1 United States Securities and Exchange Commission

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549

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FORM 10-K

(MARK ONE)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended DECEMBER 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from ______to ______

Commission file number 1-5075 ------

EG&G, INC. (Exact name of registrant as specified in its charter)

MASSACHUSETTS 04-2052042 ------(State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization)

45 WILLIAM STREET, WELLESLEY, MASSACHUSETTS 02181 ------(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number, including area code (781) 237-5100 ------

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE, INC.

PREFERRED SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE, INC. ------

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

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

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

The aggregate market value of the common stock, $1 par value, held by nonaffiliates of the registrant on February 20, 1998, was $1,189,213,909.

As of February 20, 1998, there were outstanding, exclusive of treasury shares, 45,328,812 shares of common stock, $1 par value.

DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF EG&G, INC.'S PROXY STATEMENT FOR THE 1998 ANNUAL MEETING OF STOCKHOLDERS...... PART III (Items 10, 11 and 12)

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PART I

ITEM 1. BUSINESS

GENERAL BUSINESS DESCRIPTION

EG&G, Inc. was incorporated under the laws of the Commonwealth of Massachusetts in 1947. EG&G, Inc. (hereinafter referred to as "EG&G", the "Company", or the "Registrant", which includes the Company's subsidiaries) is a diversified technology company that provides optoelectronic, mechanical and electromechanical components and instruments to manufacturers and end-user customers. These customers exist in varied markets that include aerospace, automotive, transportation, environmental, industrial, medical, photography, security and other global arenas. The Company's services also extend to technical and managerial support for governmental and industrial customers. In 1997 the Company had sales of $1.5 billion from continuing operations.

The Company's continuing operations are classified into four industry segments: Instruments, Mechanical Components, Optoelectronics and Technical Services.

RECENT DEVELOPMENTS

During 1997, the Company purchased 1.3 million shares of its common stock under a previously announced program at an aggregate cost of $28.1 million. As of December 28, 1997, the Company had authorization to purchase 2.8 million additional shares.

In February 1997, EG&G Astrophysics introduced the PakScan(TM) X-ray food inspection system that detects plastic anD foreign objects in packaged foods and then removes the contaminated package from production lines.

In April 1997, EG&G acquired exclusive worldwide rights to manufacture, market and sell a bulk cargo X-ray inspection system.

In June 1997, EG&G's high-performance X-ray screening systems were selected to provide security at the Hong Kong changeover ceremonies.

In August 1997, EG&G received a $3.2 million order from the U.S. Federal Aviation Administration for ten advanced explosive detection systems, the Z-Scan(R). The order includes an option for ten additional systems.

In August 1997, EG&G Amorphous Silicon signed an agreement with GE Medical Systems to produce a first-of-its-kind multi-purpose digital X-ray detector. EG&G has exclusive rights to manufacture the detector, which has the potential to provide quicker and more cost effective X-ray examinations for patients.

In August 1997, NASA's Marshall Space Flight Center in Huntsville, Alabama, awarded EG&G a support services contract for a period of up to five years. If all options are exercised, the contract could be worth approximately $77.8 million.

In September 1997, EG&G concluded a joint-venture agreement to manage operation of the new Daimler-Benz automotive test site, the Papenburg Proving Ground, in Emsland, Germany. The agreement is with a wholly owned Daimler-Benz subsidiary, Mercedes-Benz technology (MBtech).

In October 1997, EG&G received a $20 million order from the Dutch Airport Authority for two large-cargo security inspection systems for Schiphol Airport in Amsterdam.

In December 1997, EG&G was awarded a one-year contract with an estimated value of between $18 million and $30 million from the Defense Logistics Agency to privatize its distribution depot at Kelly Air Force Base, San Antonio. The contract has three option years. In December 1997, EG&G entered into an agreement to sell its Sealol Industrial Seals Division to TI Group, plc for $100 million, while simultaneously purchasing TI Group's Belfab Division for $45 million.

In December 1997, EDN Magazine selected EG&G Amorphous Silicon as a finalist in its "Innovation of the Year" competition. The EG&G division was recognized for development of amorphous silicon detector technology.

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In January 1998, Gregory L. Summe, formerly President of AlliedSignal's Automotive Products Group, was appointed President and Chief Operating Officer of EG&G. Mr. Summe was subsequently elected to the Company's Board of Directors.

In January 1998, EG&G completed the sale of Rotron, a manufacturer of fans, blowers and motors, to AMETEK, Inc., for approximately $103 million.

INDUSTRY SEGMENTS

Set forth below is a brief summary of each of the Company's four industry segments together with a description of certain of the more significant or recently introduced products, services or operations.

INSTRUMENTS

The Company develops and manufactures instruments and systems for applications in: medical and clinical diagnostics; biochemical, medical and life science research; environmental monitoring; airport and industrial security; and food inspection. The Company's instruments provide a wide range of measurement capabilities and options through the use of high-speed signal processing, image enhancement and a broad utilization of detector technologies, including products that feature the accurate generation, detection and measurement of various segments of the electromagnetic spectrum. The Company offers products in this segment under trade names which include Astrophysics, Berthold, ORTEC and Wallac. In 1997, this segment represented 21% of the Company's total sales from continuing operations and 29% of the Company's operating income from continuing operations before an impairment charge and general corporate expenses.

High-performance bioanalytic and diagnostic instruments manufactured by the Company are used in hospitals, clinics and pharmaceutical and medical research facilities. These instruments employ time-resolved fluorescence and chemiluminescence technologies, as well as radioisotopes, to analyze samples. The advantage of fluorescence and luminescense is that they do not involve the use of radioactive material, so that concerns about sample transport and waste disposal are minimized. Among other things, these instruments are used to screen blood for thyroid dysfunction, fertility-related disorders, fetal defects and diseases in newborns, and to detect relapse in patients who have been treated for cancer. The Company manufactures AutoDelfia(TM), an automated immunoassay fluorescence diagnostiC system. The Company also sells reagents for use in connection with certain of these instruments.

Through its Instruments segment, the Company also produces security screening systems that employ X-ray technology in conjunction with image-enhancing techniques for non-intrusive inspection of baggage and packages at airport portals, baggage processing areas, mail rooms, courthouses, schools and buildings. New security screening products introduced by the Company include the Z-Scan(R) and a portable, large-cargo X-ray screening system. The Z-Scan, which can process up to 1,800 bags per hour, uses color images, X-rays and proprietary software to detect explosives, narcotics or contraband in packages and luggage. The United Kingdom's Department of Transportation has certified the Z-Scan for detection of drugs and contraband in checked cargo. The large-cargo X-ray screening system allows non-intrusive inspection of boxes, crates and containers. It supports the search for contraband, weapons and explosives at border crossings, ports of entry, warehouses and airports.

Instruments produced by the Company also include process inspection systems that combine X-ray technology from the Company's Instruments segment and optical components from the Company's Optoelectronics segment. As an example, EG&G's PakScan(TM) is used in food processing and packaging plants to monitor, detect and remove foreigN objects from raw and processed food at various stages of production. Such systems are also used to check intravenous-medicine bags and automobile oil filters for leaks, to measure the fat content of meat and to detect and separate non-biodegradable PVCs from recyclable plastics.

Based on its expertise in nuclear measurements, the Company produces instruments to detect, characterize and measure radiation, including a complete line of radiation-protection measuring systems for laboratories, nuclear facilities and environmental monitoring stations.

MECHANICAL COMPONENTS

Through its Mechanical Components segment, the Company produces advanced seals and bellows products, valves, nozzles, metal ducting and precision aerospace components. The Company offers these products under trade names which include Pressure Science, Sealol, Wright Components, KT Aerofab and Missouri Metals. In 1997, this segment

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represented 20% of the Company's total sales from continuing operations and 31% of the Company's operating income from continuing operations before an impairment charge and general corporate expenses.

The Company also produces as part of its Mechanical Components segment mechanical sealing components and systems that use welded metal bellows devices pioneered by the Company for the process industries. Industries served include pharmaceuticals, food processing, power generation and semi-conductor chip manufacturing. The Company expects that the market for the Company's advanced zero-leakage gas seals will grow as a result of environmental legislation, which requires manufacturers to significantly reduce emissions.

For aerospace applications, the Company produces valves, advanced sealing components, aircraft exhaust components and ducting.

OPTOELECTRONICS

Through its Optoelectronics segment, the Company offers a broad variety of components that emit and detect light in the spectrum from ultraviolet through visible to the far infrared. These components range from simple photocells to sophisticated imaging systems, light sources that include various types of flashtubes and laser diodes, and complex devices for weapons' trigger systems. Applications include light sensors used in automotive and commercial electronics, sensors used in smoke detectors and medical imaging systems, and sophisticated arrays for communications and remote sensing of the earth. The Company expects to make significant research and development and capital expenditures in this segment over the next several years. This segment offers products under trade names which include Electro-Optics, Heimann Optoelectronics, IC Sensors, Reticon, Judson and Vactec. In 1997, this segment represented 18% of the Company's total sales from continuing operations and 8% of the Company's operating income from continuing operations before an impairment charge and general corporate expenses.

Products manufactured by this segment also include detectors of visible and non-visible light, including high-performance silicon photodiodes that detect and measure light and other optical radiation for industrial, space, military, analytical and scientific instrumentation. Light detectors are also manufactured by the Company for a variety of commercial applications. The Company also makes a wide variety of flashlamps for use in photocopy and reprographic equipment, photo-typesetting systems, beacons, indicators and laser systems and accessories. In addition, the Company manufactures power supplies for military high-frequency electronic applications that are used primarily for precision controlled switching of electric current in electronic equipment.

The Company is developing amorphous silicon detectors for imaging systems for medical and industrial applications. These X-ray systems incorporate amorphous silicon, which replaces film in X-ray systems and translates the rays into digital pulses that can then be used to immediately produce the image on a cathode ray tube. In 1997, G.E. Medical Systems and the Company signed an agreement which provides the Company with exclusive rights to manufacture this amorphous silicon detector.

Through this segment, the Company also produces micromachined sensors, which are small silicon-wafer-based devices that combine a sensing function with intelligent signal processing. The Company mass produces these micromachined infrared sensors for consumer, medical and automotive applications and manufactures high-performance micromachined silicon sensors for missile-guidance systems. In a joint venture, the Company is developing more advanced micromachined electronic accelerometers for automotive and industrial applications.

TECHNICAL SERVICES

Through its Technical Services segment, the Company supplies engineering, scientific, environmental, management and technical support services to a broad range of governmental and industrial customers. These services include: analysis and testing services for the automotive industry; base operations for the National Aeronautics and Space Administration ("NASA") at the Kennedy Space Center ("KSC"); chemical weapons disposal and technical and support services for the U.S. Department of Defense ("DoD"); seized-property administration for the U.S. Customs Service; technical support in a joint venture for the National Science Foundation in Antarctica; consulting services in transportation; physical security services for government agencies; and a support services contract at NASA's Marshall Space Flight Center. The Company has offered services in this segment under trade names which include Automotive Research and Structural Kinematics, as well as Dynatrend and Washington Analytical Services Center. Many of these services are now provided through EG&G Services. In 1997, this segment represented 41% of the Company's total sales from continuing operations and 32% of the Company's operating income from continuing operations before an impairment charge and general corporate expenses.

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For the automobile, chemical additive and petroleum industries, the Company provides automobile durability, performance and emissions testing, and tests fuels, lubricants and chemical additives. The Company performs automobile durability and performance testing for all major U.S. and a number of foreign automobile manufacturers. In 1997, EG&G began providing operational services to the new Daimler-Benz test track in Elmsland, Germany.

As base operations contractor for the KSC, the Company provides institutional, technical and maintenance support services. In particular, the Company manages KSC's 600 buildings, structures and facilities; tests new astronaut rescue procedures and escape systems; fields a force of 200 uniformed security personnel and a SWAT team; provides fire protection and medical services; handles all propellant substances; and manages the shuttle landing facility. The Company has been the base operations contractor at KSC since 1983 and is currently working pursuant to a contract that will expire on September 30, 1998. NASA and the Air Force are consolidating and recompeting the base operations contracts at the KSC, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resulting contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls.

The Company's contracts with the DoD fall into two general categories: (i) traditional defense activities, and (ii) decommissioning. The Company's traditional defense activities focus on such strategic areas as research and engineering analyses in support of DoD advanced development programs. An example of a decommissioning project is the operation of the U.S. Army's facility for the disposal of lethal chemical agents and munitions in Tooele, Utah.

The Company was recently awarded a contract from the Greater Kelly Development Corporation to assist in the implementation of a redevelopment plan for Kelly Air Force Base in San Antonio, Texas. The contract is for three years with two three-year renewal options at the discretion of the customer for additional implementation activities.

The Company also provides engineering and management services in a variety of fields, including transportation, physical security and property management for several government agencies. Government clients include the U.S. Departments of Transportation, State and Treasury, the U.S. Customs Service and the Environmental Protection Agency.

DISCONTINUED OPERATIONS The Company has provided services under management and operations contracts to the U.S. Department of Energy ("DOE") and reports its former DOE Support segment as discontinued operations. Three of these DOE contracts expired in 1995. The Rocky Flats contract for the management and operation of the Rocky Flats Environmental Technology Center near Golden, Colorado terminated in June 1995. The Reynolds Electrical and Engineering Co. contract for support and maintenance services for the underground nuclear weapons test program and its design laboratories at the Nevada Test Site expired on December 31, 1995. The Energy Measurements contract to provide scientific and engineering services also relating to the Nevada Test Site expired on December 31, 1995.

The EG&G Mound Applied Technologies, Inc. contract, the Company's last DOE management and operations contract, expired on September 30, 1997. Under this contract, the Company provided all support services at the DOE's Miamisburg, Ohio facility and was responsible for the assembly and testing of radioisotopic thermionic generators for space and special terrestrial power missions. The Company also was responsible for the transfer to other DOE facilities of technology relating to the Mound facility's former mission involving the manufacturing of components for nuclear weapons.

The Company is in the process of negotiating contract closeouts and does not anticipate incurring any material loss in connection with such contracts in excess of previously established reserves.

MARKETING

The Company markets its services and products through its own specialized sales forces as well as independent foreign and domestic manufacturer representatives and distributors. In certain foreign countries, the Company has entered into joint venture and license agreements with local firms to manufacture and market its products.

RAW MATERIALS AND SUPPLIES

Raw materials and supplies used by the Company are generally readily available in adequate quantities from domestic and foreign sources.

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PATENTS AND TRADEMARKS

While the Company's patents, trademarks and licenses in the aggregate are important to its business, the Company does not believe that the loss of any one patent, trademark or license or group of related patents, trademarks or licenses would have a materially adverse effect on the overall business of the Company or on any of its industry segments. EG&G(R), as well as certain product names, are registered trademarks of the Company.

BACKLOG

The approximate dollar value of unfilled orders of continuing operations by industry segment as of December 28, 1997 and December 29, 1996 is set forth in the table below.

(In Thousands) DECEMBER 28, 1997 DECEMBER 29, 1996 ------

Instruments $ 57,722 $ 45,883 Mechanical Components 129,078 105,762 Optoelectronics 126,752 112,759 Technical Services 225,243 285,170 ------CONTINUING OPERATIONS $538,795 $549,574 ======

At December 28, 1997, 41% of the backlog represented orders received from U.S. government agencies, primarily the DoD and NASA. The Company estimates that over 89% of its backlog as of December 28, 1997 will be billed during 1998. The Mechanical Components segment includes backlog related to the Company's Rotron division, which was sold in January 1998. Rotron's backlog was approximately $33 million as of December 28, 1997 and $23 million as of December 29, 1996.

The order backlog for each segment relates differently to future sales based on different business characteristics, primarily order and delivery lead times, customer demand requirements and government funding. While the Company has not generally experienced material cancellations of orders, orders may be cancelled by customers without financial penalty, and backlog does not necessarily represent actual future shipments.

The Company's last DOE management and operations contract, which is reported as discontinued operations, expired on September 30, 1997.

GOVERNMENT CONTRACTS

In accordance with government regulations, all of the Company's government contracts are subject to termination for the convenience of the government. Costs incurred under cost-reimbursable contracts are subject to audit by the government. The results of prior audits, which have been completed through 1993, have not had a material effect on the Company.

CONTINUING OPERATIONS: Sales to U.S. government agencies, which were predominantly to the DoD and NASA, were $537 million, $527 million and $537 million in 1997, 1996, and 1995, respectively. The Company's base operations contract with NASA at the KSC contributed sales of $168 million in 1997 and $172 million in 1996 and 1995 and was extended by NASA through September 30, 1998. NASA and the Air Force are consolidating and recompeting the base operations contracts at the KSC, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resulting contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls.

DISCONTINUED OPERATIONS: The EG&G Rocky Flats, Inc. contract terminated in June 1995. The Reynolds Electrical and Engineering Co., Inc. and the EG&G Energy Measurements, Inc. contracts expired on December 31, 1995. The EG&G Mound Applied Technologies, Inc. contract expired on September 30, 1997. The Mound cost-plus-award-fee contract contributed $80 million of sales to discontinued operations in 1997. The Company is in the process of negotiating contract closeouts and does not anticipate incurring any material loss in connection with such contracts in excess of previously established reserves.

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COMPETITION

Because of the wide range of its products and services, the Company faces many different types of competition and competitors. Competitors range from large foreign and domestic organizations that produce a comprehensive array of goods and services, to small concerns producing a few goods or services for specialized market segments.

In the Instruments segment, the Company competes with instrument companies, some large, most small, that serve narrow segments of markets in X-ray and magnetic security systems, nuclear, industrial, and diagnostic instrumentation. The Company competes in these markets primarily on the basis of product performance, product reliability, service and price. Consolidation of competitors through acquisitions and mergers and the Company's increasing activity in selected diagnostics and industrial markets are expected to increase the proportion of large competitors in this segment.

