<PAGE>
Filed Pursuant to Rule 424(b)(1)
File No. 333-33668
PROSPECTUS
13,000,000 Shares
[Entegris Logo]
Common Shares
---------------
This is Entegris' initial public offering. Entegris is selling 8,600,000
common shares, and the selling shareholders are selling 4,400,000 common
shares. Entegris will not receive any of the proceeds from the sale of shares
by the selling shareholders.
Currently, no public market exists for the shares. The common shares have
been approved for quotation on the Nasdaq National Market under the symbol
"ENTG."
Investing in the common shares involves risks that are described in the
"Risk Factors" section beginning on page 7 of this prospectus.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price............................... $11.00 $143,000,000
Underwriting discount............................... $.77 $10,010,000
Proceeds, before expenses, to Entegris.............. $10.23 $87,978,000
Proceeds, before expenses, to the selling
shareholders....................................... $10.23 $45,012,000
</TABLE>
The underwriters may also purchase up to an additional 1,290,000 common
shares from Entegris, and up to an additional 660,000 shares from a selling
shareholder, at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
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.
The common shares will be ready for delivery on or about July 14, 2000.
---------------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
U.S. Bancorp Piper Jaffray
---------------
The date of this prospectus is July 10, 2000.
<PAGE>
Photo of silicon wafer
Safely storing, handling, processing and transporting critical materials
throughout the microelectronics industry
Enabling THE WORLD'S TECHNOLOGIES THROUGH Materials Integrity
Graphic depicts a typical silicon wafer manufactured and handled by customers
using our products.
[Logo]
<PAGE>
Our products enable the microelectronics industry by assuring the integrity
of our customers' materials from production to consumption.
MICROELECTRONICS OTHER MARKETS
Bio-pharmaceutical
Custom Medical
Telecommunications
Industrial and Other
Our custom products enable new technologies and applications such as live
bacteria manufacturing techniques and miniaturization for telecommunications
SEMICONDUCTOR MANUFACTURING PROCESS DISK MANUFACTURING
FRONT END BACK END
Wafer Manufacturing Wafer Handling Chemical Delivery Test, Assembly
and Packaging
[Photo of 300mm Shipper] [Photo of 100 to 200mm Shippers]
[Photo of 100 to 200mm Carriers] [Photo of 300mm Carriers]
[Photo of Containers] [Photo of Valve, Tubing, Fitting, Pipe]
[Photo of Transducers] [Photo of Fluid Handling Systems]
[Photo of JEDEC/Matrix Trays] [Photo of Bare Die Trays]
[Photo of Disk Shipper]
[Logo]
[Photos of various products that utilize integrated circuits and of
microelectronics manufacturing processes]
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information that is different.
We are offering to sell, and seeking offers to buy, common shares only in
jurisdictions where offers and sales are permitted. This prospectus may only be
used where it is legal to sell these securities. In this prospectus, references
to "Entegris," "we," "us" and "our" refer to Entegris, Inc., together with our
consolidated subsidiaries.
Our fiscal year is a 52 or 53 week period ending on the last Saturday of
each August. Our last five fiscal years ended on the following dates: August
26, 1995; August 31, 1996; August 30, 1997; August 29, 1998; and August 28,
1999. Fiscal years are identified in this prospectus according to the calendar
year in which they end. For example, the fiscal year ended August 28, 1999 is
referred to as "fiscal 1999." For convenience, the financial information
included in this prospectus has been presented as ending on the last day of the
month.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 28
Management............................................................... 44
Certain Transactions..................................................... 52
Principal and Selling Shareholders....................................... 55
Description of Capital Shares............................................ 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 60
U.S. Federal Tax Considerations for Non-U.S. Holders..................... 63
Legal Matters............................................................ 66
Experts.................................................................. 66
Where You Can Find Additional Information................................ 66
Index to Consolidated Financial Statements............................... F-1
</TABLE>
"Entegris" is a trademark of Entegris, Inc. in the United States and other
jurisdictions. Registration of "Entegris" is pending in the United States and
in other jurisdictions and registration of the Entegris logo is pending in the
United States. This prospectus also contains registered trademarks of Entegris
and registered trademarks and service marks of other entities.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you
should consider before investing in our common shares. You should read the
entire prospectus carefully before making an investment decision. This
prospectus contains forward-looking statements which involve risks and
uncertainties. Our results could differ significantly from those anticipated in
these forward-looking statements as a result of various factors, including
those set forth in "Risk Factors" and the consolidated financial statements and
the related notes. Except as otherwise indicated, all information in this
prospectus assumes no exercise of the underwriters' over-allotment option and
gives effect to a 2-for-1 stock split of the Entegris common shares to be
effective prior to the completion of this offering.
Entegris
We are a leading provider of materials management solutions to the
microelectronics industry including, in particular, the semiconductor
manufacturing and disk manufacturing markets. Our materials management
solutions for the semiconductor industry assure the integrity of materials as
they are handled, stored, processed and transported throughout the
semiconductor manufacturing process. These solutions enable our customers to
protect their investment in work-in-process and finished devices by
facilitating the safe handling, purity and precision processing of the critical
materials used in their manufacturing process.
Semiconductors are the building blocks of today's electronics and the
backbone of the information age. An increasing variety of new markets and
applications, such as wireless communications devices, network infrastructure
and Internet appliances, has driven the demand for semiconductors with enhanced
performance characteristics. As a result, semiconductors have become
increasingly complex, with smaller feature sizes and shorter product life
cycles, resulting in a more costly and complex manufacturing process. To
improve manufacturing productivity and efficiency, semiconductor manufacturers
have historically implemented yield management and automation technologies.
Because significant productivity gains from implementing these technologies
have for the most part already been realized, semiconductor manufacturers are
now increasingly focused on improving materials management. Productivity gains
can be achieved by preventing the damage and degradation of materials used or
consumed throughout the manufacturing process and by improving the
predictability of that process. Wafer processing can involve as many as 500
steps and take up to six weeks. As a result, a batch of 25 fully processed
wafers can cost more than $1 million. Damage to a processed wafer can severely
impact integrated circuit performance or render an integrated circuit
inoperable. Thus, it is critical to ensure safe and reliable wafer processing
throughout the manufacturing process. The need for efficient and reliable
materials management is becoming increasingly important to semiconductor
manufacturers as new materials are introduced and as 300mm wafer technology
becomes more prevalent.
Throughout our 34-year history, we have been a leading provider of materials
management solutions for the semiconductor industry. We have extensive
expertise in the development of polymer materials and we believe that we have
the broadest product line of standard and customized products. We have sixteen
worldwide manufacturing facilities which enable us to provide local delivery,
advanced manufacturing capabilities and the capacity to meet customer demand
requirements. Our materials management products, such as wafer shippers, wafer
transport and process carriers, pods and work-in-process boxes, preserve the
integrity of wafers as they are transported from wafer manufacturers to
semiconductor manufacturers, processed into finished wafers and integrated
circuits and subsequently tested, assembled and packaged. We also provide
chemical delivery products, such as valves, fittings, tubing, pipe and
containers, that assure the consistent and safe delivery of sophisticated
chemicals between chemical manufacturers and semiconductor manufacturers'
point-of-use.
We believe we are a technology leader in providing materials handling
solutions for the microelectronics industry. We are a leading designer and
manufacturer of 300mm wafer materials management solutions with products such
as front opening unified pods and reduced-pitch front opening shipping boxes.
In addition, our
3
<PAGE>
innovative designs and our use of high purity, corrosion resistant fluid
handling materials have made us a recognized leader in high purity fluid
transfer products. Our chemical delivery product line represents a number of
industry firsts, including:
.the first perfluoroalkoxy, or PFA, fusion-bonded piping;
.the first valves with no metal parts in the fluid stream;
. the first nonmetallic capacitive sensors to successfully perform in harsh
environments at high temperatures; and
. the first PFA pinch valve.
More recently, our Galtek SG Series valve received the 1999 Editor's Choice
Best Product award from Semiconductor International magazine for its ability to
maintain industry flow capacity standards despite its small size.
Our objective is to build upon our leadership position in materials
management solutions for the semiconductor device, equipment and materials
industries, as well as apply our expertise to the growing materials management
needs of other industries. The key elements of our strategy to achieve this
objective are:
. expand technological leadership;
. broaden product offering;
. enhance relationships with customers and suppliers;
. expand in Japan;
. pursue selective acquisitions; and
. expand into new industries.
We sell our products worldwide to over 1,000 customers, who represent a
broad base of leading suppliers to the microelectronics industry. Our customers
in the semiconductor industry include wafer manufacturers, chemical suppliers,
equipment manufacturers, device manufacturers and assemblers. International
sales represented approximately 45.1% of our sales in fiscal 1998, 47.9% of our
sales in fiscal 1999, and 46.4% of our sales in the nine months ended May 31,
2000. We provide our customers with a worldwide network of sales and support
personnel, which enable us to offer local service to our global customer base
and assure the timely and cost-effective delivery of our products.
Entegris was incorporated under the laws of the State of Minnesota in 1999
as part of a consolidation of Fluoroware, Inc. and Empak, Inc., both of which
are now wholly-owned subsidiaries of Entegris. Fluoroware and Empak are
Minnesota corporations. Fluoroware has been in business since 1966 and Empak
has been in business since 1980. Our principal executive offices are located at
3500 Lyman Boulevard, Chaska, Minnesota 55318, and our telephone number is
(952) 556-3131. The address of our web site is www.entegris.com. Information
contained on our web site is not part of this prospectus.
4
<PAGE>
The Offering
Common shares offered by Entegris.......... 8,600,000 shares
Common shares offered by the selling 4,400,000 shares
shareholders..................................
Common shares to be outstanding after this 67,009,848 shares
offering......................................
Use of proceeds............................ Retirement of debt, working
capital and general corporate
purposes. We may also use a
portion of the proceeds to
acquire complementary
businesses. See "Use of
Proceeds."
Nasdaq National Market symbol.............. ENTG
The number of common shares to be outstanding after this offering is based
on the number of shares outstanding as of May 31, 2000, and does not reflect
the following:
. 7,213,814 shares subject to stock options currently outstanding at a
weighted average exercise price of $3.46 per share;
. 6,919,866 common shares reserved for future grants of options under our
stock option plans and future issuances of stock under our Employee
Stock Purchase Plan; and
. 1,290,000 shares that the underwriters may purchase from us to cover
over-allotments, if any.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended August 31, May 31,
------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales.............. $193,284 $271,037 $277,290 $266,591 $241,952 $172,175 $247,653
Cost of sales.......... 104,513 149,042 161,732 156,933 150,102 107,874 132,464
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 88,771 121,995 115,558 109,658 91,850 64,301 115,189
Selling, general and
administrative
expenses.............. 43,284 62,390 62,384 65,111 62,340 42,793 53,578
Engineering, research
and development
expenses.............. 9,776 12,447 17,986 19,912 14,565 10,916 10,613
-------- -------- -------- -------- -------- -------- --------
Operating profit....... 35,711 47,158 35,188 24,635 14,945 10,592 50,998
Interest expense, net.. 2,782 4,582 6,652 6,995 5,498 4,605 2,778
Other (income) expense,
net................... (1,010) (1,396) 2,201 (273) (1,850) (36) (6,531)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and other items
below................. 33,939 43,972 26,335 17,913 11,297 6,023 54,751
Income tax expense..... 12,596 16,109 10,578 4,536 4,380 1,822 19,700
Equity in net (income)
loss of affiliates.... (3,347) (3,252) (1,750) 118 1,587 1,585 (1,114)
Minority interest in
subsidiaries' net
income (loss)......... 1,601 2,898 573 176 (399) 84 733
-------- -------- -------- -------- -------- -------- --------
Net income (1)......... 23,089 28,217 16,934 13,083 5,729 2,532 35,432
Market value adjustment
to redeemable common
stock................. (33,123) (11,914) (3,045) 27,170 (98,754) (74,066) (48,602)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to
nonredeemable common
shareholders.......... $(10,034) $ 16,303 $ 13,889 $ 40,253 $(93,025) $(71,534) $(13,170)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
nonredeemable common
share (1):
Basic.................. $ (0.27) $ 0.45 $ 0.39 $ 1.10 $ (2.53) $ (1.95) $ (0.36)
Diluted................ $ (0.27) $ 0.43 $ 0.27 $ 0.21 $ (2.53) $ (1.95) $ (0.36)
Weighted average common
shares:
Basic.................. 37,735 36,145 35,247 36,651 36,708 36,730 37,037
Diluted................ 37,735 37,969 61,786 61,492 36,708 36,730 37,037
Pro forma earnings per
common share (2):
Basic.................. $ 0.36 $ 0.46 $ 0.28 $ 0.22 $ 0.10 $ 0.04 $ 0.60
Diluted................ $ 0.35 $ 0.44 $ 0.27 $ 0.21 $ 0.09 $ 0.04 $ 0.55
Pro forma weighted
average common shares:
Basic.................. 64,034 61,676 59,967 60,747 60,270 60,361 59,363
Diluted................ 65,396 63,500 61,786 61,492 62,220 61,903 64,510
</TABLE>
<TABLE>
<CAPTION>
May 31, 2000
------------------------
Actual As Adjusted(3)
-------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................ $ 33,247 $ 81,947
Working capital...................................... 78,860 132,560
Total assets......................................... 277,890 326,590
Long-term debt and capital lease obligations,
excluding current maturities........................ 48,086 15,086
Total liabilities and minority interest.............. 123,862 85,862
Redeemable Employee Stock Ownership Trust common
stock............................................... 183,609 --
Shareholders' equity (deficit)....................... (29,581) 240,728
</TABLE>
--------
(1) Net income and per share figures exclude loss from discontinued operations
of $1,503,000, or $0.02 per share diluted, in fiscal 1995 and income from
discontinued operations of $455,000, or $0.01 per share diluted, in fiscal
1996.
(2) The pro forma data presented gives effect to the reclassification of
redeemable Employee Stock Ownership Trust common shares no longer
redeemable upon the consummation of the Company's initial public offering.
(3) As adjusted to reflect (a) the sale of 8,600,000 common shares by us
offered in this prospectus, assuming no exercise of the underwriters'
over-allotment option, and the application of a portion of the estimated
net proceeds, after deducting the underwriting discounts and commissions
and our estimated offering expenses, to repay approximately $38 million of
debt (see "Capitalization") and (b) the reclassification of redeemable
Employee Stock Ownership Trust common shares no longer redeemable upon the
consummation of the Company's initial public offering.
6
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this prospectus before purchasing our common shares.
Investing in our common shares involves a high degree of risk. The risks and
uncertainties described below are not the only ones that we face. Additional
risks and uncertainties not presently known to us or that we currently believe
are immaterial also may impair our business operations. If any of the events
described in the following risks occur, our business, operating results and
financial condition could be significantly harmed. In addition, the trading
price of our common shares could decline due to any of the events described in
these risks, and you may lose all or part of your investment.
Industry Risk
The semiconductor industry is highly cyclical, and an industry downturn would
reduce revenue and profits.
Our business depends on the purchasing patterns of semiconductor
manufacturers, which, in turn, depend on the current and anticipated demand for
semiconductors and products utilizing semiconductors. The semiconductor
industry is highly cyclical and historically has experienced periodic
downturns, which often have resulted in decreased expenditures by semiconductor
manufacturers. These downturns, which occurred most recently in 1996 and 1998,
have harmed our sales, gross profits and operating results. Furthermore, even
in periods of reduced demand, we must continue to maintain a satisfactory level
of research and development expenditures and continue to invest in our
infrastructure. We expect the semiconductor industry to continue to be
cyclical. Any future downturns will reduce revenue and possibly increase
pricing pressure.
Our revenue and operating results may fluctuate in future periods, which could
harm our share price.
Our sales and operating results can vary significantly from quarter to
quarter. Because our expense levels are relatively fixed in the short-term, an
unanticipated decline in revenue in a particular quarter could
disproportionately affect our net income in that quarter. In addition, because
we typically do not have significant backlog, changes in order patterns have a
more immediate impact on our revenues. The 1998 downturn in the semiconductor
industry resulted in a decline in our net income from $16.9 million in fiscal
1997 to $13.1 million in fiscal 1998 and a further decline to $5.7 million in
fiscal 1999. We anticipate that fluctuations in operating results will continue
in the future. Such fluctuations in our results could cause our share price to
decline substantially. We believe that period-to-period comparisons of our
results of operations may not be meaningful, and you should not rely upon them
as indicators of our future performance.
Our industry is subject to rapid technological change, and we may fail to
successfully anticipate customer needs and develop new products.
The microelectronics industry is subject to rapid technological change,
changing customer requirements and frequent new product introductions. Because
of this, the life cycle of our products is difficult to determine. Our future
success will depend, to a significant extent, on our ability to keep pace with
changes in the market and on our ability to enhance our current products and
introduce new products. For example, we must continue to identify new polymers,
improve our product design and qualify our products with our customers. We
might not successfully develop and introduce new products and materials in a
timely and cost-effective manner. Any product enhancements or new products
developed by us might not gain market acceptance. In addition, products or
technologies developed by competitors could make our products or technologies
obsolete or less competitive. If we do not anticipate or respond adequately to
technological developments or customer requirements, we could lose market share
or miss market opportunities.
International Risks
We are dependent upon sales outside the United States, and the risks associated
with international operations could affect our ability to maintain and increase
revenues.
International sales accounted for 45.1% of our revenues in fiscal 1998,
47.9% in fiscal 1999 and 46.4% in the nine months ended May 31, 2000. We
anticipate that sales outside the United States will be an
7
<PAGE>
increasing percentage of our revenues as we pursue our international growth
strategy. A significant portion of our revenues will therefore be subject to
risks associated with sales in markets outside the United States, including:
. unexpected changes in legal and regulatory requirements and policy
changes affecting the markets for semiconductor technology;
. difficulties in managing sales representatives or distributors;
. difficulties in staffing and managing foreign operations; and
. difficulties in protecting our intellectual property outside the United
States.
These risks could increase the cost of doing business internationally and
could prohibit or hinder our ability to do business in certain countries.
Taiwan accounts for a growing portion of the world's semiconductor
manufacturing. There are currently strained relations between China and Taiwan.
Any adverse development in those relations could significantly impact the
worldwide production of semiconductors, which would lead to reduced sales of
our products.
The value of the U.S. dollar in relation to other currencies may also harm
our sales to customers outside the United States. For the nine months ended May
31, 2000, approximately 24% of our sales revenue was not denominated in U.S.
dollars, which exposes us to currency fluctuations. We intend to expand
internationally, and to the extent that we do so or change our pricing
practices to denominate prices in other currencies, we will be exposed to
increased risks of currency fluctuations as well as the increased risks of
doing business internationally.
An increased concentration of wafer manufacturing in Japan could result in
lower sales of our wafer management and shipping products.
A large percentage of the world's wafer manufacturing currently takes place
in Japan. Our market share in Japan is currently low, and we believe that we
must increase our manufacturing capabilities in Japan in order to improve our
market share. If we are not able to successfully expand our manufacturing
capability and market share in Japan, we might not be able to maintain our
global market share in wafer manufacturing and handling products, especially if
wafer manufacturing in Japan increases.
Regulatory compliance impacts delivery times and reduces our ability to be
competitive in certain countries.
We are subject to federal, state, local and foreign regulations. Compliance
with future regulations, including environmental regulations in the United
States and abroad, could require us to incur substantial costs. If we do not
comply with current or future regulations, directives and standards:
. we could be subject to fines;
. our production could be suspended or delivery could be delayed; and
. we could be prohibited from offering particular products in specified
markets.
Certain of our fluid handling products fall within the scope of U.S. export
licensing regulations pertaining to products that could be used in connection
with chemical weapons processes. These regulations require us to obtain
licenses to ship some of our products to customers in certain countries, and we
routinely apply for and
8
<PAGE>
obtain export licenses. The applicable export licensing regulations frequently
change. Moreover, the types and categories of products that are subject to
export licensing are often described in the regulations in general terms and
could be subject to differing interpretations. We are currently cooperating
with the United States Department of Commerce to clarify our licensing
practices and to review our practices with respect to sales of products to
certain countries in recent years. The review relates to sales of approximately
$100,000 in fiscal 1999. The review does not relate to any product sales in
fiscal 2000. The Department of Commerce may determine that some of our past
practices were not in compliance with export licensing regulations, which could
subject us to penalties. Any denial or delay in the issuance of future export
licenses could result in lost sales.
We are dependent on Metron Technology N.V. for a substantial portion of our
sales, and a decline in sales by Metron could limit our ability to maintain and
grow our revenues.
For the period ended August 31, 1999, we derived 14.3% of our revenues from
customers that purchase our products through Metron Technology N.V., which
distributes our products in parts of Europe, Asia and the United States. Any
negative material event relating to Metron may impact our business. For
example, Metron's sales could decline or Metron could choose to sell our
competitors' products instead of our products.
In November 1999, Metron completed an initial public offering. Primarily due
to the offering, our ownership of Metron decreased from 32.8% to 20.3% at May
31, 2000. Although we retain a significant ownership stake in Metron, we now
have less influence on Metron's business and decision making, and Metron may
make decisions regarding the conduct of its business that could harm us and
over which we have no control.
Relationships with joint venture partners affect our ability to do business
internationally.
We have entered into joint venture agreements intended to complement or
expand our manufacturing and distribution operations in Japan and Korea. The
success of our joint ventures depends in part on our ability to strengthen our
relationships with our joint venture partners. If we do not develop and
maintain good relationships with joint venture partners, we will be less able
to successfully penetrate international markets.
Economic difficulties in countries in which we sell our products could lead to
a decrease in demand for our products.
The volatility of general economic conditions as well as fluctuations in
currency exchange and interest rates can lead to decreased demand in countries
in which we sell products. For example, in 1997 and 1998, many Asian countries
experienced economic and financial difficulties. During this period, our sales
to customers in Asia declined. Moreover, any economic, banking or currency
difficulties experienced by countries in which we have sales may lead to
economic recession in those countries. This in turn could result in a reduction
in sales to customers in these countries.
Manufacturing Risks
Our dependence on single and limited source suppliers could affect our ability
to manufacture our products.
We rely on single and limited source suppliers for some of the advanced
polymers that are critical to the manufacturing of our products. At times, we
have experienced a limited supply of some of these polymers, which resulted in
delays and increased costs. An industry-wide increase in demand for these
polymers could affect the ability of our suppliers to provide sufficient
quantities to us. If we are unable to obtain an adequate quantity of such
supplies, our manufacturing operations may be interrupted. Obtaining
alternative sources could result in increased costs and shipping delays, which
could decrease profitability and damage our relationships with current and
potential customers.
Prices for polymers have varied widely in recent years. We have a long-term
contract with a key supplier of polymers that fixes our price for purchases of
up to specified quantities. If our polymer requirements exceed
9
<PAGE>
the quantities specified in the contract, we could be exposed to higher
material costs. If the cost of polymers increases and we are unable to
correspondingly increase the sales price of our products, our profit margins
would decline.
Our production processes are becoming increasingly complex, and our production
could be disrupted if we are unable to avoid manufacturing difficulties.
Our manufacturing processes are complex and require the use of expensive and
technologically sophisticated equipment and materials. These processes are
frequently modified to improve manufacturing yields and product quality. We
have on occasion experienced manufacturing difficulties, such as temporary
shortages of raw materials and occasional critical equipment breakdowns, that
have delayed deliveries to customers. A number of our product lines are
manufactured at only one or two facilities, and any disruption could impact our
sales until another facility could commence or expand production of such
products.
Our manufacturing operations are subject to numerous risks, including:
. the introduction of impurities in the manufacturing process that could
lower manufacturing yields and make our products unmarketable;
. the costs and demands of managing and coordinating geographically
diverse manufacturing facilities; and
. the disruption of production in one or more facilities as a result of a
slowdown or shutdown in another facility.
We could experience these or other manufacturing difficulties, which might
result in a loss of customers and exposure to product liability claims.
We may lose sales if we are unable to timely procure, repair and replace
capital equipment necessary to manufacture many of our products.
Internally designing and producing new complex tools or purchasing
additional capital equipment can take several months. If our existing equipment
fails, or we are unable to obtain new equipment quickly enough to satisfy any
increased demand for our products, we may lose sales to competitors. In
particular, we do not maintain duplicate tools for most of our important
products. Fixing or replacing complex tools is time consuming, and we may not
be able to replace a damaged tool in time to meet customer requirements.
We generally have no written contracts with our customers, which diminishes our
ability to plan for future manufacturing needs.
As is typical in our industry, our sales are primarily made on a purchase
order basis and we have few written purchase contracts with our customers.
Customers may choose to delay or cancel orders. As a result, we cannot predict
the level of future sales or commitments from our current customers, which
diminishes our ability to effectively allocate labor, materials and equipment
in the manufacturing process.
We may not be able to protect our intellectual property, which may limit our
ability to compete.
Our success depends in part on our proprietary technology. We attempt to
protect our intellectual property rights primarily through patents, trademarks
and non-disclosure agreements. However, we might not be able to protect some of
our technology, and competitors might be able to develop similar technology
independently. In addition, the laws of certain foreign countries might not
afford our intellectual property the same protection as do the laws of the
United States. The costs of applying for patents in foreign countries and
translating the applications into foreign languages require us to select
carefully the inventions for which we apply for patent protection and the
countries in which we seek such protection. Generally, we have concentrated our
efforts on obtaining international patents in Europe, Japan and Taiwan because
there are competing manufacturers in those countries, as well as current and
potential customers. Our inability or failure to obtain adequate patent
10
<PAGE>
protection in a particular country could harm our ability to compete
effectively in that country. Our patents also might not be sufficiently broad
to protect our technology, and any existing or future patents might be
challenged, invalidated or circumvented. Additionally, our rights under our
patents may not provide competitive advantages.
Litigation may be necessary to defend us against claims of intellectual
property infringement, which if successful could cause us to pay significant
damage awards or prevent us from manufacturing or selling our products.
Some of our current or future products could infringe patents or proprietary
rights of others. Litigation may be necessary to enforce patents issued to us,
to protect our trade secrets or know-how, to defend ourselves against claimed
infringement of the rights of others or to determine the scope and validity of
the proprietary rights of others. Litigation could result in substantial cost
and diversion of our efforts. Moreover, an adverse determination in any
litigation could cause us to lose proprietary rights, subject us to significant
liabilities to third parties, require us to seek licenses or alternative
technologies from third parties, or prevent us from manufacturing or selling
our products.
Operating Risks
If we do not attract and retain key personnel and provide liquidity to our ESOP
participants, our production would be disrupted and shipments might be delayed.
The ESOP's lack of liquidity could exacerbate employee turnover. Our success
depends upon the continued efforts of our senior management team and our
technical, manufacturing, marketing and sales personnel. These employees may
voluntarily terminate their employment with us at any time.
Approximately one-third of our work force are participants in our Employee
Stock Ownership Plan, which held 20,385,514 of our common shares as of May 31,
2000. Participants have no right, with limited exceptions, to receive their
ESOP shares until after termination of their employment. The significant value
of the ESOP shares and the limited ability to obtain and control these shares
while employed may be important factors that many employees might consider when
determining whether to continue their employment with us. If a significant
number of manufacturing personnel were to voluntarily terminate their
employment with us, our production would be disrupted and shipments might be
delayed.
Hiring qualified personnel has become more difficult in recent years. The
U.S. economy's long period of expansion and high rate of employment have
increased the difficulty of recruiting qualified manufacturing personnel, such
as operators of our manufacturing equipment. Competition for such personnel in
the technology and semiconductor industries is particularly intense. Recruiting
and hiring employees with the combination of skills and attributes required to
conduct our business is extremely competitive, time-consuming and expensive. We
may not be able to successfully identify, hire and train new manufacturing
personnel.
If we fail to identify, complete and successfully integrate future
acquisitions, our ability to expand our operations and increase revenues would
be harmed.
One of our strategies is to expand by acquiring other businesses,
technologies or product lines. However, we currently have no commitments or
agreements with respect to any acquisition. We might not be able to
successfully identify, negotiate or finance any acquisitions, or integrate such
acquisitions with our current business, which could diminish our ability to
expand our business and remain competitive. Moreover, expansion could require
significant management time and resources.
Competition in the semiconductor materials management industry could intensify
as the industry further consolidates, which would limit our ability to maintain
and increase our market share and raise prices.
We face substantial competition from a number of companies, some of which
have greater financial, marketing, manufacturing and technical resources.
Because of an industry trend toward consolidation, larger
11
<PAGE>
providers of materials management solutions and products could emerge, with
potentially broader product lines. Larger competitors could spend more on
research and development, which could give those competitors an advantage in
meeting customer demand. We expect that existing and new competitors will
improve the design of their existing products and will introduce new products
with enhanced performance characteristics. The introduction of new products or
more efficient production of existing products by our competitors could
diminish our market share and increase pricing pressure on our products.
Further, customers continue to demand lower prices, shorter delivery times and
enhanced product capability. If we do not respond adequately to such pressures,
we could lose customers or orders. If we are unable to compete successfully, we
could experience pricing pressures, reduced gross margins and order
cancellations.
