during
1998.

20
<PAGE> 21

Other Income (Expense), Net. Other income of $0.2 million in 1998
primarily represents foreign exchange translation gains on intercompany payables
of $1.0 million offset by $0.7 million for costs associated with MKS's planned
initial public offering in early 1998 which was postponed. Other income of $0.2
million in 1997 represents gains of $1.2 million from foreign exchange contracts
that did not qualify for hedge accounting, offset by a foreign exchange
translation loss on an intercompany payable.

Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes for 1998 reflects the estimated tax expense MKS would have incurred had it
been subject to federal and state income taxes as a C corporation under the
Internal Revenue Code. The pro forma provision reflects a pro forma tax rate of
38.0%, which differs from the federal statutory rate due primarily to the
effects of state and foreign taxes and certain tax credits.

Year Ended 1997 Compared to 1996

Net Sales. Net sales increased 10.1% to $188.1 million for 1997 from
$170.9 million for 1996. International net sales were approximately $51.4
million in both 1997 and 1996 and were 27.3% of net sales in 1997 and 30.1% of
net sales in 1996. The increase in net sales was primarily due to increased
sales volume of MKS's existing products in the United States.

Gross Profit. Gross profit as a percentage of net sales increased to 42.8%
for 1997 from 40.3% for 1996. The change was due primarily to the reduction in
fixed costs resulting from the restructuring effected in the third quarter of
1996 and the resulting increase in operational efficiencies.

Research and Development. Research and development expenses increased 3.4%
to $14.7 million or 7.8% of net sales for 1997 from $14.2 million or 8.3% of net
sales for 1996. The increase was primarily due to an increase in staffing
throughout 1997 for certain development projects.

Selling, General and Administrative. Selling, general and administrative
expenses increased 12.5% to $41.8 million or 22.3% of net sales for 1997 from
$37.2 million or 21.8% of net sales for 1996. The increase was due to increased
compensation expense resulting from increased salaries and wages and incentive
compensation.

Restructuring. In the third quarter of 1996, as a result of the downturn
in the semiconductor industry, MKS recorded a restructuring charge of $1.4
million. The charge included $0.4 million of severance pay, $0.7 million of
lease commitments, and $0.3 million for the write-off of leasehold improvements.

Interest Expense, Net. Net interest expense decreased to $1.9 million for
1997 from $2.3 million for 1996 primarily due to lower debt outstanding during
1997.

Other Income (Expense), Net. Other expense for 1996 and other income for
1997 reflect losses and gains of $0.5 million and $1.2 million, respectively,
from foreign exchange contracts that did not qualify for hedge accounting, and a
foreign exchange translation loss on an intercompany payable from MKS's Korean
subsidiary of $1.0 million related to the devaluation of the Korean won in the
fourth quarter of 1997.

Pro Forma Provision for Income Taxes. The pro forma provision for income
taxes for 1997 reflects the estimated tax expense MKS would have incurred had it
been subject to federal and state income taxes as a C corporation under the
Internal Revenue Code. The pro forma provision reflects a pro forma tax rate of
38.0%, which differs from the federal statutory rate due primarily to the
effects of state and foreign taxes and certain tax credits.

21
<PAGE> 22

Selected Quarterly Operating Results

The following tables present unaudited consolidated financial information
for the eight quarters ended December 31, 1998. In the opinion of management,
this information has been presented on the same basis as the audited
Consolidated Financial Statements appearing elsewhere in this prospectus. All
adjustments which management considers necessary for a fair presentation of the
results of such periods have been included to present fairly the unaudited
quarterly results when read in conjunction with MKS's Consolidated Financial
Statements and Notes thereto. The results for any quarter are not necessarily
indicative of future quarterly results of operations.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................ $40,520 $45,749 $48,360 $53,451 $46,163 $34,026 $28,834 $30,740
Cost of sales.................... 24,277 26,413 27,766 29,150 26,757 20,265 18,140 18,622
------- ------- ------- ------- ------- ------- ------- -------
Gross profit..................... 16,243 19,336 20,594 24,301 19,406 13,761 10,694 12,118
Research and development......... 2,994 3,563 3,779 4,337 3,794 3,107 2,568 2,668
Selling, general and
administrative................. 9,612 10,321 10,816 11,089 10,112 9,045 7,808 7,742
------- ------- ------- ------- ------- ------- ------- -------
Income from operations........... 3,637 5,452 5,999 8,875 5,500 1,609 318 1,708
Interest expense, net............ 494 527 445 395 375 337 234 241
Other income (expense), net...... 275 (447) 632 (294) (281) 123 77 268
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes....... 3,418 4,478 6,186 8,186 4,844 1,395 161 1,735
Provision for income taxes....... 289 378 523 788 565 163 19 202
------- ------- ------- ------- ------- ------- ------- -------
Net income....................... $ 3,129 $ 4,100 $ 5,663 $ 7,398 $ 4,279 $ 1,232 $ 142 $ 1,533
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1997 1997 1997 1997 1998 1998 1998 1998
--------- -------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF NET SALES:
Net sales........................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................... 59.9 57.7 57.4 54.5 58.0 59.6 62.9 60.6
------- ------- ------- ------- ------- ------- ------- -------
Gross profit..................... 40.1 42.3 42.6 45.5 42.0 40.4 37.1 39.4
Research and development......... 7.4 7.8 7.8 8.1 8.2 9.1 8.9 8.6
Selling, general and
administrative................. 23.7 22.6 22.4 20.8 21.9 26.6 27.1 25.2
------- ------- ------- ------- ------- ------- ------- -------
Income from operations........... 9.0 11.9 12.4 16.6 11.9 4.7 1.1 5.6
Interest expense, net............ 1.2 1.1 0.9 0.7 0.8 1.0 0.8 0.8
Other income (expense), net...... 0.6 (1.0) 1.3 (0.6) (0.6) 0.4 0.3 0.8
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes....... 8.4 9.8 12.8 15.3 10.5 4.1 0.6 5.6
Provision for income taxes....... 0.7 0.8 1.1 1.5 1.2 0.5 0.1 0.6
------- ------- ------- ------- ------- ------- ------- -------
Net income....................... 7.7% 9.0% 11.7% 13.8% 9.3% 3.6% 0.5% 5.0%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

MKS's quarterly operating results have varied significantly and are likely
to continue to vary significantly due to a number of factors including:

- specific economic conditions in the industries in which MKS's customers
operate, particularly the semiconductor industry

- the timing of the receipt of orders from major customers

- customer cancellations or shipment delays

- price competition

- disruption in sources of supply

- seasonal variations of capital spending by customers

- production capacity constraints

- specific features requested by customers

22
<PAGE> 23

- exchange rate fluctuations

- the introduction or announcement of new products by MKS or its
competitors

- other factors, many of which are beyond MKS's control

MKS's net sales have fluctuated over the past eight quarters primarily due
to the decline in the semiconductor capital equipment market and the
semiconductor device market in 1998 that adversely affected sales of MKS's
products in each of the quarters of 1998. MKS expects that the decline in
worldwide semiconductor capital equipment orders in the second half of 1998 and
the instability of the Asian markets will continue to adversely affect sales of
semiconductor capital equipment manufacturers for at least the first quarter of
1999. As a result, for at least the first quarter we currently expect that our
1999 quarterly net sales and net income will be less than net sales and net
income for the comparable quarter of 1998.

Gross profit as a percentage of net sales increased in each quarter of 1997
primarily as a result of fuller utilization of existing manufacturing capacity
as a result of increased net sales. Gross profit as a percentage of net sales
decreased in each of the first three quarters of 1998 as a result of
manufacturing overhead costs becoming a higher percentage of net sales due to
lower sales volume.

The increase in research and development expenses for the second, third and
fourth quarters of 1997 was primarily due to increased staffing levels. The
decrease in research and development expenses for the first, second, and third
quarters of 1998 was due to reduced spending for development materials primarily
related to certain projects that were completed during 1998.

Selling, general and administrative expenses increased in the second, third
and fourth quarters of 1997 primarily due to increased compensation expense and
the write-off of certain abandoned assets. The decrease in selling, general and
administrative expenses in the first, second, and third quarters of 1998 was
primarily due to a decrease in compensation expense along with other selling
related expenses.

Other income primarily represents gains and losses on foreign exchange
contracts and a foreign exchange translation loss on an intercompany payable
from MKS's Korean subsidiary of $1.0 million in the fourth quarter of 1997
related to the devaluation of the Korean won. Other expenses in the first
quarter of 1998 include $0.7 million for costs associated with MKS's planned
initial public offering in early 1998 which was postponed.

LIQUIDITY AND CAPITAL RESOURCES

MKS has financed its operations and capital requirements through a
combination of cash provided by operations, long-term real estate financing,
capital lease financing and short-term lines of credit.

Operations provided cash of $26.3 million, $16.8 million and $23.0 million
for 1996, 1997 and 1998, respectively, primarily impacted in each period by net
income, depreciation and changes in the levels of inventory and accounts
receivable. Investing activities utilized cash of $10.2 million, $3.3 million
and $2.1 million in 1996, 1997 and 1998, respectively, primarily for the
purchase of property and equipment in each period. Financing activities utilized
cash of $15.6 million, $16.2 million and $11.8 million in 1996, 1997 and 1998,
respectively, primarily for stockholder distributions in each period. Cash flows
from financing activities for each period were primarily from short-term and
long-term borrowings.

Working capital was $31.5 million as of December 31, 1998. MKS has a
combined $30.0 million line of credit with two banks, expiring December 31,
1999, all of which is available. Interest on future borrowings under the line of
credit would be payable monthly at a rate based on LIBOR, which was 7.131% at
December 31, 1998. MKS also has lines of credit through its foreign subsidiaries
with several financial institutions totaling $15.0 million at December 31, 1998.
The total unused balance under these lines of credit was $5.3 million at
December 31, 1998. The interest rates on borrowings outstanding as of December
31, 1998 on these lines of credit ranged from 1.3% to 1.7%. Interest on future
borrowings under the unused balance of these lines of credit would be at rates
ranging from 1.5% to 7.85%. These lines generally expire and are renewed at six
month intervals. In addition, MKS has outstanding term loans and

23
<PAGE> 24

mortgage loans from banks totaling $12.0 million (net of the current portion) at
December 31, 1998. See Notes 6 and 13 of Notes to Consolidated Financial
Statements.

In 1997 and 1998, MKS distributed $12.4 million and $6.2 million,
respectively, of undistributed S corporation earnings to its stockholders. As
soon as practicable following the closing of this offering, MKS intends to make
a distribution to the stockholders of record on the day prior to the date of
this prospectus in the amount of $40.0 million, which is the estimated balance
of the accumulated adjustments account as of the day prior to the closing of the
offering, subject to adjustment. The accumulated adjustments account is
cumulatively equal to financial reporting income, adjusted for differences
between the methods of accounting used for financial accounting and for federal
income tax purposes from July 1, 1987 through the date of termination of MKS's S
corporation status, that has not been previously distributed. Investors
purchasing shares in this offering will not receive any portion of the
distribution. See "S Corporation and Termination of S Corporation Status."

MKS believes that the net proceeds from this offering, together with the
cash anticipated to be generated from operations and funds available from
existing credit facilities, will be sufficient to satisfy its estimated working
capital and planned capital expenditure requirements through at least the next
24 months.

EFFECT OF CURRENCY EXCHANGE RATES AND EXCHANGE RATE RISK MANAGEMENT

A significant portion of MKS's business is conducted outside of the United
States through its foreign subsidiaries. The foreign subsidiaries maintain their
accounting records in their local currencies. Consequently, period to period
comparability of results of operations is affected by fluctuations in exchange
rates. MKS derives a significant portion of its cash flows from foreign
denominated revenue. To the extent the dollar value of foreign denominated
revenue is diminished as a result of a strengthening U.S. dollar, MKS's results
of operations and cash flows could be adversely affected.

The primary currencies to which MKS has exposure are the Japanese yen and
the German mark. The nature of this exposure is from MKS selling inventory to
its overseas subsidiaries for resale in local currency. Consequently, the cash
flows from the overseas subsidiaries are affected by exchange rate fluctuations.
To reduce the risks associated with foreign currency rate fluctuations, MKS has
entered into forward exchange contracts and local currency purchased options on
a continuing basis in amounts and timing consistent with the underlying currency
exposures.

The factors MKS considers in determining whether forward exchange contracts
or purchased options qualify for hedge accounting include:

- whether the notional amounts of the derivatives offset the underlying
currency exposures in terms of timing and amounts

- for forward exchange contracts, whether the underlying transactions being
hedged are pursuant to firm commitments

- for local currency purchased options, whether it is probable that the
underlying hedging transaction will occur

Gains on forward exchange contracts and local currency purchased options,
qualifying for hedge accounting, amounted to $2.5 million, $1.2 million and $0.3
million for the years ended December 31, 1996, 1997 and 1998, respectively, and
are classified in cost of sales. Losses of $0.5 million, gains of $1.2 million
and losses of $0.2 million on forward exchange contracts that did not qualify
for hedge accounting were recognized in earnings for 1996, 1997 and 1998,
respectively, and are classified in other income (expense), net. These amounts
are net of a foreign exchange translation loss of $1.0 million and a gain of
$1.0 million on intercompany payables from its subsidiaries in 1997 and 1998
respectively. Foreign exchange translation gains and losses from unhedged
intercompany balances were not material in 1996. While MKS does not issue or
hold derivative financial instruments for trading purposes, there can be no
assurance that any losses realized on such instruments will be fully offset by
gains on the underlying

<PAGE> 25

exposure. Prospectively, MKS plans to continue to use forward exchange contracts
and local currency purchased options to seek to mitigate the impact of exchange
rate fluctuations. See Notes 2 and 3 of Notes to Consolidated Financial
Statements.

MARKET RISK AND SENSITIVITY ANALYSIS

Foreign Exchange Rate Risk

The potential fair value loss for a hypothetical 10% adverse change in
forward currency exchange rates on MKS's forward exchange contracts at December
31, 1998 would be $949,000. The potential loss was estimated by calculating the
fair value of the forward exchange contracts at December 31, 1998 and comparing
that with those calculated using the hypothetical forward currency exchange
rates.

The value of the local currency purchased options at December 31, 1998 was
immaterial. Any loss related to the local currency purchased options is limited
to the unamortized premium of $155,000 at December 31, 1998.

At December 31, 1998, MKS had $9,687,000 related to short-term borrowings
denominated in Japanese yen. The carrying value of these short-term borrowings
approximates fair value due to their short period to maturity. Assuming a
hypothetical 10% adverse change in the Japanese yen to U.S. dollar year end
exchange rate, the fair value of these short-term borrowings would increase by
$1,077,000. The potential increase in fair value was estimated by calculating
the fair value of the short-term borrowings at December 31, 1998 and comparing
that with the fair value using the hypothetical year end exchange rate.

Interest Rate Risk

MKS is exposed to fluctuations in interest rates in connection with its
variable rate term loans. In order to minimize the effect of changes in interest
rates on earnings, MKS entered into an interest rate swap that fixed the
interest rate on its variable rate term loans. Under the swap agreement, MKS
pays a fixed rate of 5.85% on the notional amount and receives LIBOR. At
December 31, 1998, the notional amount of the interest rate swap was equal to
the principal amount of the variable rate term loans. The potential increase in
the fair value of term loans when adjusting for the interest rate swap paying at
a fixed rate resulting from a hypothetical 10% decrease in interest rates was
not material.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

See Note 2 of Notes to Consolidated Financial Statements for a discussion
of the impact of recently issued accounting pronouncements.

YEAR 2000 COMPLIANCE

The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish 21st century dates from those in the 20th century. As a result,
computer software and/or hardware used by many companies and governmental
agencies may need to be upgraded to comply with Year 2000 requirements or risk
system failure or miscalculations causing disruptions to normal business
activities.

State of Readiness

MKS designed and began implementation of a multi-phase Year 2000 project
which consists of:

- assessment of the corporate systems and operations including both
information technology and non-information technology that could be
affected by the Year 2000 problem

- remediation of non-compliant systems and components

- testing of systems and components following remediation

<PAGE> 26

MKS, under the guidance of its Information Technology Steering Committee,
has focused its Year 2000 review on four areas:

- internal computer software and hardware

- product compliance

- facilities and manufacturing equipment

- third-party compliance

Internal Computer Software and Hardware. MKS uses information technology
for its internal infrastructure, which consists of its main enterprise systems
which include the systems used, in part, for purchase orders, invoicing,
shipping and accounting, and individual workstations, including personal
computers, and its network systems.

Because MKS's business and manufacturing systems, such as its main
enterprise systems, are essential to its business, financial condition and
results of operations, MKS began its assessment of these systems prior to its
other non-critical information technology systems. MKS began its assessment in
the fall of 1997, and in November 1997, MKS developed a remediation plan for all
identified noncompliant business and manufacturing systems. This remediation
plan was implemented in January 1998. By July 1998, MKS had installed new
systems or upgraded existing systems. Based upon post-implementation testing and
review, management believes that all business and manufacturing systems within
its manufacturing operations are Year 2000 compliant.

One of MKS's international subsidiaries is currently undergoing conversion
of its business systems in order to become Year 2000 compliant. Management
believes that these systems will be operational during the third quarter of
1999. This phase of the Year 2000 project is currently on schedule.

MKS's personal computer based systems were assessed in early 1998. MKS
believes that all non-compliant hardware and software was identified by March
1998, at which time it made a list prioritizing databases to be remedied.
Critical databases were identified and were scheduled for remediation prior to
other databases. Remediation plans to convert the databases were initiated in
November 1998. MKS anticipates that it will complete its critical and
non-critical conversions by June 1999. This phase of the Year 2000 project is
currently on schedule.

Product Compliance. Throughout 1998, MKS assessed and addressed the Year
2000 compliance of its products. This assessment resulted in the identification
of MKS's products that were compliant and non-compliant. The substantial
majority of MKS's products were deemed to be compliant.