In the Mechanical Components segment, the Company is a leading supplier of selected precision aircraft exhaust components, and various types of seals for high-technology applications. Competition in these areas typically is from small specialized manufacturing companies.

In the Optoelectronics segment, the Company is among the leading suppliers of specialty flashtubes, silicon photodetectors, avalanche photodiodes, cadmium sulfide and cadmium selenide detectors, photodiode arrays and switched power supplies. Typically, competition is from small specialized manufacturing companies.

The Technical Services segment provides technical services to several agencies of the federal government, including the DoD and NASA. This business is typically won through competition with a number of large and small contractors, many of which are as large or larger than the Company and which, therefore, have resources and capabilities that are comparable to or greater than those of the Company. The primary bases for competition in these markets are technical and management capabilities, current and past performance, and price. Competition is typically subject to mandated procurement and competitive bidding requirements. Competition for automotive testing services is primarily from a few specialized testing companies and from customer-owned testing facilities, and is primarily based on quality, service, and price.

Within the Mechanical Components, Optoelectronics and Instruments segments, competition for governmental purchases is subject to mandated procurement procedures and competitive bidding practices. In these segments, the Company competes primarily on the basis of product performance, quality, service and price. In much of the Optoelectronics and Instruments segments and in the aircraft and marine mechanical seal markets included in the Mechanical Components segment, advancing technology and research and development are also important competitive factors.

RESEARCH AND DEVELOPMENT

During 1997, 1996 and 1995, Company-sponsored research and development expenditures were approximately $44.9 million, $42.8 million and $42.4 million, respectively.

ENVIRONMENTAL COMPLIANCE

The Company is conducting a number of environmental investigations and remedial actions at current and former Company locations and, along with other companies, has been named a potentially responsible party for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company's responsibility is established and when the cost can be reasonably estimated. As of December 28, 1997, the Company had an accrual of $5.7 million to reflect its estimated liability for environmental remediation. As assessments and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material effect on the Company's financial position or results of operations. While it is reasonably possible that a material loss exceeding the amounts recorded may be incurred, the preliminary stages of the investigations make it impossible for the Company to reasonably estimate the range of potential exposure.

EMPLOYEES

As of March 1, 1998, the Company employed approximately 14,000 persons. Certain of the Company's subsidiaries are parties to contracts with labor unions. The Company considers its relations with employees to be satisfactory.

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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

SALES AND OPERATING INCOME FROM CONTINUING OPERATIONS BY INDUSTRY SEGMENT For the Five Years Ended December 28, 1997

(In thousands) 1997 1996 1995 1994 1993 ------

INSTRUMENTS Sales $ 306,580 $ 321,704 $ 293,575 $ 273,088 $ 237,223 Operating Income (Loss) 34,983 36,400 17,142 (49,580)(2) 10,413

MECHANICAL COMPONENTS Sales $ 292,727 $ 276,389 $ 249,255 $ 232,500 $ 244,878 Operating Income 36,866 29,203 27,241 18,766 (2) 24,408

OPTOELECTRONICS Sales $ 261,291 $ 269,530 $ 259,357 $ 213,380 $ 201,274 Operating Income (Loss) (17,169)(1) 12,249 19,328 8,674 (2) 11,474

TECHNICAL SERVICES Sales $ 600,207 $ 559,629 $ 617,391 $ 613,588 $ 636,041 Operating Income 36,587 (1) 34,169 48,155 46,075 (2) 68,762

GENERAL CORPORATE EXPENSES $ (31,669) $ (24,391) $ (29,193) $ (34,882)(2) $ (27,573)

CONTINUING OPERATIONS Sales $ 1,460,805 $ 1,427,252 $ 1,419,578 $ 1,332,556 $ 1,319,416 Operating Income (Loss) 59,598 (1) 87,630 82,673 (10,947)(2) 87,484

1 The operating income from continuing operations for 1997 included a $28.2 million non-cash asset impairment charge. The impact of this charge was $26.7 million on the Optoelectronics segment and $1.5 million on the Technical Services segment.

2 The operating income (loss) from continuing operations for 1994 included a goodwill write-down of $40.3 million and restructuring charges of $30.4 million. The impact of these nonrecurring charges on each segment was as follows: Instruments-$55.7 million, Mechanical Components-$2.7 million, Optoelectronics-$9.7 million, Technical Services-$1.6 million and General Corporate Expenses-$1 million.

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Additional information relating to the Company's operations in the various industry segments is as follows:

Depreciation and Capital Amortization Expense Expenditures ------(In thousands) 1997 1996 1995 1997 1996 1995 ------

Instruments $ 9,170 $10,976 $11,887 $ 6,362 $ 4,550 $ 4,639 Mechanical Components 5,781 5,729 5,585 13,842 10,367 6,978 Optoelectronics 19,528 14,880 13,220 21,312 47,327 35,925 Technical Services 9,174 8,193 7,698 5,924 16,714 12,047 Corporate 959 1,158 1,036 1,289 1,532 2,250 ------$44,612 $40,936 $39,426 $48,729 $80,490 $61,839 ======

Identifiable Assets ------(In thousands) 1997 1996 1995 ------

Instruments $194,037 $205,506 $215,094 Mechanical Components 121,492 112,034 97,672 Optoelectronics 205,489 229,768 194,015 Technical Services 124,975 118,513 115,623 Corporate and Other 186,110 157,079 181,511 ------$832,103 $822,900 $803,915 ======

Corporate assets consist primarily of cash and cash equivalents, prepaid pension and prepaid taxes.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

Information relating to geographic areas is as follows:

Operating Income Sales From Continuing Operations ------(In thousands) 1997 1996 1995 1997 1996 1995 ------

U.S. $1,106,134 $1,066,561 $1,065,424 $50,144 $68,108 $82,256 Germany 79,202 80,465 87,690 1,438 5,154 4,508 Other Non-U.S 275,469 280,226 266,464 39,685 38,759 25,102 Corporate ------(31,669) (24,391) (29,193) ------$1,460,805 $1,427,252 $1,419,578 $59,598 $87,630 $82,673 ======

Identifiable Assets ------(In thousands) 1997 1996 1995 ------

U.S. $380,447 $385,012 $352,255 Germany 78,187 84,995 87,986 Other Non-U.S 187,359 195,814 182,163 Corporate and Other 186,110 157,079 181,511 ------$832,103 $822,900 $803,915 ======

Transfers between geographic areas were not material.

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ITEM 2. PROPERTIES

As of March 1, 1998, the Company occupied approximately 3,789,700 square feet of building area, of which approximately 1,488,000 square feet is owned. The balance is leased. The Company's headquarters occupies 53,350 square feet of leased space in Wellesley, Massachusetts. The Company's other operations are conducted in manufacturing and assembly plants, research laboratories, administrative offices and other facilities located in 28 states, Washington, D.C., Puerto Rico and 26 foreign countries.

Non-U.S. facilities account for approximately 1,170,800 square feet of owned and leased property, or approximately 31% of the Company's total occupied space.

The Company's leases on property are both short-term and long-term. In management's opinion, the Company's properties are well-maintained and are adequate for its present requirements.

Except for operations based on government facilities, substantially all of the machinery and equipment used by the Company is owned by the Company and the balance is leased or furnished by contractors or customers.

The following table indicates the approximate square footage of real property owned and leased attributable to each of the Company's industry segments.

Owned Leased Total (Sq. Feet) (Sq. Feet) (Sq. Feet) ------

Instruments 481,200 302,800 784,000 Mechanical Components 502,800 381,000 883,800 Optoelectronics 336,000 582,600 918,600 Technical Services 163,400 975,000 1,138,400 Corporate Offices 4,600 60,300 64,900 ------CONTINUING OPERATIONS 1,488,000 2,301,700 3,789,700 ======

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various investigations, claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities. Each of these matters is subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably to the Company. The Company has established accruals for matters that are probable and reasonably estimable. Management believes that any liability that may ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.

The Company has received notices from the Internal Revenue Service (IRS) asserting deficiencies in federal corporate income taxes for the Company's 1985 to 1993 tax years. The total additional tax proposed by the IRS amounts to $66 million plus interest. The Company has filed petitions in the United States Tax Court to challenge most of the deficiencies asserted by the IRS. The Company believes that it has meritorious legal defenses to those deficiencies and believes that the ultimate outcome of the case will not result in a material impact on the Company's consolidated results of operations or financial position.

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

Not applicable.

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EXECUTIVE OFFICERS

Listed below are the executive officers of the Company as of March 23, 1998. No family relationship exists between any of the officers.

------Name Position Age ------

John M. Kucharski Chairman of the Board 62 and Chief Executive Officer

Gregory L. Summe President and Chief Operating Officer 41 John F. Alexander, II Senior Vice President 41 and Chief Financial Officer

Murray Gross Senior Vice President, 61 General Counsel and Clerk

Angelo D. Castellana Senior Vice President 56

Dr. Amitava Datta Vice President and Chief Technology Officer 52

Deborah S. Lorenz Vice President 48

Donald H. Peters Vice President 57

Theodore P. Theodores Vice President 62

Daniel T. Heaney Treasurer 44

William J. Ribaudo Controller 38

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Mr. Kucharski joined the Company in 1972. He was elected a Vice President in 1979, a Senior Vice President in 1982 and Executive Vice President in 1985. In 1986 he was elected President and Chief Operating Officer, in 1987 Chief Executive Officer and was elected Chairman of the Board of Directors in 1988.

Mr. Summe joined the Company in 1998 as President and Chief Operating Officer. Until late 1997, he was President of AlliedSignal's Automotive Products Group. Prior to being appointed President of AlliedSignal's Automotive Products Group in 1997, Mr. Summe served as President of Aerospace Engines from 1995 to 1997 and as President of General Aviation Avionics from 1993 to 1995. He was previously general manager of commercial motors at General Electric from 1992 to 1993.

Mr. Alexander joined the Company in 1982. He was elected Corporate Controller in 1991, a title he retained when named a Vice President in 1995. He was elected Chief Financial Officer and Senior Vice President in 1996.

Mr. Gross joined the Company in 1971. He was elected Assistant General Counsel and Assistant Clerk in 1978, Vice President, General Counsel and Clerk in 1990, and Senior Vice President in 1996.

Mr. Castellana joined the Company in 1965. He was elected a Vice President in 1991, a Senior Vice President in 1997, and serves as a principal executive in the Office of the Chief Operating Officer.

Dr. Datta joined the Company in 1985 as Director of R&D for the Mechanical Components Group and was elected Vice President of EG&G Sealol, Inc. in 1989. For the last five years he has managed internal development efforts for the Company. He was elected Vice President and Chief Technology Officer of the Company in 1997.

Ms. Lorenz joined the Company in 1990. She was elected a Vice President in 1992 and is responsible for Investor Relations and Corporate Communications.

Dr. Peters joined the Company in 1968. He was elected a Vice President in 1987 and is responsible for Planning.

Mr. Theodores joined the Company in 1986. He was Director of Corporate New Business Development from 1992 until being elected a Vice President in 1996 and is responsible for Business Development.

Mr. Heaney joined the Company in 1980, serving as Manager of Financial Analysis, Controller of the Technical Services segment from 1989 to 1994 and Director of Economic Value Added Implementation in 1994-5. He was elected Treasurer in 1995.

Mr. Ribaudo joined the Company in 1996 as Controller. He had been associated with Arthur Andersen LLP since 1982, and was elected a partner of that firm in 1994.

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PART II

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

MARKET PRICE OF COMMON STOCK

1996 Quarters ------First Second Third Fourth ------

High $25.13 $23.50 $21.38 $21.13 Low 20.38 19.88 16.88 16.25

1997 Quarters ------First Second Third Fourth ------

High $24.63 $21.13 $22.63 $23.00 Low 19.63 18.13 18.75 18.00

DIVIDENDS

1996 Quarters ------First Second Third Fourth ------

Cash Dividends Per Common Share $ .14 $ .14 $ .14 $ .14

1997 Quarters ------First Second Third Fourth ------

Cash Dividends Per Common Share $ .14 $ .14 $ .14 $ .14 The Company's common stock is listed and traded on the New York Stock Exchange. The number of holders of record of the Company's common stock as of February 20, 1998, was approximately 10,300.

In October 1997, the Board of Directors of the Company declared a regular quarterly cash dividend of fourteen cents per share of common stock. The quarterly cash dividend was paid on February 6, 1998, to stockholders of record at the close of business on January 16, 1998.

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL INFORMATION For the Five Years Ended December 28, 1997

(In thousands where applicable) 1997 1996 1995 1994 1993 ------OPERATIONS:

Sales $ 1,460,805 $ 1,427,252 $ 1,419,578 $ 1,332,556 $ 1,319,416 Operating income (loss) from continuing operations 59,598 (1) 87,630 82,673 (10,947)(3) 87,484 Income (loss) from continuing operations 30,645 (1) 54,480 54,304 (32,107) 54,622 Income from discontinued operations, net of income taxes 3,047 5,676 13,736 26,452 24,949 Income (loss) before cumulative effect of accounting changes 33,692 (1) 60,156 68,040 (5,655) 79,571 Net income (loss) 33,692 (1) 60,156 68,040 (5,655) 59,071(5) Basic and diluted earnings (loss) per share: Continuing operations .67 (1) 1.15 1.05 (.58) .97 Discontinued operations .07 .12 .27 .48 .44 Income (loss) before cumulative effect of accounting changes .74 (1) 1.27 1.32 (.10) 1.41 Net income (loss) .74 (1) 1.27 1.32 (.10) 1.05(5) Return on equity 9.7% (2) 16.4% 16.8% (1.2)% (4) 12.4%(6) Weighted-average common shares outstanding: Basic 45,757 47,298 51,483 55,271 56,504 Diluted 45,898 47,472 51,573 55,324 56,625

FINANCIAL POSITION:

Working capital $ 202,571 $ 194,915 $ 218,235 $ 199,656 $ 227,935 Current ratio 1.71:1 1.75:1 1.87:1 1.71:1 1.98:1 Total assets 832,103 822,900 803,915 793,129 764,887 Short-term debt 46,167 21,499 5,275 59,988 43,589 Long-term debt 114,863 115,104 115,222 812 1,450 Long-term liabilities 103,237 82,894 71,296 65,129 52,727 Stockholders' equity 328,388 365,106 366,946 445,366 477,534 - -Per share 7.24 7.88 7.71 8.08 8.51 Total debt/total capital 33% 27% 25% 12% 9% Common shares outstanding 45,333 46,309 47,610 55,124 56,131

OTHER DATA:

Cash flows from continuing operations $ 32,142 $ 73,238 $ 123,831 $ 70,341 $ 76,217 Cash flows from discontinued operations 2,696 6,920 26,334 25,542 35,920 Cash flows from operating activities 34,838 80,158 150,165 95,883 112,137 Depreciation and amortization 44,612 40,936 39,426 36,790 37,842 Capital expenditures 48,729 80,490 61,839 37,277 27,860 Reimbursement of invested capital 27,000 ------Proceeds from dispositions 24,287 1,744 15,238 2,872 9,503 Purchases of common stock 28,104 30,670 135,079 19,139 45,019 Cash dividends per common share .56 .56 .56 .56 .52

(1) Included an asset impairment charge of $28.2 million, $23.5 million after-tax ($.51 earnings per share). (2) Return on equity before effect of asset impairment charge was 16.0%. (3) Included a goodwill write-down of $40.3 million and restructuring charges of $30.4 million. (4) Return on equity before effect of goodwill write-down and restructuring charges was 11.8%. (5) Included one-time after-tax charges of $20.5 million, or $.36 per share, due to adoption of SFAS Nos. 106 and 109. (6) Return on equity before cumulative effect of accounting changes was 16.4%.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

OVERVIEW

In 1997, the transformation of the Company continued. Progress was made in a number of growth areas and new products were introduced. The Company continued the realignment of its operating organization to continue to position the Company for sustained long-term growth. The overall goal of the effort is to provide greater focus on the end-use customer by consolidating divisions around common technology, manufacturing processes and markets. As part of this program, since November 1996 all division managers report directly to corporate, eliminating a management layer. The Company is entering 1998 with fifteen operating divisions compared to forty operating divisions in 1994. The realignment includes the divestiture of businesses serving markets that do not meet our growth criteria or strategic direction. The resulting gains from these divestitures in 1997 allowed the Company to fund improvements and accelerate investments in its remaining divisions, which included planned costs in connection with the consolidation and restructuring initiatives. In 1998, the Company will use the proceeds from two divestitures to: accelerate some consolidation programs; invest in acquisitions in strategic growth areas and replace the revenue lost through divestitures; invest in information technology; and continue the stock purchase program. The withdrawal from the Department of Energy (DOE) Support business was finalized during 1997 as the last contract expired. During 1997, the Company formed an exclusive partnership with GE Medical Systems to manufacture a first-of-its-kind filmless multipurpose digital X-ray detector for high-end medical applications. New medical products were introduced in 1997, and automotive testing services were expanded.

1997 COMPARED TO 1996

Sales from continuing operations increased 2% in 1997 compared to 1996. Excluding the effects of currency translation and completed 1997 divestitures, sales increased 5%. Operating income from continuing operations was $59.6 million in 1997 and included a $28.2 million non-cash asset impairment charge, primarily associated with the IC Sensors business. The after-tax effect of this charge was $23.5 million ($.51 loss per share). Excluding the asset impairment charge, operating income in 1997 was $87.8 million, approximately equal to the prior year. The 1997 operating income included gains of $10.6 million from the divestitures of businesses in the Instruments and Mechanical Components segments. These gains were offset by planned costs of $8.2 million incurred in connection with the consolidation and restructuring initiatives and a charge of $2.8 million resulting from a cash deficit in an employee benefit plan. The gains and costs were included in selling, general and administrative expenses. Research and development expenses were $44.9 million in 1997, an increase of $2.1 million over the 1996 level.