Lack of market acceptance of our 300mm products could harm our operating
results.
The growing trend toward the use of 300mm wafers has contributed to the
increasing complexity of the semiconductor manufacturing process. The greater
diameter of these wafers requires higher tooling costs and presents more
complex handling, storage and transportation challenges. We are making
substantial investments to complete a full line of 300mm wafer manufacturing
and handling products. Our customers may not adopt our 300mm wafer
manufacturing and handling product lines. If we are not a leader in the 300mm
market, the market share for our other products could decline. In addition, if
the trend toward 300mm wafer manufacturing does not evolve as we anticipate,
sales of our products for these applications would be minimal and we might not
recover our development costs.
Our management information and financial reporting systems are not fully
integrated and need to be upgraded, which will be costly. If these new systems
are not successfully implemented, our business may be harmed.
The management information and financial reporting systems that we use in
our day-to-day operations are not fully integrated. We will need to continue to
invest in these systems in order to maintain our current level of business and
accommodate any future growth. We anticipate that the total costs associated
with upgrading and integrating our systems will be approximately $8 to $10
million over the next two to four years. Our failure to successfully upgrade
and integrate our management information and financial reporting systems may
disrupt our business, create inefficiencies due to the lack of centralized
data, result in unnecessarily high levels of inventories, and increase expenses
associated with additional employees to compensate for the lack of fully
integrated systems.
We may not be able to significantly expand our customer base by soliciting
customers of our competitors because customers tend to standardize materials
handling procedures and are reluctant to change their standardized
manufacturing processes.
Once an original equipment manufacturer or a microelectronics manufacturer
has selected particular materials management products, that manufacturer
typically must qualify those products before incorporating them into customized
manufacturing procedures that assure precise and consistent processing steps.
Qualification and incorporation of materials management products by
manufacturers can be time-consuming and expensive. After these procedures have
been established, manufacturers are very reluctant to switch to another
provider of materials management products. Accordingly, it may be difficult to
sell our products to a manufacturer that has already selected a competitor's
products.
We may face product liability claims which could harm our operating results.
Our products are used by our customers to handle sensitive, complex and
valuable wafers and semiconductor materials and devices. If our products fail,
these materials could be damaged or contaminated, which could expose us to
product liability claims. Business interruption and personal injury claims are
also possible in the event of a product failure or misapplication of our
product by a customer. In addition, the failure of our chemical delivery
products could subject us to environmental liability claims and a failure of
our custom medical device components could subject us to personal injury
claims. We cannot predict whether our existing
12
<PAGE>
insurance coverage limits are adequate to protect us from any liabilities that
we might incur in connection with the manufacture, sale or use of our products.
A successful product liability claim or series of product liability claims
brought against us could damage our reputation, diminish customer confidence in
our products, expose us to increased competition and increase our insurance
costs.
Risks related to investing in our initial public offering
Current management, the ESOP and WCB Holdings LLC, which is controlled and
managed by our directors, will beneficially own approximately 70% of our shares
after this offering, and their beneficial ownership may limit your ability to
influence the outcome of matters requiring shareholder approval.
Based on common stock beneficial ownership information available as of May
31, 2000, WCB Holdings LLC would own 29.3%, the ESOP would own 26.7% (24.8%
excluding ESOP shares allocated to all directors and executive officers), and
all directors and executive officers as a group would own 16.7% of our shares
after completion of this offering. WCB Holdings LLC is managed by Mark A.
Bongard, who is a member of our board of directors. WCB Holdings LLC is also
controlled by the estate of Wayne C. Bongard, which is in turn controlled by
James A. Bernards, another of our directors. Accordingly, WCB Holdings LLC, the
ESOP and management, if acting together, could control the outcome of any
shareholder vote, including any vote on the election or removal of directors
and on any merger, consolidation or sale of all or substantially all of our
assets. This concentration of ownership could discourage, delay or prevent a
person or entity from acquiring control of us even if a change in control might
be considered beneficial by some shareholders.
Future sales of shares, including shares owned by our employees, may impact the
market price of our common shares.
If our shareholders sell substantial amounts of our common shares, including
shares issued upon the exercise of outstanding options, the market price of our
common shares may fall. These sales also make it more difficult for us to sell
equity or equity-related securities in the future at a time and price that we
deem appropriate. Based on the number of shares outstanding as of May 31, 2000,
we will have 67,009,848 outstanding common shares upon completion of this
offering. The following tables set forth the number of shares that will be
freely tradable immediately upon completion of the offering as well as the
number of shares that will be available for sale 90 days after the completion
of the offering and the number of shares that will be available for sale after
expiration of the 180-day lock-up agreements:
<TABLE>
<CAPTION>
Total
shares
----------
<S> <C> <C>
Shares freely tradable immediately after offering:
Sold in this offering 13,000,000
Held by current shareholders 1,575,110 14,575,110
----------
Eligible for sale 90 days after offering 10,130
Eligible for sale after 180-day lock-up:
Subject to volume limitations 46,066,496
Not subject to volume limitations 6,358,112 52,424,608
---------- ----------
Total shares outstanding after offering 67,009,848
Shares subject to exercisable options that will be
eligible for sale 90 days after offering 216,190
Shares subject to exercisable options that will be
eligible for sale after 180 day lockup 4,737,766
</TABLE>
If our shareholders sell substantial amounts of common shares (including shares
issued upon the exercise of outstanding options) in the public market, the
market price of our common shares could fall.
After completion of this offering, our ESOP will hold 17,910,514 common
shares. All shares in the ESOP are fully allocated to individual accounts of
ESOP participants. All ESOP participants are fully vested in their accounts.
Participants in the ESOP whose employment with us terminates have the right, as
of the second
13
<PAGE>
August 31 following termination, to request distribution of the shares
allocated to their accounts. Currently, participants who are no longer employed
by us have the right, subject to lock-up arrangements, to request distribution
of an aggregate of 2,065,209 shares as of August 31, 2000. For a fuller
description of the ESOP, see "Management--Equity and Profit Sharing Plans--
Employee Stock Ownership Plan."
We may not be able to pursue our expansion strategy if we are unable to raise
required funds.
We may need to raise additional capital to acquire or invest in
complementary businesses. If we issue additional equity securities, the
ownership stakes of our existing shareholders would be reduced, and the new
equity securities may have rights, preferences or privileges senior to those of
our existing common shares. If we cannot raise funds, if needed, on acceptable
terms, we may not be able to develop our business, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements.
We will have broad discretion as to the use of the offering proceeds, which
increases the risk that the proceeds will not be applied effectively.
We have not allocated the majority of the net proceeds of this offering for
specific uses, and our shareholders may disagree with the way management uses
the proceeds from this offering. We may use a portion of the net proceeds to
acquire additional businesses that we believe will complement or enhance our
current or future business. We cannot, however, be certain that we will be able
to use the proceeds to earn a favorable return.
There is currently no public market for our common shares and, following the
offering, our share price may be volatile.
There has not been a public market for our common shares prior to this
offering, and a liquid trading market for our shares may not develop following
this offering. The initial price of our common shares to be sold in the
offering has been determined by negotiations between us and the representatives
of the underwriters and may not be indicative of prices that will prevail in
the trading market. The trading price of our common shares could be subject to
wide fluctuations in response to various factors, some of which are beyond our
control.
New investors in our common shares will experience immediate and substantial
dilution.
The initial public offering price is substantially higher than the book
value per share of our common shares. Investors purchasing common shares in
this offering, therefore, will incur immediate dilution of $7.53 in net
tangible book value per common share, assuming the exercise of all outstanding
share options. See "Dilution."
Antitakeover provisions limit the ability of a person or entity to acquire
control of us.
Our articles of incorporation and bylaws include provisions that:
. provide for a classified board of directors, with each class of
directors subject to re-election every three years, which limits the
shareholders' ability to quickly change a majority of the board of
directors;
. impose a 75% shareholder vote requirement to change the maximum number
of directors;
. limit the right of our shareholders to call a special meeting of
shareholders; and
. impose procedural and other requirements that could make it difficult
for shareholders to effect certain corporate actions.
In addition, we are subject to the anti-takeover provisions of the Minnesota
Business Corporation Act. Any of these provisions could delay or prevent a
person or entity from acquiring control of us. The effect of these provisions
may be to limit the price that investors are willing to pay in the future for
our securities. These provisions might also discourage potential acquisition
proposals or tender offers, even if the acquisition proposal or tender offer is
at a price above the then current market price for our common shares. For a
fuller description of anti-takeover measures, see "Description of Capital
Shares."
14
<PAGE>
We do not intend to pay dividends, and therefore investors must rely solely on
the market value of our shares to realize a return on their investment.
We have never declared or paid any cash dividends on our capital shares. In
addition, our loan agreements restrict our ability to pay dividends without the
consent of our lenders. We currently intend to retain any future earnings to
fund the development and growth of our business and, therefore, do not
anticipate paying any cash dividends in the foreseeable future.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under the captions "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere in this
prospectus are "forward-looking statements." These statements involve known and
unknown risks, uncertainties, and other factors that may cause our, or our
industry's, actual results, levels of activity, performance or achievements to
be significantly different from any future results, levels of activity,
performance or achievements expressed or implied by the forward-looking
statements. These factors are listed under "Risk Factors" and elsewhere in this
prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "expect," "anticipate," "intend," "may," "should," "plan," "believe,"
"seek," "estimate," "could," "would" or the negative of such terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
these statements to actual results.
15
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $86,700,000, after
deducting underwriting discounts and estimated offering expenses, from the sale
of 8,600,000 common shares, and an additional $13,196,700 from the sale of
1,290,000 common shares if the underwriters' over-allotment option is exercised
in full. We will not receive any proceeds from the sale of common shares by the
selling shareholders.
We intend to use the proceeds of the offering for the retirement of debt,
working capital and general corporate purposes, including sales, marketing,
customer support and other activities related to our business. We will use
approximately $38 million of the proceeds to repay indebtedness owed to ten
lenders under various loan and note agreements and approximately $1.5 million
to pay charges related to such debt reduction. This indebtedness has maturity
dates ranging from 2000 to 2011. This indebteness has a weighted average
interest rate of 8.0%. The indebtedness that we incurred under the loan and
note agreements that we intend to satisfy with offering proceeds was used for
capital expenditures, share redemptions and working capital. We may also use a
portion of the net proceeds for additional capital expenditures, or to acquire
additional businesses that we believe would strengthen our position in our
targeted markets, enhance our technology base, increase our manufacturing
capability and our product offerings and expand our geographic presence.
However, we have no agreements or commitments to acquire any business and are
currently not in negotiations regarding any potential acquisition.
The amounts that we actually expend for working capital and other general
corporate purposes will vary significantly depending on a number of factors,
including future revenue growth, if any, and the amount of cash we generate
from operations. As a result, we will retain broad discretion in the allocation
of the net proceeds of this offering. Pending such uses, we intend to invest
the net proceeds of the initial public offering in investment grade interest-
bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common shares. In
addition, our loan agreements restrict our ability to pay dividends without the
consent of our lenders. We currently intend to retain any future earnings to
fund the development and growth of our business. Therefore, we currently do not
anticipate paying any cash dividends in the foreseeable future.
16
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of May 31, 2000: (1) on
an actual basis; and (2) as adjusted to give effect to (a) the sale of
8,600,000 common shares offered in this offering at an initial public offering
price of $11.00 per share and the application of the net proceeds from such
sale and (b) the reclassification of redeemable Employee Stock Ownership Trust
common shares no longer redeemable upon consummation of our initial public
offering.
The capitalization information set forth in the table below is qualified by,
and you should read it in conjunction with, our more detailed Consolidated
Financial Statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
May 31, 2000
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
(in thousands,
except share data)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt)................................................... $ 16,619 $ 11,619
======== ========
Long-term debt (excluding current portion)............... 48,086 15,086
Redeemable ESOT common stock............................. 183,609 --
Shareholders' equity:
Common stock, par value $.01 per share; 200,000,000
shares authorized,
36,808,784 and 67,009,848 issued and outstanding,
actual and as adjusted................................. 368 670
Additional paid-in capital.............................. 15,039 101,543
Retained earnings (deficit)............................. (44,901) 138,602
Accumulated other comprehensive loss.................... (87) (87)
-------- --------
Total shareholders' equity (deficit)................... (29,581) 240,728
-------- --------
Total capitalization................................... $202,114 $255,814
======== ========
</TABLE>
This table excludes the following shares as of May 31, 2000:
. 7,213,814 shares subject to stock options currently outstanding at a
weighted average exercise price of $3.46 per share;
. 6,919,866 common shares reserved for future grant of options under our
stock option plan and future issuances of stock under our stock purchase
plan; and
. 1,290,000 shares that the underwriters may purchase from us to cover
over-allotments, if any.
17
<PAGE>
DILUTION
Our tangible book value as of May 31, 2000 was $170,894,000, or
approximately $2.60 per share. Net tangible book value per share represents the
amount of our total assets less total liabilities excluding redeemable common
stock, divided by the sum of the number of common shares outstanding plus the
number of shares issuable upon exercise of outstanding options regardless of
whether such options are currently exercisable. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of common shares in this offering and the net tangible book value
per common share immediately after the completion of this offering. After
giving effect to the sale of the 8,600,000 common shares in this offering at an
initial public offering price of $11.00 per share and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by us, our net tangible book value at
May 31, 2000 would have been $257,594,000, or approximately $3.47 per share.
This represents an immediate increase in net tangible book value of $0.87 per
share to existing shareholders and an immediate dilution in net tangible book
value of $7.53 per share to purchasers of common shares in this offering. The
following table illustrates this dilution on a per share basis:
<TABLE>
<CAPTION>
Initial public offering price per share..................... $11.00
<S> <C> <C>
Net tangible book value per share as of May 31, 2000....... $2.60
Increase in net tangible book value per share attributable
to new investors.......................................... 0.87
-----
Net tangible book value per share after offering............ 3.47
-----
Dilution in net tangible book value per share to new
investors.................................................. $7.53
=====
</TABLE>
The following table sets forth, as of May 31, 2000, after giving effect to
the difference between the number of common shares purchased from us, the total
cash consideration paid and the average price per share paid by existing
holders of common shares and by the new investors, before deducting
underwriting discounts and commissions and estimated offering expenses payable
by us, at an initial public offering price of $11.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ -------------------- Price
Name Shares Percent Amount Percent Per Share
---- ---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 65,623,662 88.41% $ 40,443,516 29.95% $ 0.62
New investors.............. 8,600,000 11.59 94,600,000 70.05 $11.00
---------- ------ ------------ ------
Total.................... 74,223,662 100.00% $135,043,516 100.00%
========== ====== ============ ======
</TABLE>
This table includes the following shares as of May 31, 2000:
. 7,213,814 shares subject to options outstanding at a weighted average
exercise price of $3.46 per share.
This table excludes the following shares as of May 31, 2000:
. 6,919,866 additional shares that could be issued under our stock option
plans, and future issuances of stock under our stock purchase plan.
The sale of common shares by the selling shareholders in this offering will
reduce the number of common shares held by existing shareholders to 61,223,662,
or approximately 82.5% of the total number of common shares outstanding upon
the closing of this offering, and will increase the number of shares held by
new public investors to 13,000,000, or approximately 17.5% of the total number
of common shares outstanding after this offering.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data for fiscal 1997, 1998, and
1999, and the consolidated balance sheet data as of August 31, 1998 and August
31, 1999, are derived from and are qualified in their entirety by our audited
consolidated financial statements. The consolidated statement of operations
data for fiscal 1995 and 1996, and the consolidated balance sheet data as of
August 31, 1995, 1996 and 1997, are derived from audited consolidated financial
statements which do not appear in this prospectus. The selected consolidated
statement of operations data for the nine-month periods ended May 31, 1999 and
2000 and the selected consolidated balance sheet data at May 31, 2000 have been
derived from unaudited consolidated financial statements included in this
prospectus. The unaudited consolidated financial statements include, in the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, that management considers necessary for a fair statement of the
results for those periods. The historical results presented below are not
necessarily indicative of the results to be expected for any future periods.
Within the consolidated statement of operations data, net income and per share
figures exclude loss from discontinued operations of $1,503,000, or $0.02 per
share diluted, in fiscal 1995 and income from discontinued operations of
$455,000, or $0.01 per share diluted, in fiscal 1996. The pro forma data
presented gives effect to the reclassification of redeemable Employee Stock
Ownership Trust common shares no longer redeemable upon the consummation of the
Company's initial public offering.
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended August 31, May 31,
------------------------------------------------ ------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net sales.............. $193,284 $271,037 $277,290 $266,591 $241,952 $172,175 $247,653
Cost of sales.......... 104,513 149,042 161,732 156,933 150,102 107,874 132,464
-------- -------- -------- -------- -------- -------- --------
Gross profit.......... 88,771 121,995 115,558 109,658 91,850 64,301 115,189
Selling, general and
administrative
expenses.............. 43,284 62,390 62,384 65,111 62,340 42,793 53,578
Engineering, research
and development
expenses.............. 9,776 12,447 17,986 19,912 14,565 10,916 10,613
-------- -------- -------- -------- -------- -------- --------
Operating profit...... 35,711 47,158 35,188 24,635 14,945 10,592 50,998
Interest expense, net.. 2,782 4,582 6,652 6,995 5,498 4,605 2,778
Other (income) expense,
net................... (1,010) (1,396) 2,201 (273) (1,850) (36) (6,531)
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes and other items
below................ 33,939 43,972 26,335 17,913 11,297 6,023 54,751
Income tax expense..... 12,596 16.109 10,578 4,536 4,380 1,822 19,700
Equity in net (income)
loss of affiliates.... (3,347) (3,252) (1,750) 118 1,587 1,585 (1,114)
Minority interest in
subsidiaries' net
income (loss)......... 1,601 2,898 573 176 (399) 84 733
-------- -------- -------- -------- -------- -------- --------
Net income............ 23,089 28,217 16,934 13,083 5,729 2,532 35,432
Market value adjustment
to redeemable common
stock................. (27,927) (11,914) (3,045) 27,170 (98,754) (74,066) (48,602)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)
applicable to
nonredeemable common
shareholders......... $(10,034) $ 16,303 $ 13,889 $ 40,253 $(93,025) $(71,534) $(13,170)
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per
nonredeemable common
share:
Basic................. $ (0.27) $ 0.45 $ 0.39 $ 1.10 $ (2.53) $ (1.95) $ (0.36)
Diluted............... $ (0.27) $ 0.43 $ 0.27 $ 0.21 $ (2.53) $ (1.95) $ (0.36)
Weighted average common
shares:
Basic................. 37,735 36,145 35,247 36,651 36,708 36,730 37,037
Diluted............... 37,735 37,969 61,786 61,492 36,708 36,730 37,037
Pro forma earnings per
common share:
Basic................. $ 0.36 $ 0.46 $ 0.28 $ 0.22 $ 0.10 $ 0.04 $ 0.60
Diluted............... $ 0.35 $ 0.44 $ 0.27 $ 0.21 $ 0.09 $ 0.04 $ 0.55
Pro forma weighted
average common shares:
Basic................. 64,034 61,676 59,967 60,747 60,270 60,361 59,363
Diluted............... 65,396 63,500 61,786 61,492 62,220 61,903 64,510
</TABLE>
<TABLE>
<CAPTION>
August 31,
-------------------------------------------- May 31,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents........... $ 11,084 $ 11,251 $ 11,354 $ 8,235 $ 16,411 $ 33,247
Working capital........ 25,450 44,437 50,991 41,777 48,860 78,860
Total assets........... 160,010 212,865 260,885 252,941 242,064 277,890
Long-term debt and
capital lease
obligations, excluding
current maturities.... 32,735 61,916 75,971 73,242 53,830 48,086
Total liabilities and
minority interest..... 93,791 130,162 151,503 134,542 117,381 123,862
Redeemable ESOT common
stock................. 65,846 75,876 76,725 47,906 145,570 183,609
Shareholders' equity
(deficit)............. 373 6,827 32,657 70,493 (20,887) (29,581)
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, except for the historical information,
contains forward-looking statements. These statements are subject to risks and
uncertainties. You should not place undo reliance on these forward-looking
statements, as actual results could differ materially. We do not assume any
obligation to publicly release the results of any revision or updates to these
forward-looking statements to reflect future events or unanticipated
occurrences. This discussion and analysis should be read in conjunction with
our consolidated financial statements and the related notes, which are included
elsewhere in this prospectus.
Our fiscal year is a 52 or 53 week period ending on the last Saturday of
each August. Our last five fiscal years ended on the following dates: August
26, 1995; August 31, 1996; August 30, 1997; August 29, 1998; and August 28,
1999. Fiscal years are identified in this prospectus according to the calendar
year in which they end. For example, the fiscal year ended August 28, 1999 is
referred to as "fiscal 1999." For convenience, the financial information
included in this prospectus has been presented as ending on the last day of the
month.
Overview
We are a leading provider of critical materials management solutions for the
handling, storage, processing and transportation of material used in the
manufacture of semiconductors. Entegris is the result of the 1999 combination
of Fluoroware and Empak. Building on 34 years of expertise, we provide a
comprehensive portfolio of materials management products that enable our
customers to protect the critical materials used in the semiconductor
manufacturing process.
In 1966, we began to produce wafer-carrying baskets for the emerging
semiconductor industry. As the semiconductor industry grew, we expanded our
product lines. During the 1970s, we added wafer shipping containers, die trays
and other items to our product portfolio. In the early 1980s, we added disk
shippers and introduced a series of valve, fitting, pipe and tubing products to
manage chemical delivery for our customers. In the mid 1980s, we also
introduced our chemical transport and storage containers that help ensure the
safe delivery of sophisticated chemicals from chemical manufacturers to the
semiconductor manufacturers' point- of-use. In the early 1990s, we developed
and acquired the technology to manufacture JEDEC/Matrix trays used for testing
and packaging finished integrated circuits. In recent years, we have continued
to broaden our product offerings in response to the trend toward increased size
and complexity of wafers. In October 1999, we acquired a polymer machining
business that we utilize to produce machined products for chemical delivery
applications.
A significant portion of our net sales are to customers outside the United
States. International sales have always been important for us, and have been
increasingly so, as the semiconductor industry has grown over the past three
decades. We began to manufacture our products in overseas facilities starting
with Japan in 1985. Today, we operate manufacturing facilities in Germany,
Japan, Korea and Malaysia, while continuing to export from the United States.
We also maintain a network of over 100 sales and support offices to service
customers on a worldwide basis. International sales accounted for 43.6% of
sales in fiscal 1997, 45.1% of sales in fiscal 1998, 47.9% of sales in fiscal
1999 and 46.4% for the nine-month period ended May 31, 2000.
We derive our revenue from the sale of products to the microelectronics
industry and recognize revenue upon the shipment of such goods to customers.
Our costs of goods sold include polymers and purchased components,
manufacturing personnel, supplies and fixed costs related to depreciation and
operation of facilities and equipment. Our customers consist primarily of
semiconductor manufacturers and semiconductor equipment and materials
suppliers. We serve our customers through various subsidiaries and sales and
distribution relationships in the United States, Asia and Europe.
Our results in fiscal 1998 and 1999 were affected by downturns in the
semiconductor industry. During this time, we made significant investments in
capacity expansion. In 1998, in response to the downturn in the semiconductor
industry, we reduced personnel and variable expenses. We also consolidated
manufacturing operations by combining the activities of two of our facilities
into one, which allowed the Company to reduce
20
<PAGE>
infrastructure support costs and eliminate duplicate production equipment. In
the second half of calendar 1999, the semiconductor industry began to recover
from the downturn. This recovery has led to improved net sales and
profitability.
Entegris was incorporated in June 1999 to effect the business combination of
Fluoroware and Empak. We issued common stock in exchange for 100% of the
outstanding shares of both Fluoroware, which began operating in 1966, and
Empak, which began business in 1980. Accordingly, the historical financial
statements of Entegris are shown to include the historical accounts and results
of operations of Fluoroware and Empak and their respective subsidiaries, as if
the business combination had existed for all periods presented.
Results of Operations
The following table sets forth the relationship between various components
of operations, stated as a percentage of net sales, for each of the periods
indicated. Our historical financial data for fiscal 1997, 1998 and 1999 were
derived from, and should be read in conjunction with, our audited consolidated
financial statements and the related notes included elsewhere in this
prospectus. The historical financial data for the nine-month periods ended May
31, 1999 and May 31, 2000 were derived from our unaudited consolidated
financial statements which, in the opinion of management, reflect all
adjustments necessary for the fair presentation of the financial condition and
results of operations for such periods.
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended
August 31, May 31,
------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ----- -----
(percentage of net sales)
<S> <C> <C> <C> <C> <C>
Net sales.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 58.3 58.9 62.0 62.7 53.5
----- ----- ----- ----- -----
Gross profit............................... 41.7 41.1 38.0 37.3 46.5
Selling, general and administrative
expenses.................................. 22.5 24.4 25.8 24.9 21.6
Engineering, research and development
expenses.................................. 6.5 7.5 6.0 6.3 4.3
----- ----- ----- ----- -----
Operating profit........................... 12.7 9.2 6.2 6.2 20.6
Interest expense, net...................... 2.4 2.6 2.3 2.7 1.1
Other (income) expense, net................ 0.8 (0.1) (0.8) -- (2.6)
----- ----- ----- ----- -----
Income before income taxes and other
items..................................... 9.5 6.7 4.7 3.5 22.1
Income tax expense......................... 3.8 1.7 1.8 1.1 8.0
Equity in net (income) loss of affiliates.. (0.6) -- .7 0.9 (0.4)
Minority interest.......................... 0.2 0.1 (0.2) -- 0.3
----- ----- ----- ----- -----
Net income................................. 6.1% 4.9% 2.4% 2.3% 14.3%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended May 31, 2000 Compared to Nine Months Ended May 31, 1999
Net sales. Net sales increased $75.5 million, or 43.8%, to $247.7 million in
the nine months ended May 31, 2000, compared to $172.2 million in the
comparable period in fiscal 1999. The improvement reflected the increase in
product sales associated with the recovery in the semiconductor industry that
began in the second half of fiscal 1999. Revenue gains were recorded in all
geographic regions, most notably in North America, and across all product
lines.
Gross profit. Gross profit in the nine months ended May 31, 2000 increased
by $50.9 million to $115.2 million, an increase of 79.1% over the $64.3 million
reported in the comparable period in fiscal 1999. Gross margin for the first
three quarters of fiscal 2000 improved to 46.5% compared to 37.3% for the
fiscal 1999 period. Gross margin and gross profit improvements were reported by
both domestic and international operations. The improvements in the fiscal 2000
period reflected the improved utilization of our production
21
<PAGE>
capacity associated with the higher sales levels noted above, a more favorable
product mix and the benefits of integrating various elements of our
manufacturing operations. A $1.6 million reduction in our LIFO inventory
reserve, primarily reflecting the improved utilization in production capacity,
also contributed to higher gross profit and gross margin. Partly offsetting the
factors underlying the improvement in gross profit was $4.9 million in asset
impairment charges, mainly for asset write-offs on molds which were determined
to have no future use.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $10.8 million, or 25.2%, to $53.6 million in
the first nine months of fiscal 2000 from $42.8 million in fiscal 1999. The
increase was due to higher commissions and incentive compensation as well as
increased expenditures for personnel and information systems. Selling, general
and administrative costs also increased due to an accrued expense of $1.9
million in the first nine months of fiscal 2000 for charitable contributions,
as more fully described in the next paragraph. No significant charitable
contributions were made in fiscal 1999. Selling, general and administrative
costs, as a percentage of net sales, decreased to 21.6% from 24.9% primarily
due to increased net sales.
Fluoroware had historically contributed 5% of its profits to charitable
organizations, primarily through the Wallestad Foundation, which was
established by Victor Wallestad, Fluoroware's founder. The Wallestad Foundation
is dedicated to the support of Christian ministries in Minnesota, the United
States and throughout the world. Dan Quernemoen, Stan Geyer and James
Dauwalter, executive officers and directors of Entegris, have also been
directors of the Wallestad Foundation for many years. Because of the industry
downturn in 1998, Fluoroware made no significant charitable contributions for
fiscal 1998 or fiscal 1999. Management has committed to contribute 5% of
Entegris' fiscal 2000 net income to charitable organizations, primarily through
the Wallestad Foundation. The amount of future cash contributions is subject to
review by our board of directors annually in light of our cash needs, operating
results, existing conditions in the industry and other factors deemed relevant
by the Board.
Engineering, research and development expenses. Engineering, research and
development expenses decreased $0.3 million, or 2.8%, to $10.6 million in the
nine months ended May 31, 2000 from $10.9 million in the comparable period in
fiscal 1999. Engineering, research and development costs, as a percentage of
net sales, decreased to 4.3% from 6.3% due mainly to increased net sales.