The date related functions of all non-compliant products, other than
certain residual gas analysis products, are believed by MKS to be non-critical
in that such noncompliance would not affect the independent performance of the
product; would not cause the MKS product to cease operating on any particular
date; and independently would not pose a safety risk. MKS believes that Year
2000 problems associated with non-compliant residual gas analysis products will
also be non-critical. However, these products contain components of other
manufacturers and cannot be tested and therefore it is possible that such
products could cause unanticipated performance problems. The non-compliant
features of our other products primarily relate to non-essential functions such
as date displays. MKS made available to its customers a list which describes
Year 2000 readiness of its products. This phase of the Year 2000 project is
currently on schedule.

Facilities and Manufacturing Equipment. Some aspects of MKS's facilities
and manufacturing equipment may include embedded technology, such as
microcontrollers. The Year 2000 problem could cause a system failure or
miscalculation in such facilities or manufacturing equipment which could disrupt
MKS's operations. Affected areas include security systems, elevator controls,
voice mail and phone systems, clean room environmental controls, numerically
controlled production machinery and computer based production equipment. MKS
organized a team of experienced managers in November 1998 to assess the
potential problems in these areas. An assessment of all facilities and
manufacturing equipment was

<PAGE> 27

conducted through December 1998, and a remediation plan was developed in January
1999. MKS anticipates completion of all corrective actions by June 1999 with
testing and review of corrected items to occur in the summer of 1999. This phase
of the Year 2000 project is currently on schedule.

Third-Party Compliance. MKS has relationships with third-parties including
customers and vendors and suppliers of goods, services and computer interfaces.
The failure of such persons to implement and execute Year 2000 compliance
measures in a timely manner, if at all, could, among other things:

- adversely affect MKS's ability to obtain components in a timely manner

- cause a reduction in the quality of components obtained by MKS

- cause a reduction, delay or cancellation of customer orders received by
MKS or a delay in payments by its customers for products shipped

- result in the loss of services that would be necessary for MKS to operate
in the normal course of business

MKS assessed which of these third-party goods, services and interfaces were
critical to its operations and developed and mailed a standard survey to each
third-party deemed critical in January 1998. By March 1998, MKS had reviewed
most responses received. To date, the responses received indicate that the
third-parties are either in the process of developing remediation plans, or are
compliant. MKS anticipates further assessment to continue through March 1999 and
plans to conduct reviews at that time. A remediation plan is expected to be in
place by June 1999 with all critical third-parties achieving satisfactory
compliance by August 1999. This phase of the Year 2000 project is currently on
schedule.

Costs

MKS's costs to date associated with assessment, remediation and testing
activities concerning the Year 2000 problem have been approximately $1,500,000.
MKS estimates that an additional $1,500,000, the major portion of which will be
capitalized and expensed over the life of the assets, will be required to
complete the replacement or modification of its facilities, manufacturing
equipment, computer software and products and to address the noncompliance of
key third-parties. MKS has funded and will continue to fund these activities
principally through cash provided by operations and existing leasing lines of
credit. It is not possible for MKS to completely estimate the costs incurred in
its remediation effort as many of its employees have focused and will continue
to focus significant efforts in evaluating MKS's Year 2000 state of readiness
and in remediating problems that have arisen, and will continue to arise, from
such evaluation.

Contingency Plan

To date, MKS has not formulated contingency plans related to the failure of
its or a third-party's Year 2000 remediation efforts. Contingency plans for the
failure to implement compliance procedures have not been completed because it is
the intent of MKS to complete all required modifications and to test
modifications thoroughly prior to December 31, 1999. However, as discussed
above, MKS is engaged in ongoing assessment, remediation and testing activities
and the internal results as well as the responses received from third-parties
will be taken into account in determining the nature and extent of any
contingency plans if necessary.

27
<PAGE> 28

BUSINESS

MKS is a leading worldwide developer, manufacturer and supplier of
instruments and components used to measure, control and analyze gases in
semiconductor manufacturing and similar industrial manufacturing processes. MKS
offers a comprehensive line of products which are used to manufacture, among
other things:

- - semiconductors
- - flat panel displays
- - magnetic and optical storage devices and media, including:
-- compact disks
-- hard disk storage devices
-- magnetic devices for reading disk data
-- digital video disks
-- optical storage disks or laser readable disks

- - solar cells which convert light into electrical current
- - fiber optic cables for telecommunications
- - optical coatings, such as eyeglass coatings
- - coatings for architectural glass
- - hard coatings to minimize wear on cutting tools
- - diamond thin films

Our products include:

- - instruments used to measure, control and analyze:
-- gas pressure
-- gas flow
-- gas composition

- - vacuum technology products:
-- vacuum gauges
-- vacuum valves and components

For over 25 years, MKS has focused on satisfying the needs of semiconductor
capital equipment manufacturers and semiconductor device manufacturers and has
established long-term relationships with many of its customers. Over 4,000
customers worldwide purchased products from MKS during 1998 including:

- semiconductor capital equipment manufacturers

- semiconductor device manufacturers

- industrial manufacturing companies

- university, government and industrial research laboratories

MKS's customers include Applied Materials, Inc., Lam Research Corporation,
Novellus Systems, Inc., Tokyo Electron Limited, Inc., Air Products and
Chemicals, Inc. and Motorola, Inc. MKS sells its products primarily through its
sales force which consists of 118 employees, as of December 31, 1998, in 22
offices in France, Germany, Japan, Korea, The Netherlands, Singapore, Taiwan,
the United Kingdom and the United States.

INDUSTRY BACKGROUND

In the past 40 years, significant advances in materials science and
processing technologies have made possible the manufacture of products ranging
from highly complex microprocessor chips to simple but effective airtight
coatings for food packagings. In many materials processing applications,
specific gas mixtures at precisely controlled pressures are used:

- to create and maintain the required process atmosphere

- as a source of materials to be deposited on a surface, such as a silicon
wafer

- to remove or etch materials from a surface to form a circuit pattern

28
<PAGE> 29

The largest commercial application employing materials science and
processing technologies is the manufacture of semiconductors. Worldwide
semiconductor sales have increased as the use of semiconductors has expanded
beyond personal computers and computer systems to a wide array of additional
applications such as telecommunications and data communications systems,
automotive products, consumer goods, medical products and household appliances.
In large part, this growth has been facilitated by the ability of semiconductor
device manufacturers to produce increasingly fast, more complex, higher
performance semiconductors while steadily reducing cost per function, power
consumption requirements and size of these products to meet end-user and system
designer requirements. These improvements in the ratio of price to performance
have been enabled by advancements in semiconductor processing technologies,
which have facilitated the ability to reduce circuit pattern sizes and
subsequently increase the number of individual semiconductor circuits on a
silicon wafer. These trends have driven the need for increasingly complex and
sophisticated semiconductor device manufacturing processes, process equipment
and process controls.

Semiconductor Manufacturing Process

The manufacturing of semiconductors requires hundreds of process steps.
Many steps involve the controlled application or removal of layers of materials
to or from a surface referred to as a substrate. These process steps take place
within a process chamber, which provides a controlled environment for the
fabrication of semiconductor devices. Most of the key processes used in the
production of semiconductors require precise automatic control of gas pressure,
flow and composition in the process chamber.

To ensure the integrity and performance of the manufacturing process,
semiconductor device manufacturers require sophisticated instruments that can
provide precise automated control of all major process variables within the
process chamber. The process steps required to produce circuit patterns involve
the control of multiple gases flowing into the process chamber at specified
intervals, and at controlled pressure and vacuum levels. In a typical process
step, the process chamber is evacuated to a base pressure established by a
vacuum pumping system and measured with vacuum gauges. Automatic shut-off valves
are sequenced to protect pumps and process instruments from exposure to
atmospheric pressure. Chamber leak integrity may be checked by gas analyzers
scanning for the presence of undesirable atmospheric gases or water vapor. Mass
flow controllers automatically control the flow rates of multiple gases into the
process chamber. Simultaneously, the automatic pressure control system for the
process chamber measures the pressure in the chamber and controls it at the
desired level by electronically adjusting the position of a control valve
located between the process chamber and the vacuum pump. Downstream of the
process chamber, heated lines, particle traps, and vacuum valves and switches
are used to prevent contamination of the process chamber as a result of the
backstream of particles and exhaust gases back into the process chamber. This
improves circuit quality, reduces maintenance and prolongs vacuum pump life.

29
<PAGE> 30

The pressures used in semiconductor manufacturing processes range from as
low as one trillionth of atmospheric pressure to as high as two hundred times
atmospheric pressure. The following table shows the wide range of pressures
required for typical semiconductor manufacturing processes:
[PRESSURE RANGES OF TYPICAL SEMICONDUCTOR MANUFACTURING PROCESSES CHART]
[This table graphically depicts, using graybars, the gas pressure ranges, from
one trillionth of atmospheric pressure to two hundred times atmospheric pressure
used in various typical semiconductor manufacturing process steps (introduction
of gases into process chamber, deposition of materials and thin films on to
substrates, introduction of gases to etch circuit patterns, deposition of
conductive metal layers onto substrates and implantation of positively charged
atoms into substrates).

The fabrication of a semiconductor circuit requires varying flow rates,
pressures and gases. A typical process step uses from three to five different
gases.

Uptime, yield and throughput are critical semiconductor manufacturing
concepts. Uptime is the amount of time that the semiconductor processing tool is
available for processing. Yield is the ratio of acceptable circuits to total
circuits processed. Throughput is the number of wafers that can be processed per
hour. Uptime, yield, and throughput depend in major part upon:

- precise repeatable measurement and control of the specific gas pressure,
flow rates and composition

- the maintenance of the vacuum integrity of the process chamber

- the prevention of wafer contamination from particles entering the chamber

Pressure variations of as little as one one-hundred-thousandth of
atmospheric pressure can change process yields significantly and errors in gas
flow rates and composition may impair circuit performance. Atmospheric
contamination and particle contamination can produce defects that significantly
reduce wafer yields and the time required to remove contaminates reduces uptime
and throughput. The speed of response and precision of the automatic control
systems directly affects uptime, throughput of wafers and process yields.

Other Similar Industrial Manufacturing Processes

Many of the same processes used to manufacture semiconductors are also used
to manufacture: flat panel displays; magnetic and optical storage devices and
media; solar cells; fiber optic cables for telecommunications; optical coatings;
coatings for architectural glass; hard coatings to minimize wear on cutting
tools; and diamond thin films.

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<PAGE> 31

Trends in Semiconductor Manufacturing

The ability of semiconductor device manufacturers to offer integrated
circuits with smaller geometries and greater functionality at higher speeds
requires continuous improvements in semiconductor process equipment and process
controls. The transition to smaller circuit patterns, such as 0.18 micron and
smaller line-widths, requires more process steps. It is also leading to the
introduction of new materials such as copper for conductors and a whole new
class of organic and inorganic materials for insulators. These in turn require
new technologies for delivery of gases and vapors to the process chamber. In
addition, the introduction of advanced processes such as high density plasma is
leading to a need for lower pressures, which are more difficult to measure and
control than higher pressures. These trends, along with increased wafer sizes,
which result in higher circuit value per wafer, are leading to the need for
increased sophistication of semiconductor processing equipment, a heightened
emphasis on uptime, yield and throughput and the need for more precise process
controls. As a result, the design and performance of instruments that control
pressure or the flow of gases, or analyze the composition of gases, are becoming
even more critical to the semiconductor manufacturing process.

To address the increasing complexity of semiconductor devices,
semiconductor device manufacturers typically develop processes to create
particular device features using specific manufacturing equipment. The process
for each feature is then documented and may be subsequently replicated for use
in multiple fabrication facilities around the world. The precision,
repeatability and reliability of the measurement and control instrumentation
used for each process is critical to providing uptime, high yield and throughput
on manufacturing equipment at all facilities employing such processes.
Semiconductor device manufacturers are placing increasing importance on uptime,
yield, throughput and process consistency throughout their facilities to
minimize:

- capital equipment expenditures
- facility construction costs
- overall ongoing operating costs

The increasing sophistication of semiconductor devices requires an increase
in the number of components and subsystems used in the design of semiconductor
manufacturing process tools. To reduce manufacturing complexity, improve quality
and reliability and ensure long-term service and support, semiconductor capital
equipment manufacturers and semiconductor device manufacturers are increasingly
seeking to establish relationships with a smaller group of broad-based suppliers
that meet their needs on a worldwide basis and provide:

- advanced technological capabilities to address the increasing
complexities of the semiconductor manufacturing process
- instrument and component designs that ensure repeatable processes around
the world
- value-added, integrated instruments and components
- a worldwide sales, service and support infrastructure

MKS SOLUTION AND STRATEGY

MKS's objective is to be the leading worldwide supplier of instruments and
components used to measure, control and analyze gases in semiconductor and other
advanced thin-film materials processing applications and to help semiconductor
device manufacturers achieve improvements in their return on invested capital.
The principal elements of MKS's solution and strategy to achieve this objective
are set forth below:

Technology Leadership. MKS's products incorporate leading-edge
technologies to control and monitor increasingly complex gas-related
semiconductor manufacturing processes, thereby enhancing

31
<PAGE> 32

uptime, yield and throughput which can improve the investment return on capital
equipment and facilities. The instruments and components in MKS's product
offering provides the required capabilities through:

- high precision operation over the extreme and variable pressure ranges
required for semiconductor processes

- precise, consistent and repeatable measurement and control performance
that allows processes to be replicated in manufacturing facilities around
the world

- advanced control technologies which enhance uptime, yield and throughput

- multiple, diverse and alternative technologies for controlling the flow
rate and composition of gases and vapors needed for new classes of
advanced materials for next generation semiconductor devices

- innovative vacuum technology subsystems that reduce atmospheric and
particle contamination, thereby enhancing uptime, yield and throughput

MKS's products have continuously advanced as its customers' needs have
evolved. MKS seeks to extend its technological leadership by applying its
expertise in vacuum, pressure, flow and gas composition measurement control and
analysis technologies to develop advanced products that meet the critical gas-
related process requirements of semiconductor and advanced thin-film materials
manufacturers.

MKS has introduced technological innovations including:

- corrosion-resistant pressure and vacuum sensors

- automatic pressure and vacuum control systems

- compact single unit gas composition analyzers to replace bulky
multi-component systems

MKS has developed, and continues to develop, new products to address
emerging industry trends such as the transition from the use of 200mm wafers to
300mm wafers and the shrinking of integrated circuit line-widths from 0.25
micron to 0.18 micron and smaller. MKS has supplied pre-production equipment to
be incorporated into semiconductor capital equipment manufacturers' 300mm
pre-production semiconductor wafer process equipment, which is expected to be
included in pilot production lines of device manufacturers.

MKS has also developed equipment that is being used by research
laboratories for semiconductor devices using less than 0.18 micron line-widths.
In addition, MKS has developed, and continues to develop, materials delivery
systems for new classes of materials, such as copper for conductors, titanium
nitride for barriers and a class of organic and inorganic dielectric materials
that are beginning to be used in small geometry manufacturing.

MKS has been a leader in making its products compatible with emerging
digital network standards, such as DeviceNet. DeviceNet enables components used
in semiconductor manufacturing processes to transmit self-diagnostic and other
information on a digital host network. This reduces system complexity and space
requirements.

To ensure that MKS maintains its leading-edge position, MKS aligns its
research and development program to the Semiconductor Industry Association
Technology Roadmap. The Semiconductor Industry Association Technology Roadmap
identifies technological developments, as well as obstacles, required to produce
future generations of semiconductor devices. MKS also maintains associations
with leading universities to anticipate future semiconductor production needs
three to seven years in advance.

Comprehensive Product Offering. MKS currently offers, and intends to
continue to offer, the widest range of pressure and vacuum measurement and
control products serving the semiconductor manufacturing and similar industrial
manufacturing industries. MKS offers a full line of products including a wide
range of gas pressure, flow and composition analysis measurement and control
instruments and vacuum gauges, valves and components.

Since the development of its original Baratron laboratory-based pressure
measurement instrument in 1961, MKS has continuously enhanced and expanded its
product offerings in response to the evolving needs of its customers. For
example, MKS recently introduced the Micro Baratron instrument, a significantly
smaller version of its pressure measurement product, and a new low vapor
pressure material

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<PAGE> 33

delivery system. MKS plans to introduce new products throughout 1999, including
a line of mass flow calibrators and process monitoring hardware and software for
gas analysis.

MKS's products are designed to meet the increasingly complex needs of its
customers. With the increasing sophistication of semiconductor capital equipment
leading to an increasing number of components and subsystems in semiconductor
manufacturing process tools, MKS delivers products that reduce equipment size
and improve process performance. MKS's subsystem products combine several
components into single integrated solutions. MKS's integrated solutions deliver
higher performance at a lower cost than similar subsystems built from discrete
components. Additionally, MKS's integrated solutions are easier to install and
configure, further reducing the overall cost to the customer.

MKS plans to continue to expand its product lines through both internal
development and acquisitions of complementary businesses, products and
technologies. MKS's comprehensive product offering enables MKS to meet a broad
range of customer needs and provide a single source of solutions for
semiconductor device and semiconductor capital equipment manufacturers as they
seek to consolidate their supplier relationships to a smaller select group.

Close Working Relationships with Customers. MKS has focused on satisfying
the needs of semiconductor device manufacturers and semiconductor capital
equipment manufacturers for over 25 years and has established long-term
relationships with many of its customers. MKS works with its customers at the
pre-design and design stage to identify and respond to their requests for
current and future generations of products. These close working relationships
allow MKS to understand and address the cost and performance expectations of its
customers. MKS plans to enhance its relationships with its major customers and
identify opportunities to develop similar relationships with additional
semiconductor capital equipment manufacturers and semiconductor device
manufacturers.