1996 COMPARED TO 1995

Sales from continuing operations increased 1% in 1996 compared to 1995, reflecting a growth in product sales of 8% and a decrease in Technical Services sales. Operating income from continuing operations increased 6% in 1996 compared to 1995. The improvement reflected the impact of higher sales in the Instruments and Mechanical Components segments and lower costs resulting from the Company's 1994 restructuring plan. Partially offsetting these increases in operating income were decreases in Optoelectronics caused by significant operational problems resulting in a loss in the micromachined sensors business and decreases in Technical Services caused by lower automotive testing services and the completion of two contracts in 1995. Cost savings under the 1994 restructuring plan totaled $26 million in 1996, which represents an $11 million increase over the savings achieved in 1995. Capital expenditures increased 30% in 1996 to $80 million, and outlays for research and development were $43 million. The Company's program to reduce working capital and to dispose of nonstrategic assets continued in 1996 with cumulative reductions of over $85 million since its inception in 1994. Key measures of effectiveness of working capital management, Days Sales Outstanding and Inventory Turns, improved by 2% and 9%, respectively, in 1996.

RESULTS OF OPERATIONS

The discussion that follows is a summary analysis of the major changes by industry segment.

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INSTRUMENTS

1997 COMPARED TO 1996

Instruments sales decreased $15.1 million. Excluding the effects of the stronger U.S. dollar on non-U.S. dollar denominated sales ($13.7 million currency translation) and the divestiture of two businesses ($11.1 million), sales increased $9.7 million. The increase was mainly due to sales of a new medical research instrument and consumables related to the placement of an increasing number of diagnostic instruments. These increases were partially offset by decreases caused by reduced European government funding in the research area and delays in product improvements. Operating income decreased $1.4 million. The Instruments results included gains of $6.3 million on the divestiture of two businesses and a $3.4 million net reduction in patent infringement costs. These increases were partially offset by restructuring and integration costs of $2.9 million, the absence of income ($1.1 million) from the expiration of a grant liability in 1996 and loss of divested businesses' income of $1.8 million. Excluding these items, Instruments income decreased $5.4 million as a result of start-up costs and difficulties resulting from geographic expansion of medical distribution organizations, price reductions due to continued competitive pressure on conventional explosives-detection systems and lower sales experienced by some businesses. These decreases were partially offset by the income earned on the higher sales of medical research instruments and consumables. The Berthold business, while profitable, performed below expectations and its progress is being reviewed.

1996 COMPARED TO 1995

The $28.1 million sales increase resulted mainly from higher demand for explosives-detection systems, primarily from U.S. government facilities, and from diagnostic and medical research products. These increases were partially offset by decreases totaling $12 million, which resulted from the effect of changes in foreign exchange rates and the divestiture of two product lines in 1995. Operating income was 11.3% of sales in 1996 compared to 5.8% in 1995. Operating income increased $19.3 million, primarily from improved margins on higher sales. Also contributing, to a lesser extent, were manufacturing and engineering process improvements, lower costs resulting from the restructuring plan, lower inventory provisions due to improved inventory management, the favorable impact of changes in foreign exchange rates, income from the expiration of a grant liability and a 1995 provision for additional cost reductions. A $4.2 million provision for a 1996 patent infringement settlement and increased management incentive accruals partially offset these increases. As a part of the settlement, the Company entered into a royalty agreement covering future sales.

MECHANICAL COMPONENTS

1997 COMPARED TO 1996

Sales increased $16.3 million (6%) due to higher demand for aerospace products, reflecting continued strength in that market, new products and higher demand for electromechanical products. These increases were partially offset by lower sales resulting from the divestiture of a business. Income increased $7.7 million as the result of the gain of $4.3 million on the divestiture, income on higher sales and improved contract margin. These increases were partially offset by costs associated with the consolidation and relocation of manufacturing facilities and warranty costs. The ducting business, while profitable, continued to perform below expectations.

As part of its strategy to focus resources upon larger business units better positioned to take advantage of growing demand, the Company sold its Rotron division in January 1998 for $103 million. Rotron's 1997 sales were $70 million and its operating income was $11.9 million ($.16 earnings per share). In December of 1997, the Company entered into an agreement to sell its Sealol Industrial Seals division to TI Group, plc. for $100 million, while simultaneously purchasing TI Group's Belfab division for $45 million. Belfab's 1997 sales were $30 million. Subject to regulatory and other approvals, these transactions are expected to close in the first half of 1998. Sealol Industrial Seals division's 1997 sales were $88 million and its operating income was $11.4 million ($.21 earnings per share). The Company expects to realize after-tax gains of approximately $90 million from these divestitures. 1996 COMPARED TO 1995

Higher demand for aerospace, electromechanical and industrial process sealing products resulted in 11% sales growth. The 7% increase in operating income resulted from the margin on higher sales and lower costs from the restructuring plan, partially offset by provisions for projected excess contract costs and warranty repairs.

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OPTOELECTRONICS

1997 COMPARED TO 1996

Sales decreased $8.2 million due to loss of market share to a competitor's lower cost automotive accelerometers, the effects of currency translation and the completion of contracts in 1996 in the camera and power supplies businesses. These decreases were partially offset by the sales resulting from the introduction of new thermopile products. The $29.4 million decrease in income resulted primarily from the non-cash asset impairment charge of $26.7 million. Excluding the impairment charge, operating income decreased $2.7 million as a result of lower sales, higher operating losses at IC Sensors and higher development costs for the advanced micromachined sensors technology. Products incorporating the advanced micromachined sensors technology have been delivered to key customers for evaluation. Market acceptance and technical feasibility are expected to be determined in the first quarter of 1998. The 1997 cost of the development effort for the amorphous silicon project continued at the $4.5 million level, while the development effort for the advanced micromachined sensor technology cost $5.3 million.

IC SENSORS ASSET IMPAIRMENT CHARGE

As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan including new product orders, improved manufacturing yields, cost reductions and attraction and retention of critical personnel, it continued operating at a loss in the second quarter of 1997, triggering an impairment review of its long-lived assets. A revised operating plan was developed to restructure and stabilize the business. The revised projections by product line provided the basis for measurement of the asset impairment charge. Accordingly, the Company recorded an impairment charge of $26.7 million in the second quarter for a write-down of goodwill of $13.6 million and fixed assets of $13.1 million. The after-tax effect of this charge was $22 million ($.48 loss per share). The impairment charge reduces future depreciation and amortization by approximately $3 million annually. For 1997, IC Sensors lost $7.5 million, excluding the asset impairment charge. IC Sensors' performance in the second half of 1997 was consistent with its revised operating plan. The Company continues to evaluate performance against the revised operating plan and will continue to monitor the realizability of the remaining assets if the operation fails to meet this plan.

1996 COMPARED TO 1995

Sales of new imaging products and higher demand for detectors and accelerometers for the automotive market, partially offset by decreases caused by lower power supplies sales and the divestiture of a product line in 1995, resulted in an increase of $10.2 million. Operating income decreased $7.1 million as significant operational problems resulted in a loss in the micromachined sensors business, which had sales of $37 million. To a lesser extent, lower sales and projected excess contract costs in the power supplies business contributed to the decrease. Partially offsetting these decreases were the margin on the sales of new imaging products and lower costs resulting from the restructuring plan. The 1996 impact of the development effort for the amorphous silicon project continued at the $5 million level.

TECHNICAL SERVICES

1997 COMPARED TO 1996

Sales increased $40.6 million (7%), primarily reflecting final shipments under a contract for the development and installation of communication systems ($20 million), higher automotive testing sales ($10.9 million) due primarily to the start-up of the new light-truck structural testing facility, and higher billings under government contracts. After a goodwill write-down of $1.5 million related to the environmental services business, operating income increased $2.4 million. Excluding the goodwill write-down, operating income increased $3.9 million primarily due to higher sales levels.

Future performance could be affected by the NASA and Air Force decision to consolidate and recompete the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resultant contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls. The NASA contract at the Kennedy Space Center contributed sales of $168 million in 1997.

1996 COMPARED TO 1995

The $57.8 million sales reduction was mainly the result of the absence in 1996 of the billings under two large contracts. Also contributing to the reduction was a decrease in sales of the automotive operations, primarily due to continuing lower

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18 demand for stationary testing services caused by customers' budget constraints and mature testing specifications, and completion of a lubricant testing contract at the end of the first quarter of 1996. The $14 million operating income reduction was the result of the sales reductions, partially offset by the recognition of a productivity incentive fee on the Kennedy Space Center contract and the 1995 estimated provision for a legal judgment.

GENERAL CORPORATE EXPENSES

1997 COMPARED TO 1996

The $7.3 million increase was primarily due to a $2.8 million charge resulting from a cash deficit in an employee benefit plan, $2.6 million in costs associated with restructuring and realignment, and costs of new program initiatives.

1996 COMPARED TO 1995

The $4.8 million decrease was primarily due to lower costs resulting from the restructuring plan and management incentive accruals.

OTHER

1997 COMPARED TO 1996

The $1.7 million net decrease in other expense was mainly due to a $3.4 million reimbursement relating to a joint development program, which was partially offset by lower interest income. The 1997 effective tax rate of 43.3% was significantly affected by the non-deductible goodwill write-down of IC Sensors and the Environmental Services divisions. Excluding the impairment charge, the effective tax rate for 1997 was 34.1% compared to 32.2% in 1996. The increase in the rate was primarily due to changes in the geographical distribution of income. The 1998 effective tax rate may increase to approximately 36% as a result of changes in the geographical distribution of income due to divestitures.

1996 COMPARED TO 1995

The $10.7 million net increase in other expense was due to higher interest expense reflecting the issuance of $115 million of ten-year notes in October 1995 and lower gains on the disposition of nonstrategic assets. The effective tax rate of 32.2% for 1996 was lower than the 36.9% rate in 1995 primarily due to changes in the geographical distribution of income.

DISCONTINUED OPERATIONS 1997 COMPARED TO 1996

The decrease in income from discontinued operations, net of income taxes, reflected the expiration in September 1997 of the Mound contract, which was the Company's last management and operations contract with the DOE. The Company is in the process of negotiating contract closeouts and does not anticipate incurring a material loss in excess of previously established reserves.

1996 COMPARED TO 1995

The decrease in income from discontinued operations, net of income taxes, reflected the expiration of the Rocky Flats and Nevada Test Site contracts in 1995.

ENVIRONMENTAL

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Company to reasonably estimate the range of potential exposure. During 1997, the Company adopted the provisions of Statement of Position 96-1, Environmental Remediation Liabilities. Its adoption did not have a material effect on results of operations.

FINANCIAL CONDITION

The Company's cash and cash equivalents increased $10.1 million in 1997 while commercial paper borrowings increased $27.9 million. Net cash provided by continuing operations was $32.1 million in 1997, $73.2 million in 1996 and $123.8 million in 1995. The net cash provided by continuing operations was lower in 1997 compared to 1996 primarily as a result of a greater increase in accounts receivable and higher funding of the U.S. pension and postretirement medical benefit plans. The accounts receivable increase was mainly the result of higher sales across all segments. The net cash provided by continuing operations was lower in 1996 compared to 1995 primarily as a result of increases in accounts receivable and inventories in 1996 compared to decreases in 1995. The accounts receivable increase was mainly caused by higher sales in the product segments. Inventory levels increased primarily for anticipated sales.

Capital expenditures were $48.7 million in 1997, a decrease of $31.8 million from the 1996 level, and are expected to increase to $60-70 million in 1998. These expenditures support new product development initiatives throughout the Company, including the amorphous silicon and micromachined sensor programs. In 1997, the Company received a $30 million payment related to a joint development program for the amorphous silicon project, of which $27 million constituted reimbursement for previously invested capital. During 1997, the Company had proceeds of $23 million from the sale of three businesses in the Instruments and Mechanical Components segments. The Company expects to realize gross proceeds of $203 million in 1998 from the sale of Rotron and the expected sale of the Sealol Industrial Seals division, of which $45 million will be used to purchase TI Group's Belfab division. The remaining proceeds will be used to: accelerate some consolidation programs; invest in acquisitions in strategic growth areas and replace the revenue lost through divestitures; invest in information technology; and continue our stock purchase program.

In 1995, the Company issued $115 million of unsecured ten-year notes, of a total $150 million authorized, at an interest rate of 6.8%. The unissued notes of $35 million are covered by a shelf registration statement. The proceeds were used to pay off commercial paper borrowings that were used mainly to finance purchases of the Company's common stock. The Company has two revolving credit agreements totaling $200 million, which were extended for one year in 1997. These agreements consist of a $100 million, 364-day facility, which was extended in March 1998 to March 1999, and a $100 million facility, which expires in March 2002. The Company did not draw down either of these credit facilities during 1997.

During 1997, the Company purchased 1.3 million shares of its common stock through periodic purchases on the open market at a cost of $28 million. As of December 28, 1997, the Company had authorization to purchase 2.8 million additional shares and, subject to market conditions, plans to increase its level of purchases in 1998.

The Company has limited involvement with derivative financial instruments and uses forward contracts to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. The contracts generally have maturities that do not exceed one month and have no cash requirements until maturity. Credit risk and market risk are minimal because the contracts are with very large banks and gains and losses are offset against foreign exchange gains and losses on the underlying hedged transactions. The notional amount of outstanding forward contracts was $75.8 million as of December 28, 1997.

Discontinued operations generated cash of $2.7 million in 1997 compared to $6.9 million in 1996, reflecting the expiration of the Mound contract during 1997. All contracts with the DOE are now completed. The Company is in the process of negotiating contract closeouts and does not anticipate incurring a material loss in excess of previously established reserves.

OTHER MATTERS

The Company utilizes software and related technologies throughout its business that will be affected by the Year 2000 problem, which is common to most corporations. The problem relates to the inability of microprocessors and data dependent software to correctly handle the year 2000 and beyond. The Company is addressing the effect of the Year

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20 2000 problem on its Enterprise Resource Planning systems as part of its overall process improvement program and believes it will be able to modify or replace its affected systems in time to minimize any detrimental effects on operations. Based on current plans, the Company expects that such costs will not be material to the Company's results of operations in any year and will not have a material adverse impact on the liquidity or financial position of the Company.

DIVIDENDS

In January 1998, the Board of Directors declared a regular quarterly cash dividend of 14 cents per share, resulting in an annual rate of 56 cents per share for 1998. EG&G has paid cash dividends, without interruption, for 33 years and continues to retain what management believes to be sufficient earnings to support the funding requirements of its planned growth.

FORWARD-LOOKING INFORMATION

All statements contained herein that refer to a time after December 28, 1997, including the words will, will be, estimated to be, could be, expect, believe, will continue, expected to, and plan, or statements referring to goals, the future or future actions, continuing actions, trends, strategies, initiatives, challenges or opportunities, or which otherwise are not purely historical, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and involve risks and uncertainties. There are a number of important factors that could cause actual results to differ materially from those indicated by such forward-looking statements, including the factors set forth below.

FACTORS AFFECTING FUTURE PERFORMANCE In the Instruments, Mechanical Components and Optoelectronics industry segments, future performance will be highly dependent on the technological success, market acceptance, competitive position of our businesses, product performance and ability to reach cost targets of new program initiatives, including the amorphous silicon project and the advanced micromachined sensors technology platform. Improved operational efficiency will be required to offset increasing price pressures in many of the Company's product offerings. Other factors that may impact future earnings performance include the absence of sales and earnings contributed by divestitures, potential issues related to economic and financial difficulties arising in Asia and difficulty in attracting and retaining key personnel in certain areas. The future results of the Optoelectronics segment are also dependent on management's ability to restore IC Sensors to break-even in the near term, the successful introduction of new products, improvement in manufacturing yields and implementation of cost reductions, including the successful transfer of assembly activities to lower-cost geographic locations.

In the Technical Services segment, the Company operates in a highly competitive procurement environment in the automotive testing and government services businesses. The automotive testing business is dependent on the success of its new marketing initiatives. The income generated by many of our government contracts is dependent on performance criteria. In accordance with government regulations, all of the Company's government contracts are subject to termination for the convenience of the government. NASA and the Air Force have decided to consolidate and recompete the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that any resultant contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls.