Interest expense, net. Net interest expense decreased 39.7% to $2.8 million
in the first nine months of fiscal 2000 compared to $4.6 million in the
comparable period a year ago. The decrease reflected the elimination of
domestic credit line borrowings and the short-term investment of available cash
balances.
Other (income) expense, net. Other income was $6.5 million in the first nine
months of fiscal 2000 compared to other income of $36,000 in the comparable
fiscal 1999 period. The change was primarily due to the $5.5 million gain
recognized on the sale of approximately 612,000 shares of stock of Metron in
its initial public offering in November 1999. Other income in the first nine
months of fiscal 2000 also included gains from foreign exchange translation and
the sale of property and equipment.
Income tax expense. Income tax expense of $19.7 million was significantly
higher in the first nine months of fiscal 2000 compared to $1.8 million in
income tax expense reported for the first nine months of fiscal 1999, primarily
reflecting significantly higher income. Our effective tax rate of 36.0% in the
fiscal 2000 period compared to 30.3% for the same period in fiscal 1999.
Equity in net (income) loss of affiliates. Our equity in the net income of
affiliates was $1.1 million in the nine months ended May 31, 2000. Our equity
in the net loss of affiliates was $1.6 million in the comparable period a year
earlier. This improvement primarily reflects the operating results of Metron,
which reflected many of the same improved industry conditions affecting our
results.
Net income. Net income increased to $35.4 million in the nine months ended
May 31, 2000, compared to net income of $2.5 million in the first nine months
of fiscal 1999. After the market value adjustment related to
22
<PAGE>
redeemable common stock, the net loss applicable to nonredeemable common
shareholders was $13.2 million in the nine months ended May 31, 2000, compared
to a net loss of $71.5 million in the nine months ended May 31, 1999.
Fiscal Year Ended August 31, 1999 Compared to Fiscal Year Ended August 31, 1998
Net sales. Net sales decreased $24.6 million, or 9.2%, to $242.0 million in
fiscal 1999 from $266.6 million in fiscal 1998. The revenue decline was
primarily associated with the slowdown experienced in the semiconductor
industry and reflected lower sales in all major product lines and geographic
areas, primarily in the United States.
Gross profit. Gross profit in fiscal 1999 declined by $17.8 million to $91.9
million, a decrease of 16.2% from $109.7 million in fiscal 1998. Gross margin
for fiscal 1999 decreased to 38.0% compared to 41.1% in fiscal 1998. The
primary factor underlying the gross margin decline was the reduced utilization
of our production capacity resulting from lower sales levels in fiscal 1999, as
well as a less favorable product mix. A moderate expansion in production
capacity also contributed to the drop in gross margin. Fiscal 1999 costs
included $2.0 million associated with the business combination of Fluoroware
and Empak.
Selling, general and administrative expenses. Selling, general and
administrative expenses decreased $2.8 million, or 4.3%, to $62.3 million in
fiscal 1999 from $65.1 million in fiscal 1998. Fiscal 1999 costs included
expenses of $3.6 million associated with the business combination of Fluoroware
and Empak and higher information systems costs. These increases were offset by
improvements related to headcount reductions and lower incentive compensation.
Selling, general and administrative costs, as a percentage of net sales,
increased to 25.8% from 24.4% primarily due to the decline in net sales and
one-time business combination expenses.
Engineering, research and development expenses. Engineering, research and
development expenses decreased $5.3 million, or 26.9%, to $14.6 million in
fiscal 1999 from $19.9 million in fiscal 1998. The decrease was due to lower
personnel costs associated with personnel reductions related to the
semiconductor downturn, as well as reduced product sampling and development
expenditures. Engineering, research and development costs, as a percentage of
net sales, decreased to 6.0% from 7.5% due to both increased net sales and
reduced costs.
Interest expense, net. Net interest expense decreased 21.4% to $5.5 million
in fiscal 1999 compared to $7.0 million in fiscal 1998. The decrease reflected
reduced borrowings.
Other (income) expense, net. Other income was $1.9 million in fiscal 1999
compared to $0.3 million in fiscal 1998. The increase primarily reflected a
$2.0 million difference in foreign currency translation gains.
Income tax expense. Income tax expense decreased slightly in fiscal 1999
compared to fiscal 1998. Our effective tax rate was 38.8% in fiscal 1999
compared to 25.3% in fiscal 1998, which reflected the benefit of tax deductions
related to international operations not recognized in prior years.
Equity in net (income) loss of affiliates. Our equity in the net loss of
affiliates was $1.6 million in fiscal 1999 compared to $0.1 million in fiscal
1998. This decline reflects the operating results of Metron, which reflected
many of the same declining industry conditions affecting our results.
Net income. Net income decreased $7.4 million, or 56.2%, to $5.7 million in
fiscal 1999 from $13.1 million in fiscal 1998. After the market value
adjustment related to redeemable common stock, the net loss applicable to
nonredeemable common shareholders in fiscal 1999 was $93.0 million, compared to
net income of $40.3 million in fiscal 1998.
23
<PAGE>
Fiscal Year Ended August 31, 1998 Compared to Fiscal Year Ended August 31, 1997
Net sales. Net sales decreased $10.7 million, or 3.9%, to $266.6 million in
fiscal 1998 from $277.3 million in fiscal 1997. The revenue decline reflected
the slowdown experienced in the semiconductor industry in 1998, particularly
affecting product sales in the second half of the year. We experienced lower
sales in the United States and Asia, which was partly offset by increased sales
in Europe. All major product lines were affected.
Gross profit. Gross profit in fiscal 1998 decreased by $5.9 million to
$109.7 million, a decrease of 5.1% from $115.6 million in fiscal 1997. Gross
margin for fiscal 1998 was 41.1% of net sales compared to 41.7% in fiscal 1997.
The primary factor underlying the slight gross margin decline was the reduced
utilization of our production capacity occurring in the second half of fiscal
1998 due to the reduced level of sales and severance costs associated with the
reduction in manufacturing personnel which took place in fiscal 1998. An
expansion in production capacity in Asia and Europe also contributed to the
decrease in gross margin.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased $2.7 million, or 4.4%, to $65.1 million in
fiscal 1998 from $62.4 million in fiscal 1997. Higher information systems
expenses and severance costs accounted for the increase. Selling, general and
administrative costs, as a percentage of net sales, increased to 24.4% from
22.5%, reflecting both the increased costs and lower net sales.
Engineering, research and development expenses. Engineering, research and
development expenses increased $1.9 million, or 10.7%, to $19.9 million in
fiscal 1998 from $18.0 million in fiscal 1997. The increase reflected higher
personnel, product sampling and development costs. Engineering, research and
development costs, as a percentage of net sales, increased to 7.5% from 6.5%,
reflecting both the increased costs and lower net sales.
Interest expense, net. Our net interest expense rose slightly to $7.0
million in fiscal 1998 compared to $6.7 million in fiscal 1997. The increase
reflected an increased level of average outstanding borrowings.
Other (income) expense, net. Other income was $0.3 million in fiscal 1998
compared to other expense of $2.2 million in fiscal 1997. The increase
reflected lower foreign currency translation losses in fiscal 1998 and $1.2
million in gains on property and equipment sales in fiscal 1998.
Income tax expense. Our effective income tax rate was 25.3% in fiscal 1998
compared to 40.2% in fiscal 1997. The lower rate in fiscal 1998 primarily
reflected the benefit of tax deductions related to international operations not
recognized in prior years.
Equity in net (income) loss of affiliates. Our equity in the net loss of
affiliates was $0.1 million in fiscal 1998, compared to equity in net income of
affiliates of $1.8 million in fiscal 1997. This decrease reflected the
operating results of Metron, which reflected many of the same declining
industry conditions affecting our operating results.
Net income. Net income decreased $3.9 million, or 22.7%, to $13.1 million in
fiscal 1998 from $16.9 million in fiscal 1997. After the market value
adjustment related to redeemable common stock, the net income applicable to
nonredeemable common shareholders in fiscal 1998 was $40.3 million, compared to
$13.9 million in fiscal 1997.
24
<PAGE>
Quarterly Results of Operations
The following tables present consolidated statements of operations data in
dollars and as a percentage of net sales for the seven quarters ended May 31,
2000. In management's opinion, this unaudited information has been prepared on
the same basis as our audited consolidated financial statements appearing
elsewhere in this prospectus. All adjustments which management considers
necessary for the fair presentation of the unaudited information have been
included in the quarters presented. The results for any quarter are not
necessarily indicative of the results to be expected for the entire year or any
future period. For example, our results were positively affected in the first
quarter of fiscal 2000 by the $5.5 million gain recognized on the sale of
approximately 612,000 of Metron stock in its initial public offering in
November 1999.
<TABLE>
<CAPTION>
Fiscal Year 1999 Fiscal Year 2000
----------------------------------- -------------------------
Statement of Operations Q1 Q2 Q3 Q4 Q1 Q2 Q3
Data: ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $51,466 $60,124 $60,585 $69,777 $71,816 $84,846 $90,991
------- ------- ------- ------- ------- ------- -------
Gross profit............ 17,091 22,473 24,737 27,549 31,667 39,349 44,173
Selling, general and
administrative
expenses............... 14,110 14,786 13,897 19,548 15,034 18,631 19,913
Engineering, research
and development
expenses............... 4,379 3,192 3,345 3,649 3,503 3,642 3,468
------- ------- ------- ------- ------- ------- -------
Operating profit
(loss)................. (1,398) 4,495 7,496 4,353 13,130 17,076 20,792
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(1,650) $ 1,750 $ 2,433 $ 3,197 $12,045 $11,068 $12,319
======= ======= ======= ======= ======= ======= =======
<CAPTION>
Percentage of Net Sales Q1 Q2 Q3 Q4 Q1 Q2 Q3
Data: ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... 100.0 % 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------- ------- ------- -------
Gross profit............ 33.2 37.4 40.8 39.5 44.1 46.4 48.5
Selling, general and
administrative
expenses............... 27.4 24.6 22.9 28.0 20.9 22.0 21.9
Engineering, research
and development
expenses............... 8.5 5.3 5.5 5.2 4.9 4.3 3.8
------- ------- ------- ------- ------- ------- -------
Operating profit
(loss)................. (2.7)% 7.5% 12.4% 6.2% 18.3% 20.1% 22.9%
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... (3.2)% 2.9% 4.0% 4.6% 16.8% 13.0% 13.5%
======= ======= ======= ======= ======= ======= =======
</TABLE>
Over the past seven quarters, we have generally reported improved net sales
and net income. These results reflect improved conditions in the semiconductor
industry and increased sales of all product lines. Gross profits have increased
throughout fiscal 1999 and into fiscal 2000 due to higher sales, improved
utilization of our product capacity and a more favorable product sales mix.
Cost of sales and selling, general and administrative expenses were impacted in
the quarter ended August 1999 by $2.0 million of asset impairment charges and
$3.6 million in expenses associated with the business combination,
respectively. Many of our customers have upgraded their facilities in the
second and third quarters of fiscal 2000, which resulted in a significant
increase in the sale of wafer management products. We expect a charge of
approximately $1.5 million in the fourth quarter of fiscal 2000 due to the
early extinguishments of a portion of our long-term debt, which will be
possible due to the proceeds of our initial public offering.
Our quarterly results of operations have been, and will likely continue to
be, subject to significant fluctuations due to a variety of factors, including,
among others:
. economic conditions in the semiconductor industry;
. size, timing and shipment of customer orders;
. timing of announcements or introductions by us or our competitors of
product upgrades or enhancements;
. exchange rate fluctuations;
. price competition;
25
<PAGE>
. our ability to design, introduce and manufacture new products on a cost
effective and timely basis; and
. other factors, a number of which are beyond our control.
Liquidity and Capital Resources
We have historically financed our operations and capital requirements
through cash flow from operating activities, long-term loans, and lease
financing (some of which are secured by property and equipment) and borrowings
under domestic and international short-term lines of credit.
Operating activities. Cash flow provided by operations for the nine-month
period ended May 31, 1999 was $26.2 million and for the nine-month period ended
May 31, 2000 was $45.8 million. The increase was primarily due to increased net
income partly offset by higher working capital required to fund increased
accounts receivable levels.
Cash flow provided by operating activities totaled $43.4 million in fiscal
1999, $45.9 million in fiscal 1998 and $28.5 million in fiscal 1997. Net income
and noncash charges primarily accounted for the cash flow generated by
operations. Fiscal 1998 and 1999 operating cash flows also benefited from
reductions in working capital, while increases in working capital reduced the
cash flow from operations in fiscal 1997.
Investing activities. Cash flow used in investing activities was $6.6
million for the nine-month period ended May 31, 1999 and $11.9 million for the
nine-month period ended May 31, 2000. Acquisitions of property and equipment
totalled $6.9 million for the nine-month period ended May 31, 1999 and $16.4
million for the nine-month period ended May 31, 2000. Significant capital
expenditures in fiscal 2000 include additions of manufacturing equipment and
the upgrading of information systems throughout the organization.
Cash flow used in investing activities totaled $46.3 million in fiscal 1997,
$34.0 million in fiscal 1998 and $9.3 million in fiscal 1999. Acquisitions of
property and equipment totaled $44.9 million in fiscal 1997, $33.5 million in
fiscal 1998 and $10.1 million in fiscal 1999. Most of our capital expenditures
are for new facilities, manufacturing equipment and computer and communications
equipment. We continue to upgrade and integrate our management information and
financial reporting systems. We plan capital expenditures of approximately $20
million during fiscal 2000.
Financing activities. Financing activities in the nine months ended May 31,
1999 used cash of $21.3 million and in the nine months ended May 31, 2000 used
$17.0 million, as we eliminated our use of domestic short-term borrowings and
made scheduled payments on our long-term borrowing and capital lease
obligations. In the nine months ended May 31, 2000 we also used $10.4 million
to redeem shares of common stock.
Cash provided by financing activities totaled $17.9 million in fiscal 1997,
while cash used by financing activities was $14.9 million in fiscal 1998 and
$27.1 million in fiscal 1999. In fiscal 1997, new borrowings exceeded payments
on existing debt by $19.7 million. This increase in debt was required because
cash flow from operating activities was not adequate to cover the high level of
investing activities taking place that year. In fiscal 1998 and fiscal 1999, we
were able to pay down outstanding debt with cash flow from operations not used
for investing purposes. We also repurchased common shares for $2.2 million in
fiscal 1997, $2.6 million in fiscal 1998, $1.1 million in fiscal 1999 and $10.4
million in the nine months ended May 31, 2000, primarily in connection with the
redemption of common stock from our Employee Stock Ownership Plan.
Our sources of available funds as of May 31, 2000 were comprised of $33.2
million in cash and cash equivalents and credit facilities. We have unsecured
revolving commitments with two commercial banks with aggregate borrowing
capacity of $30.0 million, with no borrowings outstanding at May 31, 2000. We
also have lines of credit, equivalent to an aggregate $12.0 million with six
international banks, which provide for borrowings of Deutsche marks, Malaysia
ringgits and Japanese yen for our overseas subsidiaries. Borrowings outstanding
on these lines of credit were $8.1 million at May 31, 2000.
26
<PAGE>
We believe that our cash and cash equivalents, cash flow from operations and
available credit facilities, together with the proceeds of the public offering,
will be sufficient to meet our working capital and investing requirements for
the next twelve months. However, our future growth, including potential
acquisitions, may require additional funding, and from time to time we may need
to raise capital through additional equity or debt financing. If we were unable
to obtain this additional funding, we might have to curtail our expansion or
acquisition plans. There can be no assurance that any such financing would be
available to us on commercially acceptable terms.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, as amended, requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the values of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133 will be effective
for us beginning in the first quarter of fiscal 2001. We are currently
assessing the impact of SFAS No. 133 on our consolidated financial position,
results of operations and cash flows.
Quantitative and Qualitative Disclosure About Market Risks
Our principal market risks are sensitivities to interest rates and foreign
currency exchange rates. Our exposure to interest rate fluctuations is not
significant. Most of our outstanding debt at May 31, 2000 carried fixed rates
of interest. All of our short-term investments are debt instruments that mature
in three months or less.
We use derivative financial instruments to manage foreign currency exchange
rate risk associated with the sale of products from the United States when such
sales are denominated in currencies other than the U.S. dollar. The cash flows
and earnings of our foreign-based operations are subject to fluctuations in
foreign exchange rates. A hypothetical 10% change in the foreign currency
exchange rates would increase or decrease our net income by approximately $2
million.
Our cash flows and earnings are also subject to fluctuations in foreign
exchange rates due to investments in foreign-based affiliates. Investments in
affiliates include our 20.3% interest in Metron and our 30.0% interest in FJV
(Korea) Ltd. Metron attempts to limit its exposure to changing foreign currency
exchange rates through operational and financial market actions. Products are
sold in a number of countries throughout the world resulting in a diverse
portfolio of transactions denominated in foreign currencies. Metron manages
certain short-term foreign currency exposures by the purchase of forward
contracts to offset the earnings and cash flow impact of foreign currency
denominated receivables and payables.
Our investment in Metron is accounted for by the equity method of accounting
and has a carrying value on the balance sheet of approximately $14.8 million.
The fair value of Metron is subject to stock market fluctuations. Based on the
closing stock price of Metron on May 31, 2000, the fair value of our investment
in Metron was approximately $29.9 million.
Impact of Inflation
Our financial statements are prepared on a historical cost basis, which does
not completely account for the effects of inflation. However, since the cost of
about three-quarters of our inventories is determined using the last-in, first-
out (LIFO) method of accounting, cost of sales, except for depreciation expense
included therein, generally reflects current costs. The cost of polymers, our
primary raw material, was essentially unchanged from a year ago. We expect the
cost of resins to remain stable in the foreseeable future. Labor costs,
including taxes and fringe benefits, rose modestly in fiscal 1999, and a
moderate increase also can be reasonably anticipated for fiscal 2000.
27
<PAGE>
BUSINESS
Overview
We are a leading provider of materials management solutions to the
microelectronics industry including, in particular, the semiconductor
manufacturing and disk manufacturing markets. Our materials management
solutions for the semiconductor industry assure the integrity of materials as
they are handled, stored, processed and transported throughout the
semiconductor manufacturing process, from raw silicon wafer manufacturing to
packaging of completed integrated circuits. These solutions enable our
customers to protect their investment in work-in-process and finished devices
by facilitating the safe handling, purity and precision processing of the
critical materials used in their manufacturing process.
With over 10,000 standard and customized products, we believe we provide the
most comprehensive portfolio of materials management products to the
microelectronics industry. Our materials management products, such as wafer
shippers, wafer transport and process carriers, pods and work-in-process boxes,
preserve the integrity of wafers as they are transported from wafer
manufacturers to semiconductor manufacturers, processed into finished wafers
and integrated circuits and subsequently tested, assembled and packaged. We
also provide chemical delivery products, such as valves, fittings, tubing, pipe
and containers, that assure the consistent and safe delivery and storage of
sophisticated chemicals between chemical manufacturers and semiconductor
manufacturers' point-of-use.
We sell our products worldwide to over 1,000 customers, who represent a
broad base of leading suppliers to the microelectronics industry. Our customers
in the semiconductor industry include wafer manufacturers, chemical suppliers,
equipment manufacturers, device manufacturers and assemblers. Our semiconductor
customers include Amkor/Anam, Applied Materials, Arch Chemicals, IBM, Infineon,
Intel, Texas Instruments and TSMC. Our customers in data storage manufacturing
include HMT, IBM, Komag and Seagate Technology. International sales represented
approximately 45.1% of our sales in fiscal 1998, 47.9% of our sales in fiscal
1999 and 46.4% of our sales in the nine months ended May 31, 2000. We provide
our customers with a worldwide network of sales and support personnel, which
enable us to offer local service to our global customer base and assure the
timely and cost-effective delivery of our products.
Industry Background
Semiconductors, or integrated circuits, are the building blocks of today's
electronics and the backbone of the information age. The market for
semiconductors has grown significantly over the past several years. This trend
is expected to continue due to rapid growth in Internet usage and the
continuing demand for applications in data processing, wireless communications,
broadband infrastructure, personal computers, handheld electronic devices and
other consumer electronics. As integrated circuit performance has increased and
the size and cost have decreased, the use of semiconductors in these
applications has grown significantly. According to the Semiconductor Industry
Association, or SIA, worldwide semiconductor revenues grew by 14.7% in 1999 to
$144.1 billion, and is expected to grow at a compound annual growth rate of
17.5% over the next three years to $233.6 billion in 2002.
The semiconductor materials industry is comprised of a wide variety of
materials and consumables that are used throughout the semiconductor production
process. The extensive and complex process of turning bare silicon wafers into
finished integrated circuits is dependent upon a variety of materials used
repeatedly throughout the manufacturing process, such as silicon, chemicals,
gases and metals. The handling of these materials during the integrated circuit
manufacturing process requires the use of a variety of products, such as wafer
shippers, wafer transport and process carriers, fluid and gas handling
components and integrated circuit trays. Semiconductor unit volume is the
primary driver of the demand for these materials and products because they are
used or consumed throughout the production process and many are replenished or
replaced on a regular basis. While influenced by capacity expansion, the
semiconductor materials and materials management industries are less cyclical
than the semiconductor capital equipment industries.
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<PAGE>
Semiconductor Manufacturing Process
Semiconductor manufacturing is highly complex and consists of two principal
segments: front-end and back-end processes. The front-end process begins with
the delivery of raw wafers from wafer manufacturers to semiconductor
manufacturers. After the wafers are shipped to semiconductor manufacturers,
they are processed into finished wafers. During the front-end process, raw
wafers undergo a series of highly complex and sensitive manufacturing steps,
during which a variety of materials, including chemicals and gases, are
introduced. Once the front-end manufacturing process is completed, finished
wafers are transferred to back-end manufacturers or assemblers. The back-end
semiconductor manufacturing process consists of test, assembly and packaging of
finished wafers into integrated circuits. Materials management products, such
as wafer shippers, wafer transport and process carriers, fluid and gas handling
components and integrated circuit trays, facilitate the storage, transport,
processing and protection of wafers through these front-end and back-end
manufacturing steps. Semiconductor manufacturing has become more complex in
recent years as new technologies have been introduced to enhance device
performance and as larger wafer sizes have been introduced to increase
production efficiencies. Increased processing complexity adds significantly to
the cost of constructing and equipping a wafer manufacturing facility, or fab,
which can now exceed $2 billion.
As a result of the growing cost and complexity of manufacturing integrated
circuits, semiconductor manufacturers have increasingly focused on improving
productivity in their manufacturing facilities. In the 1970s, yield management
techniques such as process monitoring and in-line testing were introduced to
the semiconductor manufacturing process. These techniques were widely adopted
in the 1980s and 1990s. Automation was introduced to semiconductor
manufacturing facilities in the 1980s in an effort to improve efficiency.
Because of the widespread use of these technologies, significant productivity
gains have already been realized.
Materials Management Focus
In an effort to realize continued productivity gains, semiconductor
manufacturers have become increasingly focused on materials management
solutions that enable them to safely store, handle, process and transport
materials throughout the manufacturing process to minimize the potential for
damage or degradation to their materials and to protect their investment in
processed wafers. Wafer processing can involve as many as 500 steps and take up
to six weeks. As a result, a batch of 25 fully processed wafers can cost more
than $1 million. Since significant value is added to the wafer during each
successive manufacturing step, it is essential that the wafer be handled
carefully and precisely to minimize damage. In addition, materials handling
products must meet exact specifications each and every time or valuable wafers
can be damaged. For example, in the case of wafer carriers, precise wafer
positioning, highly reliable and predictable cassette interface dimensions and
advanced materials are crucial. The failure to prevent damage to wafers can
severely impact integrated circuit performance, render an integrated circuit
inoperable or disrupt manufacturing operations. Thus, semiconductor
manufacturers are seeking to:
. minimize contamination--semiconductor processing is now so sensitive
that ionic contamination in certain processing chemicals is measured in
parts per trillion;
. protect semiconductor devices from electrostatic discharge and shock;
. avoid process interruptions;
. prevent damage or abrasion to wafers and materials during automated
processing caused by contact with other materials or equipment;
. prevent damage due to abrasion or vibration of work-in-process and
finished goods during transportation to and from customer and supplier
facilities; and
. eliminate the dangers associated with handling toxic chemicals--Rose
Associates reports suggest that the semiconductor industry will use over
100 million gallons of extremely corrosive chemicals in 2000 alone.
29
<PAGE>
The importance of efficiently managing materials throughout the
manufacturing process and the need to protect wafers is demonstrated by the
existence of related standards established by the Semiconductor Equipment and
Materials International (SEMI) organization, a leading industry trade
organization. SEMI has specifically included the need to eliminate these risks
in SEMI's official standards publication.
The need for efficient and reliable materials management is particularly
important as new materials are introduced and as 300mm semiconductor wafer
manufacturing becomes a more prevalent manufacturing technology. These 300mm
wafers are increasingly larger, more costly and more complex, and thus are more
vulnerable to damage or contamination. In addition, new materials as well as
increased wafer size and circuit shrinkage create new contamination and
material compatability risks. These trends will present new and increasingly
difficult shipping, transport, process and storage challenges.
The semiconductor materials industry and the materials management industry
are highly fragmented and are served by a variety of providers, consisting of
divisions within large corporations and smaller companies that target niche
markets or specific geographic regions. Semiconductor manufacturers require
materials management providers that demonstrate a deep knowledge of materials
management and semiconductor manufacturing, have a track record of reliability,
offer a broad product line and have the ability to support and service customer
needs worldwide.
The Entegris Solution
We are a leading provider of materials management solutions that assure the
integrity of materials as they are handled, stored, processed and transported
throughout the semiconductor manufacturing process, from raw silicon wafers to
completed integrated circuits. Among other things, our comprehensive portfolio
of products enable:
. secure transport of materials, including chemicals and raw silicon
wafers, from suppliers to the fab;
. storage, handling and transport of wafers throughout fab processing;
. storage, mixing and distribution of chemicals throughout fab processing;
. delivery of finished wafers to test, assembly and packaging facilities;
and
. safe handling of integrated circuit packages and bare die at the test,
assembly and packaging facilities.
We also apply our materials integrity expertise within other markets in the
microelectronics industry, such as the data storage market.
Our comprehensive product line, advanced manufacturing capabilities,
extensive polymer expertise, industry and applications knowledge and worldwide
infrastructure benefit our customers and position us for growth.
Comprehensive Product Line
With over 10,000 products, we believe that we offer the broadest product
offering of materials management solutions for the microelectronics
manufacturing industry. In the last eighteen months, we have released more than
100 new products, including front opening unified pods, or FOUPs, and 500
derivative products. In the semiconductor industry, we offer products to ship,
process, test and store wafers before, during and after the integrated circuit
manufacturing process. We also offer a complete product line to transport,
process, store and ship chemicals used in the semiconductor manufacturing
process. In the data storage market, we offer a broad range of products to
transport and handle magnetic hard disk drives, read/write heads and optical
and compact disks.
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<PAGE>
Advanced Manufacturing Capabilities
We have a wide range of advanced polymer manufacturing capabilities that use
a variety of mold designs to produce high precision products, often in
cleanroom facilities. Our polymer capabilities include:
. injection molding
. rotational molding
. blow molding
. extrusion
. machining
. welding and flaring
. sheet lining
. over-molding
. insert molding and
. prototyping
These capabilities, coupled with our strengths in advanced tool design and
mold-making, high volume manufacturing, quality assurance and polymer
reclaiming, enable us to be a leader in our markets.
Extensive Polymer Expertise
We have extensive research experience with the advanced polymer materials
used in our products. We have expertise in:
. material evaluation
. analytical chemistry
. polymer blending and
. quality assurance techniques
We understand the properties of advanced polymers, how they interact with
other materials used in the semiconductor manufacturing process and how they
address the varying conditions of the manufacturing process.
Industry and Applications Knowledge
Throughout our 34-year history, we have worked closely with semiconductor
and hard disk drive manufacturers and materials suppliers to accumulate
considerable insight into the increasingly complex manufacturing requirements
of the semiconductor and data storage markets. This insight allows us to more
effectively target our research and development toward products that satisfy
our customers' manufacturing requirements. Our industry knowledge encompasses:
. contamination control
. electrostatic discharge protection and
. cleanroom manufacturing
This industry knowledge has enabled us to serve as a leader in developing
industry standards. Our ability to characterize and test products allows us to
understand the interaction of our products with wafers in our customers'
manufacturing process in order to ensure superior performance while reducing
the risk of damage.
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<PAGE>
Worldwide Infrastructure
Our worldwide infrastructure positions us in every major region of the world
where semiconductor manufacturing takes place. Our manufacturing operations and
support offices in the United States, Europe and Asia enable us to offer local
service, the timely and cost-effective delivery of our products and the
capacity to meet customer requirements. We offer customer service 24 hours a
day, 7 days a week.