Applications in Related Markets. MKS is leveraging its accumulated
expertise in the semiconductor industry by developing products for applications
that employ production processes similar to semiconductor fabrication processes
in their reliance upon gases and vacuum-based production technologies.
Applications served by MKS outside the semiconductor industry include vacuum
freeze-drying of pharmaceuticals and foods, sterilization of medical appliances,
and applications that involve advanced thin-film manufacturing such as flat
panel displays, magnetic and optical storage media, solar cells, fiber optic
cables and optical coatings. MKS plans to continue to identify and develop
products that address advanced materials processing applications where gas
management plays a critical role.

Global Infrastructure and World Class Manufacturing Capabilities. As
semiconductor device manufacturers have become increasingly global, they have
required that suppliers offer comprehensive local repair service and close
customer support. Manufacturers require close support to enable them to
calibrate, repair, modify, upgrade and retrofit their equipment to improve
process consistency, uptime, yield and throughput. To meet these market
requirements, MKS maintains a global sales and support organization with 22
offices worldwide. MKS currently manufactures its products at nine facilities in
the United States and abroad. MKS continues to devote significant resources to
expand and maintain its worldwide production and service capabilities to meet
the global demand for gas measurement, control and analysis instruments and
vacuum technology components. MKS opened a sales and support facility in
Singapore in 1998 and during 1999 plans to add manufacturing capabilities to its
Austin, Texas facility and further equip its cleanroom facilities in Andover and
Methuen, Massachusetts.

MKS believes that the ability to manufacture reliable instruments and
components in a cost-effective manner is critical to meet the demanding
just-in-time delivery requirements of semiconductor capital equipment
manufacturers and semiconductor device manufacturers. MKS's worldwide production
and manufacturing facilities provide MKS with the ability to manufacture
reliable gas measurement, control and analysis instruments and components in a
timely and cost-effective manner. With a total of approximately 250,000 square
feet of manufacturing capacity in five locations in the United States and four
others in Germany, Japan, the United Kingdom and Korea, MKS has implemented
world class practices in quality and delivery techniques. MKS's manufacturing
facilities in the United States, the United Kingdom and Germany are ISO 9001
certified.

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<PAGE> 34

PRODUCTS

MKS offers a full line of instruments and components that are used to
measure, control and analyze gases in semiconductor manufacturing and other
advanced thin-film manufacturing processes. MKS supplies products in two
principal areas:

- measurement and control instrumentation products

- vacuum technology products

The following schematic shows where MKS products are used in a typical
semiconductor manufacturing process.
[CHART]
[Schematic showing where MKS products are used in a typical semiconductor
manufacturing process.]

MEASUREMENT AND CONTROL INSTRUMENTATION PRODUCTS. MKS designs and
manufactures a wide range of gas pressure, flow and composition analysis
measurement and control instrumentation. Each product line consists of products
which are designed for a variety of pressure, flow and composition ranges and
accuracies.

Baratron Pressure Measurement Products. MKS's Baratron pressure
measurement products are high precision, pressure measurement instruments. MKS
has five Baratron product families that range from high accuracy digital output
instruments to simple electronic switches. These products are typically used to
measure the pressure of the gases being distributed upstream of the process
chambers, to measure process chamber pressures and to measure pressures between
process chambers, vacuum pumps and exhaust lines. Baratron instruments measure
pressures at ranges from two hundred times atmospheric pressure to one billionth
of atmospheric pressure. MKS believes it offers the widest range of gas pressure
measurement instruments in the semiconductor and advanced thin-film materials
processing industries.

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<PAGE> 35

A key feature of Baratron instruments is the ability to measure pressure
independent of gas composition, which is critical for precise pressure control
of semiconductor processes that involve gas mixtures. In these processes, there
is a need to control both pressure and gas mixture, but the pressure measurement
instrument must measure only the pressure of the sum of the gases in the
chamber, independent of gas composition. The Baratron instruments enable users
to achieve a highly precise, accurate and repeatable measurement of gas
pressure. Pressure measurement, independent of gas composition, is also useful
during process steps used to remove atmospheric gases as well as those used to
introduce specific amounts of various types of gases. Such processes are used to
manufacture fluorescent bulbs and to fabricate gas lasers.

The following table shows MKS's principal Baratron pressure measurement
product lines:

BARATRON PRESSURE MEASUREMENT PRODUCTS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRODUCT LINES DESCRIPTION RANGES OF LIST PRICES
------------- ----------- ---------------------
<S> <C> <C>
High precision, high accuracy Instruments with built-in temperature $2,900-$6,400
pressure and vacuum measurement stabilization features, for high
instruments precision, high accuracy and high
temperature operation
- ----------------------------------------------------------------------------------------------------------
General purpose pressure and vacuum Rugged instruments with and without $450-$4,200
measurement instruments built-in temperature stabilization
features, for reliable, precise and
accurate process measurement
- ----------------------------------------------------------------------------------------------------------
Ultra-clean high pressure and Instruments with ultra- clean surfaces $550-$1,050
vacuum measurement instruments exposed to gas, for precise, high purity
applications
- ----------------------------------------------------------------------------------------------------------
General purpose "MINI" pressure and Small footprint instruments for precise, $650-$1,400
vacuum measurement instruments accurate, general purpose process
measurement
- ----------------------------------------------------------------------------------------------------------
Electronic pressure and vacuum Economical, stable instrument providing $350-$750
switches "go/no-go" output for precise pressure
trip-points and alarms
- ----------------------------------------------------------------------------------------------------------
</TABLE>

MKS's list prices for its Baratron measurement products vary depending upon
precision, accuracy, pressure range, operating temperature range, stability and
gas purity specifications.

Automatic Pressure and Vacuum Control Products. MKS's automatic pressure
control products consist of analog and digital automatic pressure and vacuum
control electronic instruments and valves. These products enable precise control
of process pressure by electronically actuating valves which control the flow of
gases in and out of the process chamber to minimize the difference between
desired and actual pressure in the chamber. The electronic controllers vary from
simple analog units with precise manual tuning capability to state-of-the-art
self-tuning, digital signal processing controllers. The valve products vary from
small gas inlet valves to large exhaust valves.

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<PAGE> 36

In most cases, MKS's Baratron pressure measurement instruments provide the
pressure input to the automatic pressure control device. Together, these
components create an integrated automatic pressure control system. MKS's
pressure control products can also accept inputs from other measurement
instruments, enabling the automatic control of gas input or exhaust based on
parameters other than pressure.

AUTOMATIC PRESSURE AND VACUUM CONTROL PRODUCTS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRODUCT LINES DESCRIPTION RANGES OF LIST PRICES
------------- ----------- ---------------------
<S> <C> <C>
Automatic throttle control valve Analog controllers, self-tuning digital $800-$2,650
controllers controllers and displayless self-tuning
controllers
- ----------------------------------------------------------------------------------------------------------
Throttle control valves Non-sealing and sealing valves; high speed $1,400-$8,800
sealing throttle control valves;
automatic, microprocessor-based smart
throttle control valves
- ----------------------------------------------------------------------------------------------------------
Automatic solenoid control valve Stand-alone control electronics packages $1,850-$2,900
controllers or integrated sensor, valve and control
electronics packages
- ----------------------------------------------------------------------------------------------------------
Solenoid control valves Elastomer and all-metal-sealed solenoid $450-$1,500
control valves
- ----------------------------------------------------------------------------------------------------------
</TABLE>

MKS has recently introduced a line of integrated pressure controllers that
combine the functions of its Baratron pressure measurement instrument, flow
measurement instrument, control electronics and valve into a four-inch long
instrument which can be placed directly on a gas line to control pressure
downstream of the instrument while indicating the gas flow rate. This addresses
the need for smaller components, saving valuable clean room space.

Flow Measurement and Control Products. MKS's flow measurement products
include gas, vapor and liquid flow measurement products based upon thermal
conductivity, pressure and direct liquid injection technologies. The flow
control products combine the flow measuring device with valve control elements
based upon solenoid, piezo-electric and piston pump technologies. The products
measure and automatically control the mass flow rate of gases and vapors into
the process chamber. MKS's broad product lines include products that allow the
precise, automatic flow control of inert or corrosive gases, the automatic
control of low vapor pressure gases and heated liquid source materials, and the
automatic control of delicate, advanced technology liquid sources and vaporized
solid sources for next generation devices.

MKS's line of thermal-based mass flow controllers, which control gas flow
based on the molecular weight of gases, includes all-metal-sealed designs and
ultra-clean designs for semiconductor applications, and general purpose
controllers for applications where all-metal-sealed construction is not
required. MKS has also developed pressure-based mass flow controllers, based on
Baratron pressure instrument measurement and control technology, which use flow
restrictors in the gas line to transform pressure control into mass flow
control.

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<PAGE> 37

FLOW MEASUREMENT AND CONTROL PRODUCTS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRODUCT LINES DESCRIPTION RANGES OF LIST PRICES
------------- ----------- ---------------------
<S> <C> <C>
Direct liquid injection subsystem Pumps and vaporizes liquid precursors for $8,500-$24,900
metals and dielectrics into process
chamber
- ----------------------------------------------------------------------------------------------------------
Gas box rate of rise calibrator Measures pressure increase with time in a $8,100-$11,800
known volume
- ----------------------------------------------------------------------------------------------------------
Pressure-based vapor delivery Measures and controls flow of low pressure $4,900-$12,400
systems vapors into chamber
- ----------------------------------------------------------------------------------------------------------
Pressure-based mass flow Gas flow controller consisting of Baratron $2,700
controllers sensor, control valve, orifice and
electronics
- ----------------------------------------------------------------------------------------------------------
Ultra-clean, all-metal-sealed Gas flow controller consisting of sensor, $1,400-$9,500
thermal mass flow controllers control valve and electronics
- ----------------------------------------------------------------------------------------------------------
General purpose elastomer-sealed Gas flow controller consisting of sensor, $1,050-$2,450
mass flow controllers control valve and electronics
- ----------------------------------------------------------------------------------------------------------
</TABLE>

Certain new materials required for the next generation of semiconductor
devices are difficult to control using traditional thermal mass flow technology.
To control these new materials, MKS has designed a direct liquid injection
subsystem which pumps a precise volume of liquid into a vaporizer, which in turn
supplies a controlled flow of vapor into the process chamber. The direct liquid
injection subsystem pump and vaporizer are presently used principally for
research and development applications for next generation semiconductor device
conductors, diffusion barriers and insulators, such as copper, titanium nitride
and dielectric materials.

MKS's flow measurement products also include a calibration system which
independently measures mass flow and compares this measurement to that of the
process chamber mass flow controller. The demand for the MKS calibration system
is driven by the increasingly stringent process control needs of the
semiconductor industry and the need to reduce costly downtime resulting from
stopping operations to address mass flow controller problems.

Gas Composition Analysis Instruments. MKS's gas analysis instruments are
sold primarily to the semiconductor industry. The residual gas analysis product
lines include a quadrapole mass spectrometer sensor, which is a device that
separates gases based on molecular weight. MKS's quadrapole mass spectrometer
sensors include built-in electronics to analyze the composition of background
and process gases in the process chamber. MKS's ORION process monitoring system
is a sophisticated quadrapole mass spectrometer process analyzer for statistical
process monitoring of manufacturing processes operating from very low pressures
to atmospheric pressure. These instruments are provided both as portable
laboratory systems and as process gas monitoring systems used in the diagnosis
of semiconductor manufacturing process systems and are sold at prices ranging up
to $80,000. The gas monitoring systems can indicate out-of-bounds conditions,
such as the presence of undesirable atmospheric gases, water vapor or
out-of-tolerance amounts of specific gases in the process chamber, enabling
operators to diagnose and repair faulty equipment. MKS's gas sampling systems
provide a turn-key solution for withdrawing gases from chambers at relatively
high pressures for introduction into the low pressure gas analyzers. Next
generation semiconductor manufacturing processes, with smaller circuit patterns
and larger wafer sizes, are expected to require sophisticated gas analysis
instruments and/or monitoring equipment to ensure tighter process control and
earlier diagnosis of equipment malfunction.

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<PAGE> 38

VACUUM TECHNOLOGY PRODUCTS. MKS designs and manufactures a wide variety of
vacuum technology products, including vacuum gauges, vacuum valves and
components.

Vacuum Gauging Products. MKS offers a wide range of vacuum instruments
consisting of vacuum measurement sensors and associated power supply and readout
units. These vacuum gauges measure phenomena that are related to the level of
pressure in the process chamber and downstream of the process chamber between
the chamber and the pump. Unlike Baratron pressure measurement instruments,
vacuum gauges do not measure pressure directly. These gauges are used to measure
vacuum at pressures lower than those measurable with a Baratron pressure
measurement instrument or to measure vacuum in the Baratron pressure measurement
instrument range where less accuracy is required. MKS's indirect pressure gauges
use thermal conductivity and ionization gauge technologies to measure pressure
from atmospheric pressure to one trillionth of atmospheric pressure. MKS's
Baratron pressure measurement instruments, together with its vacuum gauges, are
capable of measuring the full range of pressures used in semiconductor and other
thin-film manufacturing processes from two hundred times atmospheric pressure to
one trillionth of atmospheric pressure.

MKS also manufactures a wide range of vacuum gauge instruments in which the
associated electronics are packaged with the vacuum sensor, reducing panel space
and installation cost. MKS offers both analog and digital versions of these
vacuum gauge transducers.

Vacuum Valves and Components. MKS's vacuum valves are used on the gas
lines between the process chamber and the pump downstream of the process
chamber. MKS's vacuum components consist of flanges, fittings, traps and heated
lines that are used downstream from the process chamber to provide leak free
connections and to prevent condensable materials from depositing particles near
or back into the chamber. The manufacture of small circuit patterns cannot
tolerate contamination from atmospheric leaks or particles. MKS's vacuum
components are designed to minimize such contamination and thus increase yields
and uptimes.

VACUUM TECHNOLOGY PRODUCTS

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRODUCT LINES DESCRIPTION RANGES OF LIST PRICES
------------- ----------- ---------------------
<S> <C> <C>
Cold cathode and hot filament Electronic gauges to measure pressure down $600-$6,200
vacuum gauges to one trillionth of atmospheric pressure
- ----------------------------------------------------------------------------------------------------------
Convection gauges Electronic gauges to measure from one $200-$700
atmosphere down to one millionth of
atmospheric pressure
- ----------------------------------------------------------------------------------------------------------
Right-angle and in-line shut-off High vacuum rapid action poppet valves $250-$4,500
valves
- ----------------------------------------------------------------------------------------------------------
Vapor sublimation traps Contaminant particle trap $1,800-$4,600
- ----------------------------------------------------------------------------------------------------------
Other vacuum components Flanges, fittings, valves and heated lines $50-$3,050
- ----------------------------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 39

MARKETS AND APPLICATIONS

MKS estimates that approximately 60% of its sales in 1998 were made to the
semiconductor industry. MKS's products are also used in other markets and
applications including the manufacture of, among other things:

- flat panel displays

- magnetic and optical storage devices and media

- solar cells which convert light into electrical current

- fiber optic cables for telecommunications

- optical coatings, such as eyeglass coatings

- coatings for architectural glass

- hard coatings to minimize wear on cutting tools

- diamond thin films

Semiconductor Manufacturing

MKS's products are sold to semiconductor capital equipment manufacturers
and semiconductor device manufacturers. MKS's products are used in the major
semiconductor processing steps such as:

- depositing materials on to substrates

- etching circuit patterns

- implanting positively charged atoms into a substrate to alter electrical
characteristics

MKS's products are also used for process facility applications such as gas
distribution, pressure control and vacuum distribution in clean rooms where
semiconductor manufacturing takes place. MKS anticipates that the semiconductor
manufacturing market will continue to account for a substantial portion of its
sales. While the semiconductor device manufacturing market is global, the major
semiconductor capital equipment manufacturers are concentrated in the United
States, Japan and Europe.

Flat Panel Display Manufacturing

MKS's products are used in the manufacture of flat panel displays, which
require the same or similar fabrication processes as semiconductor
manufacturing. MKS sells its products both to flat panel original equipment
manufacturers and to end-users in the flat panel display market. The transition
to larger panel size and higher definition is driving the need for defect
reduction which requires tighter process controls. The major manufacturers for
flat panel displays and flat panel display equipment are concentrated in Japan.

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<PAGE> 40

Magnetic and Optical Storage Devices and Media

MKS's products are used in the manufacture of:

- magnetic storage media which store and read data magnetically

- optical storage media which store and read data using laser technology

- compact disks

- hard disks

- data storage devices

- digital video or versatile disks

The transition to higher density storage capacity requires manufacturing
processes incorporating tighter process controls. While storage media
manufacturing is global, the major manufacturers are concentrated in Japan and
the Asia-Pacific region and storage media capital equipment manufacturers are
concentrated in the United States, Japan and Europe.

Optical Fiber and Optical Coating

MKS's products are used in optical fiber and optical thin-film coating
processes. MKS's products are sold both to coating equipment manufacturers and
to manufacturers of products made using optical thin-film coating processes.
Optical fibers used for data transmission are manufactured using processes to
deposit chemical vapors which are similar to those used in semiconductor
manufacturing. The requirement for greater data transmission is driving the need
for tighter control of optical fiber coating processes. Optical thin films for
eyeglasses, solar panels and architectural glass are deposited using processes
to deposit chemical vapors and gaseous metals similar to those used in
semiconductor manufacturing. Optical fiber manufacturing and optical thin-film
processing are concentrated in the United States, Japan and Europe.

Other Coating Markets

MKS's pressure and flow measurement and control instruments are also used
in processes for the application of thin films to harden tool bit surfaces, in
the production of diamond thin films, coatings for food container packagings and
coatings for jewelry and ornaments. The major equipment and process providers
are concentrated in the United States, Japan and Europe.