Movements in foreign exchange rates could affect operating results. Effective tax rates in the future could be affected by changes in the geographical distribution of income, utilization of non-U.S. net operating loss carryforwards, repatriation costs, resolution of outstanding tax audit issues and changes in the portfolio of businesses.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

CONSOLIDATED BALANCE SHEET As of December 28, 1997 and December 29, 1996

(Dollars in thousands except per share data) 1997 1996 ------

Current Assets: Cash and cash equivalents $ 57,934 $ 47,846 Accounts receivable (Note 2) 243,963 222,856 Inventories (Note 3) 112,875 119,558 Other current assets (Note 11) 73,414 64,451 ------TOTAL CURRENT ASSETS 488,186 454,711 ------Property, Plant and Equipment: At cost (Notes 4 and 7) 482,382 480,858 Accumulated depreciation and amortization (301,239) (288,808) ------Net Property, Plant and Equipment 181,143 192,050 ------Investments (Note 5) 16,730 16,839 Intangible Assets (Notes 6 and 7) 79,257 110,368 Other Assets (Notes 10 and 11) 66,787 48,932 ------TOTAL ASSETS $ 832,103 $ 822,900 ======

Current Liabilities: Short-term debt (Note 8) $ 46,167 $ 21,499 Accounts payable 73,360 75,749 Accrued expenses (Note 9) 166,088 162,548 ------TOTAL CURRENT LIABILITIES 285,615 259,796 ------Long-Term Debt (Note 8) 114,863 115,104 Long-Term Liabilities (Notes 10, 11 and 12) 103,237 82,894 Contingencies (Note 13) Stockholders' Equity (Note 15): Preferred stock - $1 par value, authorized 1,000,000 shares; none outstanding -- -- Common stock - $1 par value, authorized 100,000,000 shares; issued 60,102,000 shares 60,102 60,102 Retained earnings 540,379 532,043 Cumulative translation adjustments (4,380) 18,228 Net unrealized gain on marketable investments (Note 5) 523 1,204 Cost of shares held in treasury; 14,769,000 shares in 1997 and 13,792,000 shares in 1996 (268,236) (246,471) ------Total Stockholders' Equity 328,388 365,106 ------TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 832,103 $ 822,900 ======

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

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CONSOLIDATED STATEMENT OF OPERATIONS For the Three Years Ended December 28, 1997

(Dollars in thousands except per share data) 1997 1996 1995 ------

Sales: Products $ 860,598 $ 867,623 $ 802,187 Services 600,207 559,629 617,391 ------TOTAL SALES 1,460,805 1,427,252 1,419,578 ------

Costs and Expenses: Cost of sales: Products 553,551 547,504 512,970 Services 531,140 501,239 539,076 ------Total cost of sales 1,084,691 1,048,743 1,052,046 Research and development expenses 44,907 42,841 42,379 Selling, general and administrative expenses 243,409 248,038 242,480 Asset impairment charge (Note 7) 28,200 ------Total Costs and Expenses 1,401,207 1,339,622 1,336,905 ------OPERATING INCOME FROM CONTINUING OPERATIONS 59,598 87,630 82,673 Other Income (Expense), Net (Note 18) (5,572) (7,276) 3,386 ------Income From Continuing Operations Before Income Taxes 54,026 80,354 86,059 Provision for Income Taxes (Note 11) 23,381 25,874 31,755 ------INCOME FROM CONTINUING OPERATIONS 30,645 54,480 54,304 Income From Discontinued Operations, Net of Income Taxes (Note 19) 3,047 5,676 13,736 ------NET INCOME $ 33,692 $ 60,156 $ 68,040 ======

Basic and Diluted Earnings Per Share (Note 20): CONTINUING OPERATIONS $ .67 $ 1.15 $ 1.05 Discontinued Operations .07 .12 .27 ------NET INCOME $ .74 $ 1.27 $ 1.32 ======

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

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CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY For the Three Years Ended December 28, 1997

Net Unrealized Cumulative Gain on Cost of Total (Dollars in thousands Common Retained Translation Marketable Shares Held Stockholders' except per share data) Stock Earnings Adjustments Investments in Treasury Equity ------

BALANCE, JANUARY 1, 1995 $ 60,102 $ 459,738 $ 10,785 $ 3,337 $ (88,596) $ 445,366 Net income -- 68,040 ------68,040 Cash dividends ($.56 per share) -- (29,293) ------(29,293) Exercise of employee stock options and related income tax benefits -- 246 -- -- 3,415 3,661 Translation adjustments -- -- 17,894 -- -- 17,894 Purchase of common stock for treasury ------(135,079) (135,079) Change in net unrealized gain on marketable investments ------(3,093) -- (3,093) Redemption of shareholder rights -- (550) ------(550) ------BALANCE, DECEMBER 31, 1995 60,102 498,181 28,679 244 (220,260) 366,946 Net income -- 60,156 ------60,156 Cash dividends ($.56 per share) -- (26,589) ------(26,589) Exercise of employee stock options and related income tax benefits -- 295 -- -- 4,549 4,844 Translation adjustments -- -- (10,451) -- -- (10,451) Purchase of common stock for treasury ------(30,760) (30,760) Change in net unrealized gain on marketable investments ------960 -- 960 ------BALANCE, DECEMBER 29, 1996 60,102 532,043 18,228 1,204 (246,471) 365,106 Net income -- 33,692 ------33,692 Cash dividends ($.56 per share) -- (25,684) ------(25,684) Exercise of employee stock options and related income tax benefits -- 328 -- -- 6,339 6,667 Translation adjustments -- -- (22,608) -- -- (22,608) Purchase of common stock for treasury ------(28,104) (28,104) Change in net unrealized gain on marketable investments ------(681) -- (681) ------BALANCE, DECEMBER 28, 1997 $ 60,102 $ 540,379 $ (4,380) $ 523 $(268,236) $ 328,388 ======

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

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24 CONSOLIDATED STATEMENT OF CASH FLOWS For the Three Years Ended December 28, 1997

(Dollars in thousands) 1997 1996 1995 ------

Cash Flows Provided by Operating Activities: Net income $ 33,692 $ 60,156 $ 68,040 Deduct net income from discontinued operations (3,047) (5,676) (13,736) ------Income from continuing operations 30,645 54,480 54,304 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Asset impairment charge 28,200 -- -- Depreciation and amortization 44,612 40,936 39,426 Gains on dispositions and investments, net (11,713) (1,714) (5,442) Changes in assets and liabilities, net of effects from companies purchased and divested: Decrease (increase) in accounts receivable (35,945) (11,781) 17,535 Decrease (increase) in inventories 725 (6,659) 12,106 Increase in accounts payable 327 3,469 6,087 Decrease in accrued restructuring costs (1,033) (3,455) (17,522) Increase (decrease) in accrued expenses 8,726 (718) 27,609 Increase in noncurrent prepaid pension (10,040) (2,876) (8,041) Change in prepaid and deferred taxes (4,315) 8,793 (3,712) Change in prepaid expenses and other (18,047) (7,237) 1,481 ------Net Cash Provided by Continuing Operations 32,142 73,238 123,831 Net Cash Provided by Discontinued Operations 2,696 6,920 26,334 ------NET CASH PROVIDED BY OPERATING ACTIVITIES 34,838 80,158 150,165 ------

Cash Flows Provided by (Used in) Investing Activities: Capital expenditures (48,729) (80,490) (61,839) Reimbursement of invested capital (Note 12) 27,000 -- -- Proceeds from dispositions of businesses and sales of property, plant and equipment 24,287 1,744 15,238 Cost of acquisitions, net of cash and cash equivalents acquired (3,611) -- -- Proceeds from sales of investment securities 4,129 9,447 10,584 Other (1,156) (2,000) (2,754) ------NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,920 (71,299) (38,771) ------

Cash Flows Used in Financing Activities: Increase (decrease) in commercial paper 27,879 17,965 (49,814) Other debt payments (3,443) (1,959) (5,607) Proceeds from issuance of long-term debt -- -- 115,000 Proceeds from issuance of common stock 6,667 4,844 3,661 Purchases of common stock (28,104) (30,760) (135,079) Cash dividends (25,684) (26,589) (29,293) Other -- -- (1,763) ------NET CASH USED IN FINANCING ACTIVITIES (22,685) (36,499) (102,895) ------

Effect of Exchange Rate Changes on Cash and Cash Equivalents (3,985) (718) 1,281 ------NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 10,088 (28,358) 9,780

Cash and Cash Equivalents at Beginning of Year 47,846 76,204 66,424 ------CASH AND CASH EQUIVALENTS AT END OF YEAR $ 57,934 $ 47,846 $ 76,204 ======

Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 12,351 $ 13,526 $ 7,271 Income taxes 26,683 35,678 23,380

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: EG&G, Inc. is a global, diversified technology company that provides optoelectronic, mechanical and electromechanical components and instruments to manufacturers and end-user customers in aerospace, automotive, environmental, industrial, medical, photography, security and other markets. The Company also delivers technical and managerial support services to government and industrial customers. The Company's industry segments are Instruments, Mechanical Components, Optoelectronics and Technical Services. Based on sales, Technical Services is the largest segment, representing approximately 40% of the Company's sales; each of the other segments accounts for approximately 20% of sales. The Instruments segment develops and manufactures products for a wide range of detection and measurement applications worldwide, ranging from medical diagnostics and food monitoring to airport, cargo and industrial security. The Mechanical Components segment designs and manufactures highly reliable, high-performance seals and fluid containment and control products for aerospace, semiconductor, power generation, chemical and petrochemical markets worldwide. The Optoelectronics segment designs and manufactures optical and silicon micromachined sensors, light sources and optoelectronic components for industrial, consumer and medical applications worldwide and large-scale amorphous silicon X-ray detectors. The Technical Services segment supplies management, engineering, scientific, technical and operations support services primarily to U.S. government agencies. The segment also provides analysis and testing services to the petroleum and automotive industries worldwide.

Principles of Consolidation: The consolidated financial statements include the accounts of EG&G, Inc. and its subsidiaries (the Company). All material intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications have been made to conform prior years' data to the current format.

Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Sales: Sales under cost-reimbursement contracts are recorded as costs are incurred and include applicable income in the proportion that costs incurred bear to total estimated costs. Other product and service sales are recorded at the time of shipment for products and at the end of a contract phase for service contracts. If a loss is anticipated on any contract, provision for the entire loss is made immediately.

Inventories: Inventories, which include material, labor and manufacturing overhead, are valued at the lower of cost or market. The majority of inventories is accounted for using the first-in, first-out method; remaining inventories are accounted for using the last-in, first-out (LIFO) method.

Property, Plant and Equipment: For financial statement purposes, the Company depreciates plant and equipment using the straight-line method over their estimated useful lives, which generally fall within the following ranges: buildings and special-purpose structures -- 10 to 25 years; leasehold improvements -- estimated useful life or remaining term of lease, whichever is shorter; machinery and equipment -- 3 to 7 years; special-purpose equipment -- expensed or depreciated over the life of the initial related contract. Nonrecurring tooling costs are capitalized, while recurring costs are expensed. For income tax purposes, the Company depreciates plant and equipment over their estimated useful lives using accelerated methods.

Pension Plans: The Company's funding policy provides that payments to the U.S. pension trusts shall at least be equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974. Non-U.S. plans are accrued for, but generally not funded, and benefits are paid from operating funds.

Translation of Foreign Currencies: The balance sheet accounts of non-U.S. operations, exclusive of stockholders' equity, are translated at year-end exchange rates, and income statement accounts are translated at weighted-average rates in effect during the year; any translation adjustments are made directly to a component of stockholders' equity . The net transaction gains (losses) were not material for the years presented.

Intangible Assets: Intangible assets result mainly from acquisitions accounted for using the purchase method of accounting and include the excess of cost over the fair market value of the net assets of the acquired businesses. Substantially all of these intangible assets are being amortized over periods of up to 20 years. In accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company reviews long-lived assets and the related intangible assets for impairment whenever events

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26 or changes in circumstances indicate the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted net cash flows of the operation to which the assets relate, to the carrying amount including associated intangible assets of such operation. If the operation is determined to be unable to recover the carrying amount of its assets, then intangible assets are written down first, followed by the other long-lived assets of the operation, to fair value. Fair value is determined based on discounted cash flows or appraised values, depending upon the nature of the assets. (See Note 7 for discussion of the write-down that occurred in 1997.)

Stock-Based Compensation: Effective January 1, 1996, the Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to continue to account for stock options at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis.

Cash Flows: For purposes of the Consolidated Statement of Cash Flows, the Company considers all highly liquid instruments with a purchased maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value due to the short maturities.

Environmental Matters: The Company accrues for costs associated with the remediation of environmental pollution when it is probable that a liability has been incurred and the Company's proportionate share of the amount can be reasonably estimated. Any recorded liabilities have not been discounted.

Earnings Per Share: In the fourth quarter of 1997, the Company adopted the provisions of SFAS No. 128, Earnings Per Share, which is effective for financial statements for periods ending after December 15, 1997. SFAS No. 128 requires replacement of primary earnings per share (EPS) with basic EPS, which is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding. Diluted EPS, which gives effect to all dilutive potential common shares outstanding, is also required. While all prior-period EPS data presented are required to be restated, there was no impact on previously reported EPS from adopting SFAS No. 128.

Other Accounting Pronouncements: The Financial Accounting Standards Board issued two new statements in June 1997. SFAS No. 130, Reporting Comprehensive Income, establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for the way that public business enterprises report information and operating segments in annual financial statements and requires reporting of selected information in interim financial reports. Both statements are effective for fiscal years beginning after December 15, 1997. The required disclosures for SFAS No. 130 will be included in the Company's quarterly report on Form 10-Q for the first quarter of 1998. The required disclosures for SFAS No. 131 will be included in the Company's 1998 annual report on Form 10-K.

2. ACCOUNTS RECEIVABLE

Accounts receivable as of December 28, 1997 and December 29, 1996 included unbilled receivables of $48 million and $44 million, respectively, which were due primarily from U.S. government agencies. Accounts receivable were net of reserves for doubtful accounts of $4.8 million and $4.2 million as of December 28, 1997 and December 29, 1996, respectively.

3. INVENTORIES

Inventories as of December 28, 1997 and December 29, 1996 consisted of the following:

(In thousands) 1997 1996 ------Finished goods $ 31,570 $ 31,436 Work in process 24,810 28,536 Raw materials 56,495 59,586 ------$112,875 $119,558 ======

The portion of inventories accounted for using the LIFO method of determining inventory costs in 1997 and 1996 approximated 25% and 23%, respectively, of total inventories. The excess of current cost of inventories over the LIFO value was approximately $8 million as of December 28, 1997 and December 29, 1996.

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4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, at cost, as of December 28, 1997 and December 29, 1996 consisted of the following:

(In thousands) 1997 1996 ------Land $ 12,712 $ 12,324 Buildings and leasehold improvements 114,698 123,575 Machinery and equipment 354,972 344,959 ------$482,382 $480,858 ======Capital expenditures were $48.7 million in 1997 and were offset by dispositions ($19 million), the effect of translating assets denominated in non-U.S. currencies at current exchange rates ($16 million) and the write-down associated with the IC Sensors business ($13 million). (See Note 7 for discussion of the write-down that occurred in 1997.)

5. INVESTMENTS

Investments as of December 28, 1997 and December 29, 1996 consisted of the following:

(In thousands) 1997 1996 ------Marketable investments $11,197 $12,294 Joint venture investments 5,591 4,363 Other investments 343 558 ------17,131 17,215 Investments classified as other current assets (401) (376) ------$16,730 $16,839 ======

Marketable investments consisted of common stocks and trust assets which were primarily invested in common stocks and fixed-income securities to meet the supplemental executive retirement plan obligation. The market values were based on quoted market prices. As of December 28, 1997, the fixed-income securities, on average, had maturities of approximately eight years. The net unrealized holding gain on marketable investments, net of deferred income taxes, reported as a separate component of stockholders' equity, was $0.5 million at December 28, 1997 and $1.2 million at December 29, 1996. In 1997, proceeds from sales of available-for-sale securities were $1 million, which approximated average cost.

Marketable investments classified as available for sale as of December 28, 1997 and December 29, 1996 consisted of the following:

Gross Unrealized Holding Market ------(In thousands) Value Cost Gains (Losses) ------1997 Common stocks $ 7,521 $ 6,766 $1,017 $(262) Fixed-income securities 3,543 3,495 48 -- Other 133 132 1 ------$11,197 $10,393 $1,066 $(262) ======1996 Common stocks $ 9,347 $ 7,498 $2,050 $(201) Fixed-income securities 2,712 2,710 2 -- Other 235 233 2 ------$12,294 $10,441 $2,054 $(201) ======

Joint venture investments are accounted for using the equity method.

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6. INTANGIBLE ASSETS

Intangible assets were shown net of accumulated amortization of $48.7 million and $51.8 million as of December 28, 1997 and December 29, 1996, respectively. The $31.1 million decrease in intangible assets resulted primarily from write-downs associated with the IC Sensors and Environmental Services businesses ($15 million), the effect of translating goodwill denominated in non-U.S. currencies at current exchange rates ($9 million) and current year amortization ($8 million). 7. ASSET IMPAIRMENT CHARGE

As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan, including new product orders, improved manufacturing yields, cost reductions, and attraction and retention of critical personnel, the division continued operating at a loss in 1997, which triggered an impairment review of its long-lived assets. A revised operating plan was developed to restructure and stabilize the business. The revised projections by product line provided the basis for measurement of the asset impairment charge. The Company calculated the present value of expected cash flows of IC Sensors' product lines to determine the fair value of the assets. Accordingly, in the second quarter of 1997, the Company recorded an impairment charge of $26.7 million in the Optoelectronics segment, for a write-down of goodwill of $13.6 million and fixed assets of $13.1 million.

The Company also recorded a $1.5 million impairment charge in 1997 to write off the goodwill of the Environmental Services division in the Technical Services segment.

8. DEBT

Short-term debt at December 28, 1997 and December 29, 1996, consisted primarily of commercial paper borrowings of $45.8 million and $18 million, respectively, that had maturities of 30 days or less. The weighted-average interest rate on commercial paper borrowings was 6.1% at December 28, 1997 and 6.2% at December 29, 1996. Commercial paper borrowings averaged $47 million during 1997 at an average interest rate of 5.6%, compared to average borrowings of $28 million during 1996 at an average interest rate of 5.4%.

During 1997, the Company renewed its credit facilities with the signing of two revolving credit agreement extensions totaling $200 million. These agreements consist of a $100 million, 364-day facility, which was extended in March 1998 to March 1999, and a $100 million facility, which expires in March 2002. These agreements serve as backup facilities for the commercial paper borrowings. During 1997, the Company did not draw down either of these credit facilities, and there are no significant commitment fees.

At December 28, 1997 and December 29, 1996, long-term debt included $115 million of unsecured ten-year notes issued in October 1995 at an interest rate of 6.8%, which mature in 2005. The total notes authorized were $150 million, and the unissued notes of $35 million are covered by a shelf registration statement. The carrying amount of the Company's long-term debt approximated the estimated fair value at December 28, 1997 and December 29, 1996 based on a quoted market price.

9. ACCRUED EXPENSES

Accrued expenses as of December 28, 1997 and December 29, 1996 consisted of the following:

(In thousands) 1997 1996 ------Payroll and incentives $ 24,473 $ 29,732 Employee benefits 48,936 44,845 Federal, non-U.S. and state income taxes 22,352 24,186 Other accrued operating expenses 70,327 63,785 ------$166,088 $162,548 ======

10. EMPLOYEE BENEFIT PLANS

Savings Plan: The Company has a savings plan for the benefit of qualified U.S. employees. Under this plan, the Company contributes an amount equal to the lesser of 55% of the amount of the employee's voluntary contribution or 3.3% of the employee's annual compensation. Savings plan expense was $6.5 million in 1997, $5.8 million in 1996 and $5.7 million in 1995.