Entegris' Strategy
Our objective is to build upon our leadership in materials management
solutions for semiconductor device, equipment and materials suppliers, as well
as apply our expertise to the growing materials management needs of other
markets. The key elements of our strategy to achieve this objective are:
Expand Technological Leadership
Since our inception, we have been an innovator in materials management
solutions for the semiconductor industry. For example, our chemical delivery
product line represents a number of industry firsts, including:
. the first perfluoroalkoxy, or PFA, fusion-bonded piping
. the first valves with no metal parts in the fluid stream
. the first nonmetallic capacitive sensors to successfully perform in
harsh environments at high temperatures and
. the first pinch valve.
Additionally, we are a leading designer and manufacturer of 300mm materials
management solutions with products such as FOUPs, and reduced-pitch front
opening shipping boxes, or FOSBs. We will continue to expand the scope of our
technology leadership by:
. identifying viable new polymers for materials management applications
. developing innovative product designs and advanced processes for molding
difficult materials and
. aiding the industry in establishing manufacturing standards for
materials management products.
Broaden Product Offering
Although we offer a comprehensive line of more than 10,000 products, we
believe that there is significant potential for sales of new products and
solutions in the semiconductor and data storage markets and within the broader
microelectronics industry including, among others:
. new products and solutions for the emerging 300mm wafer market;
. upgrading 200mm fabs with new and improved products;
. new products and solutions to store, mix, handle and transport ultra-
pure and corrosive chemicals used in the semiconductor manufacturing
process; and
. new products and solutions in the area of testing, storing and shipping
finished integrated circuits.
We are committed to developing new products through both internal research and
development and strategic acquisitions.
Enhance Relationships with Customers and Suppliers
For over three decades, we have cultivated our relationships with our key
customers and suppliers. We work closely with our customers during the
engineering and design phase to identify and respond to their
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<PAGE>
requests for future generation products. For example, our application engineers
work closely with key original equipment manufacturers, or OEMs, to assure that
our products are designed to interface smoothly with their equipment. In
addition, we enjoy long-standing collaborative relationships with key
suppliers, which provide us with technical information and access to new or
improved materials. We will continue to emphasize these collaborative
relationships with customers and suppliers in order to develop new and enhanced
products.
Expand in Japan
We believe that further penetration of the Japanese market is critical to
our growth. Five of the world's seven largest wafer manufacturers are
headquartered in Japan. We have maintained a manufacturing and sales presence
in Japan since the 1970s through licensing arrangements, joint venture
injection molding operations and a joint venture sales company, which has
allowed us to develop strategic relationships and an understanding of the
Japanese market. To increase our presence in Japan, we intend to expand our
local manufacturing operations, introduce new products, expand our marketing
initiatives and pursue strategic acquisitions.
Pursue Selective Acquisitions
Although we currently have no agreements or commitments to acquire any
business, we intend to pursue selective acquisitions to complement our growth.
Our goal is to acquire businesses that will strengthen our position in our
targeted markets, enhance our technology base, increase our manufacturing
capability and our product offerings and expand our geographic presence.
Expanding our business in key market segments could strengthen our presence
with existing customers and provide access to new customers who seek a global
service provider for their materials management needs.
Expand into New Industries
We believe that our materials management expertise can be applied outside
the microelectronics industry to a variety of industries that use sophisticated
manufacturing processes and have critical materials management needs. For
example, in the biopharmaceutical industry, we are seeking to apply our
expertise to live bacteria drug manufacturing, which is a metal-sensitive
process enabled by our polymer expertise and products. We are also pursuing
other growth opportunities in the chemical processing and medical device
markets.
Markets and Products
With over 10,000 standard and customized products, we believe that we
provide the most comprehensive portfolio of materials management solutions to
the microelectronics industry. Our product lines address both the semiconductor
and the data storage manufacturing markets. During the front-end semiconductor
manufacturing process, we provide materials management products and services
that preserve the integrity of wafers as they travel from wafer manufacturers
to semiconductor manufacturers. As the wafers are subsequently processed, we
provide wafer transport products that reliably interface with automated
processing equipment. We also provide products that safely deliver processing
chemicals from chemical manufacturers to containers at the fab and then from
containers to process equipment within the fab. During the back-end
semiconductor manufacturing process, we provide products that transport and
handle completed integrated circuits during testing, assembly and packaging.
Furthermore, we provide products that prevent degradation and damage to
magnetic hard disk drives and read/write heads as they are processed and
shipped.
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<PAGE>
The following table summarizes the breadth of our materials management
product offerings.
Representative Product Enabling
Process Products Description Function
------- -------------- ----------- --------
MICROELECTRONICS
Semiconductor
Front-End:
Wafer Manu- o Ultrapak(R) Transport and storage Preserves the
facturing o Crystalpak(R) products and systems integrity of raw
o FabFit300(TM) for 100, 125, 150, wafers during
200 and 300mm shipment from
raw wafers wafer manufacturers
to semiconductor
manufacturers
Wafer Handling o KA250(R) Pods, carriers and Holds and positions
o F300 FOUP work-in-process wafers during
boxes for 100, 125, processing
150, 200, and 300mm including precise
process wafers interfaces with
automation and
manufacturing
equipment
Chemical Delivery o Valves: High purity Provides consistent
Integra(R), corrosion resistant and safe delivery
Dymak(R), fluid handling of sophisticated
Accuflo(TM) components for chemicals from
o Fittings: chemical transport chemical manu-
Flaretek(R), and bulk storage facturers to semi-
Galtek(R), conductor manufac-
Quikgrip(R) turers' point-of-
o Tubing: use
FluoroLine(R)
o Pipes:
PUREBOND(R)
o Containers:
FluoroPure(R)
Back-End:
Test, Assembly
and Packaging o 1120/1144 Bare Transport, handling Preserves the
Die Trays and storage systems integrity of wafers
o JEDEC/Matrix for wafer, bare die, and die during
Trays single die, in transportation to
process die, and back-end opera-
packaged die tions by avoiding
electrostatic
discharge and
contamination
Microelectronics
Disk Manu- o Disk Shipper Trays and carriers Prevents degrada-
facturing o Read/Write for read/write and tion and damage to
Head Trays disk processing and critical data
shipping in all storage components
sizes and
substrates
OTHER
Biopharmaceutical,
Tele-
communications,
Medical and Other o Cynergy(R) Wide variety of Enables new
o Filter Housing custom designed technologies and
and Components and molded products applications such
o Micro-molded for use in high as live bacteria
Parts technology manufacturing tech-
applications niques and minia-
including fluid turization for
transfer and telecommunications
sophisticated
medical devices
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<PAGE>
Semiconductor Manufacturing: Front-End
Wafer Manufacturing Products. We are a leading provider of critical shipping
products that preserve the integrity of raw silicon wafers as they are
transported from wafer manufacturers to semiconductor manufacturers. We lead
the market with our extensive, high volume line of UltraPak(R) and
CrystalPak(R) products which are supplied to wafer manufacturers in a full
range of sizes covering 100, 125, 150 and 200mm wafers. The UltraPak(R) was
first introduced in the mid 1980s. It is made of a proprietary blend of
polypropylene and is the market leader in wafer shipping boxes. The
CrystalPak(R) was introduced in the early 1990s as a reusable wafer shipping
box and is made of a proprietary blend of polycarbonate. Continuing our
technological leadership in the market, we offer the FabFit300(TM) for the
transportation and automated interface of 300mm wafers. We offer a complete
shipping system, including both wafer shipping containers as well as secondary
packaging that provide another level of protection for wafers. This 300mm wafer
system reduces the cleaning, shipping and storage costs for semiconductor
manufacturers and allows them to optimize the use of their premium cleanroom
space.
Wafer Handling Products. We believe that we are a market leader in wafer
handling products. We offer a wide variety of products that hold and position
wafers as they travel to and from each piece of equipment used in the automated
manufacturing process. These specialized carriers provide precise wafer
positioning, wafer protection and highly reliable and predictable cassette
interfaces in automated fabs. Semiconductor manufacturers rely on our products
to improve yields by protecting wafers from abrasion, degradation and
contamination during the manufacturing process. We provide standard and
customized products that meet the full spectrum of industry standards and
customers' wafer handling needs including FOUPs, wafer transport and process
carriers, pods and work-in-process boxes. To meet our customers' varying wafer
processing and transport needs, we offer wafer carriers in a variety of
materials and in sizes ranging from 100mm through 300mm.
Chemical Delivery Products. Chemicals spend most of their time in contact
with fluid storage and management distribution systems, so it is critical for
fluid storage and handling components to resist these chemicals and avoid
contributing contaminants to the fluid stream. We offer chemical delivery
products that allow the consistent and safe delivery of sophisticated chemicals
from the chemical manufacturer to the point-of-use in the semiconductor fab.
Most of these products are made from perfluoroalkoxy or PFA, a fluoropolymer
resin widely used in the industry because of its high purity and inertness to
chemicals. The innovative design and reliable performance of our products and
systems under the most stringent of process conditions has made us a recognized
leader in high purity fluid transfer products and systems.
Both semiconductor manufacturers and semiconductor OEMs use our chemical
delivery products and systems. Our comprehensive product line provides our
customers with a single source provider for their chemical storage and
management needs throughout the manufacturing process.
Our chemical delivery products include:
. Valves. We offer the Integra(R), Dymak(R) and Accuflo(TM) valves, each
of which were first in their respective applications. Our Integra(R)
valve was the first to feature no external metal parts, which can
corrode and pose a safety hazard when managing aggressive chemicals. Our
Dymak(R) valve is the first PFA pinch valve designed for chemical
mechanical polishing, or CMP, slurries, bulk chemical distribution and
other high flow applications. The all-PFA pinch element allows greater
resistance to chemical corrosion and offers lower particle generation
than competing valves. Our Accuflo(TM) metering valve is the first to be
molded entirely from PFA, which provides enhanced control for a broad
range of applications.
. Fittings. We provide fittings that have become the industry standard for
high purity chemical resistance. We offer three styles of fittings:
Flaretek(R), Quikgrip(R) and Galtek(R) fittings. Our Flaretek(R)
fittings feature a flare design that combines leak-free performance with
minimum dead volume. All of the wetted surfaces of our fittings products
are Teflon(R) PFA, chosen for its resistance to corrosion and wear in
the semiconductor processing environment. Our Quikgrip(R) fitting has a
gripper design that
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<PAGE>
features easy, user-friendly assembly. Additionally, our Galtek(R)
fittings represent the industry's first all PFA fitting featuring an
integral ferrule design for strength along with chemical resistance
features.
. Tubing. We offer three grades of FluoroLine(R) PFA tubing, which address
our customers' needs ranging from industrial to ultra high purity
applications.
. Pipe. Our PUREBOND(R) fusable piping components provide leak-free piping
systems by fusion bonding over rigid pipe and components. Our patented
method for joining PFA components allows flexibility of design and
assembly of fluid delivery systems. We offer many component
configuration sizes ranging from 1/4 inch to 2 inch inner diameters,
meeting a wide range of customer design requirements.
. Chemical Containers. We offer a broad spectrum of chemical transport and
storage containers that help ensure the safe delivery of sophisticated
chemicals from chemical manufacturers to the semiconductor
manufacturers' point-of-use. Our containers are well suited for the
microelectronics industry because they help minimize contamination of
chemicals to concentrations of parts per billion and parts per trillion.
Our sheet lining process allows us to provide containers for bulk
chemical storage and shipment of up to 19,000 liters. We offer a wide
variety of container types including drums, pressure vessels,
intermediate bulk containers, custom containers and bottles. In
addition, we provide our patented quick connect system, which enables
safe, risk-free connections for chemical container change-outs.
. Custom Fabricated Products. We offer a wide variety of custom-molded,
welded or fabricated fluid products, including custom valves, fittings,
filter housings, caps, closures, flanges and tanks. We manufacture these
custom products to meet stringent standards of consistency and safety by
offering a variety of high performance, chemically resistant materials.
Some of our valves fall within the scope of United States export licensing
regulations pertaining to products that could be used in connection with
chemical weapons processes. These regulations require us to obtain licenses to
ship some of our products to customers in certain countries, and we routinely
apply for and obtain export licenses. The applicable export licensing
regulations frequently change. Moreover, the types and categories of products
that are subject to export licensing are often described in the regulations in
general terms and could be subject to differing interpretations.
We are currently cooperating with the United States Department of Commerce
to clarify our licensing practices and to review our practices with respect to
prior sales of our valve products to customers in Taiwan and Israel. While the
Department of Commerce review is pending, we have been applying for export
licenses for ongoing orders for our valves from customers in Taiwan and
Israel, and the Department of Commerce has been granting licenses for these
sales.
Semiconductor Manufacturing: Back-End
Test, Assembly and Packaging Products. Rapidly changing packaging
strategies for semiconductor applications are creating new materials
management challenges for back-end manufacturers. We offer chip and matrix
trays as well as shippers and carriers for thinned wafers, bare die handling
and integrated circuits. Our materials management products are compatible with
industry standards and available in a wide range of sizes with various feature
sets. Our standard trays offer dimensional stability and permanent
electrostatic discharge protection. Our trays also offer a number of features
including:
. custom designs to minimize die movement and contact;
. shelves and pedestals to minimize direct die contact, special pocket
features to handle various surface finishes to eliminate die sticking;
and
. other features for automated or manual die placement and removal.
In addition, we support our product line with a full range of accessories
to address specific needs such as static control, cleaning, chip washing and
other related materials management requirements. To better address
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<PAGE>
this market, we have established ictray.com, a website which allows new and
existing customers to select from our full range of standard and custom
integrated circuit trays.
Hard Disk Drive Manufacturing
Disk Manufacturing Products. Like the semiconductor industry, the data
storage market continues to face new challenges and deploy new technologies at
an accelerating rate. We provide materials management products and solutions to
manage two critical sectors of this industry: magnetic disks and the read/write
heads used to read and write today's higher density disks. Because both of
these hard disk drive components are instrumental in the transition to more
powerful storage solutions, we offer products that carefully protect and
maintain the integrity of these components during their processing, storage and
shipment. Our product offerings for magnetic hard disk drives include:
. process carriers
. boxes
. packages
. tools and
. shippers for aluminum and other disk substrates.
Our optical hard disk drive products include:
. stamper cases
. process carriers
. boxes and
. glass master carriers.
Our read/write head products include:
. transport trays
. carriers
. handles
. boxes
. individual disk substrate packages and
. accessories.
Other Industries
We offer our extensive polymer molding expertise to customers outside the
microelectronics industry, such as the biopharmaceutical, medical and
telecommunications industries. We work with our customers in these industries
to develop specialized components and assemblies that meet their stringent
specifications for close tolerances and cleanliness. We offer a wide variety of
services and capabilities to these customers, including:
.materials research
.parts design
.mold design
.manufacturing
.molding
.assembly and
.final testing
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<PAGE>
The following table sets forth for the fiscal years indicated our net sales
derived from the sale of semiconductor manufacturing products, disk
manufacturing products and other products.
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Semiconductor manufacturing products.................. 74% 75% 76%
Disk manufacturing products........................... 22% 20% 20%
Other products........................................ 4% 5% 4%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
Customers
We have over 1,000 customers in North America, Europe and Asia, including
every major semiconductor manufacturer in the world. No single end-customer
accounts for over 5% of our sales. We provide products and solutions primarily
to semiconductor manufacturers and semiconductor equipment manufacturers,
chemical materials suppliers and data storage manufacturers. The following
table sets forth a list of major customers in each of the markets in which we
operate.
Semiconductor Wafer
Manufacturing
Microelectronics
and
Semiconductor
Materials
Mitsubishi Silicon Sumitomo Metals
MEMC Wacker Siltronic
Shin Etsu Handotai
(SEH)
Arch Chemicals Millipore
Ashland Pall
BOC Edwards
Semiconductor Device Manufacturing and Assembly
Semiconductor Device Manufacturing and Assembly
<TABLE>
<S> <C> <C> <C>
AMD Hitachi LG International Samsung
Amkor/Anam Intel Micron Technology STMicroelectronics
ASE Test IBM Motorola Texas Instruments
Carsem Infineon NEC TSMC
Fujitsu Lucent Philips UMC
</TABLE>
Semiconductor Equipment Manufacturing
Data Storage Manufacturing
Applied Materials SCP Global Technologies
FSI International
Fujitsu Komag
Hoya MMC
HMT Seagate Technology
IBM
Custom Products for Other Industries
ADC Telecom Guidant
Boston Scientific Medtronic
Ericsson
Sales and Marketing
We market and sell our products on a worldwide basis through a network of
direct sales personnel, commissioned sales representatives and stocking
distributors. Our sales and marketing initiatives in Japan are coordinated
through the sales office of Fluoroware Valqua Japan, our majority owned
subsidiary. Metron, a global distributor of semiconductor products and services
partially owned by Entegris, has broad distribution rights in Europe, and in
portions of the United States and Asia.
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<PAGE>
International sales accounted for 45.1% of our revenues in fiscal 1998,
47.9% in fiscal 1999 and 46.4% in the nine months ended May 31, 2000. The
following table summarizes total net sales, based upon the country from which
sales were made, and long-lived assets attributed to significant countries for
fiscal 1997, fiscal 1998 and fiscal 1999 (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States................................ $252,230 $217,171 $176,345
Japan........................................ 13,232 19,129 20,337
Germany...................................... 10,103 18,853 26,278
Malaysia..................................... 818 5,828 12,100
Korea........................................ -- 1,249 2,443
Singapore.................................... 907 4,361 4,449
-------- -------- --------
$277,290 $266,591 $241,952
======== ======== ========
Long-lived assets:
United States................................ $ 95,847 $102,190 $ 84,271
Japan........................................ 7,404 6,044 7,100
Germany...................................... 5,034 7,143 6,484
Malaysia..................................... 9,807 13,094 12,955
Korea........................................ 25 2,742 5,131
Singapore.................................... 2,037 2,110 1,683
-------- -------- --------
$120,154 $133,323 $117,624
======== ======== ========
</TABLE>
We support our worldwide sales activities by stocking select products in
regional warehouses, which facilitates rapid response to customers' needs. For
example, Entegris Europe GmbH is a stocking location for distribution
throughout Europe. The worldwide offices of Metron also carry inventories to
meet regional demand.
Direct customer support comes from our five regional service and customer
support offices located in the United States, Germany, Japan, Korea and
Malaysia. We work with each of our regional service and customer support
offices to provide:
. regional marketing support
. including public relations
. collateral development and publication
. corporate positioning
. advertising
. trade show participation and communications.
Our marketing groups based in the United States support our global marketing
strategy, e-business and other initiatives.
Manufacturing
Our customers rely on our products to assure their materials integrity by
providing dimensional precision and stability, cleanliness and consistent
performance. Our ability to meet our customers' expectations, combined with our
substantial investments in worldwide manufacturing capacity, position us to
respond to the increasing materials management demands of the microelectronics
industry and other industries that require similar levels of materials
integrity.
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<PAGE>
To meet our customer needs worldwide, we have established an extensive
global manufacturing network with facilities in the United States, Germany,
Japan, Malaysia and South Korea. Because we work in an industry where
contamination control is paramount, we maintain Class 100 to Class 10,000
cleanrooms for manufacturing and assembly.
We believe that our worldwide manufacturing operations and our advanced
manufacturing capabilities are important competitive advantages. Our advanced
manufacturing capabilities include:
. Injection Molding. Our manufacturing expertise is based on our long
experience with injection molding. Using molds produced from computer-
aided processes, our manufacturing technicians utilize specialized
injection molding equipment and operate within specific protocols and
procedures established to consistently produce precision products.
. Extrusion. Extrusion is the use of heat and force from a screw to melt
solid polymer pellets in a cylinder and then forcing the resulting melt
through a die to produce tubing and pipe. We have established
contamination free on-line laser marking and measurement techniques to
properly identify products during the extrusion process and ensure
consistency in overall dimension and wall thicknesses.
. Blow Molding. Blow molding consists of the use of heat and force from a
screw to melt solid polymer pellets in a cylinder and then forcing the
melt through a die to create a hollow tube. The molten tube is clamped
in a mold and expanded with pressurized gas until it takes the shape of
the mold. We utilize advanced three-layer processing to manufacture 55
gallon drums, leading to cost savings while simultaneously assuring
durability, strength and purity.
. Rotational Molding. Rotational molding is the placing of a solid polymer
powder in a mold, placing the mold in an oven and rotating the mold on
two axes so that the melting polymer coats the entire surface of the
mold. This forms a part in the shape of the mold upon cooling. We use
rotational molding in manufacturing containers up to 5,000 liters. Our
rotational molding expertise has provided rapid market access for our
current fluoropolymer sheet lining manufacturing business.
. Sheet Lining. Sheet lining consists of welding thin sheets of polymer
into a solid lining that conforms to the shape of a large vessel, such
as a tanker truck. We sheet line stainless steel tanks up to 19,000
liters in size through a complex adhesive and welding process that
provides customers with purity and strength for the high volume storage
and transportation of corrosive chemicals.
. Machining. Machining consists of the use of computer controlled
equipment to create shapes, such as valve bodies, out of solid polymer
blocks or rods. Our computerized machining capabilities enable speed and
repeatability in volume manufacturing of our machined products,
particularly products utilized in chemical delivery applications.
. Assembly. We have established protocols, flow charts, work instructions
and quality assurance procedures to assure proper assembly of component
parts. The extensive use of robotics throughout our facilities reduces
labor costs, diminishes the possibility of contamination and assures
process consistency.
. Tool Making. We employ more than 100 toolmakers at three separate
locations in the United States. Our toolmakers produce the majority of
the tools we use throughout the world.
We have made significant investments in systems and equipment to create
innovative products and tool designs. Our pro-engineer CAD equipment allows us
to develop three-dimensional electronic models of desired customer products to
guide design and tool-making activities. Our pro-engineer CAD equipment also
aids in the rapid prototyping of products.
We also use computer-automated engineering in the context of mold flow
analysis. Beginning with a pro-engineer 3D model, mold flow analysis is used to
visualize and simulate how our molds will fill. The mold
40
<PAGE>
flow analysis techniques cut the time needed to bring a new product to market
because of the reduced need for sampling and development. Also, our pro-
engineer CAD equipment can create a virtual part with specific geometries,
which drives subsequent tool design, tool manufacturing, mold flow analysis and
performance simulation.
In conjunction with our three-dimensional product designs, we use finite
element software to simulate the application of a variety of forces or
pressures to observe what will happen during product use. This analysis helps
us anticipate forces that affect our products under various conditions. The
program also assists our product designers by measuring anticipated stresses
against known material strengths and establishing proper margins of safety.
Engineering, Research and Development
We devote a significant portion of our financial and human resources to
research and development programs. As of May 31, 2000, we employed
approximately 135 people in our worldwide engineering, research and development
department. Of these, more than 20 work in our materials and product testing
research laboratories, where we conduct general materials research to enhance
current products and strengthen our advanced materials knowledge. The other
engineering, research and development personnel perform product design and
development in response to general market needs as well as specific industry
and customer requests. Increasingly, customers ask us to conduct research and
development to find materials, products and systems that meet their specific
materials handling needs.
We utilize sophisticated methodologies to develop and characterize our
materials and products. Our materials technology lab is equipped to analyze the
physical, rheological, thermal, chemical and compositional nature of the
polymers we use. Our materials lab includes standard and advanced polymer
analysis equipment such as inductively coupled plasma mass spectrometry
(ICP/MS), inductively coupled plasma atomic emission spectrometry (ICP/AES),
Fourier transform infrared spectroscopy (FTIR) and automated thermal desorption
gas chromatography/mass spectrometry (ATD-GC/MS). This advanced analysis
equipment allows us to detect contaminants in materials that could harm the
semiconductor manufacturing process to levels as low as parts per billion, and
in some cases parts per trillion.
Our capabilities to test and characterize our materials and products are
focused on continuously reducing risk to our customers. The majority of our
research laboratories are located at our Chaska, Minnesota and Colorado
Springs, Colorado facilities. We expect that technology and product research
and development will continue to represent an important element in our ability
to develop and characterize our materials and products.
41
<PAGE>
Facilities
We conduct manufacturing operations in facilities strategically positioned
throughout the world. Our factory and warehouse facilities adequately meet our
production capacity and work flow requirements. Due to significant capital
spending over the past several years, we estimate that we are currently
operating at approximately 50% of manufacturing capacity and 90% of warehouse
capacity. However, we believe that we can easily obtain sufficient warehouse
capacity. The table below presents certain information relating to these
manufacturing and related warehouse facilities.
<TABLE>
<CAPTION>
Facility Square
Location Footage Type of Ownership Manufacturing Use
<C> <C> <C> <S>
United States
Minnesota 712,000 6 facilities owned, Injection Molding, Extrusion, Blow
2 facilities leased Molding,
Rotational Molding, Tool Making,
Micro-molding,
Sheet Lining
Colorado 148,000 1 facility owned, Injection Molding, Tool Making
1 facility leased
California 30,000 1 facility leased Custom Manufacturing
Texas 20,000 1 facility leased Polymer Reclaiming
Malaysia 105,000 1 facility owned Injection Molding
Korea 78,000 1 facility owned, Injection Molding, Extrusion, Sheet
1 facility leased Lining
Germany 44,000 1 facility owned Injection Molding, Extrusion
Japan 42,000 1 facility owned Injection Molding
</TABLE>
The table below presents certain information relating to leased facilities.
<TABLE>
<CAPTION>
State Square Footage Lease Termination
<C> <C> <S>
Minnesota--Chaska 124,000 March 31, 2011
Minnesota--Gaylord 30,000 July 1, 2023
Colorado--Castle Rock 70,000 September 30, 2005
California--Upland 30,000 July 31, 2005
Texas--Pearland 20,000 December 31, 2000
Korea 23,000 Indefinite (1)
</TABLE>
--------
(1)Lease agreement terminates at end of Joint Venture Agreement
Patents and Proprietary Rights
We rely on patent, copyright, trademark and trade secret laws,
confidentiality agreements and other contractual arrangements with our
employees, strategic partners and others to protect our technology. Our goal is
to obtain intellectual property protection to maintain our position as a leader
in materials management and to give us a competitive advantage in the industry.
We actively pursue a program of patent applications to seek protection of
technologically sensitive features of our materials management products and
processes. We conduct extensive research on the patentability of our
42
<PAGE>
innovations, the potential infringement on existing patents and the business
value of retaining the information as proprietary knowledge. With this
information, we determine whether to seek a patent, disclose the information
through an industry white paper or maintain the information as a trade secret.
As of June 15, 2000, our patent portfolio consisted of 111 current U.S.
patents, which expire from 2000 to 2018, and 33 pending U.S. patent
applications. We regularly seek patent protection outside the United States by
filing counterpart applications, principally in Europe, Taiwan and Japan. We
also pursue trademark registration of our key trademarks in the principal
countries where we do business.
The patent position of any manufacturer, including us, is subject to
uncertainties and may involve complex legal and factual issues. Litigation may
be necessary in the future to enforce our patents and other intellectual
property rights or to defend ourselves against claims of infringement or
invalidity. The steps that we have taken in seeking patents and other
intellectual property protections may prove inadequate to deter
misappropriation of our technology and information. In addition, our
competitors may independently develop technologies that are substantially
equivalent or superior to our technology.
Competition
We face substantial competition from a number of companies, some of which
have greater financial, marketing, manufacturing and technical resources. We
are not aware of any single competitor who offers a comparable breadth of
materials management products and services in the microelectronics industry. We
compete on the basis of our technical expertise, product performance, advanced
manufacturing capabilities, global locations, quality, reliability, established
reputation and customer relationships. We believe that we compete favorably on
the basis of these factors in each of our served markets.
Our wafer management product line faces competition largely on a product-by-
product basis. We have historically faced significant competition from
companies such as Kakizaki, Sanga Flantek, Dainichi and Asyst Technologies.
These companies compete with us primarily in 200mm and 300mm applications. Our
chemical delivery products also face worldwide competition from companies such
as Furon, Parker, Pillar and Gemu. In assembly, packaging and testing of
semiconductor and data storage applications, we compete with companies such as
Advantek, GEL-Pak, ITW/Camtex, Peak International and 3M. Primary competition
for our wafer shipping containers comes from Japanese companies such as SEP and
Kakizaki. In the disk shipping and bare and packaged die tray markets, we face
competition from regional suppliers.
Employees
As of May 31, 2000, we had approximately 1,700 full-time employees
throughout the world, including 1,175 in manufacturing, 135 in engineering,
research and development, including custom product development, and 390 in
selling, marketing and general and administrative activities, including
customer service, finance and accounting, information technology, human
resources and corporate management. Of our full-time employees, approximately
1,335 are located in the United States, 85 are located in Europe and about 280
are located in Asia. None of our employees are covered by a collective
bargaining arrangement. We consider our relationship with our employees to be
good.
Legal Proceedings
We are not a party to any material pending legal proceedings.