MKS estimates that the flat panel display, magnetic and optical storage
media, optical fiber, optical coating markets and other coating markets
combined, accounted for approximately 12% and 14% of net sales for 1997 and
1998, respectively.

Other Markets

MKS's pressure measurement and control instruments and vacuum components
are used in plasma processes used to sterilize medical instruments, in vacuum
freeze drying of pharmaceuticals, foods and beverages, and in vacuum processes
involved in light bulb and gas laser manufacturing. MKS's products are also sold
to government, university and industrial laboratories for vacuum applications
involving research and development in materials science, physical chemistry and
electronics materials. The major equipment and process providers and research
laboratories are concentrated in the United States, Japan and Europe.

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<PAGE> 41

CUSTOMERS

MKS's largest customers are leading semiconductor capital equipment
manufacturers such as Applied Materials, Lam Research, Novellus and Tokyo
Electron, semiconductor device manufacturers such as Motorola, and specialty gas
providers such as Air Products and Chemicals. In 1996, 1997, and 1998, sales to
MKS's top five customers accounted for approximately 26%, 32% and 24%,
respectively, of MKS's net sales. During the same periods, international sales
represented approximately 30%, 27% and 32% of total net sales, respectively.
During 1998, Applied Materials accounted for approximately 16% of MKS's net
sales. Applied Materials purchases products from MKS under the terms of an
agreement, with no minimum purchase requirements, that expires in 2000.

SALES, MARKETING AND SUPPORT

MKS's worldwide sales, marketing and support organization is critical to
its strategy of maintaining close relationships with semiconductor capital
equipment manufacturers and semiconductor device manufacturers. MKS sells its
products primarily through its direct sales force. As of December 31, 1998, MKS
had 118 sales employees in 22 offices in France, Germany, Japan, Korea, The
Netherlands, Singapore, Taiwan, the United Kingdom and the United States. This
direct sales force is supplemented by sales representatives and agents in
Canada, China, India, Israel, and Italy and in selected U.S. cities. MKS
maintains a marketing staff, which as of December 31, 1998, consisted of 14
employees, to identify customer requirements, assist in product planning and
specifications and to focus on future trends in the semiconductor and other
markets.

As semiconductor device manufacturers have become increasingly sensitive to
the significant costs of system downtime, they have required that suppliers
offer comprehensive local repair service and close customer support.
Manufacturers require close support to enable them to repair, modify, upgrade
and retrofit their equipment to improve yields and adapt new materials or
processes. To meet these market requirements, MKS maintains a worldwide sales
and support organization with offices in 22 locations. Technical support is
provided by applications engineers located at offices in Arizona, California,
Colorado, Massachusetts, Oregon and Texas, as well as Canada, France, Germany,
India, Israel, Italy, Japan, Korea, The Netherlands, Singapore, Taiwan and the
United Kingdom. Repair and calibration services are provided at 14 service
depots located worldwide. MKS provides warranties from one to three years,
depending upon the type of product. In addition, MKS offers training programs
for its customers in a wide range of vacuum and gas processing technologies.

MANUFACTURING

MKS believes that the ability to manufacture reliable gas management
instruments and components in a cost-effective manner is critical to meeting the
demanding requirements of semiconductor capital equipment manufacturers and
semiconductor device manufacturers. MKS monitors and analyzes product lead
times, warranty data, process yields, supplier performance, field data on mean
time between failures, inventory turns, repair response time and other
indicators so that it may continuously improve its manufacturing processes. MKS
has adopted a total quality management process. MKS's manufacturing facilities
in the United States, the United Kingdom and Germany are ISO 9001 certified.

MKS is devoting significant financial and management resources to maintain
and expand its worldwide production and service capabilities to meet the global
demand for gas management instruments and components. MKS believes that the
ability to manufacture reliable instruments and components in a cost-effective
manner is critical to meet the demanding just-in-time delivery requirements of
semiconductor capital equipment manufacturers and semiconductor device
manufacturers. Due to the short time between the receipt of orders and
shipments, MKS normally operates with a level of backlog that is not
significant. MKS currently manufactures its products at nine facilities in the
United States and abroad. MKS plans to add manufacturing capabilities in 1999 to
its Austin, Texas facilities and further equip its cleanroom facilities in
Andover and Methuen, Massachusetts.

MKS's principal manufacturing activities consist of precision assembly,
test, calibration, welding and machining activities. MKS subcontracts a portion
of its assembly, machining and printed circuit board assembly and testing. All
other assembly, test and calibration functions are performed by MKS. Critical
assembly activities are performed in cleanroom environments at MKS's facilities.

41
<PAGE> 42

RESEARCH AND DEVELOPMENT

MKS's research and development efforts are directed toward developing and
improving MKS's gas management instruments and components for semiconductor and
advanced thin-film processing applications and identifying and developing
products for new applications for which gas management plays a critical role.
MKS has undertaken an initiative to involve its marketing, engineering,
manufacturing and sales personnel in the concurrent development of new products
in order to reduce the time to market for new products. MKS's employees also
work closely with its customers' development personnel. These relationships help
MKS identify and define future technical needs on which to focus its research
and development efforts. In addition, MKS participates in SEMI/SEMATECH, a
consortium of semiconductor equipment suppliers, to assist in product
development and standardization of product technology, and it supports research
at academic institutions targeted at advances in materials science and
semiconductor process development.

As of December 31, 1998, MKS employed a research and development staff of
89 employees. In 1996, 1997 and 1998, MKS's research and development
expenditures were approximately $14.2 million, $14.7 million and $12.1 million,
respectively, representing approximately 8.3%, 7.8% and 8.7% of net sales,
respectively.

COMPETITION

The market for MKS's products is highly competitive. Principal competitive
factors include:

- historical customer relationships

- product quality, performance and price

- breadth of product line

- manufacturing capabilities

- customer service and support

While MKS believes that it competes favorably with respect to these
factors, there can be no assurance that it will continue to do so.

MKS encounters substantial competition in each of its product lines from a
number of competitors, although no one competitor competes with MKS across all
product lines. Certain of MKS's competitors have greater financial and other
resources than MKS. In some cases, the competitors are smaller than MKS, but
well-established in specific product niches. Millipore Corporation offers
products that compete with MKS's pressure and flow products. Aera Corporation,
STEC (Horiba Ltd.), and Unit Instruments, Inc., each offer products that compete
with MKS's mass flow control products. Nor-Cal Products, Inc. and MDC Vacuum
Products, Inc., each offer products that compete with MKS's vacuum components.
Leybold-Inficon, Inc., offers products that compete with MKS's vacuum measuring
and gas analysis products. Helix Technology Corporation offers products that
compete with MKS's vacuum gauging products. Spectra International LLC offers
products that compete with MKS's gas analysis products.

In some cases, particularly with respect to mass flow controllers,
semiconductor device manufacturers may direct semiconductor capital equipment
manufacturers to use a specified supplier's product in their equipment.
Accordingly, MKS's success depends in part on its ability to have semiconductor
device manufacturers specify that its products be used at their fabrication
facilities and MKS may encounter difficulties in changing established
relationships of competitors with a large installed base of products at such
customers' fabrication facilities. In addition, MKS's competitors can be
expected to continue to improve the design and performance of their products.
There can be no assurance that competitors will not develop products that offer
price or performance features superior to those of MKS's products.

42
<PAGE> 43

PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS

MKS relies on a combination of patent, copyright, trademark and trade
secret laws and license agreements to establish and protect its proprietary
rights. MKS has 49 U.S. patents and 8 pending U.S. patent applications. Foreign
counterparts of certain of these applications have been filed or may be filed at
the appropriate time. While MKS believes that certain patents may be important
for certain aspects of its business, MKS believes that its success depends more
upon close customer contact, innovation, technological expertise, responsiveness
and worldwide distribution.

MKS requires each of its employees, including its executive officers, to
enter into standard agreements pursuant to which the employee agrees to keep
confidential all proprietary information of MKS and to assign to MKS all
inventions made while in the employ of MKS.

EMPLOYEES

As of December 31, 1998, MKS employed 821 persons, including 486 in
manufacturing, 89 in research and development, 246 in marketing, sales, support
and general and administrative activities. Management believes that MKS's
ongoing success depends upon its continued ability to attract and retain highly
skilled employees. None of MKS's employees is represented by a labor union or
party to a collective bargaining agreement. MKS believes that its employee
relations are good.

FACILITIES

MKS sells its products primarily through its direct sales force in 22
offices in France, Germany, Japan, Korea, The Netherlands, Singapore, Taiwan,
the United Kingdom and the United States. The direct sales force is supplemented
by sales representatives and agents in Canada, China, India, Israel, and Italy
and in selected U.S. cities. MKS's corporate headquarters are located in
Andover, Massachusetts. Manufacturing and other operations are conducted in a
number of locations worldwide. MKS's minimum payments for leased real estate for
the year ending December 31, 1999 are expected to be $1,484,000. MKS believes
that the current facilities along with the planned addition for 1999 will be
adequate and suitable to meet its needs for the foreseeable future. The
following table provides information concerning MKS's principal and certain
other owned and leased facilities:

<TABLE>
<CAPTION>
LEASE
LOCATION SQ. FT. ACTIVITY PRODUCTS MANUFACTURED EXPIRES
-------- ------- -------- --------------------- ---------
<S> <C> <C> <C> <C>
Andover, Massachusetts 82,000 Headquarters, Baratron pressure (1)
Manufacturing, Customer measurement products
Support and Research &
Development
Boulder, Colorado 86,000 Manufacturing, Customer Vacuum gauges, valves (2)
Support, Service and and components
Research & Development
Methuen, Massachusetts 85,000 Manufacturing, Customer Pressure control and (1)
Support, Service and flow measurement and
Research & Development control products
Lawrence, Massachusetts 40,000 Manufacturing Baratron pressure (1)
measurement products
Tokyo, Japan 20,700 Manufacturing, Sales, Mass flow measurement (3)
Customer Support, and control products
Service and Research &
Development
Santa Clara, California 15,600 Sales, Customer Support Not applicable (4)*
and Service
</TABLE>

43
<PAGE> 44

<TABLE>
<CAPTION>
LEASE
LOCATION SQ. FT. ACTIVITY PRODUCTS MANUFACTURED EXPIRES
-------- ------- -------- --------------------- ---------
<S> <C> <C> <C> <C>
Richardson, Texas 14,600 Manufacturing, Sales, Subassemblies 8/31/01
Customer Support and
Service
Munich, Germany 14,100 Manufacturing, Sales, Mass flow measurement (1)
Customer Support, and control products
Service and Research &
Development
Le Bourget, France 13,700 Sales, Customer Support Not applicable (1)
and Service
Austin, Texas 8,200 Sales, Customer Support Not applicable 1/30/03
and Service
Seoul, Korea 4,760 Manufacturing, Sales, Mass flow measurement 5/30/00**
Customer Support and and control products
Service
Manchester, U.K. 2,200 Manufacturing, Sales, Mass flow measurement 10/5/09
Customer Support and and control products
Service
Singapore 2,050 Sales, Customer Support Not applicable 3/25/01
and Service
Taiwan 2,050 Sales, Customer Support Not applicable 12/31/01
and Service
</TABLE>

- ---------------
(1) This facility is owned by MKS.

(2) MKS leases one facility which has 39,000 square feet of space and a lease
term which expires 10/31/01 and owns a second and third facility with 28,000
and 19,000 square feet of space, respectively.

(3) MKS leases a facility which has 14,000 square feet of space and a lease term
which expires 4/30/99 and owns another facility with 6,700 square feet of
space.

(4) MKS leases one facility with 4,000 square feet of space on a month-to-month
basis, a second facility of 4,000 square feet with a lease term which
expires on 1/30/00 and a third facility of 2,600 square feet with a lease
term which expires 6/30/99. MKS owns a fourth facility of 5,000 square feet.

* MKS has an option to extend its leases at this location for a period of 18
months.

** MKS has an option to extend this lease for a period of two years.

In addition to manufacturing and other operations conducted at the
foregoing leased or owned facilities, MKS provides worldwide sales, customer
support and services from various other leased facilities throughout the world
not listed in the table above. See "Business -- Sales, Marketing and Support."

LEGAL PROCEEDINGS

MKS is not a party to any material legal proceedings.

44
<PAGE> 45

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of MKS as of December 31, 1998 are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John R. Bertucci.......................... 57 Chairman, Chief Executive Officer and President
Ronald C. Weigner......................... 53 Vice President and Chief Financial Officer
John J. Sullivan.......................... 63 Executive Vice President of Technology
William D. Stewart........................ 54 Corporate Vice President and General Manager, Vacuum
Products
Joseph A. Maher, Jr....................... 51 Corporate Vice President and General Manager,
Measurement and Control Products
Leo Berlinghieri.......................... 45 Corporate Vice President, Customer Support
Operations
Richard S. Chute(1)....................... 60 Director
Owen W. Robbins(2)........................ 69 Director
Robert J. Therrien........................ 64 Director
Louis P. Valente(1)(2).................... 68 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee.

(2) Member of Audit Committee.

Mr. Bertucci has served as President and a Director of MKS since 1974 and
has been Chairman of the Board of Directors and Chief Executive Officer since
November 1995. From 1970 to 1974, he was Vice President and General Manager. Mr.
Bertucci has an M.S. in Industrial Administration and a B.S. in Metallurgical
Engineering from Carnegie-Mellon University. Mr. Bertucci is also a director of
Applied Science and Technology Corporation and Intellisense Corporation.

Mr. Weigner has served as Vice President and Chief Financial Officer of MKS
since November 1995. From September 1993 until November 1995, he was Vice
President and Corporate Controller and from 1980 to 1993 he was Corporate
Controller. Mr. Weigner is a certified public accountant and has a B.S. in
Business Administration from Boston University.

Mr. Sullivan has served as Executive Vice President of Technology of MKS
since March 1995. From 1982 to March 1995, he was Vice President of Marketing,
and from 1975 to 1982, he was Vice President of Sales and Marketing. Mr.
Sullivan has an M.S. and a B.S. in Physics from Northeastern University.

Mr. Stewart has served as Corporate Vice President of MKS and General
Manager of Vacuum Products since November 1997. From October 1986 to November
1997, he was President of HPS Vacuum Products group, which MKS acquired in
October 1986. Mr. Stewart co-founded HPS in 1976. Mr. Stewart has an M.B.A. from
Northwestern University and a B.S. in Business Administration from the
University of Colorado. Mr. Stewart also serves on the board of directors of the
Janus Fund.

Mr. Maher has served as Corporate Vice President of MKS and General Manager
of Measurement and Control Products since November 1997. From March 1997 through
November 1997, he served as Vice President of the Process Control
Instrumentation Group. Mr. Maher was a Vice President of Lam Research
Corporation from 1993 through 1996, and from 1980 through 1993, he was Executive
Vice President of Drytek Corporation, which was purchased by Lam Research
Corporation in 1993. Mr. Maher has a B.S. in Electrical Engineering from
Northeastern University.

Mr. Berlinghieri has served as Corporate Vice President, Customer Support
Operations of MKS since November 1995. From 1980 to November 1995, he served in
various management positions at MKS, including Manufacturing Manager, Production
& Inventory Control Manager, and Director of Customer

45
<PAGE> 46

Support Operations. Mr. Berlinghieri is also Treasurer of the TQM-BASE Council,
Inc., a non-profit quality management consortium comprised of Boston-area
semiconductor capital equipment manufacturers.

Mr. Chute has served as a director of MKS since 1974. Mr. Chute has been a
member of the law firm of Hill & Barlow, a professional corporation, since
November 1971.

Mr. Robbins has served as a director of MKS since February 1996. Mr.
Robbins was Executive Vice President of Teradyne, Inc., a manufacturer of
electronic test systems and backplane connection systems used in the electronics
and telecommunications industries from March 1992 to May 1997, and its Chief
Financial Officer from February 1980 to May 1997. Mr. Robbins has served on the
board of directors of Teradyne, Inc. since March 1992 and was its Vice Chairman
from January 1996 to May 1997.

Mr. Therrien has served as a director of MKS since February 1996. Mr.
Therrien has been President and Chief Executive Officer of Brooks Automation,
Inc., a manufacturer of semiconductor processing equipment, since 1989.

Mr. Valente has served as a director of MKS since February 1996. Mr.
Valente has been Chairman and Chief Executive Officer of Palomar Medical
Technologies, Inc., a company which designs, manufactures and markets cosmetic
lasers, since September 1997. He has been a director of Palomar Medical
Technologies, Inc. since February 1997 and was its President and Chief Executive
Officer from May 1997 to September 1997. Mr. Valente was a Senior Vice President
of Acquisitions, Mergers and Investments of EG&G, Inc. from 1991 until July
1995. Mr. Valente is also a director of Micrion Corporation.

Executive officers of MKS are elected by the Board of Directors on an
annual basis and serve until their successors are duly elected and qualified.
There are no family relationships among any of the executive officers of MKS.

COMMITTEES OF THE BOARD OF DIRECTORS

The Compensation Committee consists of Messrs. Chute and Valente. The
Compensation Committee reviews and evaluates the salaries, supplemental
compensation and benefits of all officers of MKS, reviews general policy matters
relating to compensation and benefits of employees of MKS and makes
recommendations concerning these matters to the Board of Directors. The
Compensation Committee also administers MKS's stock option and stock purchase
plans. See "-- Stock Plans."

The Audit Committee consists of Messrs. Robbins and Valente. The Audit
Committee reviews with MKS's independent auditor the scope and timing of its
audit services, the auditor's report on MKS's financial statements following
completion of its audit and MKS's policies and procedures with respect to
internal accounting and financial controls. In addition, the Audit Committee
will make annual recommendations to the Board of Directors for the appointment
of independent auditors for the ensuing year.