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Pension Plans: The Company has defined benefit pension plans covering substantially all U.S. employees and non-U.S. pension plans for non-U.S. employees. The plans provide benefits that are based on an employee's years of service and compensation near retirement. Assets of the U.S. plan are composed primarily of equity and debt securities.

Net periodic pension cost included the following components:

(In thousands) 1997 1996 1995 ------Service cost- benefits earned during the period $ 9,081 $ 9,248 $ 9,073 Interest cost on projected benefit obligations 18,126 17,335 16,733 Actual return on plan assets (43,630) (32,287) (42,992) Net amortization and deferral 21,599 13,116 24,310 ------$ 5,176 $ 7,412 $ 7,124 ======

The following table sets forth the funded status of the principal U.S. pension plan and the principal non-U.S. pension plans and the amounts recognized in the Company's Consolidated Balance Sheet as of December 28, 1997 and December 29, 1996:

1997 1996 ------(In thousands) Non-U.S. U.S. Non-U.S. U.S. ------

Actuarial present value of benefit obligations: Vested benefit obligations $22,748 $205,930 $25,119 $177,714 ======Accumulated benefit obligations $23,706 $212,659 $26,163 $184,765 ======

Projected benefit obligations for service provided to date $27,912 $240,176 $31,663 $213,146 Plan assets at fair value -- 294,790 -- 249,431 ------Plan assets less (greater) than projected benefit obligations 27,912 (54,614) 31,663 (36,285) Unrecognized net transition asset -- 3,005 -- 3,756 Unrecognized prior service costs (1,162) (38) (1,380) 690 Unrecognized net gain 3,758 10,287 2,527 518 ------Accrued pension liability (asset) $30,508 $(41,360) $32,810 $(31,321) ======

Actuarial assumptions as of the year-end measurement date: Discount rate 6.5% 7.0% 6.5% 7.5% Rate of compensation increase 4.0% 4.5% 4.0% 5.0% Long-term rate of return on assets -- 9.0% -- 9.5%

The non-U.S. accrued pension liability included $30.2 million and $32.3 million classified as long-term liabilities as of December 28, 1997 and December 29, 1996, respectively. The U.S. pension asset was classified as other noncurrent assets.

The Company also sponsors a supplemental executive retirement plan to provide senior management with benefits in excess of normal pension benefits. At December 28, 1997 and December 29, 1996, the projected benefit obligations were $11.9 million and $11.2 million, respectively. Assets with a fair value of $10.2 million and $9.1 million, segregated in a trust, were available to meet this obligation as of December 28, 1997 and December 29, 1996, respectively. Pension expense for this plan was approximately $1.3 million in 1997, and $1.5 million in 1996 and 1995.

Postretirement Medical Plans: The Company provides health care benefits for eligible retired U.S. employees under a comprehensive major medical plan or under health maintenance organizations where available. The majority of the Company's U.S. employees become eligible for retiree health benefits if they retire directly from the Company and have at least ten years of service. Generally, the major medical plan pays stated percentages of covered expenses after a deductible is met and takes into consideration payments by other group coverages and by Medicare. The plan requires retiree contributions under most circumstances and has provisions for cost-sharing changes. For employees retiring after 1991, the Company has capped its medical premium contribution based on employees' years of service. The Company

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30 funds the amount allowable under a 401(h) provision in the Company's defined benefit pension plan. Assets of the plan are composed primarily of equity and debt securities.

Net periodic postretirement medical benefit cost (credit) included the following components:

(In thousands) 1997 1996 1995 ------Service cost- benefits earned during the period $ 317 $ 349 $ 391 Interest cost on accumulated benefit obligations 1,237 1,459 1,697 Actual return on plan assets (1,592) (1,128) (1,001) Net amortization and deferral (360) 296 544 ------$ (398) $ 976 $ 1,631 ======

The net credit in 1997 resulted from the amortization of previously unrecognized gains.

The following table sets forth the plan's funded status and the amounts recognized in the Company's Consolidated Balance Sheet at December 28, 1997 and December 29, 1996:

(In thousands) 1997 1996 ------Actuarial present value of accumulated benefit obligations: Current retirees $11,448 $15,699 Active employees eligible to retire 565 563 Other active employees 5,032 4,848 ------17,045 21,110 Plan assets at fair value 13,839 8,470 ------Plan assets less than accumulated benefit obligations 3,206 12,640 Unrecognized net gain 8,594 4,669 ------Accrued postretirement medical liability $11,800 $17,309 ======

Actuarial assumptions as of the year-end measurement date: Discount rate 7.0% 7.5% Health care cost trend rate: First year 10.0% 12.0% Ultimate 5.5% 6.5% Time to reach ultimate 6 years 7 years Long-term rate of return on assets 9.0% 9.5%

The accrued postretirement medical liability included $11.3 million and $16.3 million classified as long-term liabilities as of December 28, 1997 and December 29, 1996, respectively.

If the health care cost trend rate was increased 1%, the accumulated postretirement benefit obligations would have increased by approximately $0.8 million at December 28, 1997. The effect of this increase on the annual cost for 1997 would have been approximately $0.1 million.

Other: The Company has an EVA (R) Incentive Compensation Plan, the purpose of which is to provide incentive compensation to certain key employees, including all officers, in a form that relates the financial rewards to an increase in the value of the Company to its shareholders. Awards under this plan are approved annually by the Board of Directors. (EVA (R) is a registered trademark of Stern Stewart & Co.)

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The preceding information does not include amounts related to benefit plans applicable to employees associated with the NASA contract because the Company is not responsible for the current or future funded status of the plans.

During 1997, the Company incurred a charge of $2.8 million resulting from a cash deficit in an employee benefit plan.

11. INCOME TAXES

The components of income from continuing operations before income taxes for financial reporting purposes were as follows:

(In thousands) 1997 1996 1995 ------U.S. $12,079 $36,235 $53,264 Non-U.S 41,947 44,119 32,795 ------$54,026 $80,354 $86,059 ======

The components of the provision for income taxes for continuing operations were as follows:

Deferred (In thousands) Current (Prepaid) Total ------1997 Federal $16,359 $(5,607) $10,752 State 3,527 (121) 3,406 Non-U.S 7,028 2,195 9,223 ------$26,914 $(3,533) $23,381 ======1996 Federal $ 4,209 $10,473 $14,682 State 3,653 135 3,788 Non-U.S 8,545 (1,141) 7,404 ------$16,407 $ 9,467 $25,874 ======1995 Federal $26,268 $(3,411) $22,857 State 3,572 (264) 3,308 Non-U.S 5,325 265 5,590 ------$35,165 $(3,410) $31,755 ======

The total provision for income taxes included in the consolidated financial statements was as follows:

(In thousands) 1997 1996 1995 ------Continuing operations $23,381 $25,874 $31,755 Discontinued operations 1,640 3,056 7,397 ------$25,021 $28,930 $39,152 ======

The major differences between the Company's effective tax rate for continuing operations and the federal statutory rate were as follows:

1997 1996 1995 ------Federal statutory rate 35.0% 35.0% 35.0% Non-U.S. rate differential, net (14.2) (10.1) (2.5) State income taxes, net 4.1 3.1 2.5 Goodwill amortization 3.3 2.4 2.0 Goodwill write-downs 9.7 -- -- Increase (decrease) in valuation allowance 5.5 (1.1) (2.3) Other, net (0.1) 2.9 2.2 ------Effective tax rate 43.3% 32.2% 36.9% ======

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The 1997 tax provision and effective rate for continuing operations were significantly impacted by the non-deductible goodwill write-downs of IC Sensors and the Environmental Services division. Excluding the impairment charge, the effective rate was 34.1% in 1997.

The tax effects of temporary differences and carryforwards which gave rise to prepaid (deferred) income taxes as of December 28, 1997 and December 29, 1996 were as follows:

(In thousands) 1997 1996 ------Deferred tax assets: Inventory reserves $ 5,569 $ 5,738 Other reserves 10,425 9,628 Reimbursement of invested capital 8,635 -- Vacation pay 6,958 6,200 Depreciation 1,701 3,869 Net operating loss carryforwards 32,113 32,088 Postretirement health benefits 4,373 5,077 Restructuring reserve 343 616 All other, net 26,116 25,230 ------Total deferred tax assets 96,233 88,446 ------Deferred tax liabilities: Award and holdback fees (1,756) (3,814) Pension contribution (12,837) (9,212) Amortization (7,310) (8,113) All other, net (15,514) (14,489) ------Total deferred tax liabilities (37,417) (35,628) ------Valuation allowance (25,626) (24,407) ------Net prepaid taxes $ 33,190 $ 28,411 ======

At December 28, 1997, the Company had non-U.S. (primarily from Germany) net operating loss carryforwards of $69.8 million, $0.9 million of which expire in the years 1998 through 2001 and $68.9 million of which carry forward indefinitely. The $25.6 million valuation allowance results primarily from these carryforwards, for which the Company currently believes it is more likely than not that they will not be realized.

Current prepaid income taxes of $44.3 million and $38.6 million were included in other current assets at December 28, 1997 and December 29, 1996, respectively. Long-term deferred income taxes of $11.1 million and $10.2 million were included in long-term liabilities at December 28, 1997 and December 29, 1996, respectively.

In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Repatriation of retained earnings is done only when it is advantageous. Applicable federal taxes are provided only on amounts planned to be remitted. Accumulated net earnings of non-U.S. subsidiaries for which no federal taxes have been provided as of December 28, 1997 were $90.1 million, which does not include amounts that, if remitted, would result in little or no additional tax because of the availability of U.S. tax credits for non-U.S. taxes. Federal taxes that would be payable upon remittance of these earnings are estimated to be $27.8 million at December 28, 1997.

12. REIMBURSEMENT OF INVESTED CAPITAL

In the third quarter of 1997, the Company received a $30.4 million payment as part of the negotiation of a joint development contract. This payment represented a $27 million reimbursement of previously invested capital, which will be amortized to income over the estimated life of the related assets, and a $3.4 million reimbursement of cost of capital, which was included in other income. The reimbursement, net of accumulated amortization, included in long-term liabilities was $24.7 million as of December 28, 1997.

13. CONTINGENCIES

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33 ultimately result from the resolution of these matters in excess of amounts provided will not have a material adverse effect on the financial position or results of operations of the Company.

In addition, the Company is conducting a number of environmental investigations and remedial actions at current and former Company locations and, along with other companies, has been named a potentially responsible party for certain waste disposal sites. The Company accrues for environmental issues in the accounting period that the Company's responsibility is established and when the cost can be reasonably estimated. The Company has accrued $5.7 million as of December 28, 1997 to reflect its estimated liability for environmental remediation. As assessments and remediation activities progress at each individual site, these liabilities are reviewed and adjusted to reflect additional information as it becomes available. There have been no environmental problems to date that have had or are expected to have a material effect on the Company's financial position or results of operations. While it is reasonably possible that a material loss exceeding the amounts recorded may have been incurred, the preliminary stages of the investigations make it impossible for the Company to reasonably estimate the range of potential exposure.

14. RISKS AND UNCERTAINTIES

During 1997, the economic and financial crisis in portions of Asia did not have a material effect on the Company's results of operations or financial position. Sales into and exported from the region, as well as net assets in the region, are not material. Optoelectronics' future results are dependent on management's ability to restore IC Sensors to break-even in the near term, successful introduction of new products, improvements in manufacturing yields and implementation of cost reductions.

In 1997, 37% of the Company's sales from continuing operations were to U.S. government agencies, predominantly to the Department of Defense and NASA. In accordance with government regulations, all of the Company's government contracts are subject to termination for the convenience of the government. Cost incurred under cost-reimbursable contracts are subject to audit by the government. The results of prior audits, complete through 1993, have not had a material effect on the Company.

Future performance could be impacted by the NASA and Air Force decision to consolidate and recompete the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resultant contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls. The NASA contract at the Kennedy Space Center contributed sales of $168 million in 1997.

The Company's management and operations contracts with the DOE are presented as discontinued operations. The Company's last DOE management and operations contract expired on September 30, 1997. The Company is in the process of negotiating contract closeouts and does not anticipate incurring any material loss in excess of previously established reserves.

For information concerning various investigations, claims, legal proceedings, environmental investigations and remedial actions, and notices from the IRS, see Note 13.

15. STOCKHOLDERS' EQUITY

At December 28, 1997, 6.5 million shares of the Company's common stock were reserved for employee benefit plans.

The Company has nonqualified and incentive stock option plans for officers and key employees. Under these plans, options may be granted at prices not less than 100% of the fair market value on the date of grant. All options expire ten years from the date of grant. Options granted since 1994 become exercisable, in ratable installments, over a period of five years from the date of grant. In other years, options became exercisable at the date of grant. The Stock Option

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Committee of the Board of Directors, at its sole discretion, may also include stock appreciation rights in any option granted. There are no stock appreciation rights outstanding under these plans.

A summary of certain stock option information is as follows:

1997 1996 1995 ------Weighted- Weighted- Weighted- Number Average Number Average Number Average (Shares in thousands) of Shares Price of Shares Price of Shares Price ------

Outstanding at beginning of year 4,161 $19.56 3,276 $18.81 3,611 $18.77 Granted 927 19.19 1,392 20.67 13 16.66 Exercised (363) 16.74 (266) 17.00 (197) 17.52 Lapsed (538) 20.23 (241) 18.57 (151) 19.28 ------

Outstanding at end of year 4,187 19.64 4,161 19.56 3,276 18.81 ======

Exercisable at end of year 2,195 19.85 2,477 19.67 2,740 19.70 ======

Available for grant at end of year 2,290 1,831 2,226 ======In December 1997, 927,000 options were granted at an exercise price of $19.19 per share. In 1996, the Board of Directors granted 650,000 options in January and 728,000 options in December at exercise prices of $21.75 and $19.75 per share, respectively.

The following table summarizes information about stock options outstanding at December 28, 1997 (shares in thousands):

Weighted- Average Remaining Weighted- Weighted- Range of Number of Years of Average Number of Average Exercise Shares Contractual Exercise Shares Exercise Prices Outstanding Life Price Exercisable Price ------

$14.01-17.00 638 5.5 $14.82 458 $15.05 17.01-20.00 1,643 9.1 19.23 252 18.41 20.01-23.00 1,906 5.7 21.61 1,485 21.57 ------14.01-23.00 4,187 7.0 19.64 2,195 19.85 ======

During 1996, the Company adopted the provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company has elected to continue to account for stock options at intrinsic value with disclosure of the effects of fair value accounting on net income and earnings per share on a pro forma basis.

The following table reflects pro forma net income and earnings per share had the Company elected to adopt the fair value approach of SFAS No. 123:

(Dollars in thousands except per share data) 1997 1996 ------Income from continuing operations: As reported $30,645 $54,480 Pro forma 29,844 53,986 Earnings per share: As reported .67 1.15 Pro forma .65 1.14

Consistent with SFAS No. 123, pro forma net income and earnings per share have not been calculated for options granted prior to January 1, 1995. There are no pro forma disclosures for 1995 because the options granted were insignificant. Pro forma compensation cost may not be representative of that to be expected in future years since the estimated fair value of stock options is amortized to expense over the vesting period, and additional options may be granted in future years.

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The fair value of each option was $6.14 for options granted in 1997, $6.20 for the options granted in December 1996 and $6.68 for the options granted in January 1996. The values were estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used in the model:

December December January 1997 1996 1996 ------Risk-free interest rate 5.9% 6.3% 5.5% Expected dividend yield 2% 2% 2% Expected lives 7 years 7 years 7 years Expected stock volatility 26% 24% 25%

On January 25, 1995, the Board of Directors adopted a new Shareholder Rights Plan. Under the plan, preferred stock purchase rights were distributed on February 8, 1995 as a dividend at the rate of one right for each share of common stock outstanding. Each right, when exercisable, entitles a stockholder to purchase one one-thousandth of a share of a new series of junior participating preferred stock at a price of $60. The rights become exercisable only if a person or group acquires 20% or more or announces a tender or exchange offer for 30% or more of the Company's common stock. This preferred stock is nonredeemable and will have 1,000 votes per share. The rights are nonvoting, expire in 2005 and may be redeemed prior to becoming exercisable. The Company has reserved 70,000 shares of preferred stock, designated as Series C Junior Participating Preferred Stock, for issuance upon exercise of such rights. If a person (an "Acquiring Person") acquires or obtains the right to acquire 20% or more of the Company's outstanding common stock (other than pursuant to certain approved offers), each right (other than rights held by the Acquiring Person) will entitle the holder to purchase shares of common stock of the Company at one-half of the current market price at the date of occurrence of the event. In addition, in the event that the Company is involved in a merger or other business combination in which it is not the surviving corporation or in connection with which the Company's common stock is changed or converted, or it sells or transfers 50% or more of its assets or earning power to another person, each right that has not previously been exercised will entitle its holder to purchase shares of common stock of such other person at one-half of the current market price of such common stock at the date of the occurrence of the event. In connection with the adoption of the plan, the Company redeemed the rights issued pursuant to the Company's January 28, 1987 Rights Agreement at a redemption price of $.01 per right to shareholders of record as of February 8, 1995.

16. FINANCIAL INSTRUMENTS

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. The Company had no significant concentrations of credit risk as of December 28, 1997.