43
<PAGE>
MANAGEMENT
Executive Officers, Directors and Key Personnel
The following table sets forth certain information with respect to each of
the executive officers and directors of Entegris, as of the date of this
prospectus.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Daniel R. Quernemoen(1).... 69 Chairman of the Board
Stan Geyer(1).............. 51 Chief Executive Officer and Director
James E. Dauwalter......... 49 President, Chief Operating Officer and Director
John D. Villas............. 42 Chief Financial Officer
James A. Bernards(2)....... 53 Vice Chairman and Director
Robert J. Boehlke(2)....... 59 Director
Mark A. Bongard............ 36 Director
Delmer M. Jensen(1)........ 62 Director
Roger D. McDaniel(1)(2).... 61 Director
</TABLE>
--------
(1) Member of the compensation and stock option committee
(2) Member of the audit committee
Daniel R. Quernemoen has been Chairman of the board of directors of Entegris
since June 1999. Prior to that time, Mr. Quernemoen had been the Chairman of
the board of directors of Fluoroware since August 1987 and a member of its
board since 1970. Mr. Quernemoen was also Chief Executive Officer of Fluoroware
from 1982 to 1996 and President from 1980 to 1982. Mr. Quernemoen is a member
of the board of directors of SEMI and the Wallestad Foundation, a private non-
profit charity.
Stan Geyer has been Chief Executive Officer and a member of the board of
directors of Entegris since June 1999. Mr. Geyer also served as President of
Entegris from June 1999 to June 2000. Prior to June 1999, Mr. Geyer had been
the President and Chief Executive Officer of Fluoroware since September 1996
and a member of its board of directors since 1982. Mr. Geyer also served as
Vice President of Marketing and Executive Vice President of Fluoroware. Mr.
Geyer serves on the board of directors of the Wallestad Foundation.
James E. Dauwalter was appointed President of Entegris in June 2000 and has
been a director of Entegris since June 1999. Mr. Dauwalter has also served as
Chief Operating Officer since March 2000, and was the Executive Vice President
of Entegris from March 2000 through June 2000. Prior to that time, Mr.
Dauwalter had been a director of Fluoroware since 1982 and also served as
Executive Vice President and Chief Operating Officer of Fluoroware since
September 1996. Mr. Dauwalter serves on the board of the Community Bank of
Chaska, the supervisory board of Metron, an affiliate of Entegris, and the
Wallestad Foundation.
John D. Villas has been Chief Financial Officer of Entegris since March
2000. Prior to that time, Mr. Villas had been Chief Financial Officer of
Fluroware since November 1997 and Vice President Finance since April 1994. Mr.
Villas joined Fluoroware in 1984 as controller and then served as corporate
controller between 1991 and 1994.
James A. Bernards has been Vice Chairman of the board of Entegris since
March 2000 and a director since June 1999. Mr. Bernards has also been President
of Facilitation, Inc., a provider of business and financial consulting
services, since June 1993. Mr. Bernards was President of the accounting firm of
Stirtz, Bernards & Company from May 1981 to June 1993. Mr. Bernards has been
President of Brightstone Capital, Ltd., a venture capital fund, since 1986. He
is a director of FSI International, Inc., Fieldworks, Inc., Health Fitness
Corporation, August Technology, Inc. and several private companies.
44
<PAGE>
Robert J. Boehlke has been a director of Entegris since August 1999. Prior
to that time, Mr. Boehlke had been a director of Fluoroware since January 1998.
Mr. Boehlke is Executive Vice President and Chief Financial Officer of KLA-
Tencor Corporation. Mr. Boehlke joined KLA-Tencor in April 1983 as Vice
President. Since 1983, he has served in a number of positions for KLA-Tencor,
including division General Manager, Chief Operating Officer and Chief Financial
Officer. Prior to his employment by KLA-Tencor, Mr. Boehlke was a partner at
the investment banking firm of Kidder, Peabody & Company from 1971 to 1983. He
currently serves on the board of directors of LTX Corporation.
Mark A. Bongard has been a director of Entegris since June 1999. Mr. Bongard
has been the Chief Executive Officer of Emplast, Inc. since 1996, and Chairman
of its board of directors since 1999. Emplast was formerly a part of Empak, and
all of Emplast's stock is owned by the Estate of Wayne C. Bongard, our largest
shareholder. Prior to being Chief Executive Officer of Emplast, Mr. Bongard
held a number of positions with Empak from 1987 to 1996. Before joining Empak
in 1987, Mr. Bongard was employed by MTE Associates, Inc.
Delmer M. Jensen has been a director of Entegris since June 1999. Mr. Jensen
was Executive Vice President of Operations of Entegris from June 1999 to March
2000. Prior to that time, he had been Chief Executive Officer of Empak since
1998 and Chief Operating Officer from 1988 to 1997. Mr. Jensen joined Empak in
1988. Prior to 1988, he was employed by Thermotech.
Roger D. McDaniel has been a director of Entegris since August 1999. Prior
to that time, Mr. McDaniel was a director of Fluoroware since August 1997. From
1989 to August 1996, Mr. McDaniel was the Chief Executive Officer of MEMC, a
silicon wafer producer, and was also a director of MEMC from April 1989 to
March 1997. Mr. McDaniel is a director of Veeco Instruments, Inc., Speedfam-
IPEC, Inc. and Anatel Inc. He is also a director and past Chairman of SEMI.
Our bylaws provide that the board of directors must consist of no more than
nine directors, and that any increase in the number of directors must be
approved by the affirmative vote of 75% of the votes entitled to be cast at a
shareholders' meeting, unless the increase was approved by a majority of the
board. The board of directors has established the number of directors to serve
on the board at eight. The directors are divided into three classes, designated
as Class I, Class II and Class III, with staggered three-year terms of office.
At each annual meeting of shareholders, directors who are elected to succeed
the class of directors whose terms expired at that meeting will be elected for
three-year terms. Messrs. McDaniel and Boehlke will be up for reelection at the
2001 annual meeting of shareholders, Messrs. Quernemoen, Jensen and Bongard at
the 2002 annual meeting of shareholders, and Messrs. Geyer, Dauwalter and
Bernards at the 2003 annual meeting of shareholders. Vacancies may be filled by
a majority of the directors then in office, and the directors so chosen hold
office until the next election of the class to which such directors belong. All
current directors were previously elected by Entegris' shareholders.
Pursuant to the Consolidation Agreement among Entegris, Fluoroware and
Empak, dated June 1, 1999, and the related Shareholder Agreements between
Entegris and the Empak and Fluoroware shareholders, the board of directors of
Entegris must consist of up to nine persons: three directors designated by
those persons who were members of Fluoroware's board of directors on June 1,
1999; three directors who are designated by those persons who were members of
Empak's board of directors on June 1, 1999; and up to three independent
directors, who must be appointed by the initial board members of Entegris upon
their mutual agreement. Messrs. Bernards, Bongard and Jensen were designated by
the Empak board and Messrs. Dauwalter, Geyer and Quernemoen were designated by
the Fluoroware board.
Committees of the Board of Directors
The board of directors maintains an audit committee composed of Messrs.
Bernards, Boehlke and McDaniel. The audit committee recommends to the board of
directors the appointment of independent auditors, reviews and approves the
scope of the annual audit and other non-audit services performed by the
independent auditors, reviews the findings and recommendations of the
independent auditors and periodically reviews and approves major accounting
policies and significant internal accounting control procedures.
45
<PAGE>
The board of directors also maintains a compensation and stock option
committee comprised of Messrs. Quernemoen, Geyer, Jensen and McDaniel. The
compensation and stock option committee reviews and makes recommendations
regarding compensation of officers and directors, administers Entegris' stock
option plans, and reviews major personnel matters.
Compensation Committee Interlocks and Insider Participation
Messrs. Quernemoen, Geyer, Jensen and McDaniel currently serve on our
compensation and stock option committee. Messrs. Quernemoen, Geyer and Jensen
are executive officers and employee directors of Entegris, Empak and
Fluoroware. Mr. Quernemoen received a promissory note from Fluoroware for
$4,138,379 as consideration for the redemption of 2,758,000 shares of
Fluoroware common stock. This promissory note bears interest at a rate of 8%
per annum and is payable in equal monthly installments over a 15-year period.
Prior to the formation of our compensation and stock option committee on August
9, 1999, all decisions regarding executive compensation were made by the full
board of directors. No interlocking relationships exist between the board of
directors or the compensation and stock option committee and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
Director Compensation
Each non-employee director of Entegris receives a monthly retainer of $1,000
for their service to the board. Non-employee directors are also entitled to
$500 for every committee meeting that they attend. Entegris also maintains its
Directors' Stock Option Plan (Directors' Plan) which provides that all non-
employee directors receive an option to purchase 15,000 shares of common stock
when they are first elected or appointed to the board, and then options to
purchase 6,000 shares upon each reelection to the board at an annual meeting of
shareholders. At the time of the Directors' Plan adoption in 1999, each non-
employee director of Entegris also received an option to purchase 15,000
shares. Additionally, prior to the consolidation of Empak and Fluoroware,
Fluoroware maintained its 1997 Directors Stock Option Plan and had stock
options outstanding, all of which were converted at the time of the
consolidation into Directors' Plan stock options. As of May 31, 2000, there
were outstanding options to purchase an aggregate of 140,842 shares at a
weighted average exercise price of $4.06 per share.
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<PAGE>
Executive Compensation
The following table provides certain summary information concerning the
compensation earned by Entegris' Chief Executive Officer and the four other
most highly compensated executive officers of Entegris for fiscal 1999 whom we
refer to as the Named Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation for
Fiscal 1999(1)
------------------
All Other
Name and Position Salary($) Bonus($) Compensation($)(2)
----------------- --------- -------- ------------------
<S> <C> <C> <C>
Daniel R. Quernemoen..................... 196,517 0 16,000
Chairman of the Board
Stan Geyer .............................. 250,000 64,000 16,000
Chief Executive Officer
Delmer M. Jensen......................... 250,016 181,481 9,600
Executive Vice President of Operations
James E. Dauwalter....................... 230,000 64,000 16,000
President and Chief Operating Officer
John D. Villas........................... 133,269 41,200 13,313
Chief Financial Officer
</TABLE>
--------
(1) None of the perquisites and other benefits paid to any Named Executive
Officer exceeded the lesser of $50,000 or 10% of the total annual salary
and bonus amounts received by the Named Executive Officer.
(2) Represents payments made to defined contribution plans.
Options/SAR Grants in the Last Fiscal Year
There were no options or stock appreciation rights awarded to any of the
Named Executive Officers during fiscal 1999.
Bonus Programs
We maintain an executive management incentive program providing annual bonus
opportunities for certain qualified employees, including executive officers,
under which such employees may be awarded cash bonuses based upon the
achievement of individual performance criteria established at the beginning of
each year and upon our financial performance. Under this program, an incentive
pool is established at the end of each fiscal year based upon certain financial
criteria for the then ending fiscal year, including sales growth, operating
profit and return on assets. Our executive officers are eligible to receive a
bonus payment of up to 100% of their base salary, up to 65% of which is based
on the incentive pool, and up to 35% of which is based upon the accomplishment
of their individual performance goals established at the beginning of the year.
Other employees who qualify for this bonus program are eligible to receive
lesser percentages of their base salary based upon the same financial and
individual factors. Additionally, for our domestic employees who do not qualify
for this bonus program, we maintain a quarterly incentive plan. The quarterly
incentive plan provides bonuses based upon base salary, depending upon our
domestic operating income results.
Our bonus programs are administered at the discretion of our board of
directors. Bonuses paid under the executive management incentive program, if
any, are included in the cash compensation table above.
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<PAGE>
Fiscal Year-End Option/SAR Values
None of the Named Executive Officers exercised options in the twelve months
ended August 31, 1999. The following table sets forth the number and value of
securities underlying unexercised options held by the Named Executive Officers
at August 31, 1999:
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options/SARs at In-the-Money Options
August 31, 1999(1) at August 31, 1999(2)
------------------------- -------------------------
Name and Position Exercisable Unexercisable Exercisable Unexercisable
----------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Daniel R. Quernemoen...... 173,688 0 $185,846 $ 0
Chairman of the Board
Stan Geyer................ 358,260 191,058 383,338 204,432
Chief Executive Officer
Delmer M. Jensen.......... 274,780 0 747,402 0
Executive Vice President
of Operations
James E. Dauwalter........ 349,576 165,004 374,046 176,554
President and Chief
Operating Officer
John Villas............... 149,672 95,528 160,149 102,215
Chief Financial Officer
Totals.................... 1,305,976 451,590 $1,850,781 $483,201
</TABLE>
--------
(1) The weighted average exercise price for all options is $2.89 per share.
(2) The value of unexercised "in-the-money" options is based on the fair
market value of $4.22 as of August 31, 1999, as determined by the board,
minus the exercise price, multiplied by the number of shares underlying
the option.
Equity and Profit Sharing Plans
Employee Stock Option Plan. The Entegris, Inc. 1999 Long-Term Incentive and
Stock Option Plan (Option Plan) was adopted by the board in August 1999 and
approved by our shareholders in February 2000.
There are 9,000,000 common shares reserved for issuance under the Option
Plan. Shares subject to awards that have lapsed or terminated without having
been exercised in full may again become available for the grant of awards under
the Option Plan.
The Option Plan provides for grants of incentive stock options that qualify
under Section 422 of the Internal Revenue Code of 1986, as amended (Code), to
our employees, including officers and employee directors, or the employees of
any of our affiliates. Stock options that do not qualify under section 422 of
the Code, restricted share awards and performance awards may be granted to
employees, including officers, directors of and consultants to Entegris or any
of our affiliates. We will refer to options, restricted share awards and
performance awards under the Option Plan as awards. The Option Plan may be
administered by the board or a committee appointed by the board. After this
offering, the Option Plan will be administered by the compensation and stock
option committee, currently consisting of Messrs. Quernemoen, Geyer, Jensen and
McDaniel. The board or the compensation and stock option committee will have
the authority to determine to whom awards are granted, the terms of such
awards, including the type of awards to be granted, the exercise price, the
number of shares subject to the awards, and the vesting and exercisability of
the awards.
The term of options granted under the Option Plan generally may not exceed
ten years. The exercise price of incentive stock options granted under the
Option Plan is determined by the board or the compensation and stock option
committee, but cannot be less than 100% of the fair market value of the
underlying common shares on the date of grant. Other options granted under the
Option Plan can be granted at exercise prices
48
<PAGE>
below the fair market value of our common shares. Options granted under the
Option Plan vest at the rate specified in the option agreement. No option may
be transferred by the optionee other than by will or the laws of descent or
distribution.
No incentive stock options may be granted to any person who, at the time of
the grant, owns, or is deemed to own, shares possessing more than 10% of the
total combined voting power of Entegris or any of our affiliates, unless the
option exercise price is at least 110% of the fair market value of the shares
subject to the option on the date of grant and the term of the option does not
exceed five years from the date of grant. In addition, the aggregate fair
market value, determined at the time of grant, of the common shares underlying
incentive stock options which become exercisable by an optionee during any
calendar year may not exceed $100,000. Any options, or portions thereof, which
exceed this limit are treated as nonqualified stock options.
As of May 31, 2000, there were 6,858,030 options outstanding under the
Option Plan, held by 188 employees, to purchase shares of Entegris at a
weighted average exercise price of $3.39 per share. The Option Plan will
terminate in August 2009, unless terminated sooner by the board. On March 13,
2000, the board approved a "broad-based" option grant covering nearly all of
our U.S. employees. Employees who are eligible as of the date of this offering
will each receive options to purchase 300 shares of common stock at a price
equal to the finally determined price for this offering. The estimated total
shares to be subject to these grants are 390,000.
Directors' Stock Option Plan. In August 1999, our Board adopted, and in
February 2000, our shareholders approved, the Entegris, Inc. Outside Directors'
Option Plan (Directors' Plan) to provide for the automatic grant of options to
purchase Entegris common shares to directors of Entegris. The Directors' Plan
is administered by our board.
The aggregate number of common shares that may be issued pursuant to options
granted under the Directors' Plan is 1,000,000. Pursuant to the terms of the
Directors' Plan, each of our directors who was not an employee of Entegris or
one of our affiliates was automatically granted an option to purchase 30,000
common shares on the effective date of the Directors' Plan. The Director's Plan
was amended so that each new director who is not an employee of Entegris will
be granted an option to purchase 15,000 common shares upon their appointment or
election to the board. On the effective date of the Director's Plan, options
under this plan will be issued to replace the then current outstanding options
issued under the Fluoroware, Inc. 1997 Directors Stock Option Plan with
substantially the same terms. In addition, each non-employee director who is
still a director after each annual meeting or regular stockholders' meeting
will be automatically granted an option to purchase 6,000 common shares
immediately after that annual meeting. The exercise price of options under the
Directors' Plan will at least equal the fair market value of our common shares
on the date of grant. No option granted under the Directors' Plan may be
exercised after the expiration of ten years from the date on which it was
granted.
As of May 31, 2000, there were 140,842 options outstanding to purchase
common shares of Entegris under the Directors' Plan, at a weighted average
exercise price of $4.06 per share. Those shares are held by non-employee
directors of Entegris.
Employee Stock Purchase Plan. Our board adopted in March 2000 and our
shareholders approved in May 2000 the Entegris, Inc. Employee Stock Purchase
Plan (Purchase Plan). A total of 4,000,000 common shares of Entegris have been
reserved for issuance under the Purchase Plan. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Code.
The Purchase Plan provides a means by which employees may purchase common
shares of Entegris through payroll deductions. The Purchase Plan is implemented
by offerings of rights to eligible employees. Under the Purchase Plan, the
purchase period is six months, beginning on January 1 and July 1 of each
calendar year, but the first purchase period will commence on the effective
date of this offering. Purchase dates under this Purchase Plan will occur on
the last business day of each purchase period.
49
<PAGE>
Employees who participate in this Purchase Plan may contribute up to 10% of
their earnings, by having Entegris withhold part of their salary or otherwise.
The amount withheld is then used to purchase common shares of Entegris on
specified purchase dates. The price of common shares of Entegris purchased
under the Purchase Plan will be equal to 85% of the lower of the fair market
value of the common shares on the first business day of the corresponding
purchase period or the fair market value of the common shares on that purchase
date. Employees who become eligible to participate in the Purchase Plan for the
first time during an ongoing offering may be permitted to begin participating
in the Purchase Plan during such offering. The price of common shares of
Entegris purchased under the Purchase Plan for employees who begin
participating in the Purchase Plan during an ongoing offering will be equal to
85% of the lower of the fair market value of the common shares on the day they
begin participating in the Purchase Plan or the fair market value of the common
shares on the relevant purchase date. Participants in this Purchase plan may
reduce the amount withheld from their pay or stop the withholding altogether at
anytime. Participants can also increase the rate of withholding from their
salary, but only on the first day of any purchase period. Employees'
participation in all offerings under this Purchase Plan will end automatically
on termination of their employment.
Unless otherwise determined by our board, employees are eligible to
participate in the Purchase Plan in any given purchase period only if they are
customarily employed by us or one of our U.S. subsidiaries for at least 20
hours per week and five months per calendar year immediately prior to the first
day of a purchase period. No employee shall be eligible for the grant of any
rights under the Purchase Plan if immediately after such rights are granted,
such employee will have voting power over 5% or more of our outstanding capital
shares. Eligible employees may be granted rights only if the rights, together
with any other rights granted under employee stock purchase plans, do not
permit such employees' rights to purchase shares of Entegris to accrue at a
rate which exceeds $25,000 of fair market value of those shares for each
calendar year in which those rights are outstanding.
Employee Stock Ownership Plan. The Entegris, Inc. Employee Stock Ownership
Plan (ESOP) is a tax-qualified employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code and under Section 407(d)(6) of the Employee
Retirement Income Security Act of 1974, as amended (ERISA). The ESOP was
originally established by Fluoroware in 1984 to purchase common stock of
Fluoroware held by Fluoroware's founder, Victor Wallestad. The ESOP purchased
shares from Wallestad in August 1984, and in August 1989 utilizing proceeds
from debt financing secured by the shares purchased. The ESOP serviced the
indebtedness with funds received as discretionary contributions from Fluoroware
and shares were allocated to participant accounts as they were released from
security upon payment of the loan.
All ESOP loans have been completely paid off since August 1994, and all
shares have been released from the security interest and fully allocated to
participant accounts as of that date. On April 25, 1997, all company
contributions were discontinued and all active participants were vested at
100%. As of June 7, 1999, the ESOP exchanged its shares of Fluoroware for
shares of Entegris in connection with the consolidation of Fluoroware and
Empak. The ESOP invests almost exclusively in Entegris common stock.
Participants in the ESOP who terminate employment with us have the right to
request distribution of the Entegris shares allocated to their accounts as of
the second August 31 following termination. Participants who terminate
employment on account of death or disability, or upon retirement after age 65
also have the right to request distribution of the Entegris shares allocated to
their accounts as of the first August 31 following termination. A terminated
participant whose accounts are worth less than $5,000 on the second August 31
after termination of employment, however, will automatically receive
distribution of the shares even if the participant does not request
distribution. Participants who are eligible to receive shares can elect to have
the shares transferred directly to their Individual Retirement Accounts (IRAs).
The ESOP will be selling shares in this offering. In addition, contingent
upon the successful completion of this offering, the ESOP will be amended to
permit each ESOP participant to elect to receive a distribution of up to 10% of
the shares in such participant's account on May 15, 2001. Entegris intends to
permit such "in-service" distribution on an annual basis. ESOP participants who
are eligible to receive shares from in-service distributions can elect to have
the shares transferred directly to their IRAs.
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As of May 31, 2000, the ESOP held an aggregate of 20,385,514 common shares.
Approximately 530 of our current employees are participants in the ESOP.
Pension Plan. We maintain a defined contribution retirement plan, the
Entegris, Inc. Pension Plan (Pension Plan), that covers eligible employees who
have completed a year of service. The Pension Plan, and the accompanying trust,
are intended to qualify as tax exempt under Sections 401(a) and 501(a) of the
Code. All contributions to the Pension Plan are company contributions, and are
subject to a vesting schedule. The trustee of the Pension Plan, at the
direction of each participant, invests the assets of the Pension Plan in a
number of investment options.
401(k) Savings and Profit Sharing Plan. In addition to the Pension Plan, we
maintain the Entegris, Inc. 401(k) Savings and Profit Sharing Plan (401(k)
Plan), a defined contribution plan that covers eligible employees. The 401(k)
Plan, and the accompanying trust, are intended to qualify as tax exempt under
Sections 401(a) and 501(a) of the Code. Eligible employees may elect to defer a
percentage of their pre-tax gross compensation in the 401(k) Plan, subject to
the statutory annual limit. The 401(k) Plan provides that we will make matching
contributions on employee deferrals at prescribed levels. Employees are
eligible to defer a portion of their compensation to the 401(k) Plan
immediately upon their hire, but we will not match those contributions until
the employee has completed a year of service with Entegris. Participants are
fully vested in their deferrals and the matching contributions. We may also
make profit sharing contributions to the 401(k) Plan, as determined at the
discretion of our board of directors. Profit sharing contributions, if made,
are subject to a vesting schedule in the accounts of the participants. The
trustee of the 401(k) Plan, at the direction of each participant, invests the
assets of the 401(k) Plan in a number of investment options.
Employment Agreements
None of the Named Executive Officers are employed pursuant to employment
contracts with Entegris.
Limitation of Liability and Indemnification
Minnesota law and our articles of incorporation and bylaws provide that we
will, subject to limitations, indemnify any person made or threatened to be
made a party to a proceeding by reason of that person's former or present
official capacity with us. We will indemnify this person against judgments,
penalties, fines, settlements and reasonable expenses, and, subject to
limitations, we will pay or reimburse reasonable expenses before the final
disposition of the proceeding.
As permitted by Minnesota law, our articles of incorporation provide that
our directors will not be personally liable to us or our shareholders for
monetary damages for a breach of fiduciary duty as a director, subject to the
following exceptions:
. any breach of the director's duty of loyalty to us or our shareholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. liability for illegal distributions under section 302A.559 of the
Minnesota Business Corporation Act or for civil liabilities for state
securities law violations under section 80A.23 of the Minnesota
statutes; and
. any transaction from which the director derived an improper personal
benefit.
Presently, there is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification will be required
or permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling Entegris pursuant to the foregoing provisions, We have been
informed that in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and therefore is unenforceable.
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CERTAIN TRANSACTIONS
The following is a description of transactions since September 1, 1996, to
which we or our subsidiaries have been a party, in which the amount involved in
the transaction exceeds $60,000, and in which any of our directors, executive
officers or holders of more than 5% of our capital stock had or will have a
direct or indirect material interest, other than compensation arrangements that
are otherwise required to be described under "Management." We believe that all
of the transactions set forth below were made on terms no less favorable to us
than could have been obtained from unaffiliated third parties.
Leases. The estate of Wayne C. Bongard is the general partner of County 17,
Chanhassen Partnership; the Waconia Partnership; and the Fleninge Partnership.
The estate of Wayne C. Bongard also controls WCB Holdings LLC, a family limited
liability company formed by Wayne C. Bongard, which owns approximately 37% of
the Entegris common shares. Empak, one of our wholly owned subsidiaries, leases
its office and three production facilities from these partnerships or from
Wayne C. Bongard directly on the terms described in the following paragraphs.
Empak entered into a lease agreement with Fleninge Partnership on June 15,
1993, to lease 4.37 acres of improved commercial real estate, located at 1501
Park Road, in Chanhassen, Minnesota, with an original term from September 1,
1993 to August 31, 2001. This lease was terminated on May 1, 2000, pursuant to
the Real Estate Purchase and Sale Agreement described in the next subheading.
The base rent for such lease is $19,000 per month, to be adjusted every three
years based on the consumer price index.
Empak also entered into a lease agreement with County 17, Chanhassen
Partnership to lease a 95,000 sq. foot property located at 950 Lake Drive,
Chanhassen, Minnesota with a term of 15 years commencing on December 1, 1989.
The base rent is $37,600 per month and is to be adjusted periodically with
increases tied to the Twin Cities All Urban Wage Earners Cost-Of-Living Index.
This lease gives Empak the option to purchase the leased premises at the end of
the 10th year (1999) and at the end of the 15th year (2004) of the lease at the
fair market value, as determined by an appraisal of a mutually agreed upon
appraiser.
Empak entered into a lease agreement with Waconia Partnership on March 16,
1987, to lease a property in Waconia, Minnesota, until June 30, 2002. The base
rent was set at $21,791 per month, to be adjusted periodically with increases
tied to the Twin Cities All Urban Wage Earners Cost-Of-Living Index. This lease
also gives Empak the option to purchase the leased premise at the end of the
10th year (1997) and at the end of the 15th year (2002) of the lease at the
fair market value, as determined by an appraisal of a mutually agreed upon
appraiser.
Finally, Empak entered into a lease agreement with Wayne C. Bongard, now
deceased, on September 22, 1998 to lease a property in Castle Rock, Colorado,
until September 30, 2005. The base rent was set at $25,000 per month or 150% of
the amount of the monthly debt service due and payable by Mr. Bongard on
financing secured by a first lien against that property or any other financing
secured to improve the property, whichever is more. The rent could also be
increased to reflect the then current market rental rates at Mr. Bongard's
option. If Mr. Bongard and Empak disagree on the rental amount, the rental
amount will be determined by a qualified appraiser.
Under the foregoing agreements, Empak is required to pay, as additional
rent, all real estate taxes, utilities, and other related property expenses.
Purchase of Property. Entegris entered into a Real Estate Purchase and Sale
Agreement with Fleninge Partnership on March 15, 2000, to purchase the 4.37
acres of improved commercial real estate and related personal property located
at 1501 Park Road, Chanhassen, Minnesota, which Empak currently leases from the
Fleninge Partnership. The purchase price of the property, which was purchased
on May 1, 2000, was $2,530,000. The purchase price was determined in an arms-
length negotiation with representatives of the Fleninge Partnership who are not
affiliated with or related to us.
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Sublease Agreement. On April 28, 1997, Empak entered into a sublease
agreement with Emplast, Inc. to sublease property located in Chanhassen,
Minnesota to Emplast. Emplast is majority owned by WCB Holdings LLC, our
largest shareholder, and Mark A. Bongard, one of our board members, is the
Chief Executive Officer of Emplast. Empak leases this property from County 17,
Chanhassen Partnership, which lease is described above under the subheading
"Leases." The term of the sublease ends on November 30, 2004. The base rent was
set at $550,000 per year from June 1, 1999 to May 31, 2000, and thereafter
increases $50,000 per year until the rental payment reaches the rental payment
paid by Empak for the premises. As of May 31, 2000, Emplast owed Empak $137,502
under the sublease. This amount is included in prepaid expenses and other
current assets in the accompanying consolidated balance sheets.
Notes Payable. On April 6, 1992, Empak issued a promissory note for
$6,000,000 in favor of Marubeni America Corporation pursuant to a loan
agreement between the parties, dated the same day, for the purpose of
constructing our Colorado facility. Interest accrues on the promissory note at
a rate of 9.07% per annum. Empak will repay the principal amount of this loan
in 96 equal consecutive monthly installments and a final balloon payment of
$3,913,044, payable March 15, 2002. However, Empak has the option of extending
this final balloon payment for an additional period of 15 years. Interest
expense related to this note totaled $306,524 for the nine months ended May 31,
2000.