DIRECTOR COMPENSATION

Directors of MKS are reimbursed for expenses incurred in connection with
their attendance at Board of Directors and committee meetings. Directors who are
not employees of MKS are paid an annual fee of $10,000 and $1,000 for each Board
of Directors meeting they attend and $500 for each committee meeting they attend
which is not held on the same day as a Board of Directors meeting. Messrs.
Chute, Robbins, Therrien and Valente, MKS's four non-employee directors, have
each been granted options, under MKS's 1996 Director Stock Option Plan (under
which no further grants will be made), to purchase 8,592 shares of common stock
at a weighted average exercise price of $4.81 per share. Each has also been
granted options to purchase 6,000 shares of common stock at an exercise price of
$14.40 per share under the 1997 Director Stock Option Plan.

46
<PAGE> 47

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is currently comprised of Messrs. Chute and
Valente. No member of the Compensation Committee was at any time an employee of
MKS. No executive officer of MKS serves as a member of the Board of Directors or
Compensation Committee of any other entity which has one or more executive
officers serving as a member of MKS's Board of Directors or Compensation
Committee.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to the compensation
of MKS's Chief Executive Officer and each of the four other most highly
compensated executive officers for the year ended December 31, 1998 (the "Named
Executive Officers").

SUMMARY COMPENSATION TABLE FOR 1998

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION OPTIONS(#) COMPENSATION(1)
- --------------------------- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C>
John R. Bertucci........... $337,440 -- -- -- $12,264
Chief Executive Officer
and President
Ronald C. Weigner.......... 164,257 -- -- 60,000 8,000
Vice President and Chief
Financial Officer
Joseph A. Maher, Jr........ 161,307 -- -- 60,000 8,000
Corporate Vice President
and General Manager,
Measurement and Control
Products
William D. Stewart......... 173,893 -- -- 60,000 8,000
Corporate Vice President
and General Manager,
Vacuum Products
Leo Berlinghieri........... 152,559 -- -- 60,000 3,200
Corporate Vice President,
Customer Support
Operations
</TABLE>

- ---------------
(1) Includes a premium of $4,264 paid on a life insurance policy and estimated
payments of $8,000 paid into a 401(k) plan for Mr. Bertucci, and estimated
payments paid into a 401(k) plan for Messrs. Weigner, Maher, Stewart and
Berlinghieri.

47
<PAGE> 48

STOCK OPTION GRANTS

The following table contains information concerning the grants of options
to purchase MKS's common stock made to each of the Named Executive Officers for
the year ended December 31, 1998. Stock options are generally granted at 100% of
the fair value of MKS's common stock as determined by the Board of Directors on
the date of grant. In reaching the determination of fair value at the time of
each grant, the Board of Directors considers a range of factors, including MKS's
current financial position, its recent revenues, results of operations and cash
flows, its assessment of MKS's competitive position in its markets and prospects
for the future, the status of MKS's product development and marketing efforts,
current valuations for comparable companies and the illiquidity of an investment
in MKS's common stock.

OPTION GRANTS IN 1998

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM(2)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION ------------------------------
NAME GRANTED(1) IN FISCAL YEAR PER SHARE DATE 5% 10%
---- ----------- ---------------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John R. Bertucci............ -- -- -- -- -- --
Ronald C. Weigner........... 60,000 9.47% $6.67 7/9/08 $251,684 $637,816
Joseph A. Maher, Jr. ....... 60,000 9.47 6.67 7/9/08 251,684 637,816
William D. Stewart.......... 60,000 9.47 6.67 7/9/08 251,684 637,816
Leo Berlinghieri............ 60,000 9.47 6.67 7/9/08 251,684 637,816
</TABLE>

- ---------------
(1) These options become exercisable with respect to 20% of the shares granted
on July 9, 1999 and with respect to the remainder of the shares on a
quarterly basis during the following four years.

(2) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date. These numbers are calculated based on rules
promulgated by the Securities and Exchange Commission and do not reflect
MKS's estimate of future stock price growth. Actual gains, if any, on stock
option exercises and common stock are dependent on the timing of such
exercise and the future performance of the common stock.

OPTION EXERCISES AND HOLDINGS

The following table sets forth information concerning option exercises and
option holdings for the fiscal year ended December 31, 1998 with respect to each
of the Named Executive Officers.

AGGREGATED OPTION EXERCISES IN 1998
AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT YEAR-END AT YEAR-END(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John R. Bertucci........................... -- -- -- --
Ronald C. Weigner.......................... 75,961 110,639 $757,331 $ 968,671
Joseph A. Maher, Jr. ...................... 44,310 142,290 441,771 1,284,231
William D. Stewart......................... 75,961 110,639 757,331 968,671
Leo Berlinghieri........................... 75,961 110,639 757,331 968,671
</TABLE>

- ---------------
(1) Values are based on the difference between the fair market value of the
underlying shares at December 31, 1998 ($14.40 per share) and the exercise
price of each option listed (between $4.43 and $6.67 per share).

48
<PAGE> 49

STOCK PLANS

1995 Stock Incentive Plan

MKS's Amended and Restated 1995 Stock Incentive Plan (the "1995 Stock
Plan") provides for the grant of incentive stock options, nonstatutory stock
options, stock appreciation rights, performance shares and awards of restricted
stock and unrestricted stock. An aggregate of 3,750,000 shares of common stock
may be issued pursuant to the 1995 Stock Plan (subject to adjustment for certain
changes in MKS's capitalization). No award may be made under the 1995 Stock Plan
after November 30, 2005.

The 1995 Stock Plan is administered by the Board of Directors and the
Compensation Committee. The Board of Directors has the authority to grant awards
under the 1995 Stock Plan and to accelerate, waive or amend certain provisions
of outstanding awards. The Board of Directors has authorized the Compensation
Committee to administer certain aspects of the 1995 Stock Plan and has
authorized the Chief Executive Officer of MKS to grant awards to non-executive
officer employees. The maximum number of shares represented by such awards may
not exceed 450,000 shares in the aggregate or 30,000 shares to any one employee.

Incentive Stock Options and Nonstatutory Options. Optionees receive the
right to purchase a specified number of shares of common stock at some time in
the future at an option price and subject to such terms and conditions as are
specified at the time of the grant. Incentive stock options and options that the
Board of Directors or Compensation Committee intends to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
may not be granted at an exercise price less than the fair market value of the
common stock on the date of grant (or less than 110% of the fair market value in
the case of incentive stock options granted to optionees holding 10% or more of
the voting stock of MKS). All other options may be granted at an exercise price
that may be less than, equal to or greater than the fair market value of the
common stock on the date of grant.

Stock Appreciation Rights and Performance Shares. A stock appreciation
right is based on the value of common stock and entitles the holder to receive
consideration to the extent that the fair market value on the date of exercise
of the shares of common stock underlying the right exceeds the fair market value
of the underlying shares on the date the right was granted. A performance share
award entitles the recipient to acquire shares of common stock upon the
attainment of specified performance goals.

Restricted and Unrestricted Stock. Restricted stock awards entitle
recipients to acquire shares of common stock, subject to the right of MKS to
repurchase all or part of such shares at their purchase price from the recipient
in the event that the conditions specified in the applicable stock award are not
satisfied prior to the end of the applicable restriction period established for
such award. MKS may also grant (or sell at a purchase price not less than 85% of
the fair market value on the date of such sale) to participants shares of common
stock free of any restrictions under the 1995 Stock Plan.

All of the employees, officers, directors, consultants and advisors of MKS
and its subsidiaries who are expected to contribute to MKS's future growth and
success are eligible to participate in the 1995 Stock Plan.

Section 162(m) of the Internal Revenue Code disallows a tax deduction to
public companies for certain compensation in excess of $1.0 million paid to a
company's chief executive officer or to any of the four other most highly
compensated executive officers. Certain compensation, including "performance-
based compensation," is not included in compensation subject to the $1.0 million
limitation. The 1995 Stock Plan limits to 1,350,000 the maximum number of shares
of common stock with respect to which awards may be granted to any employee in
any calendar year. This limitation is intended to preserve the tax deductions to
MKS that might otherwise be unavailable under Section 162(m) with respect to
certain awards.

Prior to the date of this prospectus, MKS granted options (to vest 20%
after one year and 5% per quarter thereafter) to purchase approximately 350,000
shares of common stock to certain employees of MKS, at an exercise price equal
to the initial public offering price.

<PAGE> 50

1999 Employee Stock Purchase Plan

MKS's 1999 Employee Stock Purchase Plan (the "Purchase Plan") authorizes
the issuance of up to an aggregate of 450,000 shares of common stock to
participating employees. MKS will make one or more offerings to employees to
purchase common stock under the Purchase Plan. Offerings under the Purchase Plan
commence on June 1 and December 1 and terminate, respectively on November 30 and
May 31. During each offering, the maximum number of shares which may be
purchased by a participating employee is determined on the first day of this
offering period under a formula whereby 85% of the market value of a share of
common stock on the first day of this offering period is divided into an amount
equal to 10% of the employee's annualized compensation (or such lower percentage
as may be established by the Compensation Committee) for the immediately
preceding six-month period. An employee may elect to have up to 10% deducted
from his or her regular salary (or such lower percentage as may be established
by the Compensation Committee) for this purpose. The price at which an
employee's option is exercised is the lower of (1) 85% of the closing price of
the common stock on the Nasdaq National Market on the day that this offering
commences or (2) 85% of the closing price on the day that this offering
terminates.

The Purchase Plan is administered by the Board of Directors and the
Compensation Committee. With certain exceptions, all eligible employees,
including directors and officers, regularly employed by MKS for at least six
months on the applicable offering commencement date are eligible to participate
in the Purchase Plan. The Purchase Plan is intended to qualify as an "employee
stock purchase plan" as defined in Section 423 of the Internal Revenue Code.

1997 Director Stock Option Plan

MKS's 1997 Director Stock Option Plan (the "1997 Director Plan") authorizes
the issuance of up to an aggregate of 300,000 shares of common stock. The 1997
Director Plan is administered by MKS's Board of Directors. Options are granted
under the 1997 Director Plan only to directors of MKS who are not employees of
MKS. Under the 1997 Director Plan, prior to the date of this prospectus each
existing eligible director will receive an option to purchase 10,500 shares of
common stock at an exercise price equal to the initial public offering price and
future non-employee directors will receive an option to purchase 11,250 shares
of common stock upon their initial election to the Board of Directors. Each
initial option will vest over a three-year period in 12 equal quarterly
installments following the date of grant. On the date of each annual meeting of
the stockholders, options will be automatically granted to each eligible
director who has been in office for at least six months prior to the date of the
annual meeting of the stockholders. Each annual option will entitle the holder
to purchase 6,000 shares of common stock. Each annual option will become
exercisable on the day prior to the first annual meeting of stockholders
following the date of grant, or if no such meeting is held within 13 months
after the date of grant, on the 13-month anniversary of the date of grant. The
exercise price of all options granted under the 1997 Director Plan is equal to
the fair market value of the common stock on the date of grant. Options granted
under the 1997 Director Plan terminate upon the earlier of three months after
the optionee ceases to be a director of MKS or ten years after the grant date.
In the event of a change in control of MKS, the vesting of all options then
outstanding would be accelerated in full and any restrictions on exercising
outstanding options would terminate.

The Company's 1996 Director Stock Option Plan, under which options have
been granted to, and may still be exercised by, four non-employee directors of
MKS, has been terminated. See "-- Director Compensation."

50
<PAGE> 51

Employment Agreements

MKS entered into an employment agreement with each of Messrs. Stewart,
Maher, Berlinghieri and Weigner.

Each agreement sets a base salary for each employee which is reviewed
annually. In addition to a base salary, each employee is entitled, under MKS's
Management Incentive Program, to a bonus equal to a percentage of his base
salary if MKS attains specified financial goals during the year. Each employee
is also entitled to standard benefits including:

- participation in a profit sharing and retirement savings plan

- vacation days

- life insurance

- medical/dental insurance

The remaining provisions of each agreement are also substantially the same.

The term of employment for each is from month to month with termination:

- upon the death of the employee

- at the election of MKS if the employee fails or refuses to perform

- at the election of MKS if the employee commits any acts not in MKS's best
interest

Payment by MKS upon termination depends on how employment is terminated:

- if employment is terminated after the expiration of a 30 day notice
period, MKS has no further obligation for compensation

- if employment is terminated by death, MKS must pay the employee's estate
the compensation owed to him at the end of the month of his death

- if employment is terminated at the election of MKS, MKS must pay the
employee through the last day of actual employment

Each of the agreements contains non-competition provisions during the term
of employment and for the period one year after termination of employment. Under
these provisions, Messrs. Stewart, Maher, Berlinghieri and Weigner may not:

- engage in any competitive business or activity

- for the 12 months subsequent to termination, work for, employ, become a
partner with, or cause to be employed any employee, officer or agent of
MKS

- for the 12 months subsequent to termination, give, sell or lease any
competitive services or goods to any customer of MKS

- have any financial interest in or be a director, officer, stockholder,
partner, employee or consultant to any competitor of MKS

51
<PAGE> 52

CERTAIN TRANSACTIONS

Mr. Chute, a director of MKS, MKS's clerk, and a co-trustee of certain
Bertucci family trusts (see "Principal and Selling Stockholders") and Mr. Thomas
H. Belknap, a co-trustee of certain Bertucci family trusts, are attorneys at the
law firm of Hill & Barlow, a professional corporation. Hill & Barlow has
provided legal services to MKS during the calendar year ended December 31, 1998
for which it was compensated by MKS in the aggregate amount of $183,000.

Mr. Stewart, Corporate Vice President and General Manager of Vacuum
Products, is the general partner of Aspen Industrial Park Partnership. On
October 12, 1989, MKS entered into a lease with Aspen, which has been
periodically extended, for certain facilities occupied by MKS's Vacuum Products
group in Boulder, Colorado. MKS currently pays Aspen approximately $350,000
annually to lease such facilities.

MKS has been treated as an S corporation for federal income tax purposes
since July 1, 1987. As a result, MKS currently pays no federal, and certain
state, income tax and all of the earnings of MKS are subject to federal, and
certain state, income taxation directly at the stockholder level. MKS's S
corporation status will terminate upon the closing of this offering, at which
time MKS will become subject to corporate income taxation under Subchapter C of
the Internal Revenue Code. In 1997 and 1998, MKS distributed $12.4 million and
$6.2 million, respectively, of undistributed S corporation earnings to its
stockholders. As soon as practicable following the closing of this offering, MKS
intends to make a distribution to the stockholders of record on the day prior to
the date of this prospectus in the amount of $40.0 million, which is the
estimated balance of the accumulated adjustments account as of the day prior to
the closing of this offering, subject to adjustment. See "S Corporation and
Termination of S Corporation Status."

MKS believes that the transactions listed above were made on terms no less
favorable to the Company than could have been obtained from unaffiliated third
parties. Commencing on the effective date of this offering, all future
transactions between MKS and its officers, directors or other affiliates must
(1) be approved by a majority of the members of the Board of Directors and a
majority of the disinterested members of the Board; and (2) be on terms no less
favorable to MKS than could be obtained from unaffiliated third parties.

<PAGE> 53

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of MKS's common stock as of December 31, 1998, and as adjusted to
reflect the sale of shares offered hereby, by (1) each of the directors of MKS,
(2) each of the Named Executive Officers, (3) each person known to MKS to own
beneficially more than 5% of MKS's common stock and (4) all directors and
executive officers as a group.

Unless otherwise indicated, each person named in the table has sole voting
power and investment power or shares such power with his or her spouse with
respect to all shares of capital stock listed as owned by such person.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The number of shares of common stock outstanding used
in calculating the percentage for each listed person includes any shares the
individual has the right to acquire within 60 days of December 31, 1998.

All of the shares being offered by the selling stockholders are owned by
trusts for the benefit of Mr. Bertucci and members of his family.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED NUMBER BENEFICIALLY OWNED
PRIOR TO OFFERING OF AFTER OFFERING
--------------------- SHARES ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------ ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
John R. Bertucci............................ 17,261,915(1) 95.6% 500,000 16,761,915 69.7%
Ronald C. Weigner........................... 82,291(2) * -- 82,291 *
John J. Sullivan............................ 614,010(3) 3.4 -- 614,010 2.6
Joseph A. Maher, Jr......................... 44,310(2) * -- 44,310 *
William D. Stewart.......................... 82,291(2) * -- 82,291 *
Leo Berlinghieri............................ 82,291(2) * -- 82,291 *
Richard S. Chute............................ 2,766,852(4) 15.3 300,000 2,466,852 10.3
Owen W. Robbins............................. 8,027(2) * -- 8,027 *
Robert J. Therrien.......................... 8,027(2) * -- 8,027 *
Louis P. Valente............................ 8,027(2) * -- 8,027 *
Thomas H. Belknap........................... 2,331,902(5) 12.9 200,000 2,131,902 8.9
All executive officers and directors as a
group..................................... 18,199,216 99.0% 500,000 17,699,216 72.6%
</TABLE>

- ---------------
* Less than 1% of outstanding common stock.

(1) Includes 6,046,208 shares held directly by Mr. Bertucci, 6,124,980 shares
held directly by Mr. Bertucci's wife, and 5,090,727 shares held by Bertucci
family trusts for which either Mr. or Mrs. Bertucci serves as a co-trustee.

(2) Comprised solely of options exercisable within 60 days of December 31, 1998.

(3) Includes 316,500 shares held in a grantor retained annuity trust.

(4) Includes 2,758,825 shares held by certain of the Bertucci family trusts for
which Mr. Chute serves as a co-trustee and 8,027 shares subject to options
held by Mr. Chute exercisable within 60 days of December 31, 1998.

(5) Represents shares held by certain of the Bertucci family trusts for which
Mr. Belknap serves as a
co-trustee.

53
<PAGE> 54

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of MKS will consist of 50,000,000 shares of
common stock, no par value per share, and 2,000,000 shares of preferred stock,
$.01 par value per share, after giving effect to the amendment and restatement
of MKS's Restated Articles of Organization which will be filed with the
Secretary of State of The Commonwealth of Massachusetts prior to the closing of
this offering.