The Company has limited involvement with derivative financial instruments. In the ordinary course of business, the Company enters into foreign exchange forward contracts for periods consistent with its committed exposures to mitigate the effect of foreign currency movements on transactions denominated in foreign currencies. Transactions covered by hedge contracts include intercompany and third-party receivables and payables. The contracts are primarily in European currencies, generally have maturities that do not exceed one month and have no cash requirements until maturity. Credit risk and market risk are minimal because the forward contracts are with very large banks and gains and losses are offset against foreign exchange gains and losses on the underlying hedged transactions. The notional amount of outstanding forward contracts was $75.8 million as of December 28, 1997 and $62.4 million as of December 29, 1996. The carrying value as of December 28, 1997 and December 29, 1996, which approximated fair value, was not significant.

See Notes 1, 5 and 8 for disclosures about fair values, including methods and assumptions, of other financial instruments.

17. LEASES

The Company leases certain property and equipment under operating leases. Rental expense charged to earnings for 1997, 1996 and 1995 amounted to $15.6 million, $17.2 million and $18.7 million, respectively. Minimum rental commitments under noncancelable operating leases are as follows: $13 million in 1998, $8.4 million in 1999, $5.8 million in 2000, $4.1 million in 2001, $2.7 million in 2002 and $6.8 million after 2002. The above information does not include amounts related to leases covered by certain government contracts because costs, including future commitments, are reimbursable under the terms of the contracts, even if the contracts are terminated.

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18. OTHER INCOME (EXPENSE)

Other income (expense), net, consisted of the following: (In thousands) 1997 1996 1995 ------Interest income $ 1,969 $ 3,879 $ 4,930 Interest expense (12,482) (13,427) (8,514) Gains on investments, net 711 1,714 2,047 Other 4,230 558 4,923 ------$ (5,572) $ (7,276) $ 3,386 ======

Gains on investments, net, included a $2.5 million charge in 1995 to write down certain investments to their estimated realizable value. Other consists mainly of income from joint ventures, foreign exchange losses and, in 1997, a $3.4 million cost of capital reimbursement relating to a joint development program. (See Note 12.)

19. DISCONTINUED OPERATIONS

The former DOE Support segment, which has provided services under management and operations contracts, is presented as discontinued operations in accordance with Accounting Principles Board Opinion No. 30.

The EG&G Rocky Flats, Inc. contract terminated in June 1995. The Reynolds Electrical and Engineering Co., Inc. and the EG&G Energy Measurements, Inc. contracts expired on December 31, 1995. The EG&G Mound Applied Technologies, Inc. contract, the Company's last DOE management and operations contract, expired on September 30, 1997.

Summary operating results of the discontinued operations were as follows:

(In thousands) 1997 1996 1995 ------Sales $79,795 $141,181 $659,852 Costs and expenses 75,108 132,449 638,719 ------Income from discontinued operations before income taxes 4,687 8,732 21,133 Provision for income taxes 1,640 3,056 7,397 ------Income from discontinued operations, net of income taxes $ 3,047 $ 5,676 $ 13,736 ======

The Company is in the process of negotiating contract closeouts and does not anticipate incurring any material loss in excess of previously established reserves.

20. EARNINGS PER SHARE

Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding. The weighted-average shares used in the basic earnings per share computations were 45,757,000 for 1997, 47,298,000 for 1996 and 51,483,000 for 1995. Diluted earnings per share was computed by giving effect to all dilutive potential common shares outstanding. The weighted-average shares used in the diluted earnings per share computations were 45,898,000 for 1997, 47,472,000 for 1996 and 51,573,000 for 1995. These shares include shares issuable upon the exercise of stock options using the treasury stock method. Basic EPS equals diluted EPS for all periods presented due to the immaterial effect of stock options.

21. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION

The Company's continuing operations are classified into four industry segments: Instruments, Mechanical Components, Optoelectronics and Technical Services. The products and services of these segments are described in Note 1 and elsewhere in the Annual Report. Sales and operating income from continuing operations by industry segment are shown in the Sales and Operating Income by Industry Segment section of this report; such information with respect to 1997, 1996 and 1995 is considered an integral part of this note.

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Sales to U.S. government agencies, which were predominantly to the Department of Defense and NASA, were $537 million, $527 million and $537 million in 1997, 1996 and 1995, respectively. NASA and the Air Force have decided to consolidate and recompete the base operations contracts at the Kennedy Space Center, Cape Canaveral Air Station and certain functions at Patrick Air Force Base in an effort to eliminate duplication and reduce costs. It is anticipated that the resultant contract would be effective October 1, 1998. The Company is participating in the recompetition for the new contract as part of a joint venture with Johnson Controls. The NASA contract at the Kennedy Space Center contributed sales of $168 million in 1997 and $172 million in 1996 and 1995.

Additional information relating to the Company's operations in the various industry segments is as follows:

Depreciation and Amortization Expense Capital Expenditures ------(In thousands) 1997 1996 1995 1997 1996 1995 ------

Identifiable Assets ------(In thousands) 1997 1996 1995 ------

Corporate assets consist primarily of cash and cash equivalents, prepaid pension and prepaid taxes.

Information relating to geographic areas is as follows:

Operating Income Sales From Continuing Operations ------(In thousands) 1997 1996 1995 1997 1996 1995 ------

U.S. $1,106,134 $1,066,561 $1,065,424 $ 50,144 $ 68,108 $ 82,256 Germany 79,202 80,465 87,690 1,438 5,154 4,508 Other Non-U.S. 275,469 280,226 266,464 39,685 38,759 25,102 Corporate ------(31,669) (24,391) (29,193) ------$1,460,805 $1,427,252 $1,419,578 $ 59,598 $ 87,630 $ 82,673 ======

Identifiable Assets ------(In thousands) 1997 1996 1995 ------

U.S. $380,447 $385,012 $352,255 Germany 78,187 84,995 87,986 Other Non-U.S. 187,359 195,814 182,163 Corporate and Other 186,110 157,079 181,511 ------$832,103 $822,900 $803,915 ======

Transfers between geographic areas were not material.

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22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Selected quarterly financial information follows:

Quarters ------(In thousands except per share data) First Second Third Fourth Year ------

1997 Sales $347,006 $368,672 $358,368 $386,759 $1,460,805 Operating income (loss) from continuing operations 16,555 (10,234)(1) 20,329 32,948 59,598 Income (loss) from continuing operations before income taxes 14,497 (12,852)(1) 21,030 31,351 54,026 Income (loss) from continuing operations 9,568 (13,390)(1) 13,879 20,588 30,645 Net income (loss) 10,026 (11,845)(1) 14,590 20,921 33,692 Basic and diluted earnings (loss) per share: Continuing operations .21 (.29)(1) .30 .45 .67 Net income (loss) .22 (.26)(1) .32 .46 .74 Cash dividends per common share .14 .14 .14 .14 .56 Market price of common stock: High 24.63 21.13 22.63 23.00 Low 19.63 18.13 18.75 18.00 Close 21.38 20.81 20.81 20.06

1996 Sales $346,791 $355,907 $354,747 $369,807 $1,427,252 Operating income from continuing operations 19,925 21,414 23,201 23,090 87,630 Income from continuing operations before income taxes 18,030 20,355 20,946 21,023 80,354 Income from continuing operations 11,882 14,143 14,201 14,254 54,480 Net income 12,782 15,639 15,637 16,098 60,156 Basic and diluted earnings per share: Continuing operations .25 .30 .30 .30 1.15 Net income .27 .33 .33 .34 1.27 Cash dividends per common share .14 .14 .14 .14 .56 Market price of common stock: High 25.13 23.50 21.38 21.13 Low 20.38 19.88 16.88 16.25 Close 22.38 21.38 17.88 20.88

(1) Included an asset impairment charge of $28.2 million, $23.5 million after-tax ($.51 earnings per share).

23. DIVESTITURES, RESTRUCTURING AND INTEGRATION/REALIGNMENT COSTS

During 1997, the Company sold its Chandler, Flow and Birtcher divisions for gains of $10.6 million. The proceeds from the divestitures were $23 million. As part of a plan to reposition its operations, the Company recorded restructuring charges of $4.9 million, which were mainly related to employee separation costs. The Company also incurred integration costs of $3.3 million as part of its consolidation effort. These gains and costs were included in selling, general and administrative expenses in 1997.

24. SUBSEQUENT EVENTS

In early January 1998, the Company sold its Rotron division, which manufactures fans, blowers and motors, to Ametek, Inc. for approximately $103 million. In 1997, Rotron's sales were $70 million, and its operating income was $11.9 million ($.16 earnings per share).

In December 1997, the Company signed an agreement to sell its Sealol Industrial Seals division to TI Group, plc., for $100 million and to simultaneously purchase TI Group's Belfab division for $45 million. Belfab's 1997 sales were $30 million. These transactions are subject to regulatory and other approvals and are expected to close in the first half of 1998. Sealol Industrial Seals' 1997 sales were $88 million, and its operating income was $11.4 million ($.21 earnings per share).

The after-tax gain on the divestitures is expected to be approximately $90 million.

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39 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO THE STOCKHOLDERS OF EG&G, INC.:

We have audited the accompanying consolidated balance sheets of EG&G, Inc. (a Massachusetts corporation) and subsidiaries as of December 28, 1997 and December 29, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 28, 1997, December 29, 1996 and December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of EG&G, Inc. and subsidiaries as of December 28, 1997 and December 29, 1996, and the results of their operations and their cash flows for the years ended December 28, 1997, December 29, 1996 and December 31, 1995, in conformity with generally accepted accounting principles.

/s/ARTHUR ANDERSEN LLP ------ARTHUR ANDERSEN LLP BOSTON, MASSACHUSETTS JANUARY 20, 1998

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT a) DIRECTORS

The information required by this Item with respect to Directors is contained on Pages 2 through 8 of the Company's 1998 Proxy Statement under the captions "Election of Directors" and "Information Relative to the Board of Directors and Certain of its Committees" and is herein incorporated by reference. b) EXECUTIVE OFFICERS

The information required by this item with respect to Executive Officers is contained in Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

The information required to be disclosed by this Item is contained in Pages 15 - 21 of the Company's 1998 Proxy Statement from under the caption "Summary Compensation Table" up to and including "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Value Option Table" and Notes thereto, and is herein incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is contained on Pages 9 - 10 of the Company's 1998 Proxy Statement under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" and is herein incorporated by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

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PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) DOCUMENTS FILED AS PART OF THIS REPORT:

1. FINANCIAL STATEMENTS

Included in Part II, Item 8:

Consolidated Balance Sheet as of December 28, 1997 and December 29, 1996

Consolidated Statement of Operations for the Three Years Ended December 28, 1997

Consolidated Statement of Stockholders' Equity for the Three Years Ended December 28, 1997

Consolidated Statement of Cash Flows for the Three Years Ended December 28, 1997

Notes to Consolidated Financial Statements

Report of Independent Public Accountants

2. FINANCIAL STATEMENT SCHEDULES

Report of Independent Public Accountants on Financial Statement Schedules

Schedule II - Valuation and Qualifying Accounts

Financial statement schedules, other than those above, are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.

Separate financial statements of the Registrant are omitted since it is primarily an operating company, and since all subsidiaries included in the consolidated financial statements being filed, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the Registrant or its consolidated subsidiaries in amounts which together exceed five percent of total consolidated assets.

3. EXHIBITS

3.1 The Company's Restated Articles of Organization, as filed with the Massachusetts Secretary of the Commonwealth on July 31, 1995, were filed with the Commission on September 21, 1995 as Exhibit 4(i) to the Company's Registration Statement on Form S-8 and are herein incorporated by reference. 3.2 The Company's By-Laws as amended and restated by the Board of Directors on December 17,1997.

4.1 The form of certificate used to evidence ownership of EG&G Common Stock, $1 par value, was filed as Exhibit 4(a) to EG&G's Registration Statement on Form S-3, File No. 2-69642 and is herein incorporated by reference.

4.2 Form of Indenture dated June 28, 1995 between the Company and the First National Bank of Boston, as Trustee, was filed with the Commission as Exhibit 4.1 to EG&G's Registration Statement on Form S-3, File No. 33-59675 and is herein incorporated by reference.

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*10.1 EG&G, Inc. Supplemental Executive Retirement Plan revised as of April 19, 1995 was filed as Exhibit 10.1 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and is herein incorporated by reference.

*10.2 EG&G, Inc. Economic Value Added Plan as amended and restated by the EG&G, Inc. Board of Directors on December 17, 1997.

10.3 3-Year Competitive Advance and Revolving Credit Facility Agreement ("3-Year Agreement") dated as of March 21, 1994 among EG&G, Inc., the Lenders Named Herein and Chemical Bank as Administrative Agent; Amendment No. 1 to 3-Year Agreement dated as of March 15, 1995; and Amendment No. 2 to 3-Year Agreement dated as of March 14, 1996 were filed as Exhibit 10.3 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and are herein incorporated by reference. Amendment No. 3 to 3-Year Agreement dated as of March 7, 1997 was filed as Exhibit 10.3 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 and is herein incorporated by reference.

10.4 Termination, Replacement and Restatement Agreement dated as of March 6, 1998 among EG&G, Inc., the Lenders Named Herein and The Chase Manhattan Bank (as successor to Chemical Bank) as Administrative Agent is attached hereto as Exhibit 10.4. The 364-Day Competitive Advance and Revolving Credit Facility Agreement ("364-Day Agreement") dated as of March 21, 1994 among EG&G, Inc., the Lenders Named Herein and Chemical Bank as Administrative Agent; Amendment No. 1 to 364-Day Agreement dated as of March 15, 1995 and Amendment No. 2 to 364-Day Agreement dated as of March 14, 1996 were filed as Exhibit 10.4 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and are herein incorporated by reference. Amendment No. 3 to 364-Day Agreement dated as of March 7, 1997 was filed as Exhibit 10.4 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 29, 1996 and is herein incorporated by reference.

*10.5 Employment Contracts:

(1) Employment contract between John M. Kucharski and EG&G dated November 1, 1993.

(2) Employment contract between Murray Gross and EG&G dated November 1, 1993.

(3) Employment contract between John F. Alexander, II and EG&G dated November 1, 1993.

(4) Employment contract between Angelo Castellana and EG&G dated November 1, 1993.

(5) Employment contract between Dr. Amitava Datta and EG&G dated April 22, 1997. (6) Employment contract between Daniel T. Heaney and EG&G dated June 1, 1995.

(7) Employment contract between Deborah S. Lorenz and EG&G dated November 1, 1993.

(8) Employment contract between Donald H. Peters and EG&G dated November 1, 1993.

(9) Employment contract between William J. Ribaudo and EG&G dated March 29, 1996.

(10) Employment contract between Theodore P. Theodores and EG&G dated April 23, 1996.

Except for the name of the officer in the employment contracts identified by numbers 3 through and including 10, the form of said employment contracts is identical in all respects. The employment contracts identified by numbers 1 and 2 are identical to each other and are virtually identical to the contracts identified by numbers 3 through 10 except that they

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43 provide for a longer contract term, three years as opposed to one year. The employment contract between John F. Alexander, II and EG&G is representative of the employment contracts of the executive officers and is attached hereto as Exhibit 10.5.

*10.6 The EG&G, INC. 1982 INCENTIVE STOCK OPTION PLAN was filed as Exhibit 4(v) to EG&G's Registration Statement on Form S-8, File No. 33-36082 and is herein incorporated by reference.

*10.7 The EG&G, Inc. 1992 STOCK OPTION PLAN was filed as Exhibit 4(vi) to EG&G's Registration Statement on Form S-8, File No. 333-32059 and is herein incorporated by reference.

21 Subsidiaries of the Registrant.

23 Consent of Independent Public Accountants.

24 Power of Attorney (appears on signature page).

27 Financial Data Schedule.

*This exhibit is a management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.

(b) REPORTS ON FORM 8-K

A report on Form 8-K was filed with the Commission on October 24, 1997 regarding a press release containing the Company's financial results for the quarter ended September 28, 1997.

A report on Form 8-K was filed with the Commission on December 23, 1997 regarding an agreement to sell the business and assets of the company's Industrial Seals Division to TI Group, plc., and to simultaneously purchase TI Group's Belfab Division.

EG&G's 1998 Proxy Statement, in definitive form, was filed electronically on March 4, 1998, with the Securities and Exchange Commission in Washington, D.C. pursuant to the Commission's Rule 14a-6.

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44 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To EG&G, Inc.:

We have audited in accordance with generally accepted auditing standards, the consolidated financial statements of EG&G, Inc. included in this Form 10-K and have issued our report thereon dated January 20, 1998. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

/s/ Arthur Andersen LLP ------Arthur Andersen LLP Boston, Massachusetts January 20, 1998

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SCHEDULE II

EG&G, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE THREE YEARS ENDED DECEMBER 28, 1997

(In thousands) Additions (Subtractions) Balance Charged Accounts Balance at Beginning (Credited) Charged at End Description of Year to Income Off Other of Year ------

Reserve for Doubtful Accounts ------

Year Ended December 31, 1995 $5,820 $ (468) $(1,214) $ 218 $4,356

Year Ended December 29, 1996 $4,356 $2,055 $(2,217) $ 47 $4,241

Year Ended December 28, 1997 $4,241 $2,234 $(1,388) $(295) $4,792

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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 20, 1998, included in this Form 10-K, into Registration Statements previously filed by EG&G, Inc. on, respectively, Form S-8, File No. 2-98168; Form S-8, File No. 33-36082; Form S-8, File No. 33-35379; Form S-8, File No. 33-49898; Form S-8, File No. 33-57606; Form S-8, File No. 33-54785; Form S-8, File No. 33-62805; Form S-8, File No. 333-8811; Form S-8, File No. 333-32059; Form S-8, File No. 333-32463 and Form S-3, File No. 33-59675.

/s/Arthur Andersen LLP ------Arthur Andersen LLP Boston, Massachusetts

March 23, 1998

POWER OF ATTORNEY

We, the undersigned officers and directors of EG&G, Inc., hereby severally constitute John M. Kucharski, and Murray Gross, and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names, in the capacities indicated below, this Annual Report on Form 10-K and any and all amendments to said Annual Report on Form 10-K, and generally to do all such things in our name and behalf in our capacities as officers and directors to enable EG&G, Inc. to comply with the provisions of the Securities Exchange Act of 1934, and all requirements of the Securities and Exchange Commission, hereby rectifying and confirming signed by our said attorneys, and any and all amendments thereto.