Fluoroware issued a promissory note on January 5, 1996 in the amount of
$4,138,379 to Daniel R. Quernemoen, Chairman of the Board of Entegris, as
consideration for the redemption of 2,758,000 shares of Fluoroware common
stock. The price of the redeemed shares was based on the book value of
Fluoroware pursuant to a buy-sell agreement between us and Mr. Quernemoen. The
note bears interest rate at the rate of 8.0% and is payable in equal monthly
installments of approximately $39,300 until January 5, 2011.
Notes Receivable. On April 15, 1999, the estate of Wayne C. Bongard executed
a promissory note in the amount of $801,347 payable to Empak, to be repaid in
equal installments over a 36 month period beginning October 15, 2001, at a rate
of interest of 8.0% per annum. At May 31, 2000, the total debt was $801,347.
Debt Guarantees. Empak entered into a guaranty agreement with U.S. Bank
National Association (formerly known as First Bank National Association) on
March 1, 1994, to guarantee the obligations of Wayne C. Bongard, now deceased,
under the Loan Agreement by and between Mr. Bongard and U.S. Bank, dated March
1, 1994, related to the facility in Castle Rock, Colorado that is leased by
Empak. This guarantee totals $1,537,700 at May 31, 2000.
Sales to Minority Stockholder. As of May 31, 2000, Marubeni Corporation held
4.14% of our outstanding shares. In the fiscal year 1999, sales to Marubeni
Corporation accounted for 4.9% of our sales. On December 1, 1999, Entegris and
Marubeni Corporation amended their distribution agreement to reflect the
consolidation of Empak and Fluoroware into Entegris. Pursuant to the terms of
the amended agreement, we appointed Marubeni Corporation as our exclusive
distributor to sell certain of our products in Japan. Marubeni Corporation, as
distributor, agreed to use its best efforts to sell the agreed upon products
and spare parts in Japan. Unless the contract is terminated under specific
conditions, the distribution agreement expires on February 27, 2003. Sales to
Marubeni Corporation were $11,960,387 in fiscal 1999. At May 31, 2000 Entegris
had receivables from Marubeni Corporation totaling $3,611,722, which are due
under normal trade terms.
Sales to Affiliated Entities. Entegris currently holds 20.3% of Metron's
outstanding shares, and in fiscal 1999, products distributed by Metron
accounted for 14.3% of our sales. In addition, Mr. Dauwalter, a supervisory
director of Metron, is President, Chief Operating Officer and Director of
Entegris. As a supervisory director of Metron, Mr. Dauwalter receives yearly
option grants. In connection with Mr. Dauwalter's employment with Entegris, he
entered into an agreement pursuant to which he agreed to exercise his options
to purchase common shares of Metron at our request, to vote the shares received
upon exercise of the options as directed by us and to hold title to these
shares only as a nominee on our behalf, without any beneficial right,
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<PAGE>
ownership, or interest in the shares. In addition, Mr. Dauwalter agreed to
convey title to the option (if this is permitted by its terms) and any shares
received upon exercise of the option to us or to sell the shares and remit the
proceeds to us upon our request.
In July 1995, Metron and Fluoroware entered into a distribution agreement.
Subsequent to the consolidation of Empak and Fluoroware to form Entegris and
pursuant to the terms of the agreement, Entegris and Metron agreed that, with
some exceptions, Metron would be the exclusive, independent distributor of some
of Entegris' products in specific countries, primarily in Europe and Asia.
Metron, as distributor, agreed to use its best efforts to sell the agreed upon
products in the designated countries. Unless the contract is terminated under
specific conditions, the contract will remain in place until July 1, 2000, and
is automatically renewed thereafter for additional terms of two years. The
contract can be terminated upon written notification given more than twelve
months prior to the expiration of the applicable term.
In September of 1997, Fluoroware entered into a distribution agreement with
T.A. Kyser Co., a wholly owned subsidiary of Metron. Pursuant to the terms of
that agreement, Fluoroware and Kyser agreed that Kyser would be stocking
distributor for specific Fluoroware gas and liquid management products in
certain U.S. states. Kyser, as distributor, agreed to use its best efforts to
stock, market and sell products within the states which comprise its territory.
The agreement is for a term of five years, expiring on August 31, 2002, and,
unless either party terminates, the agreement is renewed automatically for
successive five-year terms. Notice of termination must be given one year prior
to the expiration of the term of the agreement for termination without cause.
Termination for cause may occur at any time if specific conditions are met.
Stock Options. On February 28, 1997, Marubeni America Corporation and
Marubeni Corporation were granted Empak stock options. The grants were
immediately vested and exercisable for ten years. In connection with the
consolidation of Empak and Fluoroware to form Entegris, Marubeni America
Corporation exchanged the Empak option for an option to purchase up to 85,978
shares of Entegris common stock at an exercise price of $5.19. These options
may be exercised at any time before February 27, 2007. Similarly, Marubeni
Corporation exchanged the Empak option for an option to purchase up to 128,964
shares of Entegris common stock at an exercise price of $5.19. These options
may be exercised at any time before February 27, 2007.
Consulting Agreement. James A. Bernards, a director of Entegris, renders
consulting services to Entegris for a fee of $6,000 per month under an oral
agreement.
Contributions to Charity. Fluoroware had historically made charitable
contributions to the Wallestad Foundation, a private foundation qualified under
Section 170 of the Internal Revenue Code, established by Victor Wallestad, the
founding shareholder of Fluoroware. The Wallestad Foundation is dedicated to
the support of Christian ministries in Minnesota, the United States and
throughout the world. Dan Quernemoen, Stan Geyer and James Dauwalter, executive
officers and directors of Entegris, are also directors of the Wallestad
Foundation. Fluoroware contributed approximately $270,000 to the Wallestad
Foundation for fiscal 1997. Entegris has committed to contribute 5% of its
fiscal 2000 net income to charitable organizations, primarily through the
Wallestad Foundation. Entegris has accrued a charitable deduction of $1.9
million for the first nine months of fiscal 2000.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common shares as of May 31, 2000, and as adjusted to reflect
the sale of our common shares offered in this offering: (1) each shareholder
who is known by us to own beneficially more than 5% of our common shares; (2)
each member of our board of directors; (3) each of our Named Executive
Officers; (4) all of our directors and executive officers as a group; and (5)
all selling shareholders as a group. Unless otherwise indicated, to our
knowledge, all persons listed below have sole voting and investment power with
respect to their common shares, except to the extent authority is shared by
spouses under applicable law. Unless otherwise noted, the address of each
shareholder is c/o Entegris, Inc., 3500 Lyman Boulevard, Chaska, Minnesota,
55318.
<TABLE>
<CAPTION>
Beneficial Beneficial
Ownership Number of Ownership
Before Offering(1) Shares After Offering(1)
------------------ Being ------------------
Name Shares Percent Offered Shares Percent
---- ---------- ------- --------- ---------- -------
<S> <C> <C> <C> <C> <C>
WCB Holdings LLC (2)......... 21,580,608 37.0% 1,925,000 19,655,608 29.3%
950 Lake Drive, Chaska,
Minnesota 55317
Entegris, Inc. Employee Stock
Ownership Plan (3).......... 20,385,514 34.9% 2,475,000 17,910,514 26.7%
James A. Bernards (2)(4)..... 59,310 * -- 59,310 *
Mark A. Bongard (2)(4)....... 66,638 * -- 66,638 *
James E. Dauwalter (5)....... 5,556,127 9.5% -- 5,556,127 8.2%
Stan Geyer (6)............... 2,937,562 5.0% -- 2,937,562 4.4%
Daniel R. Quernemoen (7)..... 1,982,442 3.4% -- 1,982,442 3.0%
Delmer M. Jensen (2)(4)...... 274,780 * -- 274,780 *
John D. Villas (8)........... 485,163 * -- 485,163 *
Robert J. Boehlke (4)........ 46,210 * -- 46,210 *
Roger D. McDaniel (9)........ 48,248 * -- 48,248 *
All directors and executive
officers
as a group (9 persons)(10).. 11,456,480 19.1% -- 11,456,480 16.7%
All selling shareholders as a
group....................... 41,966,122 71.9% 4,400,000 37,566,122 56.1%
</TABLE>
--------
*Represents beneficial ownership of less than one percent of the common shares.
(1) Beneficial ownership is determined in accordance with the rules of the SEC.
Applicable percentage ownership is based on 58,409,848 common shares
outstanding as of May 31, 2000 and 67,009,848 shares outstanding
immediately following the completion of this offering.
(2) Mark A. Bongard is Chief Manager of WCB Holdings LLC. The estate of Wayne
C. Bongard holds approximately 48% of the voting interests of WCB Holdings
LLC and the remainder of the voting interests are held by various trusts
for children and grandchildren of Wayne C. Bongard. James A. Bernards
controls the estate of Wayne C. Bongard as personal representative. James
A. Bernards, Mark A. Bongard and Delmer M. Jensen serve as trustees for one
or more of the trusts. Each of these individuals disclaims beneficial
ownership of the Entegris shares held by WCB Holdings LLC.
(3) Each ESOP participant has voting rights on significant matters. No
individual ESOP account holds more than 5% of our outstanding shares.
(4) The shares indicated are subject to stock options exercisable within 60
days.
(5) Includes 4,113,542 shares held directly, 692,152 held by family members,
345,856 shares allocated to Mr. Dauwalter's individual account under the
ESOP, and an aggregate of 404,577 shares subject to stock options
exercisable within 60 days.
(6) Includes 1,724,828 shares held directly; 430,466 shares held by family
members, 360,322 shares allocated to Mr. Geyer's account under the ESOP,
and 421,946 shares subject to stock options exercisable within 60 days.
(7) Includes 968,970 shares held directly, 393,696 held by family members,
446,088 shares allocated to Mr. Quernemoen's account under the ESOP, and
173,688 shares subject to options exercisable within 60 days.
(8) Includes 157,104 shares held directly, 146,544 shares allocated to Mr.
Villas' account under the ESOP and 181,515 shares subject to options
exercisable within 60 days.
(9) Includes 13,616 shares held directly and 34,632 shares subject to options
exercisable within 60 days.
(10) Includes an aggregate of 8,494,374 shares held directly, 1,298,810 shares
allocated to all of the officers and directors' accounts under the ESOP,
and 1,663,296 shares subject to options exercisable within 60 days.
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DESCRIPTION OF CAPITAL SHARES
Common Stock
As of May 31, 2000, we had 58,409,848 common shares outstanding held by 90
shareholders of record. Based upon the number of shares outstanding as of May
31, 2000, and giving effect to the issuance of the common shares being offered
by us, we will have 67,009,848 common shares outstanding upon the closing of
the offering.
Holders of our common shares are entitled to one vote for each share held of
record on all matters on which shareholders are entitled or permitted to vote.
Our board of directors is divided into three classes, serving staggered three
year terms. However, there is no cumulative voting for the election of
directors. Holders of our common shares are entitled to receive dividends when
and as declared by the board of directors out of funds legally available for
dividends. Our loan agreements restrict our ability to pay dividends without
the consent of our lenders. Holders of our common shares have no preemptive or
subscription rights. There are no conversion rights, redemption rights, sinking
fund provisions or fixed dividend rights with respect to our common shares. All
of our outstanding common shares are fully paid and nonassessable, and the
common shares to be issued upon completion of this offering will be fully paid
and nonassessable. As of May 31, 2000, there were 2,938,400 common shares of
Entegris held in holdback escrow in accordance with the Consolidation Agreement
dated June 1, 1999. This escrow was to continue until June 7, 2000, to secure
certain representations and warranties made by the former shareholders of
Fluoroware and Empak upon the combination of the companies. There were no
claims of breach and the escrow will be liquidated under the terms of the
Consolidation Agreement as soon as administratively feasible.
Our directors and executive officers as a group beneficially own
approximately 19.1% of our outstanding common shares. Upon the completion of
the offering, such persons will beneficially own approximately 16.7% of our
outstanding common shares. Accordingly, such persons may be able to control our
affairs, including, without limitation, the sale of our equity or debt
securities, the appointment of officers, the determination of officers'
compensation and the determination as to whether to register outstanding
securities.
Options And Warrants
Besides options granted under employee options plans, as of May 31, 2000,
Marubeni America Corporation and Marubeni Corporation hold options to purchase
an aggregate of 214,942 of our common shares at an exercise price of $5.19.
Marubeni America Corporation and Marubeni Corporation received the grant,
originally for stock of Empak as consideration for their equity interest in
Empak International, which was merged into Empak in February 1997. The grant
was immediately vested and exercisable for ten years. With the consolidation of
Empak and Fluoroware to form Entegris, Entegris offered to exchange warrants
and options to purchase Fluoroware and Empak stock outstanding at the time of
the consolidation for options to purchase Entegris common shares, with terms
comparable to the prior options.
Provisions of Our Articles and Bylaws and State Law with Potential Anti-
Takeover Effect
The existence of a staggered board, the requirement of a 75% shareholder
vote to change the maximum number of directors and the provisions of Minnesota
law, described below, could have an anti-takeover effect. These provisions are
intended to provide management with flexibility, to enhance the likelihood of
continuity and stability in the composition and policies of our board of
directors and to discourage an unsolicited takeover of Entegris, if our board
of directors determines that the takeover is not in the best interests of
Entegris and our shareholders. However, these provisions could have the effect
of discouraging attempts to acquire Entegris, which could deprive our
shareholders of opportunities to sell their common shares at prices higher than
prevailing market prices.
Our board of directors is divided into three classes, serving staggered
three-year terms. As a result of this division, generally at least two
shareholders' meetings will be required for shareholders to effect a change in
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control of the board of directors. Also, our bylaws require the approval of 75%
of the shareholders present at a shareholders meeting to increase the maximum
number of directors to more than nine members. In addition, our bylaws contain
provisions that establish specific procedures and requirements for calling
meetings of shareholders, appointing and removing members of the board of
directors or changing the number of directors on the board.
We are governed by the provisions of Sections 302A.671 and 302A.673 of the
Minnesota Business Corporation Act, which are anti-takeover laws. In general,
Section 302A.671 provides that the shares of a corporation acquired in a
"control share acquisition" have no voting rights unless voting rights are
approved in a prescribed manner. A "control share acquisition" is an
acquisition, directly or indirectly, of beneficial ownership of shares that
would, when added to all other shares beneficially owned by the acquiring
person, entitle the acquiring person to have voting power of 20% or more in the
election of directors. In general, Section 302A.673 prohibits a publicly-held
Minnesota corporation from engaging in a "business combination" with an
"interested shareholder" for a period of four years after the date of the
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who is the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock, or an affiliate or associate of the corporation
and, at any time within four years prior to the date in question, was the
beneficial owner, directly or indirectly, of 10% or more of the corporation's
voting shares.
Transfer Agent And Registrar
Norwest Bank Minnesota, N.A., is the transfer agent and registrar for our
common shares.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
shares. A significant public market for the Entegris common shares may not
develop or be sustained after this offering. Future sales of substantial
amounts of Entegris common shares in the public market, or the possibility of
such sales occurring, could harm prevailing market prices for the Entegris
common shares or our future ability to raise capital through an offering of
equity securities.
Based on the numbers of shares outstanding as of May 31, 2000, we will have
67,009,848 outstanding common shares upon completion of this offering. Of these
shares, the 13,000,000 shares to be sold in this offering (14,950,000 shares if
the underwriters' over-allotment option is exercised in full) will be freely
tradable in the public market without restriction under the Securities Act,
unless such shares are held by "affiliates" of Entegris, as that term is
defined in Rule 144 under the Securities Act.
The remaining 54,009,848 shares outstanding upon completion of this offering
will be "restricted securities" as that term is defined under Rule 144. We
issued and sold the restricted shares in private transactions in reliance on
exemptions from registration under the Securities Act. Restricted shares may be
sold in the public market only if they are registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701 under the Securities
Act, as summarized below.
A total of 1,575,110 of the restricted shares are available for immediate
sale, and an additional 10,130 of the restricted shares will be available for
sale 90 days from the date of this offering. We expect that a total of
52,424,608 shares will be subject to lock-up arrangements between the
shareholders and us or the underwriters. Pursuant to these lock-up agreements,
the holders of these shares would not offer, sell, pledge or otherwise dispose
of, directly or indirectly, or announce their intention to do the same, any
common shares or security convertible into, or exchangeable or exercisable for
any security of Entegris for a period of 180 days from the date of this
offering. However, if the holder of the restricted shares is an individual, he
or she may transfer any such securities either during his or her lifetime or on
death by will or intestacy to his or her immediate family or to a trust the
beneficiaries of which are exclusively the holder of the securities and/or a
member of his or her immediate family. We also have entered into an agreement
with the underwriters pursuant to which we will not offer, sell or otherwise
dispose of common shares for a period of 180 days from the date of this
offering. The agreement further provides that we will not file a registration
statement on Form S-8 to register our stock option and purchase plans for a
period of 180 days after the effective date of this offering. On the date of
the expiration of the 180 day lock-up agreements, 6,358,112 shares will be
eligible for immediate sale without restriction, and 46,066,496 of the
restricted shares will be eligible for immediate sale, although these shares
will be subject to certain volume, manner of sale and other limitations under
Rule 144. In addition, approximately 4,953,956 of our common shares are subject
to immediately exercisable options, and we expect that 216,190 of these shares
will be eligible for sale 90 days after the offering, and 4,737,766 of these
shares will be eligible for sale 180 days after the effective date of this
offering.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options we granted prior to the date of this offering will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 under the Securities Act but without compliance with certain restrictions,
including the holding-period requirement, imposed under Rule 144. In general,
under Rule 144 as in effect at the closing of this offering, a person, or
persons whose shares are aggregated, may sell shares within any three-month
period beginning 90 days after the date of this prospectus, if
(i) the person has beneficially owned restricted shares for at least one
year, including the holding period of any prior owner who is not an
affiliate; and
(ii) the number of shares sold within any three-month period does not
exceed the greater of (a) 1% of the then outstanding common shares or
(b) the average weekly trading volume of the common shares during the
four calendar weeks preceding the filing of a Form 144 with respect to
such sale.
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<PAGE>
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who is not deemed to have been an affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner who is not an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
We intend to file, 180 days after the effective date of this offering, a
registration statement on Form S-8 to register approximately 14,000,000 common
shares reserved for issuance under the Option Plan, the Directors' Plan and the
Purchase Plan. The registration statement will become effective automatically
upon filing. Shares issued under the foregoing plans, after the filing of a
registration statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates and vesting restrictions imposed by us.
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<PAGE>
UNDERWRITING
Entegris and the selling shareholders are offering the common shares
described in this prospectus through a number of underwriters. Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Smith Barney Inc. and U.S. Bancorp Piper Jaffray Inc. are
representatives of the underwriters. Entegris and the selling shareholders have
entered into a purchase agreement with the representatives. Subject to the
terms and conditions of the purchase agreement, Entegris and the selling
shareholders have agreed to sell to the underwriters, and each underwriter has
severally agreed to purchase, the number of common shares listed next to its
name below.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................... 5,324,000
Donaldson, Lufkin & Jenrette Securities Corporation............. 2,420,000
Salomon Smith Barney Inc........................................ 2,420,000
U.S. Bancorp Piper Jaffray Inc.................................. 1,936,000
Banc of America Securities LLC.................................. 300,000
Needham & Company, Inc.......................................... 300,000
Ragen MacKenzie Incorporated.................................... 300,000
----------
Total...................................................... 13,000,000
==========
</TABLE>
The underwriters have agreed to purchase all of the shares being sold under
the purchase agreement if any of the shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated.
We and the selling shareholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the underwriters may be required to make in respect
of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officer's certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in
whole or in part.
Commissions and Discounts
The representatives have advised us and the selling shareholders that they
propose initially to offer the common shares to the public at the initial
public offering price on the cover page of this prospectus and to dealers at
that price less a concession not in excess of $.45 per share. The underwriters
may allow, and the dealers may reallow, a discount not in excess of $.10 per
share to other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount
and proceeds before expenses to Entegris and the selling shareholders. The
information assumes either no exercise or full exercise by the underwriters of
their over-allotment options.
<TABLE>
<CAPTION>
Per Without
Share Option With Option
------ ------------ ------------
<S> <C> <C> <C>
Public offering price..................... $11.00 $143,000,000 $164,450,000
Underwriting discount..................... $.77 $10,010,000 $11,511,500
Proceeds, before expenses, to Entegris.... $10.23 $87,978,000 $101,174,700
Proceeds, before expenses, to the selling
shareholders............................. $10.23 $45,012,000 $51,763,800
</TABLE>
60
<PAGE>
The expenses of the offering, not including the underwriting discount,
payable by Entegris are estimated at $1,278,000.
Over-allotment Option
The underwriters have an option to buy up to 1,290,000 additional shares
from Entegris and up to 660,000 additional shares from a selling shareholder at
the public offering price less the underwriting discount. The underwriters may
exercise these options for 30 days from the date of this prospectus solely to
cover any over-allotments. If the underwriters exercise these options, each
will be obligated, subject to the conditions contained in the purchase
agreement, to purchase a number of additional shares proportionate to that
underwriter's initial amount reflected in the above table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 650,000 shares or 5% of the shares offered by this
prospectus for sale to persons having business and other relationships with us.
If any of these persons purchase reserved shares, this will reduce the number
of shares available for sale to the general public. Any reserved shares that
are not orally confirmed for purchase within one day of the pricing of the
offering will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
No Sales of Similar Securities
We and the selling shareholders and substantially all of our existing
shareholders, including all of our executive officers and directors, as well as
holders of options to purchase common shares who are senior officers, have
agreed not to sell or transfer any common shares for 180 days after the date of
this prospectus without first obtaining the written consent of Merrill Lynch.
Specifically, we and these other individuals have agreed not to directly or
indirectly:
. offer, pledge, sell or contract to sell any common shares,
. sell any option or contract to purchase any common shares,
. purchase any option or contract to sell any common shares,
. grant any option, right or warrant for the sale of any common shares,
. pledge or otherwise dispose of or transfer any common shares, or
. request or demand that we file a registration statement related to the
common shares.
This lockup provision applies to common shares and to securities convertible
into or exchangeable or exercisable for or repayable with common shares. It
also applies to common shares owned now or acquired later by the person
executing the agreement or for which the person executing the agreement later
acquires the power of disposition.
Quotation on the Nasdaq National Market
Before this offering, there was no public market for the common shares of
Entegris. The initial public offering price was determined through negotiations
between us, the selling shareholders and the underwriters. In addition to
prevailing market conditions, the factors considered in determining the initial
public offering price were:
. the valuation multiples of publicly traded companies that the
representatives believe to be comparable to us,
. our financial information,
61
<PAGE>
. the history of, and the prospects for, our company and the industry in
which we compete,
. an assessment of our management, its past and present operations, and
the prospects for, and timing of, our future revenues,
. the present state of our development,
. the prospects for our future earnings, and
. the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible
that after the offering the shares will not trade in the public market at or
above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the
aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the common shares is completed, the SEC rules may
limit the underwriters from bidding for or purchasing our common shares.
However, the representatives may engage in transactions that stabilize the
price of the common shares, such as bids or purchases that peg, fix or maintain
that price.
The underwriters may purchase and sell the common shares in the open market.
These transactions may include short sales, stabilizing transactions and
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 the offering. "Covered" short sales are sales made in an amount
not greater than the underwriters' option to purchase additional shares from
the issuer in the offering. The underwriters may close out any covered short
position by either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source of shares to
close out the covered short position, the underwriters will consider, among
other things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the over-
allotment option. "Naked" short sales are any sales in excess of such option.
The underwriters must close out any naked short position by purchasing shares
in the open market. A naked short position is more likely to be created if the
underwriters are concerned that there may be downward pressure on the price of
the common shares in the open market after pricing that could adversely affect
investors who purchase in the offering. Stabilizing transactions consist of
various bids for or purchases of common shares made by the underwriters in the
open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
Similar to other purchase transactions, the underwriters' purchases to cover
the syndicate short sales may have the effect of raising or maintaining the
market price of the common shares or preventing or retarding a decline in the
market price of the common shares. As a result, the price of the common shares
may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the price of the common shares. In addition, neither we nor
any of the representatives make any representation that the representatives
will engage in these transactions or that these transactions, once commenced,
will not be discontinued without notice.
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<PAGE>
U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common shares by a non-U.S. holder. As used herein, the term non-U.S. holder
generally means a holder that for United States federal income tax purposes is
an individual or entity other than:
. a citizen or individual resident of the United States;
. a corporation or partnership, including an entity treated as a
corporation or partnership for federal income tax purposes, created or
organized in or under the laws of the United States or of any state
thereof or in the District of Columbia unless, in the case of a
partnership, U.S. Treasury regulations promulgated in the future provide
otherwise;
. an estate the income of which is subject to U.S. federal income taxation
regardless of its source; or
. a trust if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust.
This discussion does not address all aspects of United States federal income
and estate taxes that may be relevant to non-U.S. holders in light of their
personal circumstances, including the fact that in the case of a non-U.S.
holder that is a partnership, the U.S. tax consequences of holding and
disposing of shares of common stock may be affected by determinations made at
the partner level, or that may be relevant to various types of non-U.S. holders
which may be subject to special treatment under United States federal income
tax laws, including, for example, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities and holders of
securities held as part of a straddle, hedge, or conversion transaction, and
does not address U.S. state or local or foreign tax consequences. Furthermore,
this discussion is based on provisions of the Internal Revenue Code of 1986, as
amended, existing and proposed regulations promulgated thereunder and
administrative and judicial interpretations thereof, all as of the date of this
prospectus, and all of which are subject to change, possibly with retroactive
effect. The following summary is included herein for general information.
Accordingly, prospective investors should consult their own tax advisers
regarding the United States federal, state, local and foreign income and other
tax consequences of acquiring, holding and disposing of shares of common stock.
Dividends
We do not anticipate declaring or paying cash dividends on our common shares
in the foreseeable future. However, if dividends are paid on our common shares,
dividends paid to a non-U.S. holder of common shares generally will be subject
to withholding of United States federal income tax at a 30% rate, or the lower
rate provided by the income tax treaty between the United States and a foreign
country if the non-U.S. holder is treated as a resident of that foreign country
within the meaning of the applicable treaty. Non-U.S. holders should consult
their own tax advisors regarding their entitlement to benefits under a relevant
income tax treaty.
Dividends that are effectively connected with a non-U.S. holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States, are generally
subject to U.S. federal income tax on a net income basis at regular graduated
rates, but are not generally subject to the 30% withholding tax if the non-U.S.
holder files a properly executed appropriate U.S. Internal Revenue Service form
with the payor. Any U.S. trade or business income received by a non-U.S. holder
that is a corporation may also be subject to an additional branch profits tax
at a 30% rate or a lower rate specified by an applicable income tax treaty.
Under currently applicable U.S. Treasury regulations, dividends paid to an
address in a foreign country are presumed, absent actual knowledge to the
contrary, to be paid to a resident of that country for purposes of the
withholding discussed above and for purposes of determining the applicability
of a tax treaty rate. Under U.S.
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<PAGE>
Treasury regulations generally effective for payments made after December 31,
2000, however, a non-U.S. holder of our common shares who wishes to claim the
benefit of an applicable treaty rate generally will be required to satisfy
applicable certification and other requirements.
A non-U.S. holder of our common shares that is eligible for a reduced rate
of U.S. withholding tax under an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for a refund with the
Internal Revenue Service.
Gain on disposition of common shares
A non-U.S. holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of our common shares unless:
. the gain is effectively connected with a trade or business of the non-
U.S. holder in the United States, and where a tax treaty applies, is
attributable to a United States permanent establishment of the non-U.S.
holder;
. the non-U.S. holder is an individual who holds our common shares as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for 183 or more days in the
taxable year of the disposition and meets other requirements;
. we are or have been a U.S. real property holding corporation for federal
income tax purposes at any time during the shorter of the five-year
period preceding the disposition or the period that the non-U.S. holder
held our common shares; or
. the non-U.S. holder is subject to tax under provisions applicable to
certain former citizens or residents of the United States.
Generally, a corporation is a U.S. real property holding corporation if the
fair market value of its U.S. real property interests equals or exceeds 50% of
the sum of the fair market value of its worldwide real property interests plus
its other assets used or held for use in a trade or business. We believe that
we have not been, are not currently, and do not anticipate becoming, a U.S.
real property holding corporation for U.S. federal income tax purposes. The tax
with respect to stock in a U.S. real property holding corporation does not
apply to a non-
U.S. holder whose holdings, direct and indirect, at all times during the
applicable period, constituted 5% or less of our common shares, provided that
our common shares were regularly traded on an established securities market.
If a non-U.S. holder who is an individual is subject to tax under the first
bullet point above, the individual generally will be taxed on the net gain
derived from a sale of common shares under regular graduated United States
federal income tax rates. If an individual non-U.S. holder is subject to tax
under the second bullet point above, the individual generally will be subject
to a flat 30% tax on the gain derived from a sale, which may be offset by
particular United States capital losses.