COMMON STOCK

As of December 31, 1998, there were 18,053,167 shares of common stock
outstanding and held of record by twenty-three stockholders.

Upon the closing of this offering, all holders of common stock shall be
entitled to one vote for each share held on all matters submitted to a vote of
stockholders and will not have cumulative voting rights. Accordingly, holders of
a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of any outstanding preferred stock.
Upon the liquidation, dissolution or winding up of MKS, the holders of common
stock are entitled to receive ratably the net assets of MKS available after the
payment of all debts and other liabilities, subject to the prior rights of any
outstanding preferred stock. Holders of the common stock have no preemptive,
subscription, redemption or conversion rights. The outstanding shares of common
stock are, and the shares offered by MKS in this offering made by this
prospectus will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of common stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of preferred stock that MKS may designate and issue in the future. There
are no shares of preferred stock outstanding.

PREFERRED STOCK

The Articles of Organization authorize the Board of Directors, subject to
certain limitations prescribed by law, without further stockholder approval,
from time to time to issue up to an aggregate of 2,000,000 shares of preferred
stock in one or more series and to fix or alter the designations, preferences
and rights, and any qualifications, limitations or restrictions thereof, of the
shares of each such series, including the number of shares constituting any such
series and the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences thereof. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of MKS. MKS has no present plans to issue any shares of preferred stock.

MASSACHUSETTS LAW AND CERTAIN PROVISIONS OF MKS'S RESTATED ARTICLES OF
ORGANIZATION AND BY-LAWS

MKS intends to amend and restate its By-Laws prior to the closing of this
offering. The By-Laws will include a provision excluding MKS from the
applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions." In general, this statute provides that any
stockholder of a corporation subject to this statute who acquires 20% or more of
the outstanding voting stock of a corporation may not vote such stock unless the
stockholders of the corporation so authorize. The Board of Directors will be
able to amend the By-Laws at any time to subject MKS to this statute
prospectively.

Massachusetts General Laws Chapter 156B, Section 50A generally requires
that publicly-held Massachusetts corporations have a classified board of
directors consisting of three classes as nearly equal in size as possible,
unless the corporation elects to opt out of the statute's coverage. The By-Laws
will contain provisions which give effect to Section 50A.

The By-Laws will require that nominations for the Board of Directors made
by a stockholder of a planned nomination must be given not less than 30 and not
more than 90 days prior to a scheduled meeting, provided that if less than 40
days' notice is given of the date of the meeting, a stockholder will

54
<PAGE> 55

have ten days within which to give such notice. The stockholder's notice of
nomination must include particular information about the stockholder, the
nominee and any beneficial owner on whose behalf the nomination is made. MKS may
require any proposed nominee to provide such additional information as is
reasonably required to determine the eligibility of the proposed nominee.

The By-Laws will also require that a stockholder seeking to have any
business conducted at a meeting of stockholders give notice to MKS not less than
60 and not more than 90 days prior to the scheduled meeting, provided in certain
circumstances that a ten-day notice rule applies. The notice from the
stockholder will be required to describe the proposed business to be brought
before the meeting and include information about the stockholder making the
proposal, any beneficial owner on whose behalf the proposal is made, and any
other stockholder known to be supporting the proposal. The By-Laws will require
MKS to call a special stockholders meeting at the request of stockholders
holding at least 40% of the voting power of MKS.

The Articles of Organization will provide that the directors and officers
of MKS shall be indemnified by MKS to the fullest extent authorized by
Massachusetts law, as it now exists or may in the future be amended, against all
expenses and liabilities reasonably incurred in connection with service for or
on behalf of MKS. In addition, the Articles of Organization will provide that
the directors of MKS will not be personally liable for monetary damages to MKS
for breaches of their fiduciary duty as directors, unless they violated their
duty of loyalty to MKS or its stockholders, acted in bad faith, knowingly or
intentionally violated the law, which could include securities laws, authorized
illegal dividends or redemptions or derived an improper personal benefit from
their action as directors.

The Articles of Organization will provide that any amendment to the
Articles of Organization, the sale, lease or exchange of all or substantially
all of MKS's property and assets, or the merger or consolidation of MKS into or
with any corporation may be authorized by the approval of the holders of a
majority of the shares of each class of stock entitled to vote thereon, rather
than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the Board of
Directors and the requirements of any other applicable provisions of the
Articles of Organization have been met.

The Articles of Organization will contain a provision excluding MKS from
the applicability of Massachusetts General Laws Chapter 110F, entitled "Business
Combinations with Interested Shareholders." In general, Chapter 110F places
limitations on a Massachusetts corporation's ability to engage in business
combinations with certain stockholders for a period of three years, unless the
corporation elects to opt out of the statute's coverage by including such a
provision in its Articles of Organization.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the common stock is BankBoston, N.A.

55
<PAGE> 56

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for the securities
of MKS. Upon completion of this offering, based upon the number of shares
outstanding at December 31, 1998, there will be shares of common stock of
MKS outstanding assuming the underwriters do not exercise their over-allotment
option, and no options are exercised. Of these shares, the 6,500,000 shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, except that any shares purchased by
"affiliates" of MKS, as that term is defined in Rule 144 under the Securities
Act, may generally only be sold in compliance with the limitations of Rule 144
described below.

SALES OF RESTRICTED SHARES

The outstanding shares of common stock not sold in this offering will be
deemed "restricted securities" under Rule 144 under the Securities Act. Of these
shares, 17,553,165 are subject to 180-day lock-up agreements with the
representatives. Upon expiration of the lock-up agreements 180 days after the
date of this prospectus, all such shares will be available for sale in the
public market, subject to the provisions of Rule 144.

Stockholders who are parties to the lock-up agreement have agreed that for
a period of 180 days after the date of this prospectus, they will not sell,
offer, contract or grant any option to sell, pledge, transfer, establish an open
put equivalent position or otherwise dispose of any shares of common stock, any
options to purchase shares of common stock or any shares convertible into or
exchangeable for shares of common stock, owned directly by such persons or with
respect to which they have the power of disposition, without the prior written
consent of NationsBanc Montgomery Securities LLC.

In general, under Rule 144, beginning 90 days after the effective date of
this prospectus, a stockholder who has beneficially owned his or her restricted
securities for at least one year will be entitled to sell, within any
three-month period, a limited number of such shares. The number of shares may
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume in the common stock during the four preceding
calendar weeks. In addition, under Rule 144(k), if a period of at least two
years has elapsed since the date restricted securities were acquired from MKS, a
stockholder who is not an affiliate of MKS at the time of sale and has not been
an affiliate of MKS for at least three months prior to the sale will be entitled
to sell the shares immediately without restriction.

Securities issued in reliance on Rule 701, such as shares of common stock
acquired upon exercise of certain options granted under MKS's stock plans, are
also restricted and, beginning 90 days after the effective date of this
prospectus, may be sold by stockholders other than affiliates of MKS subject
only to the manner of sale provisions of Rule 144 and by affiliates under Rule
144 without compliance with its one-year holding period requirement.

OPTIONS

As of December 31, 1998 there were options outstanding to purchase an
aggregate of 2,132,575 shares of MKS's common stock, of which options to
purchase an aggregate of 804,701 shares were exercisable. Of these, 802,009
shares were subject to lock-up agreements. The option to purchase the remaining
2,692 shares has since expired. MKS intends to file registration statements on
Form S-8 under the Securities Act to register all shares of common stock
issuable under each of the 1995 Stock Plan, Purchase Plan, the 1997 Director
Plan and the 1996 Director Stock Option Plan promptly following the consummation
of this offering. Shares issued pursuant to such plans shall be, after the
effective date of the Form S-8 registration statements, eligible for resale in
the public market without restriction, subject to Rule 144 limitations
applicable to affiliates and the lock-up agreements noted above, if applicable.

56
<PAGE> 57

UNDERWRITING

MKS is offering the shares of common stock described in this prospectus
through a number of underwriters. NationsBanc Montgomery Securities LLC,
Donaldson, Lufkin & Jenrette Securities Corporation and Lehman Brothers Inc. are
the representatives of the underwriters. MKS and the selling stockholders have
entered into an underwriting agreement with the representatives. Subject to the
terms and conditions of the underwriting agreement, MKS and the selling
stockholders have agreed to sell to the underwriters, and the underwriters have
each agreed to purchase, the number of shares of common stock listed next to its
name in the following table.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities LLC....................... 2,350,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 1,175,000
Lehman Brothers Inc. ....................................... 1,175,000
BancBoston Robertson Stephens Inc........................... 216,000
CIBC Oppenheimer Corp. ..................................... 216,000
Credit Suisse First Boston Corporation...................... 216,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 216,000
Morgan Stanley & Co. Incorporated........................... 216,000
Adams, Harkness & Hill, Inc. ............................... 90,000
Advest, Inc. ............................................... 90,000
Chase Securities Inc. ...................................... 90,000
Cruttenden Roth Incorporated................................ 90,000
John G. Kinnard & Company, Incorporated..................... 90,000
Needham & Company, Inc. .................................... 90,000
Soundview Technology Group, Inc............................. 90,000
H.C. Wainwright & Co., Inc. ................................ 90,000
---------
Total............................................. 6,500,000
=========
</TABLE>

The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $0.55 per share. The underwriters
also may allow, and any other dealers may reallow, a concession of not more than
$0.10 per share to some other dealers. If all the shares are not sold at the
initial public offering price, the underwriters may change the offering price
and the other selling terms. The common stock is offered subject to a number of
conditions, including:

- receipt and acceptance of our common stock by the underwriters

- the right to reject orders in whole or in part

MKS has granted an option to the underwriters to buy up to 975,000
additional shares of common stock. These additional shares would cover sales of
shares by the underwriters which exceed the number of shares specified in the
table above. The underwriters have 30 days to exercise this option. If the
underwriters exercise this option, they will each purchase additional shares
approximately in proportion to the amounts specified in the table above.

MKS and all holders of its stock prior to this offering, as well as most
holders of stock options, have entered into lock-up agreements with the
underwriters. Under those agreements, MKS and those holders of stock and options
may not dispose of or hedge any MKS common stock or securities convertible into
or exchangeable for shares of MKS common stock. These restrictions will be in
effect for a period of 180 days after the date of this prospectus. At any time
and without notice, NationsBanc Montgomery Securities LLC may, in its sole
discretion, release all or some of the securities from these lock-up agreements.

57
<PAGE> 58

MKS and the selling stockholders will indemnify the underwriters against
some liabilities, including some liabilities under the Securities Act. If MKS is
unable to provide this indemnification, MKS and the selling stockholders will
contribute to payments the underwriters may be required to make in respect of
those liabilities.

In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include:

- short sales

- stabilizing transactions

- purchases to cover positions created by short sales

Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.

The underwriters also may impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.

The underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of the common stock, including:

- over-allotment

- stabilization

- syndicate covering transactions

- imposition of penalty bids

As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by this prospectus.

Prior to this offering, there has been no public market for the common
stock of MKS. The initial public offering price will be negotiated among MKS,
the selling stockholders and the underwriters. Among the factors to be
considered in such negotiations are:

- the history of, and prospects for, MKS and the industry in which it
competes

- the past and present financial performance of MKS

- an assessment of MKS's management

- the present state of MKS's development

- the prospects for future earnings of MKS

- the prevailing market conditions of the applicable U.S. securities market
at the time of this offering

- market valuations of publicly traded companies that MKS and the
representatives believe to be comparable to MKS

- other factors deemed relevant

<PAGE> 59

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for MKS
by Hale and Dorr LLP, Boston, Massachusetts. Certain legal matters in connection
with this offering will be passed upon for the underwriters by Ropes & Gray,
Boston, Massachusetts.

EXPERTS

The consolidated balance sheets of MKS Instruments, Inc. at December 31,
1997 and 1998 and the consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31, 1998
included in this prospectus have been included herein in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given upon the authority
of that firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

MKS has filed with the Securities and Exchange Commission, a registration
statement on Form S-1 under the Securities Act with respect to the common stock
offered hereby. This prospectus, which constitutes part of the registration
statement, does not contain all of the information set forth in the registration
statement, certain parts of which are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further information
with respect to MKS and the common stock offered hereby, reference is made to
the registration statement. Statements contained in this prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference. The registration statement (and all amendments, exhibits and
schedules thereto) may be inspected without charge at the principal office of
the Securities and Exchange Commission in Washington, D.C. and copies of all or
any part of which may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at 450 Fifth Street, N.W.,
Judiciary Plaza, Room 1024, Washington, D.C. 20549, and at the Securities and
Exchange Commission's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can also
be obtained at prescribed rates by mail from the Public Reference Section of the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, the Securities and Exchange Commission maintains a website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission.

MKS intends to distribute to its stockholders annual reports containing
audited consolidated financial statements.

<PAGE> 60

[This Page Intentionally Left Blank]
<PAGE> 61

MKS INSTRUMENTS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets at December 31, 1997 and
1998...................................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1997, and 1998......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997, and 1998............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997, and 1998......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 62

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
MKS Instruments, Inc.:

In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of MKS Instruments,
Inc. and its subsidiaries at December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, 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.

PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts
January 22, 1999, except for the
information in the first and second
paragraph of Note 13 as to which the date
is January 28, 1999 and February 24, 1999,
respectively

F-2
<PAGE> 63

MKS INSTRUMENTS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, 1998
DECEMBER 31, ----------------------
1997 ACTUAL PRO FORMA
------------ ------- -----------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 2,511 $11,188 $11,188
Marketable equity securities......................... 614 538 538
Trade accounts receivable, net of allowance for
doubtful accounts of $610 and $656 at December 31,
1997 and 1998, respectively........................ 32,439 20,674 20,674
Inventories.......................................... 29,963 24,464 24,464
Deferred tax asset................................... 682 698 698
Other current assets................................. 1,670 971 971
-------- ------- -------
Total current assets............................ 67,879 58,533 58,533
Property, plant and equipment, net................... 33,976 32,725 32,725
Other assets......................................... 4,681 4,974 4,974
-------- ------- -------
Total assets.................................... $106,536 $96,232 $96,232
======== ======= =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings................................ $ 10,721 $ 9,687 $ 9,687
Current portion of long-term debt.................... 2,070 2,058 2,058
Current portion of capital lease obligations......... 1,061 1,074 1,074
Accounts payable..................................... 7,433 3,677 3,677
Accrued compensation................................. 7,501 3,985 3,985
Other accrued expenses............................... 6,883 5,280 5,280
Income taxes payable................................. 1,889 1,279 1,279
Distribution payable................................. -- -- 35,926
-------- ------- -------
Total current liabilities....................... 37,558 27,040 62,966
Long-term debt............................................ 13,748 12,042 12,042
Long-term portion of capital lease obligations............ 1,876 1,744 1,744
Deferred tax liability.................................... 133 117 117
Other liabilities......................................... 373 463 463
Commitments and contingencies (Note 7)
Stockholders' equity:
Common Stock, Class A, no par value; 11,250,000
shares authorized, 7,766,910 issued and
outstanding........................................ 40 40 40
Common Stock, Class B (non voting) no par value;
18,750,000 shares authorized; 10,286,255 and
10,286,257 shares issued and outstanding at
December 31, 1997 and 1998, respectively........... 73 73 73
Additional paid-in capital........................... 48 48 48
Retained earnings.................................... 51,443 52,479 16,553
Accumulated other comprehensive income............... 1,244 2,186 2,186
-------- ------- -------
Total stockholders' equity...................... 52,848 54,826 18,900
-------- ------- -------
Total liabilities and stockholders' equity...... $106,536 $96,232 $96,232
======== ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 64

MKS INSTRUMENTS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $170,862 $188,080 $139,763
Cost of sales............................................... 102,008 107,606 83,784
-------- -------- --------
Gross profit................................................ 68,854 80,474 55,979
Research and development.................................... 14,195 14,673 12,137
Selling, general and administrative......................... 37,191 41,838 34,707
Restructuring............................................... 1,400 -- --
-------- -------- --------
Income from operations...................................... 16,068 23,963 9,135
Interest expense............................................ 2,378 2,132 1,483
Interest income............................................. 92 271 296
Other income (expense), net................................. (479) 166 187
-------- -------- --------
Income before income taxes.................................. 13,303 22,268 8,135
Provision for income taxes.................................. 800 1,978 949
-------- -------- --------
Net income.................................................. $ 12,503 $ 20,290 $ 7,186
======== ======== ========

Historical net income per share:
Basic.................................................. $ 0.69 $ 1.12 $ 0.40
======== ======== ========
Diluted................................................ $ 0.69 $ 1.10 $ 0.38
======== ======== ========
Historical weighted average common shares outstanding:
Basic.................................................. 18,053 18,053 18,053
======== ======== ========
Diluted................................................ 18,053 18,388 18,720
======== ======== ========
Pro forma data (unaudited):
Historical income before income taxes.................. $ 13,303 $ 22,268 $ 8,135
Pro forma provision for income taxes assuming C
corporation tax...................................... 5,055 8,462 3,091
-------- -------- --------
Pro forma net income................................... $ 8,248 $ 13,806 $ 5,044
======== ======== ========
Pro forma net income per share:
Basic.................................................. $ 0.46 $ 0.76 $ 0.24
======== ======== ========
Diluted................................................ $ 0.46 $ 0.76 $ 0.24
======== ======== ========
Pro forma weighted average common shares outstanding:
Basic.................................................. 18,053 18,053 20,616
======== ======== ========
Diluted................................................ 18,053 18,262 21,101
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-4