Witness our hands on the date set forth below.

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

EG&G, INC.

MARCH 23, 1998 BY: /s/ JOHN M. KUCHARSKI ------JOHN M. KUCHARSKI CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER)

MARCH 23, 1998 BY: /s/ JOHN F. ALEXANDER, II ------JOHN F. ALEXANDER, II SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER)

MARCH 23, 1998 BY: /s/ WILLIAM J. RIBAUDO ------WILLIAM J. RIBAUDO CORPORATE CONTROLLER (PRINCIPAL ACCOUNTING OFFICER)

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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:

BY: /s/ JOHN M. KUCHARSKI ------JOHN M. KUCHARSKI, DIRECTOR DATE: MARCH 23, 1998 BY: /s/ TAMARA J. ERICKSON ------TAMARA J. ERICKSON, DIRECTOR DATE: MARCH 12, 1998

BY: /s/ JOHN B. GRAY ------JOHN B. GRAY, DIRECTOR DATE: MARCH 23, 1998

BY: /s/ KENT F. HANSEN ------KENT F. HANSEN, DIRECTOR DATE: MARCH 12, 1998

BY: /s/ JOHN F. KEANE ------JOHN F. KEANE, DIRECTOR DATE: MARCH 11, 1998

BY: /s/ NICHOLAS A. LOPARDO ------NICHOLAS A. LOPARDO, DIRECTOR DATE: MARCH 11, 1998

BY: /s/ GRETA E. MARSHALL ------GRETA E. MARSHALL, DIRECTOR DATE: MARCH 12, 1998

BY: /s/ MICHAEL C. RUETTGERS ------MICHAEL C. RUETTGERS, DIRECTOR DATE: MARCH 23, 1998

BY: /s/ GREGORY L. SUMME ------GREGORY L. SUMME, DIRECTOR DATE: MARCH 23, 1998

BY: /s/ JOHN LARKIN THOMPSON ------JOHN LARKIN THOMPSON, DIRECTOR DATE: MARCH 23, 1998

BY: /s/ G. ROBERT TOD ------G. ROBERT TOD, DIRECTOR DATE: MARCH 23, 1998

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EXHIBIT INDEX

Exhibit Number Exhibit Name ------

3.2 EG&G, Inc. By-Laws as amended and restated by the EG&G, Inc. Board of Directors on December 17, 1997.

10.2 EG&G, Inc. Economic Value Added Plan as amended and restated by the EG&G, Inc. Board of Directors on December 17, 1997.

10.5 Employment Contract between John F. Alexander, II and EG&G, Inc.

21 Subsidiaries of the Registrant.

27 Financial Data Schedule.

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EXHIBIT 3.2

INDEX

EG&G, INC. BY-LAWS

AS OF DECEMBER 17, 1997

PAGE ----

ARTICLE I STOCKHOLDERS...... 1 Place of Meetings...... 1 Annual Meetings...... 1 Special Meetings...... 1 Notice of Meetings...... 3 Quorum...... 3 Adjournments...... 3 Voting and Proxies...... 4 Action at Meeting...... 4 Action without Meeting...... 4

ARTICLE II DIRECTORS...... 5 Powers...... 5 Number and Election...... 5 Vacancies...... 5 Change in Number of the Board..... 6 Resignation and Retirement...... 6 Removal...... 6 Meetings...... 6 Notice of Special Meetings...... 7 Quorum...... 7 Action at Meeting...... 7 Action by Consent...... 7 Committees...... 7

ARTICLE III OFFICERS...... 8 Enumeration...... 8 Election...... 8 Qualification...... 8 Tenure...... 8 Removal...... 9 Chairman of the Board...... 9 President...... 9 Chief Executive Officer...... 9 Vice President and Assistant Vice President...... 9 Financial Officers...... 10 Clerk and Assistant Clerks...... 10 Secretary and Assistant Secretaries...... 11 Other Powers and Duties...... 11

Index (Cont'd)

ARTICLE IV CAPITAL STOCK...... 11 Certificates of Stock...... 11 Transfers...... 12 Record Date...... 12 Replacement of Certificates...... 13 Issue of Capital Stock...... 13 ARTICLE V MISCELLANEOUS PROVISIONS...... 13 Fiscal Year...... 13 Seal...... 13 Execution of Instruments...... 13 Voting of Securities...... 14 Corporate Records...... 14 Evidence of Authority...... 14 Articles of Organization...... 14 Transactions with Interested Parties...... 14 Indemnification...... 15 Amendments...... 16 1987 Massachusetts Control Share Acquisition Act...... 16

EG&G, INC. BY-LAWS

As of December 17, 1997

ARTICLE I.

Stockholders.

1. Place of Meetings. All meetings of stockholders shall be held within Massachusetts unless the Articles of Organization permit the holding of stockholder meetings outside Massachusetts, in which event such meetings may be held either within or without Massachusetts. Meetings of stockholders shall be held at the principal office of the corporation unless a different place is fixed by the Directors or the Chairman of the Board and stated in the notice of the meeting. (Amended by Directors 4/20/78 and 3/23/83)

2. Annual Meetings. The annual meeting of stockholders shall be held on the fourth Tuesday of April in each year (or if that be a legal holiday in the place where the meeting is to be held, on the next succeeding full business day) at 10:30 o'clock A.M., unless a different hour is fixed by the Directors or the Chairman of the Board and stated in the notice of the meeting. The purposes for which the annual meeting is to be held, in addition to those prescribed by law, by the Articles of Organization or by these By-Laws, may be specified by the Directors or the Chairman of the Board. If no annual meeting is held in accordance with the foregoing provisions, a special meeting may be held in lieu thereof and any action taken at such meeting shall have the same effect as if taken at the annual meeting. (Amended by Directors, 4/20/78; Amended by Stockholders, 4/21/83)

3. Special Meetings. Special meetings of stockholders may be called by the President or by the Directors. In addition, upon written application of one or more stockholders who are entitled to vote and who hold at least the Required Percentage (as defined below) of the capital stock entitled to vote at the meeting (the "Voting Stock"), special meetings shall be called by the Clerk, or in case of the death, absence, incapacity or refusal of the Clerk, by any other officer. For purposes of this Section 3, the "Required Percentage" shall be 40% or such lesser percentage as shall constitute the maximum percentage permitted by law for this purpose. Any request for a call of special meeting of stockholders (a "Call") by the holders of the Required Percentage of the Voting Stock shall be governed by and

4 subject to the following:

(a) Any stockholder of record seeking to solicit requests for a Call pursuant to this Section 3 shall so notify the corporation in writing to the Clerk of the corporation, and such written notification shall set forth the reason or reasons for the Call and the purpose or purposes of such special meeting.

(b) No solicitation of stockholder requests for a Call (a "Call Solicitation") may be commenced (I) before the Call Request Record Date, as defined in paragraph (c) of this Section 3, or (ii) during the period of 90 days following the most recent meeting of the stockholders of the corporation.

(c) In order that the corporation may determine the stockholders entitled to request a Call, the Board of Directors of the corporation shall fix a record date (the "Call Request Record Date"). Any stockholder of record seeking to solicit stockholder requests for a Call shall, with delivery to the corporation of the written information specified in paragraph (a), request in writing that the Board of Directors fix the Call Request Record Date. The Board of Directors shall, within 10 days after the date on which such request is received, adopt a resolution fixing the Call Request Record Date, and such Call Request Record Date shall be not more than 10 days after the date upon which such resolution is adopted by the Board of Directors.

(d) All requests for a Call and revocations thereof shall be delivered to the corporation no later than the 30th day (the "Delivery Date") after the Call Request Record Date.

(e) Any stockholder may revoke a prior request for a Call or opposition to a Call by an instrument in writing delivered prior to the Delivery Date.

(f) Promptly after the Delivery Date, requests for a Call and revocations thereof shall be counted and verified by an independent party selected by the corporation.

(g) If, in response to any Call Solicitation, the holders of record of the Required Percentage of the Voting Stock as of the Call Request Record Date submit valid and unrevoked requests for a Call no later than the Delivery Date, the Board of Directors of the corporation shall fix a record date and a meeting date for the special meeting, PROVIDED that the date to be fixed for such meeting shall be no earlier than 60 days or later than 90 days after the Delivery Date, and PROVIDED FURTHER that the Board of Directors shall not be obligated to fix a meeting date or to

5 hold any meeting of stockholders within 60 days of the next scheduled meeting of the stockholders of the corporation.

(h) In the absence of a quorum at any special meeting called pursuant to a Call Solicitation, such special meeting may be postponed or adjourned from time to time only by the officer of the corporation entitled to preside at such meeting.

(i) If a Call Solicitation does not receive the support of the holders of record of the Required Percentage of the Voting Stock, no subsequent Call may be made or solicited by any stockholder during a period of 90 days after the Delivery Date. (Amended by Directors, 4/20/78, 3/23/83, 4/24/90 and 4/23/91)

4. Notice of Meetings. A written notice of every meeting of stock-holders, stating the place, date and hour thereof, and the purposes for which the meeting is to be held, shall be given by the Clerk or other person calling the meeting at least seven days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, by law, by the Articles of Organization or by these By-Laws, is entitled to such notice, by leaving such notice with him or at his residence or usual place of business, or by mailing it postage prepaid and addressed to him at his address as it appears upon the books of the corporation. Whenever any notice is required to be given to a stockholder by law, by the Articles of Organization or by these By-Laws, no such notice need be given if a written waiver of notice, executed before or after the meeting by the stockholder or his attorney thereunto duly authorized, is filed with the records of the meeting.

5. Quorum. Unless the Articles of Organization otherwise provide, a majority in interest of all stock issued, outstanding and entitled to vote on any matter shall constitute a quorum with respect to that matter, except that if two or more classes of stock are outstanding and entitled to vote as separate classes, then in the case of each such class a quorum shall consist of a majority in interest of the stock of that class issued, outstanding and entitled to vote.

6. Adjournments. Except as provided in Section 3 of this Article I, any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these By-Laws by the stockholders present or represented at the meeting, although less than a quorum, or by any officer entitled to preside or to act as clerk of such meeting, if no stockholder is present. It shall not be necessary to notify any stockholder of any adjournment. Any business which could have been transacted at any meeting of the stockholders as originally called may be transacted at any adjournment thereof. (Amended by Directors, 4/24/90)

7. Voting and Proxies. Each stockholder shall have one vote for each share of stock entitled to vote held by him of record according to the records of the corporation and a proportionate vote for a fractional share so held by him, unless otherwise provided by the Articles of Organization. Stockholders may vote either in person or by written proxy dated not more than six months before the meeting named therein. Proxies shall be filed with the clerk of the meeting, or of any adjournment thereof, before being voted. Except as otherwise limited therein, proxies shall entitle the persons named therein to vote at any adjournment of such meeting, but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them, unless at or prior to exercise of the proxy the corporation receives a specific written notice to the contrary from any one of them. A proxy purported to be executed by or on behalf of a stockholder shall be deemed valid unless challenged at or prior to its exercise.

8. Action at Meeting. When a quorum is present, the vote of a majority of the stock present or represented and voting on a matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, the vote of a majority of the stock of that class present or represented and voting on a matter), except where a larger vote is required by law, the Articles of Organization or these By-Laws, shall decide any matter to be voted on by the stockholders. Any election by stockholders shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election. No ballot shall be required for such election unless requested by a stockholder present or represented at the meeting and entitled to vote in the election. The Corporation shall not directly or indirectly vote any share of its stock. Nothing in this Section shall be construed as limiting the right of this Corporation to vote shares of stock held directly or indirectly by it in a fiduciary capacity. In the event that a vote of stockholders of this Corporation is required to approve an agreement to consolidate this Corporation with another corporation to form a new corporation, or to merge this Corporation into another corporation, or to merge or consolidate another corporation into this Corporation, the vote of two-thirds of each class of stock of this Corporation outstanding and entitled to vote on the question, voting separately, shall be necessary for the approval of such agreement. (Amended by Directors, 5/24/89)

9. Action without Meeting. Any action to be taken by stockholders may be taken without a meeting if all stockholders entitled to vote on the matter consent to the action by a writing filed with the records of the meetings of

4 7 stockholders. Such consent shall be treated for all purposes as a vote at a meeting.

ARTICLE II.

Directors.

1. Powers. The business of the corporation shall be managed by a Board of Directors who may exercise all the powers of the corporation except as otherwise provided by law, by the Articles of Organization or by these By-Laws. In the event of a vacancy in the Board of Directors, the remaining Directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

2. Number and Election. The number of Directors which shall constitute the whole Board of Directors shall be such number, not less than three nor more than thirteen, as shall be fixed by vote of the stockholders or the Board of Directors. During the time periods specified in this Section 2, the Board of Directors shall be divided into three classes in respect of term of office, each class to contain, as nearly as possible, one-third of the whole number of the Board. Of the Board of Directors elected at the Annual Meeting of Stockholders in 1975, the members of one class shall serve until the Annual Meeting of Stockholders held two years following their election, and the members of the third class shall serve until the Annual Meeting of Stockholders held three years following their election; provided, however, that in each case Directors shall serve until their successors shall be elected and qualified. At each Annual Meeting of Stockholders, commencing with the Annual Meeting in 1976 through and including the Annual Meeting in 1995, the successors of the Directors of the class whose terms expire in that year shall be elected to serve until the Annual Meeting of Stockholders held three years next following (and until their successors shall be duly elected and qualified), so that the term of one class of Directors shall expire in each year. At each Annual Meeting of Stockholders, commencing with the Annual Meeting in 1996, the successors of the Directors whose terms expire in that year shall be elected to serve until the Annual Meeting of Stockholders held in the following year (and until their successors shall be duly elected and qualified), so that, upon the expiration in 1998 of the terms of the Directors elected at the Annual Meeting in 1995, all Directors shall be elected to hold office for a one-year term (and until their successors shall be duly elected and qualified). (Amended by Directors, 5/16/74 and 1/25/95)

3. Vacancies. A vacancy in the Board of Directors, however occurring,

8 unless and until filled by the stockholders, may be filled by the Directors. (Amended by Directors, 5/16/74 and 1/25/95)

4. Change in Number of the Board. The number of the Board of Directors may be increased or decreased and one or more additional Directors elected at any special meeting of the stockholders or by a vote of a majority of the Directors then in office. For so long as the Directors are divided into classes in accordance with the terms of Section 2 of this Article II, Directors who are elected to fill vacancies, whether or not created by an enlargement of the Board, shall be apportioned among the classes so as to make all classes as nearly equal in number as possible. Directors who are elected to fill vacancies, whether or not created by an enlargement of the Board, shall serve until the expiration of the term of his or her predecessor and until his or her successor is duly elected and qualified. No decrease in the number of the Board of Directors shall shorten the term of any incumbent Directors. (Amended by Directors, 5/16/74 and 1/25/95)

5. Resignation and Retirement. Any Director may resign by delivering his written resignation to the corporation at its principal office or to the Chairman of the Board, the President, Clerk or Secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some event. Except in special circumstances specifically approved by the Board, a Director shall be deemed to have retired at the Annual Meeting of Stockholders following the date the Director shall have attained the age of seventy. (Amended by Directors, 5/16/74, 4/20/78 and 12/17/97)

6. Removal. A Director may be removed from office (a) with or without cause by a vote of two-thirds of the stock outstanding and entitled to vote in the election of Directors, provided that the Directors of a class elected by a particular class of stockholders may be removed only by the vote of two-thirds of the shares of such class which are outstanding and entitled to vote or (b) for cause by vote of a majority of the Directors then in office. A Director may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. (Amended by Stockholders, 4/16/74)

7. Meetings. Regular meetings of the Directors may be held without call or notice at such places, within or without Massachusetts, and at such times as the Directors may from time to time determine, provided that any Director who is absent when such determination is made shall be given notice of the determination. A regular meeting of the Directors may be held without a call or notice at the same place as the annual meeting of stockholders, or the special meeting held in lieu thereof, following such meeting of stockholders.

Special meetings of the Directors may be held at any time and place, within or without Massachusetts, designated in a call by the Chairman of the Board, the President, Treasurer or two or more Directors. (Amended by Directors, 4/20/78 and 3/23/83)

8. Notice of Special Meetings. Notice of all special meetings of the Directors shall be given to each Director by the Secretary, or if there be no Secretary, by the Clerk, or Assistant Clerk, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the Directors calling the meeting. Notice shall be given to each Director in person or by telephone or by telegram sent to his business or home address at least forty-eight hours in advance of the meeting, or by written notice mailed to his business or home address at least seventy-two hours in advance of the meeting. Notice need not be given to any Director if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Director who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice of a Directors' meeting need not specify the purposes of the meeting.

9. Quorum. At any meeting of the Directors, a majority of the Directors then in office shall constitute a quorum. Less than a quorum may adjourn any meeting from time to time without further notice.

10. Action at Meeting. At any meeting of the Directors at which a quorum is present, the vote of a majority of those present, unless a different vote is specified by law, by the Articles of Organization or by these By-Laws, shall be sufficient to take any action.

11. Action by Consent. Any action by the Directors may be taken without a meeting if a written consent thereto is signed by all the Directors and filed with the records of the Directors' meetings. Such consent shall be treated as a vote of the Directors for all purposes.

12. Committees. The Directors may, by vote of a majority of the Directors then in office, elect from their number an executive committee or other committees and may by like vote delegate thereto some or all of their powers except those which by law, the Articles of Organization or these By-Laws they are prohibited from delegating. Except as the Directors may otherwise determine, any such committee may make rules for the conduct of its business, but unless otherwise provided by the Directors or in such rules, its business shall be conducted as nearly as may be in the same manner as is provided by these By-Laws for the Directors.