If a non-U.S. holder that is a foreign corporation is subject to tax under
the first bullet point above, such foreign corporation generally will be taxed
on its net gain under regular graduated United States federal income tax rates
and, in addition, will be subject to the branch profits tax equal to 30% of its
effectively connected earnings and profits, within the meaning of the Internal
Revenue Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable tax treaty.
Federal estate tax
Common shares that are owned or treated as owned by an individual non-U.S.
holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
or other treaty provides otherwise and, therefore, may be subject to United
States federal estate tax.
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<PAGE>
Information reporting and backup withholding tax
Under United States Treasury regulations, we must report annually to the
Internal Revenue Service and to each non-U.S. holder the amount of dividends
paid to that holder and the tax withheld with respect to those dividends.
Copies of the information returns reporting dividends and withholding may also
be made available to the tax authorities in the country in which the non-U.S.
holder is a resident under the provisions of an applicable income tax treaty or
agreement.
United States backup withholding, which generally is a withholding tax
imposed at the rate of 31% on payments to persons that fail to furnish certain
required information generally will not apply:
. to dividends paid to non-U.S. holders that are subject to the 30%
withholding discussed above or that are not so subject because a tax
treaty applies that reduces or eliminates such 30% withholding; or
. before January 1, 2001, to dividends paid to a non-U.S. holder at an
address outside of the United States unless the payor has actual
knowledge that the payee is a U.S. holder.
Backup withholding and information reporting generally will apply to
dividends paid to addresses inside the United States on our common shares to
beneficial owners that are not exempt recipients and that fail to provide
identifying information in the manner required.
The payment of the proceeds of the disposition of our common shares by a
holder to or through the U.S. office of a broker or through a non-U.S. branch
of a U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
non-U.S. holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a non-U.S. holder
of common shares to or through a non-U.S. office of a non-U.S. broker will
not be subject to backup withholding or information reporting unless the non-
U.S. broker has particular types of U.S. relationships. In the case of the
payment of proceeds from the disposition of our common shares effected by a
foreign office of a broker that is a U.S. person or a U.S. related person,
existing regulations require information reporting on the payment unless the
broker receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files as to the non-U.S. holder's foreign status and the broker has no actual
knowledge to the contrary. For this purpose, a U.S. related person includes:
. a controlled foreign corporation for U.S. federal income tax purposes;
or
. a foreign person 50% or more of whose gross income for a certain period
is derived from activities that are effectively connected with the
conduct of a U.S. trade or business.
New U.S. Treasury regulations, which are generally effective for payment
made after December 31, 2000, alter the foregoing rules in certain respects.
Among other things, these regulations provide presumptions under which a non-
U.S. holder is subject to backup withholding at the rate of 31% and information
reporting unless we receive certification from the holder of non-U.S. status.
Depending on the circumstances, this certification will need to be provided:
. directly by the non-U.S. holder;
. in the case of a non-U.S. holder that is treated as a partnership or
certain other types of entities for U.S. income tax purposes, by the
partners, stockholders or other beneficiaries of that entity; or
. by particular qualified financial institutions or other qualified
entities on behalf of the non-U.S. holder.
Any amounts withheld under the backup withholding rules from a payment to a
non-U.S. holder will be refunded or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the Internal Revenue Service.
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<PAGE>
LEGAL MATTERS
The validity of the issuance of the common shares offered by this prospectus
will be passed upon for Entegris by Dorsey & Whitney, LLP, Minneapolis,
Minnesota. Certain legal matters in connection with the offering will be passed
upon for the underwriters by Latham & Watkins, Chicago, Illinois.
EXPERTS
The consolidated balance sheets of Entegris, Inc. and subsidiaries as of
August 31, 1999, August 31, 1998 and August 31, 1997, and the related
consolidated statements of income, shareholders' equity (deficit) and cash
flows for each of the fiscal years in the three year period ended August 31,
1999, have been included in this prospectus and elsewhere in the registration
statement in reliance upon the reports of KPMG LLP and Arthur Andersen LLP,
independent certified public accountants, and upon the authority of said firms
as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
A registration statement on Form S-1, including amendments to the
registration statement, relating to the common shares offered by this
prospectus has been filed by us with the SEC. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits and
schedules to the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. For further information with respect to us and the common shares
offered by this prospectus, reference is made to such registration statement,
exhibits and schedules. A copy of the registration statement may be inspected
by anyone without charge at the public reference facilities maintained by the
SEC at 450 Fifth Street, NW, Judiciary Plaza, Washington, D.C. 20549, and
copies of all or any part thereof maybe obtained from the SEC upon payment of
certain fees prescribed by the Commission. The telephone number for the public
reference facilities maintained by the SEC is (800) SEC-0330. The SEC maintains
a World Wide Web site that contains reports, proxy and information statements
and other information filed electronically with the SEC. The address of the
site is http://www.sec.gov.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements
<S> <C>
Report of Independent Auditors.......................................... F-2
Report of Independent Public Accountants................................ F-3
Consolidated Balance Sheets as of August 31, 1998 and 1999 and as of May
31, 2000............................................................... F-4
Consolidated Statements of Operations for the years ended August 31,
1997, 1998 and 1999 and for the nine months ended May 31, 1999 and
2000................................................................... F-5
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended August 31, 1997, 1998 and 1999 and for the nine months ended May
31, 2000............................................................... F-6
Consolidated Statements of Cash Flows for the years ended August 31,
1997, 1998 and 1999 and for the nine months ended May 31, 1999 and
2000................................................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
<CAPTION>
Financial Schedules
<S> <C>
Schedule II--Valuation and Qualifying Accounts.......................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Entegris, Inc.:
We have audited the accompanying consolidated balance sheets of Entegris,
Inc. and subsidiaries as of August 31, 1999 and 1998, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the years in the three-year period ended August 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We did not audit the 1998 and 1997
financial statements of Empak, Inc., a wholly-owned subsidiary, which
statements reflect total assets constituting 33% of the 1998 total consolidated
assets and total revenues constituting 40% and 43% of total consolidated
revenues in 1998 and 1997. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Empak, Inc., is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Entegris, Inc. and subsidiaries as
of August 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the years in the three-year period ended August 31, 1999 in
conformity with generally accepted accounting principles.
/s/ KPMG LLP
Minneapolis, Minnesota
October 27, 1999, except as to notes 7 and 21,
which are as of December 22, 1999 and March 31, 2000
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Empak, Inc. and Subsidiaries:
We have audited the consolidated balance sheet of Empak, Inc. (a Minnesota
corporation) and Subsidiaries as of August 31, 1998, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years ended August 31, 1998 and 1997, not presented separately
herein. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above, not separately
presented herein, present fairly, in all material respects, the financial
position of Empak, Inc. and Subsidiaries as of August 31, 1998, and the results
of their operations and their cash flows for each of the years ended August 31,
1998 and 1997, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Denver, Colorado
October 8, 1998
F-3
<PAGE>
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31
------------------ May 31,
1998 1999 2000
-------- -------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 8,235 $ 16,411 $ 33,247
Trade accounts receivable, net of allowance
for doubtful accounts of $1,322, $1,205 and
$2,036, respectively........................ 30,076 32,932 38,225
Trade accounts receivable due from
affiliates.................................. 7,402 9,962 21,055
Inventories.................................. 36,935 35,047 34,454
Refundable income taxes...................... 2,395 -- 1,625
Deferred tax assets.......................... 6,688 6,276 6,335
Other current assets......................... 4,890 4,737 6,787
-------- -------- --------
Total current assets........................ 96,621 105,365 141,728
-------- -------- --------
Property, plant and equipment, net............. 133,323 117,624 110,529
Other assets:
Investments in affiliates.................... 13,013 10,421 14,999
Intangible assets, less accumulated
amortization of $1,512, $2,462 and $3,582,
respectively................................ 7,368 6,318 8,064
Investments in marketable securities......... 387 860 1,148
Other........................................ 2,229 1,476 1,422
-------- -------- --------
Total assets................................ $252,941 $242,064 $277,890
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt......... $ 8,685 $ 6,566 $ 6,476
Current maturities of capital lease
obligations................................. 2,333 2,642 2,074
Short-term borrowings........................ 10,019 8,439 8,069
Accounts payable............................. 12,568 10,548 15,205
Accrued liabilities.......................... 21,239 26,780 31,044
Income tax payable........................... -- 1,530 --
-------- -------- --------
Total current liabilities................... 54,844 56,505 62,868
-------- -------- --------
Long-term debt, less current maturities........ 67,547 48,023 44,597
Capital lease obligations, less current
maturities.................................... 5,695 5,807 3,489
Deferred tax liabilities....................... 5,255 6,139 8,643
Minority interest in subsidiaries.............. 1,201 907 4,265
Redeemable ESOT common stock................... 47,906 145,570 183,609
Shareholders' equity (deficit):
Common stock, par value $.01; 200,000,000
shares authorized.
Issued and outstanding shares; 18,359,755,
18,354,344 and 36,808,784, respectively..... 184 184 368
Additional paid-in capital................... 15,066 15,066 15,039
Retained earnings (deficit).................. 57,564 (36,069) (44,901)
Accumulated other comprehensive loss......... (2,321) (68) (87)
-------- -------- --------
Total shareholders' equity (deficit)........ 70,493 (20,887) (29,581)
-------- -------- --------
Commitments and contingent liabilities -- -- --
-------- -------- --------
Total liabilities and shareholders' equity.. $252,941 $242,064 $277,890
======== ======== ========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-4
<PAGE>
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31, May 31,
---------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Sales to non-affiliates...... $223,300 $216,852 $195,421 $140,975 $176,801
Sales to affiliates.......... 53,990 49,739 46,531 31,200 70,852
-------- -------- -------- -------- --------
Net sales.................... 277,290 266,591 241,952 172,175 247,653
Cost of sales................ 161,732 156,933 150,102 107,874 132,464
-------- -------- -------- -------- --------
Gross profit............... 115,558 109,658 91,850 64,301 115,189
Selling, general and
administrative expenses..... 62,384 65,111 62,340 42,793 53,578
Engineering, research and
development expenses........ 17,986 19,912 14,565 10,916 10,613
-------- -------- -------- -------- --------
Operating profit........... 35,188 24,635 14,945 10,592 50,998
Interest expense, net........ 6,652 6,995 5,498 4,605 2,778
Other (income) expense, net.. 2,201 (273) (1,850) (36) (6,531)
-------- -------- -------- -------- --------
Income before income taxes
and other items below..... 26,335 17,913 11,297 6,023 54,751
Income tax expense........... 10,578 4,536 4,380 1,822 19,700
Equity in net (income) loss
of affiliates............... (1,750) 118 1,587 1,585 (1,114)
Minority interest in
subsidiaries' net income
(loss)...................... 573 176 (399) 84 733
-------- -------- -------- -------- --------
Net income................. 16,934 13,083 5,729 2,532 35,432
Market value adjustment to
redeemable common stock..... (3,045) 27,170 (98,754) (74,066) (48,602)
-------- -------- -------- -------- --------
Net income (loss)
applicable to
nonredeemable common
shareholders.............. $ 13,889 $ 40,253 $(93,025) $(71,534) $(13,170)
======== ======== ======== ======== ========
Earnings (loss) per
nonredeemable common share:
Basic...................... $ 0.39 $ 1.10 $ (2.53) $ (1.95) $ (0.36)
Diluted.................... $ 0.27 $ 0.21 $ (2.53) $ (1.95) $ (0.36)
Pro forma earnings per common
share:
Basic...................... $ 0.28 $ 0.22 $ 0.10 $ 0.04 $ 0.60
Diluted.................... $ 0.27 $ 0.21 $ 0.09 $ 0.04 $ 0.55
</TABLE>
See the accompanying notes to consolidated financial statements.
F-5
<PAGE>
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(in thousands)
<TABLE>
<CAPTION>
Common Stock Accumulated
---------------- Additional Other
Number Paid-in Retained Comprehensive Comprehensive
of Shares Amount Capital Earnings Income (Loss) Total income
--------- ------ ---------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31,
1996................... 16,727 $167 $ 2,743 $ 4,379 $ (462) $ 6,827
Repurchase and
retirement of
shares............... (22) -- -- (29) -- (29)
Issuance of stock for
merger............... 1,210 12 10,719 -- -- 10,731
Shares issues pursuant
to stock options
exercised............ 293 3 337 -- -- 340
Options granted below
fair value........... -- -- 968 -- -- 968
Market value
adjustment to
redeemable ESOT
common stock......... -- -- -- (3,045) -- (3,045)
Foreign currency
translation
adjustment........... -- -- -- -- (278) (278) $ (278)
Increase in unrealized
holding gain on
marketable
securities........... -- -- -- -- 209 209 209
Net income............ -- -- -- 16,934 -- 16,934 16,934
-------
Total comprehensive
income............... $16,865
------ ---- ------- -------- ------- -------- =======
Balance at August 31,
1997................... 18,208 182 14,767 18,239 (531) 32,657
Repurchase and
retirement of
shares............... (143) (1) -- (928) -- (929)
Shares issues pursuant
to stock options
exercised............ 295 3 299 -- -- 302
Market value
adjustment to
redeemable ESOT
common stock......... -- -- -- 27,170 -- 27,170
Foreign currency
translation
adjustment........... -- -- -- (1,622) (1,622) $(1,622)
Decrease in unrealized
holding gain on
marketable
securities........... -- -- -- -- (168) (168) (168)
Net income............ -- -- -- 13,083 -- 13,083 13,083
-------
Total comprehensive
income............... $11,293
------ ---- ------- -------- ------- -------- =======
Balance at August 31,
1998................... 18,360 184 15,066 57,564 (2,321) 70,493
Repurchase and
retirement of
shares............... (6) -- -- (20) -- (20)
Dilution of ownership
on equity
investment........... -- -- -- (588) -- (588)
Market value
adjustment to
redeemable ESOT
common stock......... -- -- -- (98,754) -- (98,754)
Foreign currency
translation
adjustment........... -- -- -- -- 1,792 1,792 $ 1,792
Increase in unrealized
holding gain on
marketable
securities........... -- -- -- -- 461 461 461
Net income............ -- -- -- 5,729 -- 5,729 5,729
-------
Total comprehensive
income............... $ 7,982
------ ---- ------- -------- ------- -------- =======
Balance at August 31,
1999................... 18,354 184 15,066 (36,069) (68) (20,887)
Repurchase and
retirement of shares
(unaudited).......... (13) -- -- (89) -- (89)
Shares issues pursuant
to stock options
exercised
(unaudited).......... 59 -- 157 -- -- 157
Dilution of ownership
on investments
(unaudited).......... -- -- -- 4,220 -- 4,220
Market value
adjustment to
redeemable ESOT
common stock......... -- -- -- (48,602) -- (48,602)
Reclassification of
redeemable ESOT
common stock......... 20 -- -- 207 -- 207
Foreign currency
translation
adjustment
(unaudited).......... -- -- -- -- (76) (76) $ (76)
Decrease in unrealized
holding gain on
marketable securities
(unaudited).......... -- -- -- -- 57 57 57
Net income
(unaudited).......... -- -- -- 35,432 -- 35,432 35,432
Stock split adjustment
(unaudited).......... 18,389 184 (184) -- -- --
-------
Total comprehensive
income (unaudited)... $35,413
------ ---- ------- -------- ------- -------- =======
Balance at May 31, 2000
(unaudited)............ 36,809 $368 $15,039 $(44,901) $ (87) $(29,581)
====== ==== ======= ======== ======= ========
</TABLE>
See the accompanying notes to consolidated financial statements.
F-6
<PAGE>
ENTEGRIS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended August 31, Ended May 31,
------------------------- ----------------
1997 1998 1999 1999 2000
------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income....................... $16,934 $13,083 $ 5,729 $ 2,532 $35,432
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization.. 23,395 26,591 28,810 19,187 20,211
Asset impairment............... -- 425 1,996 -- 4,890
Provision for doubtful
accounts...................... 404 57 213 17 725
Provision for deferred income
taxes......................... 261 667 1,296 140 2,445
Stock option compensation
expense....................... 968 -- -- -- 150
Equity in net (income) loss of
affiliates.................... (1,750) 118 1,587 1,585 (1,114)
Loss (gain) on sale of property
and equipment................. 112 (360) 543 220 612
Gain on sale of investment in
affiliate..................... -- -- -- -- (5,468)
Minority interest in
subsidiaries' net income
(loss)........................ 573 176 (399) 84 733
Changes in operating assets and
liabilities:
Trade accounts receivable..... (4,151) 7,983 (3,069) 1,770 (5,752)
Trade accounts receivable due
from affiliates.............. 448 113 (2,560) (2,158) (11,093)
Inventories................... (4,402) 7,122 1,888 2,867 593
Accounts payable and accrued
liabilities.................. 4,771 (11,685) 3,520 (639) 8,909
Other current assets.......... (8,807) 5,457 152 (4,804) (2,050)
Accrued income taxes.......... 798 (4,094) 3,925 4,009 (3,135)
Other......................... (1,063) 256 (222) 1,356 (289)
------- ------- ------- ------- -------
Net cash provided by
operating activities....... 28,491 45,909 43,409 26,166 45,798
------- ------- ------- ------- -------
Investing Activities:
Acquisition of property and
equipment....................... (44,928) (33,512) (10,079) (6,910) (16,384)
Purchase of intangible assets.... (695) (618) (621) (506) (2,212)
Proceeds from sales of property
and equipment................... 315 343 1,285 784 350
Proceeds from sale of investment
in affiliate.................... -- -- -- -- 7,399
(Decrease) increase in investment
in affiliates................... (1,012) (213) 159 -- (1,036)
------- ------- ------- ------- -------
Net cash used in investing
activities................. (46,321) (34,000) (9,256) (6,632) (11,882)
------- ------- ------- ------- -------
Financing Activities:
Principal payments on short-term
borrowings and long-term debt... (9,507) (28,567) (32,339) (23,962) (9,852)
Proceeds from short-term
borrowings and long-term debt... 29,193 15,895 6,382 3,820 3,157
Issuance of common stock......... 389 302 -- -- 157
Repurchase of redeemable and non-
redeemable common stock......... (2,225) (2,578) (1,110) (1,110) (10,446)
------- ------- ------- ------- -------
Net cash provided by (used
in) financing activities... 17,851 (14,948) (27,067) (21,252) (16,984)
------- ------- ------- ------- -------
Effect of exchange rate changes
on cash and cash equivalents.... 82 (80) 1,090 488 (96)
------- ------- ------- ------- -------
(Decrease) increase in cash
and cash equivalents....... 103 (3,119) 8,176 (1,230) 16,836
Cash and cash equivalents at
beginning of period............. 11,251 11,354 8,235 8,235 16,411
------- ------- ------- ------- -------
Cash and cash equivalents at end
of period....................... $11,354 $ 8,235 $16,411 $ 7,005 $33,247
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
ENTEGRIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation and Basis of Presentation
Entegris, Inc. (the Company) is a worldwide leader in providing advanced
materials management products using polymers developed for applications in the
microelectronics industry and other targeted markets. The accompanying
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, Fluoroware, Inc., Empak, Inc., Fluoroware Jamaica,
Ltd. and Empak Bermuda, both foreign sales corporations (FSC), Fluoroware PEI,
Inc., Empak GmbH, Empak Hanbal Korea, Empak Korea Yuhan Hoesa, Empak UK, and
Empak Malaysia. The results of operations of Nippon Fluoroware K.K., a 90%
owned subsidiary, Fluoroware GmbH, a 90% owned subsidiary, Fluoroware Southeast
Asia Pte Ltd., a 70% owned subsidiary; Fluoroware Valqua Japan K.K., a 51%
owned subsidiary, and Unified Container Solutions, Inc., an 80% owned
subsidiary of the Company, have also been consolidated with the Company's
results. See Notes 21 and 22 regarding transactions subsequent to August 31,
1999 which affect certain of the preceding information. The Company accounts
for its investments in its 30.0% and 20.3% owned affiliates, FJV (Korea) Ltd.
and Metron Technology N.V. (Metron), respectively, using the equity method. The
Company's investment in Metron is accounted for using a three-month lag due to
Metron's May year end. Intercompany profits, transactions and balances have
been eliminated.
The Company's fiscal year is a 52 or 53 week period ending on the last
Saturday in August. Fiscal years 1997, 1998 and 1999 ended on August 30, 1997,
August 29, 1998 and August 28, 1999, respectively. For convenience, the
accompanying financial statements have been presented as ending on the last day
of the month.
The unaudited interim consolidated financial statements for the nine months
ended May 31, 1999 and 2000, have been prepared on the same basis as the
audited financial statements and, in the opinion of management, reflect all
normal recurring adjustments necessary to present fairly the financial
information set forth therein, in accordance with generally accepted accounting
principles. The results of operations for the nine months ended May 31, 2000
are not necessarily indicative of the operating results to be expected for the
year ended August 31, 2000.
(b) Business Combination
On June 7, 1999, Fluoroware, Inc. and Empak, Inc. completed a business
combination which resulted in the formation of Entegris, Inc., a new
corporation formed for the purpose of effecting the business combination.
Entegris, Inc. issued 36 million shares of its common stock in exchange for
100% of the outstanding shares of Fluoroware, Inc. and 24 million shares in
exchange for 100% of the outstanding shares of Empak, Inc.
For financial reporting purposes, the business combination has been recorded
using the pooling-of-interests method of accounting under generally accepted
accounting principles. Accordingly, the historical financial statements of
Entegris, Inc. include the historical accounts and results of operations of
Empak, Inc. and subsidiaries and Fluoroware, Inc. and subsidiaries as if the
business combination had been in effect for all periods presented.
F-8
<PAGE>
The results of operations for the separate companies and combined amounts
presented in the consolidated financial statements are as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- ------- -------
<S> <C> <C> <C>
Net sales:
Fluoroware, Inc............................. $165,772 152,805 141,758
Empak, Inc.................................. 111,518 113,786 100,194
-------- ------- -------
Combined.................................. $277,290 266,591 241,952
======== ======= =======
Net income before merger-related expenses,
impairment of asset charges and adjustments
recorded to conform accounting methods:
Fluoroware, Inc............................. $ 6,056 1,940 149
Empak, Inc.................................. 10,741 11,414 9,843
-------- ------- -------
Combined.................................. $ 16,797 13,354 9,992
======== ======= =======
Net income (loss):
Fluoroware, Inc............................. $ 6,202 1,724 (3,630)
Empak, Inc.................................. 10,732 11,359 9,359
-------- ------- -------
Combined.................................. $ 16,934 13,083 5,729
======== ======= =======
</TABLE>
Adjustments to conform the companies' methods of depreciation reduced
combined net income for the years ended August 31, 1998 and 1999 by
approximately $0.5 million and $1.9 million, respectively.
Expenses related to the business combination were approximately $3.6 million
for 1999, of which approximately $2.6 million is in accrued liabilities at
August 31, 1999. In addition, the Company recorded asset impairment charges
related to the business combination of approximately $1.3 million during 1999.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, and short-
term investments with original maturities of three months or less.
(d) Inventories
Inventories are stated at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method for approximately 78% and 73% of total
inventories at August 31, 1998 and 1999, respectively. Inventories not valued
at LIFO are recorded using the first-in, first-out method.
(e) Property, Plant, and Equipment
Property, plant, and equipment are carried at cost and are depreciated
principally on the straight-line method. When assets are retired or disposed
of, the cost and related accumulated depreciation are removed from the
accounts, and gains or losses are recognized in the same period. Maintenance
and repairs are expensed as incurred; significant renewals and betterments are
capitalized.
(f) Capitalized Software
The Company capitalizes certain costs associated with significant software
obtained and developed for internal use. Certain costs are capitalized when
both the preliminary project stage is completed and management deems the
project will be completed and used to perform the intended function.
Capitalization of such costs ceases no later than the point at which the
project is substantially complete and ready for its intended purpose.
Capitalized software costs are amortized over the estimated useful life of
the project which is generally 4 to 5 years. Capitalized software of
approximately $4.6 million was included in office furniture and equipment as of
August 31, 1998 and 1999.
F-9
<PAGE>
(g) Intangible Assets
Patents, trademarks and goodwill are carried at cost, less accumulated
amortization, and are being amortized over 5 to 17 year periods, using the
straight-line method. Costs associated with bond and debt issuance are carried
at cost, less accumulated amortization, and are being amortized on a straight-
line basis over the life of the applicable bond or debt instrument, which is 10
to 15 years.
The carrying value of intangible assets is reviewed when circumstances
suggest that there has been possible impairment. If this review indicates that
intangible assets will not be recoverable based on the estimated undiscounted
cash flows over the remaining amortization period, the carrying value of
intangible assets is reduced to estimated fair value.
(h) Investments in Marketable Securities
Certain of the Company's investments are classified as available-for-sale,
and accordingly, any unrealized holding gains and losses, net of taxes, are
excluded from income, and recognized as a separate component of shareholders'
equity until realized. Fair market value of the securities is determined based
on published market prices. At August 31, 1999, the gross unrealized gains on
marketable securities were $0.5 million.
(i) Foreign Currency Translation/Foreign Currency Contracts
Except for certain foreign subsidiaries whose functional currency is the
United States dollar, assets and liabilities of foreign subsidiaries are
translated from foreign currencies into U.S. dollars at current exchange rates.
Income statement amounts are translated at the weighted average exchange rates
for the year. Gains and losses resulting from foreign currency transactions are
included in net income. For certain foreign subsidiaries whose functional
currency is the U.S. dollar, currency gains and losses resulting from
translation are determined using a combination of current and historical rates
and are reported as a component of net income.
The Company periodically enters into forward foreign currency contracts to
reduce certain exposures relating to rate changes in foreign currency. These
contracts are subject to gain or loss from changes in foreign currency rates,
however, any realized gain or loss will be offset by gains or losses on the
underlying hedged foreign currency transactions. Certain exposures to credit
losses related to counterparty nonperformance exist, however, the Company does
not anticipate nonperformance by the counterparties as they are large, well-
established financial institutions. The fair values of the Company's forward
hedging instruments discussed below are estimated based on prices quoted by
financial institutions for these instruments.
The Company was a party to forward foreign currency contracts with notional
amounts of $1.6 million at August 31, 1999.
(j) Revenue Recognition/Concentration of Risk
Revenue and the related cost of sales are recognized upon shipment of the
products. The Company provides for estimated returns and warranty obligations
when the revenue is recorded. The Company sells its products to semiconductor
manufacturing companies throughout the world. The Company performs continuing
credit evaluations of its customers and, generally, does not require
collateral. Letters of credit may be required from its customers in certain
circumstances. The Company maintains an allowance for doubtful accounts which
management believes is adequate to cover any losses on trade receivables.
Certain of the materials included in the Company's products are obtained
from a single source or a limited group of suppliers. Although the Company
seeks to reduce dependence on those sole and limited source suppliers, the
partial or complete loss of certain of these sources could have at least a
temporary adverse effect on the Company's results of operations. Furthermore, a
significant increase in the price of one or more of these components could
adversely affect the Company's results of operations.
(k) Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting. The Company accounts
for tax credits as reductions of income tax expense in the year in which such
credits are allowable for tax purposes.
F-10
<PAGE>
The Company utilizes the asset and liability method for computing its
deferred income taxes. Under the asset and liability method, deferred tax
assets and liabilities are based on the temporary difference between the
financial statement and tax basis of assets and liabilities and the enacted tax
rates expected to apply to taxable income in the years in which these temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(l) Long-lived Assets
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable based on estimated future
undiscounted cash flows. The Company recorded asset write-offs on molds and
equipment which were determined to have no future use of approximately $0.4
million and $2.0 million for 1998 and 1999, respectively. All impairment losses
are included in the Company's cost of sales.
(m) Earnings (Loss) per Share (EPS)
1) Historical
a) Basic EPS is computed by dividing net income (loss) applicable to
nonredeemable common stock by the weighted average number of shares
of nonredeemable common stock outstanding during each period.
b) Since the basic EPS for the year ended August 31, 1999 represents a
loss per share of common stock, the effect of including the
incremental shares of common stock from assumed exercise of options
and from assumed reclassification of redeemable common stock in EPS
computation is anti-dilutive, and accordingly the basic and diluted
EPS are the same.
2) Pro forma
Pro forma basic and diluted EPS have been calculated assuming the
reclassification of all outstanding shares of redeemable common stock upon
Entegris' initial public offering into common stock, as if the shares had
been converted immediately upon their issuance. Accretion (reduction) of
redemption value of redeemable common stock has been excluded from the
calculation of pro forma basic and diluted EPS as the related shares are
assumed to be converted to common stock upon issuance.
(n) Accounting 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 date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(o) Stock-based Compensation
The Company accounts for stock-based compensation under Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. APB No. 25 requires compensation cost to be recorded on the date of
the grant only if the current market price of the underlying stock exceeds the
exercise price. The Company has adopted the disclosure-only provisions of SFAS
No. 123, Accounting for Stock-based Compensation.