<PAGE> 65

MKS INSTRUMENTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------
CLASS A CLASS B ADDITIONAL
------------------ ------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
--------- ------ ---------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995....................... 7,766,910 $40 10,286,255 $73 $48 $45,550
Distributions to stockholders...................... (14,500)
Comprehensive income:
Net income..................................... 12,503
Other comprehensive income:
Foreign currency translation adjustment........
Unrealized loss on investments.................
Comprehensive income...........................
--------- --- ---------- --- --- -------
Balance at December 31, 1996....................... 7,766,910 40 10,286,255 73 48 43,553
Distributions to stockholders...................... (12,400)
Comprehensive income:
Net income..................................... 20,290
Other comprehensive income:
Foreign currency translation adjustment........
Unrealized gain on investments.................
Comprehensive income...........................
--------- --- ---------- --- --- -------
Balance at December 31, 1997....................... 7,766,910 40 10,286,255 73 48 51,443
Distributions to stockholders...................... (6,150)
Issuance of common stock........................... 2
Comprehensive income:
Net income..................................... 7,186
Other comprehensive income:
Foreign currency translation adjustment........
Unrealized loss on investments.................
Comprehensive income...........................
--------- --- ---------- --- --- -------
Balance at December 31, 1998....................... 7,766,910 $40 10,286,257 $73 $48 $52,479
========= === ========== === === =======

ACCUMULATED
OTHER TOTAL
COMPREHENSIVE COMPREHENSIVE STOCKHOLDERS'
INCOME INCOME EQUITY
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995....................... $2,681 $ 48,392
Distributions to stockholders...................... (14,500)
Comprehensive income:
Net income..................................... $12,503 12,503
Other comprehensive income:
Foreign currency translation adjustment........ (766) (766) (766)
Unrealized loss on investments................. (131) (131) (131)
-------
Comprehensive income........................... $11,606
------ ======= --------
Balance at December 31, 1996....................... 1,784 45,498
Distributions to stockholders...................... (12,400)
Comprehensive income:
Net income..................................... 20,290 20,290
Other comprehensive income:
Foreign currency translation adjustment........ (786) (786) (786)
Unrealized gain on investments................. 246 246 246
-------
Comprehensive income........................... $19,750
------ ======= --------
Balance at December 31, 1997....................... 1,244 52,848
Distributions to stockholders...................... (6,150)
Issuance of common stock...........................
Comprehensive income:
Net income..................................... 7,186 7,186
Other comprehensive income:
Foreign currency translation adjustment........ 992 992 992
Unrealized loss on investments................. (50) (50) (50)
-------
Comprehensive income........................... $ 8,128
------ ======= --------
Balance at December 31, 1998....................... $2,186 $ 54,826
====== ========
</TABLE>

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

F-5
<PAGE> 66

MKS INSTRUMENTS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 12,503 $ 20,290 $ 7,186
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property, plant, and
equipment......................................... 5,920 5,712 6,242
Loss on disposal of property, plant and equipment.... -- 552 48
Deferred taxes....................................... (277) (145) (32)
Provision for doubtful accounts...................... (20) 258 253
Forward exchange contract loss (gain) realized....... 302 132 (1,211)
Stock option compensation............................ -- 95 --
Changes in operating assets and liabilities:
(Increase) decrease in trade accounts
receivable...................................... 6,119 (12,509) 12,908
(Increase) decrease in inventories................ 4,145 (5,930) 6,479
(Increase) decrease in other current assets....... 3,239 (1,261) 554
Increase (decrease) in accrued compensation....... (220) 2,386 (3,516)
Increase (decrease) in other accrued expenses..... (1,520) 3,312 (1,602)
Increase (decrease) in accounts payable........... (4,221) 2,638 (3,682)
Increase (decrease) in income taxes payable....... 331 1,283 (647)
-------- -------- --------
Net cash provided by operating activities.............. 26,301 16,813 22,980
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment........... (9,417) (3,269) (3,137)
Proceeds from sale of property, plant and
equipment......................................... -- 203 60
Increase in other assets............................. (443) (123) (270)
Cash received (used) to settle forward exchange
contracts......................................... (302) (132) 1,211
-------- -------- --------
Net cash used in investing activities.................. (10,162) (3,321) (2,136)
-------- -------- --------
Cash flows from financing activities:
Net (payments) borrowings on demand notes payable.... 224 (1,875) --
Proceeds from short-term borrowings.................. 11,025 24,110 15,242
Payments on short-term borrowings.................... (9,628) (22,938) (17,569)
Proceeds from long-term debt......................... 400 -- --
Principal payments on long-term debt................. (2,093) (2,217) (2,057)
Cash distributions to stockholders................... (14,500) (12,400) (6,150)
Principal payments under capital lease obligations... (982) (870) (1,257)
-------- -------- --------
Net cash used in financing activities.................. (15,554) (16,190) (11,791)
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents.......................................... (420) 1,394 (376)
-------- -------- --------
Increase (decrease) in cash and cash equivalents....... 165 (1,304) 8,677
Cash and cash equivalents at beginning of period....... 3,650 3,815 2,511
-------- -------- --------
Cash and cash equivalents at end of period............. $ 3,815 $ 2,511 $ 11,188
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.......................................... $ 2,363 $ 2,030 $ 1,526
======== ======== ========
Income taxes...................................... $ 770 $ 1,078 $ 1,608
======== ======== ========
Noncash transactions during the period:
Equipment acquired under capital leases........... $ 2,074 $ 145 $ 1,138
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 67

MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

1. DESCRIPTION OF BUSINESS:

MKS Instruments, Inc. (the "Company") is a worldwide developer,
manufacturer, and supplier of instruments and components that are used to
measure, control and analyze gases in semiconductor manufacturing and similar
industrial manufacturing processes. The Company's products include pressure and
flow measurement and control instruments; vacuum gauges, valves and components;
and gas analysis instruments. The Company is subject to risks common to
companies in the semiconductor industry including, but not limited to, the
highly cyclical nature of the semiconductor industry leading to recurring
periods of over supply, development by the Company or its competitors of new
technological innovations, dependence on key personnel and the protection of
proprietary technology.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company has reflected the
approximately 77.5% owned foreign subsidiaries as wholly-owned subsidiaries
pursuant to common control accounting. Upon the closing of this offering for
which these financial statements are being prepared, the shares of the foreign
subsidiaries owned directly by the ultimate stockholders will be contributed to
the Company.

PRO FORMA BALANCE SHEET PRESENTATION (UNAUDITED)

The Company intends to distribute the balance of its accumulated and
undistributed S corporation earnings from the proceeds of this offering for
which this registration statement is being prepared. The unaudited pro forma
balance sheet has been prepared assuming an estimated $35,926,000 distribution
was payable as of December 31, 1998. The remaining balance in retained earnings
represents accumulated earnings prior to the Company converting from a C
corporation to an S corporation in 1987, accumulated income in overseas
subsidiaries and differences between book and tax accumulated income.

HISTORICAL AND PRO FORMA (UNAUDITED) NET INCOME PER SHARE

The Company computes basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings
per Share." SFAS 128 requires both basic earnings per share, which is based on
the weighted average number of common shares outstanding, and diluted earnings
per share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares outstanding. The
dilutive effect of options is determined under the treasury stock method using
the average market price for the period. Common equivalent shares are included
in the per share calculations where the effect of their inclusion would be
dilutive.

Historical net income per share is not meaningful based upon the Company's
planned conversion from an S corporation to a C corporation upon the closing of
this offering for which these financial statements have been prepared.
Historical net income has been adjusted for the pro forma provision for income
taxes calculated assuming the Company was subject to income taxation as a C
corporation, at a pro forma tax rate of 38.0%. In accordance with a regulation
of the Securities and Exchange Commission, pro forma net income per share has
been presented for the year ended December 31, 1998 to reflect the effect of the
assumed issuance of 2,562,596 shares of common stock of the Company necessary to
be sold at the initial public offering price in order to fund the intended
distribution of the accumulated and undistributed S corporation earnings as of
January 1, 1998.

F-7

<PAGE> 68
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

The following is a reconciliation of basic to diluted pro forma and
historical net income per share:

<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1996 1997 1998
---------------------- ---------------------- ----------------------
PRO FORMA HISTORICAL PRO FORMA HISTORICAL PRO FORMA HISTORICAL
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income............................ $ 8,248 $12,503 $13,806 $20,290 $ 5,044 $ 7,186
Shares used in net income per common
share -- basic...................... 18,053 18,053 18,053 18,053 20,616 18,053
Effect of dilutive securities:
Employee and director stock
options........................ -- -- 209 335 485 667
------- ------- ------- ------- ------- -------
Shares used in net income per common
share -- diluted.................... 18,053 18,053 18,262 18,388 21,101 18,720
======= ======= ======= ======= ======= =======
Net income per common share --
basic............................... $ 0.46 $ 0.69 $ 0.76 $ 1.12 $ 0.24 $ 0.40
======= ======= ======= ======= ======= =======
Net income per common share --
diluted............................. $ 0.46 $ 0.69 $ 0.76 $ 1.10 $ 0.24 $ 0.38
======= ======= ======= ======= ======= =======
</TABLE>

FOREIGN EXCHANGE

The functional currency of the Company's foreign subsidiaries is the
applicable local currency. For those subsidiaries, assets and liabilities are
translated to U.S. dollars at year-end exchange rates. Income and expense
accounts are translated at the average exchange rates prevailing for the year.
The resulting translation adjustments are included in accumulated other
comprehensive income in consolidated stockholders' equity.

REVENUE RECOGNITION

The Company recognizes revenue upon shipment. The Company accrues for
anticipated returns and warranty costs upon shipment.

CASH AND CASH EQUIVALENTS

All highly liquid investments with an original maturity of three months or
less at the date of purchase are considered to be cash equivalents. Cash
equivalents consist of money market instruments.

INVESTMENTS

The appropriate classification of investments in debt and equity securities
is determined at the time of purchase. Debt securities that the Company has both
the intent and ability to hold to maturity are carried at amortized cost. Debt
securities that the Company does not have the intent and ability to hold to
maturity or equity securities are classified either as "available-for-sale" or
as "trading" and are carried at fair value. Marketable equity securities are
carried at fair value and classified either as available-for-sale or trading.
Unrealized gains and losses on securities classified as available-for-sale are
included in accumulated other comprehensive income in consolidated stockholders'
equity. Unrealized gains and losses on securities classified as trading are
reported in earnings.

INVENTORIES

Inventories are stated at the lower of cost or market. Cost is determined
on the first-in, first-out method.

F-8

<PAGE> 69
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Equipment acquired under
capital leases is recorded at the present value of the minimum lease payments
required during the lease period. Expenditures for major renewals and
betterments that extend the useful lives of property, plant and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and any resulting gain
or loss is recognized in earnings.

Depreciation is provided on the straight-line method over the estimated
useful lives of 20 years for buildings and three to five years for machinery and
equipment. Leasehold improvements are amortized over the shorter of the lease
term or the estimated useful life of the lease.

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Software
Developed or Obtained for Internal Use" which provides guidance on the
accounting for the costs of software developed or obtained for internal use. SOP
98-1 is effective for fiscal years beginning after December 15, 1998. The
Company does not expect the SOP 98-1 to have a material impact on its financial
position or results of operations.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. The statement
is effective for all fiscal quarters of all fiscal years beginning after June
15, 1999. The Company has not yet determined the impact that the adoption SFAS
No. 133 will have on its financial position or results of operations.

USE OF ESTIMATES

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

RECLASSIFICATION OF PRIOR YEAR BALANCES

Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the current presentation.

F-9
<PAGE> 70
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

3. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

FOREIGN EXCHANGE RISK MANAGEMENT

The Company uses forward exchange contracts and local currency purchased
options in an effort to reduce its exposure to currency fluctuations on future
U.S. dollar cash flows derived from foreign currency denominated sales
associated with the intercompany purchases of inventory. The Company has entered
into forward exchange contracts and local currency purchased options to hedge a
portion of its probable anticipated, but not firmly committed transactions. The
anticipated transactions whose risks are being hedged are the intercompany
purchases of inventory by the foreign subsidiaries from the U.S. parent for
resale in their local currency. The time period of the anticipated transactions
that are hedged generally approximate one year. The Company has also used
forward exchange contracts to hedge firm commitments. Market value gains and
losses on forward exchange contracts are recognized immediately in earnings
unless a firm commitment exists. Market value gains and premiums on local
currency purchased options on probable anticipated transactions and market value
gains and losses on forward exchange contracts hedging firm commitments are
recognized when the hedged transaction occurs. These contracts, which relate
primarily to Japanese and European currencies generally have terms of twelve
months or less. The Company does not hold or issue derivative financial
instruments for trading purposes.

Realized and unrealized gains and losses on forward exchange contracts and
local currency purchased options that qualify for hedge accounting are
recognized in earnings in the same period as the underlying hedged item.
Realized and unrealized gains and losses on forward exchange contracts and local
currency purchased option contracts that do not qualify for hedge accounting are
recognized immediately in earnings. Forward exchange contracts receive hedge
accounting on firmly committed transactions when they are designated as a hedge
of the designated currency exposure and are effective in minimizing such
exposure. Options receive hedge accounting on probable anticipated transactions
when they are designated as a hedge of the currency exposure and are effective
in minimizing such exposure. The cash flows resulting from forward exchange
contracts and local currency purchased options that qualify for hedge accounting
are classified in the statement of cash flows as part of cash flows from
operating activities. Cash flows resulting from forward exchange contracts and
local currency purchased options that do not qualify for hedge accounting are
classified in the statement of cash flows as investing activities.

Forward exchange contracts with notional amounts totaling none, $9,800,000,
and $8,000,000 to exchange foreign currencies for U.S. dollars, were outstanding
at December 31, 1996, 1997, and 1998, respectively. Of such forward exchange
contracts $6,900,000 and $7,800,000 to exchange Japanese yen for U.S. dollars,
were outstanding at December 31, 1997 and 1998, respectively. The forward
exchange contracts with notional amounts outstanding at December 31, 1998
totaling $8,000,000 do not qualify for hedge accounting and accordingly are
marked to market and recognized immediately in earnings. Local currency
purchased options with notional amounts totaling $3,722,000, $12,738,000, and
$10,221,000 to exchange foreign currencies for U.S. dollars were outstanding at
December 31, 1996, 1997, and 1998, respectively.

Foreign exchange losses of $479,000, foreign exchange gains of $1,166,000
and foreign exchange losses of $168,000 on forward exchange contracts that did
not qualify for hedge accounting were recognized in earnings during 1996, 1997
and 1998, respectively, and are classified in Other income (expense), net. Gains
on forward exchange contracts that qualify for hedge accounting of $978,000 were
deferred and classified in other accrued expenses at December 31, 1996. Gains on
local currency purchased options deferred at December 31, 1996 that qualify for
hedge accounting of $200,000 were deferred in other accrued expenses. Gains on
forward exchange contracts and local currency purchased options that qualify

F-10
<PAGE> 71
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

for hedge accounting are classified in cost of goods sold and totaled
$2,476,000, $1,178,000, and $310,000 for the years ended December 31, 1996,
1997, and 1998, respectively.

The fair value of forward exchange contracts at December 31, 1998,
determined by applying period end currency exchange rates to the notional
contract amounts, amounted to a loss of $349,000. The fair values of local
currency purchased options at December 31, 1997 and 1998 which were obtained
through dealer quotes were immaterial.

The Company recorded a foreign exchange translation loss on intercompany
payables of $1,000,000 and a foreign exchange translation gain on intercompany
payables of $1,000,000 in Other income (expense), net in 1997 and 1998,
respectively. Foreign exchange translation gains and losses from unhedged
intercompany balances were not material in 1996.

The market risk exposure from forward exchange contracts is assessed in
light of the underlying currency exposures and is controlled by the initiation
of additional or offsetting foreign currency contracts. The market risk exposure
from options is limited to the cost of such investments. Credit risk exposure
from forward exchange contracts and local currency purchased options are
minimized as these instruments are contracted with a major financial
institution. The Company monitors the credit worthiness of this financial
institution and full performance is anticipated.

INTEREST RATE RISK MANAGEMENT

The Company utilizes an interest rate swap to fix the interest rate on
certain variable rate term loans in order to minimize the effect of changes in
interest rates on earnings. In 1998, the Company entered into a four-year
interest rate swap agreement on a declining notional amount basis which
coincides with the scheduled principal payments with a major financial
institution for the notional amount of $10,528,000 equal to the term loans
described in Note 6. Under the agreement, the Company pays a fixed rate of 5.85%
on the notional amount and receives LIBOR. The interest differential payable or
accruable on the swap agreement is recognized on an accrual basis as an
adjustment to interest expense. The criteria used to apply hedge accounting for
this interest rate swap is based upon management designating the swap as a hedge
against the variable rate debt combined with the terms of the swap matching the
underlying debt including the notional amount, the timing of the interest reset
dates, the indices used and the paydates. At December 31, 1998, the fair value
of this interest rate swap, which represents the amount the Company would
receive or pay to terminate the agreement, is a net payable of $151,000, based
on dealer quotes. The variable rate received on the swap at December 31, 1998
was 5.5%.

The market risk exposure from the interest rate swap is assessed in light
of the underlying interest rate exposures. Credit risk exposure from the swap is
minimized as the agreement is with a major financial institution. The Company
monitors the credit worthiness of this financial institution and full
performance is anticipated.

CONCENTRATIONS OF CREDIT RISK

The Company's significant concentrations of credit risk consist principally
of cash and cash equivalents and trade accounts receivable. The Company
maintains cash and cash equivalents with financial institutions including the
bank it has borrowings with. Concentrations of credit risk with respect to trade
accounts receivable are limited due to the large number of geographically
dispersed customers. Credit is extended for all customers based on financial
condition and collateral is not required.

F-11
<PAGE> 72
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of the term loans, including the current portion,
approximates its carrying value given its variable rate interest provisions. The
fair value of mortgage notes is based on borrowing rates for similar instruments
and approximates its carrying value. For all other balance sheet financial
instruments, the carrying amount approximates fair value because of the short
period to maturity of these instruments.

4. INVENTORIES:

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Raw material............................................... $ 9,981 $ 7,544
Work in process............................................ 7,241 5,718
Finished goods............................................. 12,741 11,202
------- -------
$29,963 $24,464
======= =======
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1998
------- -------
<S> <C> <C>
Land....................................................... $ 8,350 $ 8,834
Buildings.................................................. 26,241 26,020
Machinery and equipment.................................... 24,861 27,394
Furniture and fixtures..................................... 9,697 10,578
Leasehold improvements..................................... 882 1,814
------- -------
70,031 74,640
Less: accumulated depreciation and amortization............ 36,055 41,915
------- -------
$33,976 $32,725
======= =======
</TABLE>

6. DEBT:

CREDIT AGREEMENTS AND SHORT-TERM BORROWINGS

In February 1996, the Company entered into loan agreements with two banks,
which provide access to a revolving credit facility. These agreements have since
been amended. The revolving credit facility, as amended, provides for
uncollateralized borrowings up to $30,000,000, which expires on December 31,
1999. Interest on borrowings is payable quarterly at either the banks' base rate
or the LIBOR Rate, as defined in the agreement, at the Company's option. At
December 31, 1997 and 1998, the Company had no borrowings under this revolving
credit facility.

Additionally, certain of the Company's foreign subsidiaries have lines of
credit and short-term borrowing arrangements with various financial institutions
which provide for aggregate borrowings as of December 31, 1998 of up to
$15,003,000, which generally expire and are renewed at six month intervals. At
December 31, 1997 and 1998, total borrowings outstanding under these
arrangements were $10,721,000, and $9,687,000, respectively, at interest rates
ranging from 1.3% to 1.6%, and 1.3% to 1.7%, respectively. Foreign short-term
borrowings are generally collateralized by certain trade accounts receivable and
are guaranteed by a domestic bank.

F-12
<PAGE> 73
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1998
------- -------
<S> <C> <C>
Term loans.................................................. $12,194 $10,528
Mortgage notes.............................................. 3,624 3,572
------- -------
Total long-term debt........................................ 15,818 14,100
Less: current portion....................................... 2,070 2,058
------- -------
Long-term debt less current portion......................... $13,748 $12,042
======= =======
</TABLE>

On November 1, 1993, the Company entered into a term loan agreement with a
bank, which provided for borrowings of $10,000,000. Principal payments are
payable in equal monthly installments of $56,000 through October 1, 2000, with
the remaining principal payment due on November 1, 2000. The loan is
collateralized by certain land, buildings, and equipment. Interest is payable
monthly at either the bank's base rate, at a rate based on the long-term funds
rate, or at the LIBOR Rate, as defined in the agreement, at the Company's
option.

On October 31, 1995, the Company also entered into a term loan agreement
with the same bank, which provided additional uncollateralized borrowings of
$7,000,000. Principal payments are payable in equal monthly installments of
$83,000 through June 1, 2002, with the remaining principal payment due on June
30, 2002. Interest is payable monthly at either the bank's base rate or at the
LIBOR Rate, as defined in the agreement, at the Company's option.

At December 31, 1997 and 1998, the interest rates in effect for the term
loan borrowings were 6.975% and 7.131%, respectively.

The terms of the revolving credit facility and term loan agreements, as
amended, contain, among other provisions, requirements for maintaining certain
levels of tangible net worth and other financial ratios. The agreement also
contains restrictions with respect to acquisitions. Under the most restrictive
covenant, the operating cash flow to debt service ratio for a fiscal quarter
shall not be less than 1.25 to 1.0. In the event of default of these covenants
or restrictions, any obligation then outstanding under the loan agreement shall
become payable upon demand by the bank. See Note 13 for subsequent event.

The Company has loans outstanding from various foreign banks in the form of
mortgage notes at interest rates ranging from 2.0% to 6.2%. Principal and
interest are payable in monthly installments through 2010. The loans are
collateralized by mortgages on certain of the Company's foreign properties.

Aggregate maturities of long-term debt over the next five years are as
follows:

<TABLE>
<CAPTION>
AGGREGATE
YEAR ENDING DECEMBER 31, MATURITIES
------------------------ ----------
<S> <C>
1999................................................... $ 2,058
2000................................................... 7,343
2001................................................... 1,405
2002................................................... 1,329
2003................................................... 422
Thereafter............................................. 1,543
-------
$14,100
=======
</TABLE>

F-13
<PAGE> 74
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

7. LEASE COMMITMENTS:

The Company leases certain of its facilities and machinery and equipment
under capital and operating leases expiring in various years through 2002 and
thereafter. Generally, the facility leases require the Company to pay
maintenance, insurance and real estate taxes. Rental expense under operating
leases totaled $2,487,000, $2,478,000, and $2,388,000 for the years ended
December 31, 1996, 1997, and 1998, respectively.

Minimum lease payments under operating and capital leases are as follows:

<TABLE>
<CAPTION>
CAPITAL
OPERATING LEASES LEASES
------------------------ ---------
YEAR ENDING DECEMBER 31, REAL ESTATE EQUIPMENT EQUIPMENT
------------------------ ----------- --------- ---------
<S> <C> <C> <C>
1999................................................... $1,484 $437 $1,202
2000................................................... 882 251 974
2001................................................... 660 130 537
2002................................................... 153 36 333
2003................................................... 84 13 116
Thereafter............................................. 51 42 --
------ ---- ------
Total minimum lease payments................................ $3,314 $909 $3,162
====== ==== ======
Less: amounts representing interest......................... 344
------
Present value of minimum lease payments..................... 2,818
Less: current portion....................................... 1,074
------
Long-term portion........................................... $1,744
======
</TABLE>

8. STOCKHOLDERS' EQUITY:

COMMON STOCK

The Company has two classes of common stock. Stockholders of Class A common
stock are entitled to voting rights with one vote for each share of common
stock. Stockholders of Class B common stock are not entitled to voting rights.

Upon the closing of this offering for which this Registration Statement is
being prepared each outstanding share of Class A and Class B common stock of the
Company will be converted into an aggregate of 18,053,167 shares of common
stock.

STOCK OPTION PLANS

On January 9, 1998, the stockholders of the Company approved the following:
(1) an increase in the number of shares that may be granted under the 1995 Stock
Incentive Plan to 3,750,000 shares of common stock; (2) the adoption of the 1997
Director Stock Option Plan pursuant to which options may be granted to purchase
up to an aggregate of 300,000 shares of common stock; (3) the adoption of the
1997 Employee Stock Purchase Plan pursuant to which the Company may issue up to
an aggregate of 450,000 shares of common stock; and (4) that 3,750,000 shares,
300,000 shares, and 450,000 shares of common stock be reserved for issuance
under the 1995 Stock Incentive Plan, the 1997 Director Stock Option Plan, and
the 1997 Employee Stock Purchase Plan, respectively.

The Company grants options to employees under the 1995 Stock Incentive Plan
(the "Plan") and to directors under the 1996 Director Stock Option Plan (the
"Director Plan").

F-14
<PAGE> 75
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

At December 31, 1998 options to purchase 1,651,793 shares of the Company's
common stock were reserved for issuance under the Plan. At December 31, 1998,
under the Director Plan, options to purchase 28,932 shares of common stock were
reserved for issuance. Stock options are granted at 100% of the fair value of
the Company's common stock as determined by the Board of Directors on the date
of grant. In reaching the determination of fair value at the time of each grant,
the Board of Directors considered a range of factors, including the Company's
current financial position, its recent revenues, results of operations and cash
flows, its assessment of the Company's competitive position in its markets and
prospects for the future, the status of the Company's product development and
marketing efforts, current valuations for comparable companies and the
illiquidity of an investment in the Company's common stock. Generally, stock
options under the Plan vest 20% after one year and 5% per quarter thereafter,
and expire 10 years after the grant date. Under the Director Plan, the options
granted in 1996 vest over three years and options granted in 1997 and later vest
at the earlier of (1) the next annual meeting, (2) 13 months from date of grant
or (3) the effective date of an acquisition as defined in the Director Plan.

The following table presents the activity for options under the Plan.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------- -------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of period... 608,270 $11.06 810,442 $4.43 1,564,449 $4.50
Granted.............................. 810,442 4.43 785,657 4.57 629,969 6.80
Exercised............................ -- -- -- -- (2) 4.43
Forfeited or Expired................. (608,270) 11.06 (31,650) 4.43 (96,209) 4.43
-------- ------ --------- ----- ---------- -----
Outstanding -- end of period......... 810,442 $ 4.43 1,564,449 $4.50 2,098,207 $5.20
Exercisable at end of period......... 114,782 $ 4.43 476,451 $4.43 778,473 $4.46
</TABLE>

At December 31, 1998, Plan options included 1,436,588, 566,669, and 94,950
shares outstanding at exercise prices of $4.43, $6.67, and $8.00 per share. The
weighted average remaining contractual life of these options was 8.2 years.

During 1996, 27,128 options were granted at an exercise price of $4.43 per
share under the Director Plan and were outstanding at December 31, 1996. Of
these options, 4,524 were exercisable at December 31, 1996. During 1997, options
for 3,620 shares were granted under the Director Plan at an exercise price of
$4.43 per share. Of these options, 30,748 were outstanding with 13,564
exercisable at the $4.43 per share price at December 31, 1997. During 1998,
options for 3,620 shares were granted under the Director Plan at an exercise
price of $8.00 per share. Of these options, 34,368 were outstanding with 26,228
exercisable at the $4.43 per share price at December 31, 1998.

The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the fair value of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock.

The disclosures required under SFAS No. 123 have been omitted as they are
not meaningful based upon the Company's planned conversion from an S corporation
to a C corporation upon the closing of this offering for which these financial
statements are being prepared. Had the fair value based method prescribed in
SFAS No. 123 been used to account for stock-based compensation cost, there would
have

F-15
<PAGE> 76
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

been no change in pro forma net income and pro forma earnings per share from
that reported based on the following assumptions: dividend yield of 8%, risk
free interest rate of 5.44% and an expected life of 8 years.

9. INCOME TAXES:

The Company has elected to be taxed as an S corporation for federal and
certain states income tax purposes and, as a result, is not subject to Federal
taxation but is subject to state taxation on income in certain states. The
stockholders are liable for individual Federal and certain state income taxes on
their allocated portions of the Company's taxable income.

The components of income before income taxes and the historical related
provision for income taxes consist of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1997 1998
------- ------- ------
<S> <C> <C> <C>
Income before income taxes:
United States........................................ $11,953 $21,858 $6,169
Foreign.............................................. 1,350 410 1,966
------- ------- ------
13,303 22,268 8,135
Current taxes:
State................................................ 285 1,331 197
Foreign.............................................. 792 792 784
------- ------- ------
1,077 2,123 981
------- ------- ------
Deferred taxes:
State................................................ (156) (72) (39)
Foreign.............................................. (121) (73) 7
------- ------- ------
(277) (145) (32)
------- ------- ------
Provision for income taxes............................. $ 800 $ 1,978 $ 949
======= ======= ======
</TABLE>

As the Company is not subject to Federal income taxes, a reconciliation of
the effective tax rate to the Federal statutory rate is not meaningful.

At December 31, 1996, 1997, and 1998 the components of the deferred tax
asset and deferred tax liability were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets (liabilities):
Inventories............................................ $234 $344 $265
Intercompany profits................................... 160 214 152
Compensation........................................... 72 77 127
Investment booked under the equity method.............. (28) (41) (59)
Other.................................................. (34) (45) 96
---- ---- ----
Total.......................................... $404 $549 $581
==== ==== ====
</TABLE>

F-16
<PAGE> 77
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

10. EMPLOYEE BENEFIT PLANS:

The Company has a 401(k) profit-sharing plan for U.S. employees meeting
certain requirements in which eligible employees may contribute from 1% up to
12% of their compensation. The Company, at its discretion, may provide a
matching contribution which will generally match up to the first 2% of each
participant's compensation, plus 25% of the next 4% of compensation. At the
discretion of the Board of Directors, the Company may also make additional
contributions for the benefit of all eligible employees. The Company's
contributions are generally paid annually, and were $2,170,000 and $2,500,000
for the years ended December 31, 1996 and 1997. Approximately $1,400,000 has
been accrued as the estimated Company contribution for the year ended December
31, 1998 and is included in accrued compensation.

The Company maintains a bonus plan which provides cash awards to key
employees, at the discretion of the Compensation Committee of the Board of
Directors, based upon operating results and employee performance. Bonus expense
to key employees was none, $1,425,000, and none for the years ended December 31,
1996, 1997, and 1998, respectively.

11. RESTRUCTURING:

In 1996, the Company recorded a restructuring charge of $1,400,000,
primarily related to reduction of personnel and the closure of facilities in
Phoenix, AZ and San Jose, CA. These charges include $425,000 of severance pay,
$710,000 of lease commitments, and $265,000 for the write-off of leasehold
improvements. The facilities closure concluded during 1997. The remaining
balance of approximately $126,000 for lease commitments is included in Other
accrued expenses in the accompanying balance sheet at December 31, 1998.

12. GEOGRAPHIC FINANCIAL INFORMATION AND SIGNIFICANT CUSTOMER:

See Note 1 for a brief description of the Company's business. The Company
is organized around two similar product lines domestically and by geographic
locations internationally and has three reportable segments: North America, Far
East, and Europe. Net sales to unaffiliated customers are based on the location
in which the sale originated. Transfers between geographic areas are at
negotiated transfer prices and have been eliminated from consolidated net sales.
Income from operations consists of total net sales less operating expenses and
does not include either interest income, interest expense or income taxes. The
Company had one customer comprising 15%, 22% and 16% of net sales for the years
ended December 31, 1996, 1997, and 1998, respectively. This data is presented in
accordance with SFAS 131, "Disclosures About Segments of an Enterprise and
Related Information," which the Company has retroactively adopted for all
periods presented.

F-17
<PAGE> 78
MKS INSTRUMENTS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(TABLES IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
------------------------------------------------
NORTH AMERICA FAR EAST EUROPE TOTAL
------------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers... $ 95,607 $23,902 $20,254 $139,763
Intersegment net sales................ 26,657 290 1,015 27,962
Depreciation and amortization......... 5,627 210 405 6,242
Income from operations................ 6,319 1,298 1,518 9,135
Segment assets........................ 65,560 20,768 9,904 96,232
Long-lived assets..................... 28,960 5,655 3,084 37,699
Capital expenditures.................. 2,635 179 323 3,137
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------

Net sales to unaffiliated customers... $138,186 $31,559 $18,335 $188,080
Intersegment net sales................ 35,429 225 749 36,403
Depreciation and amortization......... 5,096 259 357 5,712
Income from operations................ 22,847 886 230 23,963
Segment assets........................ 77,302 19,906 9,328 106,536
Long-lived assets..................... 30,738 4,904 3,015 38,657
Capital expenditures.................. 2,899 128 242 3,269
YEAR ENDED DECEMBER 31, 1996
-----------------------------------------------

Net sales to unaffiliated customers... $121,061 $31,066 $18,735 $170,862
Intersegment net sales................ 34,100 199 1,426 35,725
Depreciation and amortization......... 5,145 388 387 5,920
Income from operations................ 14,534 653 881 16,068
Segment assets........................ 66,593 18,524 9,883 95,000
Long-lived assets..................... 33,402 5,554 3,551 42,507
Capital expenditures.................. 8,332 208 877 9,417
</TABLE>

Included in North America are the United States and Canada. Net sales to
unaffiliated customers from the United States were $119,423,000, $136,653,000
and $94,449,000 for the years ended December 31, 1996, 1997 and 1998,
respectively. Long-lived assets within the United States amounted to
$33,315,000, $30,667,000 and $28,902,000 at December 31, 1996, 1997, and 1998,
respectively.

Included in the Far East are Japan, Korea and Singapore. Included in Europe
are Germany, France and the United Kingdom. Net sales to unaffiliated customers
from Japan were $28,242,000, $28,184,000 and $21,153,000 for the years ended
December 31, 1996, 1997 and 1998, respectively. Long-lived assets within Japan
amounted to $5,141,000, $4,792,000 and $5,431,000 at December 31, 1996, 1997 and
1998, respectively.

13. SUBSEQUENT EVENTS:

On January 28, 1999, the Company amended its revolving credit facility and
its term loan agreements described in Note 6. The amendments include revised
quarterly cash flow to debt service ratios. The most restrictive covenant is the
cash flow to debt service ratio of 1.25 to 1.0 in the fourth quarter of 1999 and
thereafter.

On February 24, 1999 the Company effected a 3-for-2 stock split, in the
form of a stock dividend of its common stock and increased the number of
authorized shares of common stock to 30,000,000. Accordingly, all share data has
been restated to reflect the common stock split.

F-18
<PAGE> 79
INSIDE BACK COVER (PG.5):

The inside back cover graphically depicts MKS's message of being a worldwide
provider of process control solutions. It is produced in four-color process. In
the center of the page is a photo of the Earth, with the tag line "Providing
Solutions Around the Process, Around the World" wrapping around the photo. The
word "Solutions" is highlighted with slightly larger type size. The background
of the page is dark, with the MKS logo appearing at the top right, knocking out
to white. Photos of MKS's products surround the photo of the Earth and include
MKS Baratron Capacitance Manometers, a Throttling Poppet Valve, a Pressure
Controller, Mass Flow Controllers, an In-Situ Flow Verifier, a Direct Liquid
Injection Subsystem and a Residual Gas Analyzer.

<PAGE> 80

================================================================================
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6,500,000 SHARES

[MKS LOGO]

COMMON STOCK

------------------------
Prospectus
March 30, 1999
------------------------

NationsBanc Montgomery Securities LLC

Donaldson, Lufkin & Jenrette

Lehman Brothers

Until April 24, 1999 (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 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.

- --------------------------------------------------------------------------------
================================================================================