(p) Comprehensive Income
Comprehensive income (loss) represents the change in shareholders' equity
resulting from other than shareholder investments and distributions. The
Company's foreign currency translation adjustments and
F-11
<PAGE>
unrealized gains and losses on marketable securities are included in
accumulated comprehensive income (loss). The effect of deferred taxes on other
comprehensive income (loss) is not material.
(q) Recent Accounting Pronouncements
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which, as amended, becomes effective for
fiscal years beginning after June 15, 2000. The pronouncement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the value of
those derivatives would be accounted for depending on the use of derivatives
and whether it qualifies for hedge accounting. The Company is presently
analyzing this statement and the impact, if any, on the Company's financial
statements.
(2) Acquisitions
On April 30, 1998, the Company acquired all the common stock of Hanbal
Korea, a Korean corporation, for a nominal amount. Subsequent to the
acquisition, the Company contributed additional capital of $2.3 million. The
acquisition has been accounted for under the purchase method of accounting. The
excess of the purchase price over the net book value of the common stock
acquired was $0.8 million and was allocated to goodwill. Results of operations
of Hanbal Korea are included in the consolidated financial statements
subsequent to April 30, 1998.
On January 26, 1998, the Company acquired an additional 37.5% interest in
Nippon Fluoroware K.K. for $0.9 million.
(3) Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Raw materials.......................................... $ 7,564 $ 7,194
Work-in-process........................................ 876 4,377
Finished goods......................................... 28,161 22,703
Supplies............................................... 334 773
-------- -------
$ 36,935 $35,047
======== =======
</TABLE>
If the first-in, first-out (FIFO) cost method had been used by the company,
inventories would have been $4.5 million and $4.9 million higher at August 29,
1998 and August 28, 1999, respectively.
During fiscal 1998 and 1999, inventory quantities were reduced, which
resulted in a liquidation of LIFO inventory layers carried at lower costs than
those prevailing in prior years. The effect of this liquidation was to increase
income before income taxes in fiscal 1998 and 1999 by approximately $1.0
million and $1.6 million, respectively.
F-12
<PAGE>
(4) Property, Plant, and Equipment
Property, plant, and equipment, together with annual depreciation lives,
consist of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
1998 1999 Useful Lives
--------- -------- ------------
<S> <C> <C> <C>
Land...................................... $ 6,268 $ 7,307
Buildings and improvements................ 53,117 55,349 5-35
Manufacturing equipment................... 80,127 77,625 5-10
Molds..................................... 65,174 68,352 3-5
Office furniture and equipment............ 32,213 34,291 3-8
--------- --------
236,900 242,924
Less accumulated depreciation............. 103,577 125,300
--------- --------
$ 133,323 $117,624
========= ========
</TABLE>
Depreciation expense was $22.9 million, $25.6 million and $27.8 million in
1997, 1998 and 1999, respectively.
(5) Investments in Affiliates
The investment in Metron was reduced from 37.5% to 32.8% in 1999 due to the
dilution of ownership resulting from an acquisition by Metron. The Company
recorded this $0.6 million reduction in its investment through retained
earnings in fiscal 1999. This ownership percentage was further reduced as
explained in Note 22. A summary of assets, liabilities, and results of
operations for Metron, a 32.8% owned affiliate accounted for using the equity
method, is as follows (in thousands):
<TABLE>
<CAPTION>
May 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Current assets........................................ $ 97,859 $ 86,713
Noncurrent assets, net................................ 16,302 12,912
Current liabilities................................... 73,390 64,930
Noncurrent liabilities................................ 2,722 2,743
-------- --------
Total shareholders' equity........................ $ 38,049 $ 31,952
======== ========
<CAPTION>
Fiscal Years
Ended May 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Net sales............................................. $275,024 $228,121
-------- --------
Net income (loss)..................................... $ 1,102 $ (4,534)
======== ========
</TABLE>
Metron operates mainly in Europe, Asia Pacific, and the United States. Sales
to Metron, which are recorded in accordance with the Company's revenue
recognition policy, were $34.6 million, $31.8 million and $34.6 million in
1997, 1998 and 1999, respectively. Trade accounts receivable relating to these
sales as of August 31, 1998 and 1999 were $6.6 million and $8.1 million,
respectively.
The Company also has a 30% investment in FJV (Korea) Ltd. Neither this
investment nor FJV (Korea) Ltd.'s financial statements are material.
F-13
<PAGE>
(6) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- -------
<S> <C> <C>
Payroll and related benefits............................ $ 8,061 $ 6,896
Insurance............................................... 1,440 2,248
Taxes, other than income taxes.......................... 1,384 1,472
Pension................................................. 2,377 3,218
Interest................................................ 829 570
Other................................................... 7,148 12,376
-------- -------
$ 21,239 $26,780
======== =======
</TABLE>
(7) Long-term Debt
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Unsecured senior notes payable in various semiannual
principal installments, including semiannual interest
installments at 7.42% through February 2011.............. $20,000 $19,200
Unsecured reducing revolving commitments with two
commercial banks for aggregate borrowing of $35,833 with
interest only payable monthly at 6.43% to 8.50% during
1999, based on a factor of the banks' reference rates.... 13,400 --
Stock redemption notes payable in various installments
along with monthly interest of 6%, 8%, and 9% through
December 2010............................................ 9,112 8,490
Unsecured senior notes payable in various quarterly
principal installments, including monthly interest
installments at 9.46% through February 2005.............. 8,900 8,400
Mortgage loans payable in monthly installments of $55
including principal and interest at 8.75% and 9.95%
through July 2000 and July 2008; secured by land and
buildings................................................ 2,758 2,331
Commercial loans payable on a monthly basis in principal
installments of $271, with interest ranging from 1.925%
to 9.0% and various maturities through September 2015.... 7,929 5,391
Commercial loan payable on a semiannual basis in principal
installments of $252 and interest ranging from 4.9% to 6%
and various maturities through December 2007............. 4,446 3,416
Industrial Revenue Bonds payable on a semiannual basis
with principal installments of $50 through October 2012,
and variable interest ranging from 3.10% to 4.35%........ 1,550 1,450
Note payable to Marubeni Corporation, interest at 9.07%,
due monthly; balloon payment of $3,913 due March 2002;
secured by building...................................... 4,804 4,543
Other..................................................... 3,333 1,368
------- -------
Total..................................................... 76,232 54,589
Less current maturities................................... 8,685 6,566
------- -------
$67,547 $48,023
======= =======
</TABLE>
F-14
<PAGE>
Annual maturities of long-term debt as of August 31, 1999, are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ending August 31,
<S> <C>
2000............................................................ $ 6,566
2001............................................................ 6,791
2002............................................................ 9,167
2003............................................................ 4,927
2004............................................................ 5,434
Thereafter...................................................... 21,703
-------
$54,589
=======
</TABLE>
Subsequent to year end through December 22, 1999, the Company signed new
debt agreements which replaced the unsecured senior notes payable and the
unsecured reducing revolving commitments. These new agreements contain
substantially identical terms as the former agreements. The new agreements
require the Company to maintain certain quarterly financial covenants beginning
with the quarter ending February 28, 2000.
(8) Short-term Bank Borrowings
The Company has a revolving commitment with three commercial banks for
aggregate borrowings of $25 million with interest at the LIBOR rate (5.4% at
August 31, 1999), plus 2.0%, or at prime (8.25% at August 31, 1999). During
1999 interest ranged between 7.75% and 8.5%. The balance outstanding under this
commitment was $5.0 million and $0 at August 31, 1998 and 1999, respectively.
The Company has entered into line of credit agreements with six
international commercial banks, which provide for aggregate borrowings of 5.1
million Deutsche marks, 5.0 million Malaysia ringgits, 0.5 million Singapore
dollars and 850 million yen for its foreign subsidiaries, which is equivalent
to $12.0 million as of August 31, 1999. Interest rates for these facilities are
based on a factor of the banks' reference rates and ranged from 1.625% to 9.5%
during 1999. Borrowings outstanding under these line of credit agreements at
August 31, 1998 and 1999, were $5.0 million and $8.4 million, respectively.
(9) Lease Commitments
The Company is obligated under noncancellable lease agreements for certain
equipment and buildings. Future minimum lease payments for all capital and
operating leases with initial or remaining terms in excess of one year at
August 31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital Total
Year Ending August 31, --------- ------- -------
<S> <C> <C> <C>
2000.............................................. $ 4,359 $ 3,150 $ 7,508
2001.............................................. 3,491 2,836 6,328
2002.............................................. 2,387 1,433 3,820
2003.............................................. 1,205 707 1,911
2004.............................................. 1,212 489 1,701
Thereafter........................................ 1,247 1,120 2,368
------- ------- -------
Total minimum lease payments.................... $13,900 $ 9,735 $23,636
======= ======= =======
Less amount representing interest imputed at rates
ranging
from 5% to 9%.................................... 1,286
-------
Capital lease obligations, including current
maturities
of $2,641...................................... $ 8,449
=======
</TABLE>
F-15
<PAGE>
The minimum lease payments for operating leases have not been reduced by
minimum sublease rentals of $3.5 million due through November 2004.
Equipment under capital lease is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Cost.................................................... $14,163 $16,367
Less accumulated depreciation........................... 4,632 6,145
------- -------
$ 9,530 $10,222
======= =======
</TABLE>
Total rental expense for all equipment and building operating leases was
$3.4 million, $4.3 million and $6.1 million in 1997, 1998 and 1999,
respectively. See note 20(a) for related party leases included above.
(10) Interest Expense, net
Interest expense, net consists of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Interest expense................................. $ 6,747 $ 7,111 $ 6,441
Less interest income............................. 95 116 943
------- ------- -------
Interest expense, net.......................... $ 6,652 $ 6,995 $ 5,498
======= ======= =======
(11) Other Income (Expense), net
Other income (expense), net consists the following (in thousands):
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Gain (loss) on sale of property and equipment.... $ (112) $ 1,225 $ (543)
Gain (loss) on foreign currency exchange......... -- (904) 1,121
Other, net....................................... (2,089) (48) 1,272
------- ------- -------
$(2,201) $ 273 $ 1,850
======= ======= =======
(12) Income Taxes
Income (loss) before income taxes was derived from the following sources (in
thousands):
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Domestic......................................... $26,974 $16,634 $ 7,592
Foreign.......................................... (639) 1,279 3,705
------- ------- -------
$26,335 $17,913 $11,297
======= ======= =======
</TABLE>
F-16
<PAGE>
Income tax expense (benefit) is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 8,541 $2,919 $2,790
State.............................................. 1,018 876 495
Foreign............................................ 842 280 1,343
------- ------ ------
10,401 4,075 4,628
------- ------ ------
Deferred:
Federal............................................ 150 546 (264)
State.............................................. 27 (85) 16
------- ------ ------
177 461 (248)
------- ------ ------
$10,578 $4,536 $4,380
======= ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at August 31,
1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Net current deferred tax assets:
Allowance for doubtful accounts....................... $ 1,056 $ 749
Inventory reserve..................................... 2,284 2,449
Accruals not currently deductible for tax purposes.... 3,008 2,549
Other, net............................................ 340 529
------- -------
Total current deferred tax assets................... 6,688 6,276
------- -------
Non-current deferred tax liabilities:
Accelerated depreciation.............................. (5,841) (7,098)
Capital leases........................................ (502) (519)
DISC earnings......................................... (967) (860)
Accruals not currently deductible for tax purposes.... 914 453
Other, net............................................ 1,141 1,886
------- -------
Total gross deferred tax liabilities................ (5,255) (6,139)
------- -------
Net deferred tax assets............................. $ 1,433 $ 137
======= =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income over the periods during which
deferred tax assets are deductible, the Company believes it is more likely than
not that the benefit of these deductible differences will be realized.
F-17
<PAGE>
Actual income tax expense differs from the expected amounts based upon the
statutory federal tax rates as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected federal income tax at statutory rate............ 35.0% 35.0% 35.0%
State income taxes, net of federal tax effect............ 2.8 2.5 2.9
Effect of foreign source income.......................... 2.7 2.1 6.3
Foreign sales corporation income not subject to tax...... (4.1) (5.5) (6.2)
Research tax credit...................................... (2.6) (5.2) (3.1)
Foreign losses not previously benefited.................. -- (5.1) --
Discontinued use of domestic sales corporation........... 2.4 -- --
Other items, net......................................... 4.0 1.5 3.9
---- ---- ----
40.2% 25.3% 38.8%
==== ==== ====
</TABLE>
(13) Employee Stock Ownership Plan and Trust
Entegris maintains an Employee Stock Ownership Plan and Trust (ESOT).
In August 1985, the ESOT purchased 23,158,464 shares of common stock of the
Company from a shareholder. The ESOT borrowed funds, guaranteed by the Company,
for $3.6 million and obtained additional contributions to fund this purchase in
October 1985. In August 1989, the ESOT borrowed additional funds of $1.2
million guaranteed by the Company, to purchase an additional 4,631,692 shares
of common stock from a stockholder.
Employer contributions to the ESOT are determined from time to time by the
board of directors at its discretion, and are made without regard to the
profits of the Company. Contributions shall not exceed the amount allowable by
the Internal Revenue Code. No contributions were made to the ESOT for 1997,
1998 or 1999.
Employer contributions are allocated to separate accounts maintained for
each participant in the proportion that the total qualified compensation of
each participant bears to the total qualified compensation for all
participants. Each participant's account is adjusted, at least annually, to
reflect investment gains or losses.
The ESOT shares were 23,833,718 and 23,252,398 as of August 31, 1998 and
1999, respectively. The ESOT plan contains a put option, whereby the Company
agrees to purchase the vested shares distributed to terminated participants or
their estates, at the appraised value of the shares as of the second August 31
following termination, or after the first August 31 upon death, disability, or
attainment of age 65. The fair value of shares was estimated by an independent
appraiser to be $3.15, $2.01 and $6.25 as of August 31, 1997, 1998 and 1999,
respectively. As a result of this redemption feature, these shares are
classified separately from shareholders' equity. Pursuant to the terms of the
ESOT plan, upon the consummation of an initial public offering these shares
would no longer be redeemable and would be reclassified into shareholders'
equity.
On August 20, 1998, the board of directors approved a change to the
distribution procedures, whereby a corporate bylaw restriction was eliminated.
The impact of this restriction elimination allows participants (beneficiaries
and alternate payees) to receive their distribution in Company stock. This
change was effective for distributions based on the August 31, 1998 valuation.
(14) Pension and 401(k) Savings Plans
Entegris, Inc. has a defined contribution pension plan covering eligible
employees. Contributions under this plan are determined by a formula set forth
in the plan agreement. Total pension costs for 1997, 1998 and 1999 related to
this plan were $2.2 million, $1.7 million and $2.0 million, respectively.
F-18
<PAGE>
The Company maintains 401(k) employee savings plans (the Plans) that
qualify as deferred salary arrangements under Section 401(k) of the Internal
Revenue Code. Under the Plans, eligible employees may defer a portion of their
pretax wages, up to the Internal Revenue Service annual contribution limit.
The Company matches 50% of the employee's contribution, up to a maximum of 6%
of the employee's eligible wages. The Board of Directors may, at its
discretion, declare a profit sharing contribution in addition to the matching
contribution, but all contributions are limited to the maximum amount
deductible for federal income tax purposes. The employer profit sharing and
matching contribution expense under the Plans was $1.5 million, $1.6 million
and $1.8 million in 1997, 1998 and 1999, respectively.
(15)Stock Option Plans
In August 1999, Entegris, Inc. established the Entegris, Inc. 1999 Long-
Term Incentive and Stock Option Plan (the 1999 Plan) and the Entegris, Inc.
Outside Directors' Stock Option Plan (the Directors' Plan). These plans
replaced similar plans in effect prior to the business combination described
in Note 1(b). The maximum aggregate number of shares that may be granted under
the plans is 9,000,000 and 1,000,000, respectively. The Plans state that the
exercise price for these shares shall not be less than 100% of the fair market
value of the common stock on the date of grant of such option.
On February 12, 1998, 10-year stock options were granted at a price equal
to the most recent fair market appraised value. Some of the options became
immediately exercisable while others are exercisable on a cumulative basis at
a rate of 25% per year.
Prior to the effective date of this offering, the Company intends to amend
the Directors' Plan so that each outside director shall automatically be
granted an option to purchase 15,000 shares upon the date the individual
becomes a director. Annually, each outside director will automatically be
given an option to purchase 6,000 shares. Options will be exercisable six
months subsequent to the date of grant. The term of the option shall be ten
years. The Plan states that the exercise price for these shares shall not be
less than 100% of the fair market value of the common stock on the date of
grant of such option.
Option activity for the 1999 Plan and the Directors' Plan is summarized as
follows (shares in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- ----------------
Number of Option Number of Option Number of Option
shares price shares price shares price
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning
of year................ 1,952 $1.46 1,810 $1.43 6,010 $2.72
Granted............... 92 1.37 4,610 3.15 -- --
Canceled.............. (234) 1.50 (410) 2.01 (111) 2.57
----- ----- ----- ----- ----- -----
Options outstanding, end
of year................ 1,810 $1.43 6,010 $2.72 5,899 $2.72
===== ===== ===== ===== ===== =====
Options exercisable, end
of year................ 452 $1.38 2,769 $2.45 3,855 $2.54
===== ===== ===== ===== ===== =====
Options available for
grant, end
of year................ 8,190 3,990 4,101
===== ===== =====
</TABLE>
At August 31, 1999, the exercise price for 4,454,000 options outstanding,
with a weighted average remaining contractual life of 8.5 years, was $3.15 and
the exercise prices for 1,445,000 options outstanding, with a weighted average
remaining life of 6.5 years, ranged from $0.96 to $1.50. At August 31, 1999,
2,527,000 options were exercisable at $3.15 and 1,328,000 options were
excercisable at prices ranging from $0.96 to $1.50. No options were exercised
in 1997, 1998 or 1999.
F-19
<PAGE>
The Company determined pro forma compensation expense under the provisions
of SFAS No. 123 using the Black-Scholes pricing model and the following
assumptions:
<TABLE>
<CAPTION>
5 Year 8 Year 10 Year
--------- --------- ---------
<S> <C> <C> <C>
Expected dividend yield................... 0% 0% 0%
Expected stock price volatility........... 0% 0% 0%
Risk-free interest rate................... 5.32-5.47% 6.33-6.86% 5.39-5.96%
Expected life............................. 5 years 8 years 10 years
</TABLE>
Had compensation cost for option grants been determined consistent with SFAS
No. 123, the Company's net income (loss), on a pro forma basis, would have been
as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Net income (loss), as reported................. $13,889 $40,253 $(93,025)
Pro forma net income (loss).................... 13,565 37,188 (94,151)
Basic net earnings (loss) per share, as
reported...................................... 0.39 1.10 (2.53)
Pro forma basic net earnings (loss) per share.. 0.38 1.01 (2.56)
Diluted net earnings (loss) per share, as
reported...................................... 0.27 0.21 (2.53)
Pro forma diluted net earnings (loss) per
share......................................... 0.27 0.16 (2.56)
</TABLE>
The weighted average fair value of options granted during the years ended
August 31, 1997 and 1998 with exercise prices equal to the market price at the
date of grant was $0.84 and $1.33 per share, respectively.
(16) Earnings (Loss) per Share
Basic earnings (loss) per share is based upon the weighted average common
shares outstanding during each year. Diluted earnings (loss) per share is based
upon the weighted average common shares outstanding and dilutive common stock
equivalent shares outstanding during each year. The following table presents a
reconciliation of the numerators and denominators used in the computation of
basic and diluted earnings (loss) per share (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
Numerator
Basic earnings (loss) per share--Net income
(loss) applicable to nonredeemable common
shareholders ................................ $13,889 $ 40,253 $(93,025)
Marketable value adjustment to redeemable
common stock................................. 3,045 (27,170) --
------- -------- --------
Numerator for diluted earnings (loss) per
share...................................... $16,934 $ 13,083 $(93,025)
======= ======== ========
Denominator
Basic earnings (loss) per share--Weighted
common shares outstanding.................... 35,247 36,651 36,708
Weighted common shares assumed upon exercise
of options................................... 1,819 745
Weighted common shares assumed upon
reclassification of redeemable common
shares....................................... 24,720 24,096
------- -------- --------
Denominator for diluted earnings (loss) per
share...................................... 61,786 61,492 36,708
======= ======== ========
</TABLE>
The effect of the inclusion of redeemable common shares and stock options in
1999 is anti-dilutive.
F-20
<PAGE>
(17)Segment Information
The Company operates in one segment as it designs, develops, manufactures,
markets and sells material management and handling products predominantly
within the semiconductor industry. All products are sold on a worldwide basis.
The following table summarizes total net sales, based upon the country from
which sales were made, and long-lived assets attributed to significant
countries for 1997, 1998 and 1999, respectively (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States.............................. $252,230 $217,171 $176,345
Japan...................................... 13,232 19,129 20,337
Germany.................................... 10,103 18,853 26,278
Malaysia................................... 818 5,828 12,100
Korea...................................... -- 1,249 2,443
Singapore.................................. 907 4,361 4,449
-------- -------- --------
$277,290 $266,591 $241,952
======== ======== ========
Long-lived assets:
United States.............................. $ 95,847 $102,190 $ 84,271
Japan...................................... 7,404 6,044 7,100
Germany.................................... 5,034 7,143 6,484
Malaysia................................... 9,807 13,094 12,955
Korea...................................... 25 2,742 5,131
Singapore.................................. 2,037 2,110 1,683
-------- -------- --------
$120,154 $133,323 $117,624
======== ======== ========
Export sales, principally from the United States, amounted to $95.8 million,
$70.7 million and $50.3 million in 1997, 1998 and 1999, respectively. In 1997,
1998 and 1999, no single customer accounted for 10% or more of net sales.
(18) Supplementary Cash Flow Information
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Schedule of interest and income taxes paid
(in thousands):
Interest................................... $6,945 $6,881 $ 6,633
Income taxes, net of refunds received...... 8,427 7,777 (3,052)
</TABLE>
(19) Fair Value of Financial Instruments
The carrying amount of cash equivalents and short-term debt approximates
fair value due to the short maturity of those instruments.
The fair value of long-term debt was estimated using discounted cash flows
based on market interest rates for similar instruments and approximated $54.7
million compared to a carrying value of $54.6 million at August 31, 1999.
F-21
<PAGE>
(20) Related-Party Transactions
(a) Leases
The Company leases office space and production facilities under operating
leases from a major stockholder's trust or from entities related to this
stockholder. These leases, which expire through the year 2004, may be adjusted
periodically based on a percentage of the increase in the consumer price index.
The Company is required to pay for all real estate taxes, utilities and other
operating expenses. Rent expense for continuing operations relating to these
agreements totaled $0.6 million, $0.9 million and $1.2 million for 1997, 1998
and 1999, respectively.
(b) Service Agreement
The Company allocated rental payments to Emplast, a previously owned
company, totaling $0.5 million, $0.4 million and $0.3 million in 1997, 1998 and
1999, respectively. As of August 31, 1998 and 1999, Emplast owed the Company
$0.7 million and $0.8 million and respectively, which are included in prepaid
expenses and other current assets in the accompanying consolidated balance
sheets.
(c) Note Payable
The Company has a note payable to Marubeni, a minority stockholder. Interest
expense related to this note totaled $0.5 million, $0.5 million and $0.4
million for 1997, 1998 and 1999, respectively.
(d) Notes Receivable
At August 31, 1999, the Company has a $0.8 million note receivable from a
major stockholder trust which bears interest at 8.0% per year.
(e) Debt Guarantees
The Company guarantees a loan of a former officer and a major stockholder
related to the Company's leased facility in Castle Rock, Colorado. This
guarantee totaled $1.2 million and $1.6 million and at August 31, 1998 and
1999, respectively.
(f) Sales to Minority Shareholder
The Company sells products to Marubeni under normal business terms. Sales to
Marubeni were $19.4 million, $18.0 million and $12.0 million in 1997, 1998 and
1999, respectively. At August 31, 1998 and 1999, the Company had a receivable
from Marubeni totaling $0.8 million and $1.9 million, respectively, due under
normal trade terms. In addition, in February 1997, Marubeni was granted an
option to buy 214,942 shares of the Company's common stock with an exercise
price of $5.19 per share. The grant was immediately vested and exercisable for
ten years.
(21) Subsequent Events
The accompanying consolidated financial statements reflect a 2-for-1 stock
split of the Company's common stock to be effective prior to its initial public
offering. The Company filed a registration statement with the Securities and
Exchange Commission on March 31, 2000.
In August 1999, the Company acquired the 10% minority interest in
Fluoroware, GmbH resulting in 100% ownership of the entity for $0.4 million.
In October 1999, the Company acquired the assets of a polymer machining
business located in Upland, California for $2.7 million.
F-22
<PAGE>
(22) Subsequent Events (Unaudited)
In October 1999, the Company's Nippon Fluoroware K.K. subsidiary (NFKK)
agreed to issue equity of $2.2 million and debt of $2.2 million in exchange for
property and equipment. As a result, the Company's ownership percentage in NFKK
decreased from 90.0% to 51.0% and resulted in a charge to retained earnings of
$0.7 million.
In November 1999, the Company sold approximately 612,000 shares of its
investment in Metron Technology N.V. (Metron) stock as part of Metron's initial
public offering. As a result of the sale, the company received proceeds of $7.4
million and recognized a gain of $5.5 million. The Company's ownership
percentage decreased from 32.8% to 20.3% at May 31, 2000 as a result of the
sale in the public offering and subsequent share issuances for exercised stock
options by Metron. As a result of the initial public offering the value of the
Company's investment increased and was reflected as an increase to retained
earnings of $5.0 million. At May 31, 2000, the Company owned approximately 2.7
million shares of Metron with a market value of approximately $29.9 million.
In February 2000, the Company acquired the 30% minority interest in
Fluoroware Southeast Asia Pte Ltd. resulting in 100% of the entity for $0.7
million.
In March 2000, the Company entered into an agreement with a related party to
purchase certain real estate and personal property, which the Company currently
leases from the related party (see Note 20(a)). The purchase price of the
property, which was purchased on May 1, 2000, was $2.5 million.
In March 2000, the Company's board of directors approved an increase in the
Company's number of authorized common shares from 100,000,000 shares to
200,000,000 shares in conjunction with our 2-for-1 stock split.
In March 2000, the Company's board of directors adopted, and our
shareholders approved in May 2000, the Entegris, Inc. Employee Stock Purchase
Plan (the Plan). A total of 4,000,000 common shares were reserved for issuance
under the Plan.
At various dates subsequent to August 31, 1999, the Company granted options
to purchase 1,396,000 common shares under the Entegris, Inc. 1999 Long-Term
Incentive and Stock Option Plan. The exercise price of grants for 344,000
common shares will be equal to the finally determined offering price. The
exercise prices for grants for 852,000 common shares and 200,000 common shares
were equal to $4.21 per share and $6.25 per share, respectively. The Company
intends to record compensation expense of $1.2 million for these grants based
on the difference between the exercise price and the fair value on the date of
grant of the common stock over the four-year vesting term of the options.
F-23
<PAGE>
SCHEDULE II
ENTEGRIS, INC.
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Deductions
Balance at Charged from
beginning to costs reserves Balance at
of period and expenses (1) end of period
---------- ------------ ---------- -------------
<S> <C> <C> <C> <C>
For the year ended August 31,
1997:
Allowance for doubtful
receivables................ $1,524 404 439 $1,489
====== ===== ===== ======
Inventory reserves.......... $2,001 4,225 3,371 $2,855
====== ===== ===== ======
For the year ended August 31,
1998:
Allowance for doubtful
receivables................ $1,489 57 224 $1,322
====== ===== ===== ======
Inventory reserves.......... $2,855 2,475 2,818 $2,512
====== ===== ===== ======
For the year ended August 31,
1999:
Allowance for doubtful
receivables................ $1,322 213 330 $1,205
====== ===== ===== ======
Inventory reserves.......... $2,512 2,701 2,043 $3,170
====== ===== ===== ======
</TABLE>
--------
(1) Net of recoveries
F-24
<PAGE>
Advanced Manufacturing Capabilities
Graphic of Globe depicting locations of sales offices and manufacturing
[Photo of blow molding equipment with caption stating: Blow Molding]
[Photo of injection molding equipment with caption stating: Injection
Molding]
[Photo of roto molding equipment with caption stating: Roto Molding]
[Photo of sheet lining equipment with caption stating: Sheet Lining]
[Photo of assembly equipment with caption stating: Assembly Operations]
[Photo of laboratory with caption stating: Materials Laboratory]
Germany Japan Korea Malaysia
California Colorado Minnesota Oregon Texas
Worldwide Infrastructure
[Logo]
<PAGE>
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Through and including August 4, 2000 (25 days after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this distribution, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
13,000,000 Shares
[LOGO OF ENTEGRIS]
Common Shares
-----------
PROSPECTUS
-----------
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Salomon Smith Barney
U.S. Bancorp Piper Jaffray
July 10, 2000
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