ARTICLE III.

Officers.

1. Enumeration. The officers of the corporation shall consist of a Chairman of the Board, President, one or more Vice Presidents, a Treasurer, a Clerk and such other officers as the Directors may determine. Such other officers may include, without limiting the foregoing, a Controller and a Secretary or one or more Assistant Vice Presidents, Assistant Controllers, Assistant Treasurers, Assistant Clerks and Assistant Secretaries. (Amended by Directors, 3/25/81 and 3/23/83)

2. Election. The Chairman of the Board, President, Treasurer and Clerk shall be elected annually by the Directors at their first meeting following the annual meeting of stockholders. Other officers may be appointed by the Directors at such meeting or at any other meeting. The Chief Executive Officer shall also have the power to appoint Assistant Vice Presidents, Assistant Treasurers, Assistant Controllers, Assistant Clerks and Assistant Secretaries. (Amended by Directors, 3/25/81 and 3/23/83)

3. Qualification. The Chairman of the Board and the President shall be Directors. No officer need be a stockholder. Any two or more officers may be held by the same person, provided that the Chairman of the Board and Clerk shall not be the same person, nor shall the President and Clerk be the same person. The Clerk shall be a resident of Massachusetts unless the corporation has a resident agent appointed for the purpose of service of process. Any officer may be required by the Directors to give bond for the faithful performance of his duties to the corporation in such amount and with such sureties as the Directors may determine. (Amended by Directors, 4/20/78 and 3/23/83)

4. Tenure. Except as otherwise provided by law, by the Articles of Organization or by these By-Laws, the Chairman of the Board, President, Treasurer and Clerk shall hold office until the first meeting of the Directors following the annual meeting of stockholders and thereafter until his successor is chose and qualified; and all other officers appointed by the Directors or by the Chief Executive Officer shall hold office until the first meeting of the Directors following the annual meeting of stockholders, unless a different term is specified in choosing or appointing them. Any officer may resign by delivering his written resignation to the corporation at its principal office or to the Chairman of the Board, President, Clerk or Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. (Amended by Directors, 3/25/81 and 3/23/83)

5. Removal. The Directors may remove any officer with or without cause by a vote or a majority of the entire number of Directors then in office, provided, that an officer may be removed for cause only after reasonable notice and opportunity to be heard by the Board of Directors prior to action thereon.

6. Chairman of the Board. The Directors shall appoint a Chairman of the Board. When present he shall preside at all meetings of the Directors and stockholders and shall have such other powers and duties as are usually vested in the office of Chairman of the Board as well as such other powers and duties as may be vested in him by the Board of Directors. (Amended by Directors, 4/20/78 and 3/23/83)

7. President. The President shall have general supervision and control of all or a substantial portion of the operations of the business, as well as such other power and duties as may be vested in the President by the Board of Directors, or the Chief Executive Officer if other than the President. In the absence of the Chairman of the Board, the President shall preside, when present, at all meetings of the Directors and stockholders. In the absence or disability of the Chief Executive Officer, if other than the President, the President shall perform the duties and exercise the powers of the Chief Executive Officer. (Amended by Directors, 4/20/78, 3/23/83 and 4/25/89)

8. Chief Executive Officer. The Board of Directors, shall appoint, as the Chief Executive Officer of the Company, the President, the Chairman of the Board, or any other officer of the corporation as the Board of Directors may deem appropriate. The Chief Executive Officer shall have the ultimate supervision and control of the operations of the business. (Amended by Directors, 3/23/83)

9. Vice President and Assistant Vice President. Unless otherwise specified by the Board of Directors, the Vice President, or if there shall be more than one, the Vice Presidents in the order determined by the Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties and shall have such other powers as the Directors or the Chief Executive Officer may from time to time prescribe. (Amended by Directors, 3/25/81, 3/23/83 and 11/28/84)

An Assistant Vice President shall have such duties and powers as the Directors, the Chief Executive Officer may from time to time prescribe. (Amended by Directors, 3/25/81 and 3/23/83)

10. Financial Officers. In addition to the election of a Treasurer, the Directors may appoint one or more additional financial officers. The Directors may designate one of the officers as the chief financial officer who, subject to the direction of the Directors and the Chief Executive Officer, shall have overall supervision and control of the internal and external financial affairs of the corporation including financial reporting, and the management of the assets of the corporation as well as such other powers and duties as may be vested in him by the Directors or the Chief Executive Officer. He shall have responsibility, custody and control of all funds, securities and valuable documents of the corporation except as the Directors may otherwise provide. (Amended by Directors, 3/23/83)

The Treasurer shall, subject to the direction of the Directors, the Chief Executive Officer and the chief financial officer, if there be one, have general charge of managing the assets of the corporation. He shall perform such other duties as may be vested in him by the Directors, the Chief Executive Officer, or the chief financial officer. In the event the Directors have not designated a chief financial officer, or, if one is designated, in his absence or disability, the Treasurer shall have custody of all funds, securities and valuable documents of the corporation except as the Directors may otherwise provide. (Amended by Directors, 3/23/83)

The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Directors, shall in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe. (Amended by Directors, 3/25/81)

The Assistant Controller, or if there shall be more than one, the Assistant Controllers in the order determined by the Directors, shall, in the absence or disability of the Controller, perform the duties and exercise the powers of the Controller and shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe. (Amended by Directors, 3/25/81)

11. Clerk and Assistant Clerks. The Clerk shall keep a record of the meetings of stockholders. Unless a Transfer Agent is appointed, the clerk shall keep or cause to be kept in Massachusetts, at the principal office of the corporation or at his office, the stock and transfer records of the corporation, in which are contained the names of all stockholders and the record address, and the amount of stock held by each.

If there is no Secretary or Assistant Secretary, the Clerk shall keep the record of the meetings of the Directors.

The Assistant Clerk, or if there shall be more than one, the Assistant Clerks in the order determined by the Directors, shall, in the absence or disability of the Clerk, perform the duties and exercise the powers of the Clerk and shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe.

12. Secretary and Assistant Secretaries. If a Secretary is appointed, he shall attend all meetings of the Directors and shall keep a record of the meetings of the Directors. He shall, when required, notify the Directors of their meetings, and shall have such other powers and shall perform such other duties as the Directors may from time to time prescribe.

The Assistant Secretary, or if there shall be more than one, the Assistant Secretaries in the order determined by the Directors, shall in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and shall have such other powers as the Directors may from time to time prescribe.

13. Other Powers and Duties. Each officer shall, subject to these By-Laws, have in addition to the duties and powers specifically set forth in these By-Laws, such duties and powers as are customarily incident to his office, and such duties and powers as the Directors may from time to time designate.

ARTICLE IV.

Capital Stock.

1. Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the corporation in such form as may be prescribed from time to time by the Directors. The certificate shall be signed by the Chairman of the Board of Directors, the President or a Vice President and by the Treasurer or any Assistant Treasurer, but when a certificate is countersigned by a transfer agent or a registrar, other than a Director, officer of employee of the corporation, such signatures may be facsimiles. In case any officer who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the time of its issue. (Amended by Directors, 4/20/78 and 1/22/92)

Every certificate for shares of stock which are subject to any restriction on transfer pursuant to the Articles of Organization, the By-Laws or any agreement to which the corporation is a party, shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restrictions and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge. Every certificate issued when the corporation is authorized to issue more than one class or series of stock shall set forth on its face or back either the full text of the preferences, voting powers, qualifications and special and relative rights of the shares of each class and series authorized to be issued or a statement of the existence of such preferences, powers, qualifications and rights and a statement that the corporation will furnish a copy thereof to the holder of such certificate upon written request and without charge.

2. Transfers. Subject to the restrictions, if any, stated or noted on the stock certificates, shares of stock may be transferred on the books of the corporation by the surrender to the corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with necessary transfer stamps affixed, and with such proof of the authenticity of signature as the corporation or its transfer agent may reasonably require. Except as may be otherwise required by law, by the Articles of Organization or by these By-Laws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer pledge or other disposition of such stock,

15 until the shares have been transferred on the books of the corporation in accordance with the requirements of these By-Laws.

It shall be the duty of each stockholder to notify the corporation of his post office address and of his taxpayer identification number.

3. Record Date. The Directors may fix in advance a time not more than sixty days preceding the date of any meeting of stockholders or the date for the payment of any dividend or the making of any distribution to stockholders or the last day on which the consent or dissent of stockholders may be effectively expressed for any purpose, as the record date for determining the stockholders having the right to notice of and to vote at such meeting, and any adjournment thereof, or the right to receive such dividend or distribution or the right to give such consent or dissent. In such case only stockholders of record on such record date shall have such right, notwithstanding any transfer of stock on the books of the corporation after the record date. Without fixing such record date the Directors may for any of such purposes close the transfer books for all or any part of such period.

4. Replacement of Certificates. In case of the alleged loss or destruction or the mutilation of a certificate of stock, a duplicate certificate may be issued in place thereof, upon such terms as the Directors may prescribe, including the presentation of reasonable evidence of such loss, destruction or mutilation and the giving of such indemnity as the Directors may require for the protection of the corporation or any transfer agent or registrar.

5. Issue of Capital Stock. Unless otherwise voted by the stockholders, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of the capital stock of the corporation held in its treasury may be issued or disposed of by vote of the Directors, in such manner, for such consideration and on such terms as the Directors may determine.

ARTICLE V

Miscellaneous Provisions.

1. Fiscal Year. The fiscal year of the corporation shall end on the 31st day of December in each year in which such date falls on Sunday, or the Sunday next preceding or following the 31st day of December in each year, which ever Sunday is nearest to such 31st day of December.

2. Seal. The seal of the corporation shall, subject to alteration by the Directors, bear its name, the word "Massachusetts", and the year of its incorporation.

3. Execution of Instruments. All deeds, leases, transfers, contracts, bonds, notes and other obligations authorized to be executed by an officer of the corporation in its behalf shall be signed by the Chairman of the Board and Chief Executive Officer or the Treasurer except as the Directors may generally or in particular cases otherwise determine. (Amended by Directors, 4/20/78)

4. Voting of Securities. Except as the Directors may otherwise designate, the Chairman of the Board, the President the chief financial officer, Treasurer or clerk may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact for, this corporation (with or without power of substitution) at any meeting of stockholders or shareholders of any other corporation or organization, the securities of which may be held by this corporation. (Amended by Directors, 4/20/78)

5. Corporate Records. The original, or attested copies, of the Articles of Organization, By-Laws and records of all meetings of the incorporators and stockholders, and the stock and transfer records, which shall contain the names of all stockholders and the record address and the amount of stock held by each, shall be kept in Massachusetts at the principal office of the corporation, or at an office of its transfer agent or of the Clerk. Said copies and records need not all be kept in the same office. They shall be available at all reasonable times to the inspection of any stockholder for any proper purpose, but not to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation.

6. Evidence of Authority. A certificate by the Clerk or Secretary, or an Assistant Clerk or Assistant Secretary, or a temporary Clerk or temporary Secretary, as to any action taken by the stockholders, Directors, Executive Committee or any officer or representative of the corporation shall as to all persons who rely thereon in good faith be conclusive evidence of such action.

7. Articles of Organization. All references in these By-Laws to the Articles of Organization shall be deemed to refer to the Articles of Organization of the corporation, as amended and in effect from time to time.

8. Transactions with Interested Parties. In the absence of fraud, no contract or other transaction between this corporation and any other corporation or any firm, association, partnership or person shall be affected or invalidated by the fact that any Director or officer of this corporation is pecuniarily or otherwise interested in or is a director, member or officer of such other corporation or of such firm, association or partnership or is a party to or is pecuniarily or otherwise interested in such contract or other transaction or is in any way connected with any person or persons, firm, association, partnership or corporation pecuniarily or otherwise interested therein; provided that the fact that he individually or as a director, member or officer of such corporation, firm, association or partnership is such a party or is so interested shall be disclosed to or shall have been known by the Board of Directors or a majority of the Board of Directors at which action upon any such contract or transaction shall be taken; any Director may be counted in determining the existence of a quorum and may vote at any meeting of the Board of Directors of this corporation for the purpose of authorizing any such contract or transaction with like force and effect as if he were not so interested, or were not a director, member or officer of such other corporation, firm, association or partnership, provided that any vote with respect to such contract or transaction must be adopted by a majority of the Directors then in office who have no interest in such contract or transaction.

9. Indemnification. The corporation shall indemnify and hold harmless each person, who is or shall have been an officer or Director of the corporation, from and against any and all claims, liabilities and expenses to which he may be or become subject by reason of his being or having been an officer or a Director of the corporation or by reason of his alleged acts or omissions as an officer or Director of the corporation, and shall indemnify and reimburse each such officer and Director against and for any and all legal and other expenses reasonably incurred by him in connection with any such claims and liabilities, actual or threatened, whether or not at or prior to the time when so indemnified, held harmless and reimbursed, he has ceased to be an officer or a Director of the corporation.

The corporation shall similarly indemnify and hold harmless persons who serve and shall have served at its request as directors or officers of another organization in which the corporation directly or indirectly owns shares or of which it is a creditor. Such indemnification may include payment by the corporation of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the

18 person indemnified to repay such payment if he shall be adjudicated to be not entitled to indemnification under this section.

No indemnification shall be provided for any person with respect to any matter as to which such person shall have been finally adjudicated in any proceeding, not to have acted in good faith in the reasonable belief that his action was in the best interest of the corporation; nor shall indemnification be provided where the corporation is required or has undertaken to submit to a court of appropriate jurisdiction the question of whether or not indemnification by it is against public policy and it has been finally adjudicated that such indemnification is against public policy; provided, however, that, prior to such final adjudication, the corporation may compromise and settle any such claims and liabilities and pay such expenses, if such settlement or payment, or both, appears, in the judgment of a majority of those members of the Board of Directors who are not directly involved in such matters, to be for the best interest of the corporation as evidenced by a resolution to that effect adopted after receipt by the corporation of a written opinion of counsel for the corporation that, based on the facts available to such counsel, such person has not acted in a manner that would prohibit indemnification.

The foregoing right of indemnification shall not be exclusive of any other rights to which any such person is entitled under any agreement, vote of stockholders, statute, or as a matter of law, or otherwise. The provisions of this section are separable, and if any provision or portion hereof shall for any reason be held inapplicable, illegal or ineffective, this shall not affect any other right of indemnification existing under this section. As used herein, the term "Person" includes his heirs, executors, administrators or other legal representatives."

10. Amendments. The stockholders may by a vote of two-thirds of the stock of the corporation, outstanding and entitled to vote, make, amend or repeal the By-Laws of the corporation in whole or in part at any meeting of the stockholders provided that notice of the substance of the proposed action is stated in the notice of meeting. The Directors may make, amend or repeal the By-Laws of the corporation in whole or in part at any meeting of the Directors by vote of a majority of the Directors then in office, except that the provisions thereof fixing the place of the meetings of stockholders, fixing the date of the annual meeting of stockholders, designating the number necessary to constitute a quorum at meetings of the stockholders, governing procedure with respect to the removal of Directors, affording indemnification to Directors or officers and governing amendment of these By-Laws, may be made, amended, or repealed only by the stockholders. No change in the date of the annual meeting may be made within sixty days before the date fixed in these By-Laws, and in case of any change of such date, notice thereof shall

19 be given to each stockholder in person or by letter mailed to his last known post office address at least twenty days before the new date fixed for such meeting.

11. 1987 Massachusetts Control Share Acquisition Act. The 1987 Massachusetts Control Share Acquisition Act, Chapter 110D of the Massachusetts General Laws, as it may be amended from time to time, shall not apply to the corporation. (Amended by Directors, 9/23/87 and 1/25/95) 17 1

EXHIBIT 10.2

As Amended and Restated By EG&G Board of Directors on December 17, 1997

EG&G, INC.

EVA INCENTIVE PLAN

ARTICLE I

STATEMENT OF PURPOSE

1.1 The purpose of the EVA Incentive Plan (the "Plan") is to provide a system of incentive compensation which will promote the maximization of Economic Value Added ("EVA") over the long term. In order to align management incentives with shareholder interests, incentive compensation will reward the creation of value. This Plan will tie incentive compensation to EVA and thereby reward management for creating value.

1.2 EVA is the performance measure of value creation for EG&G, Inc. (the "Company"). Managers create value when they employ capital in an endeavor that generates a return that exceeds the cost of the capital employed. Managers lose value when they employ capital in an endeavor that generates a return that is less than the cost of capital employed. EVA measures the total value created (or lost) by management by subtracting the cost of capital employed from the operating profit after tax generated by an EVA Business Unit, as hereinafter defined.

ARTICLE II

DEFINITIONS

Unless the context provides a different meaning, the following terms shall have the following meanings:

"Act" means the Securities Exchange Act of 1934, as amended.

"Actual EVA" means, with respect to an EVA Business Unit for a fiscal year, the EVA of such EVA Business Unit for such year as determined by the Chief Financial Officer with the concurrence of the Committee.

"Code" means the Internal Revenue Code of 1986, as amended.

"Capital" means, with respect to an EVA Business Unit for a fiscal year, the investment made in such EVA Business Unit, as determined by the Chief Financial Officer with the concurrence of the Committee for such year. Each component of Capital will be measured by computing an average balance based on the ending monthly balance for the twelve months of a fiscal year.

"Capital Charge" means, with respect to an EVA Business Unit for a fiscal year, the deemed opportunity cost of employing Capital in the business of such EVA Business Unit for such year. The Capital Charge is computed as follows:

Capital Charge ' Capital x Cost of Capital

"Cause" shall have the meaning set forth in the personnel policies for the EVA Business Unit by which a Participant is employed at the time of termination. Notwithstanding the foregoing, in the event of a Change of Control, "Cause" shall mean:

(i) misappropriating any funds or property of the EVA Business Unit;

(ii) unreasonable refusal to perform the duties assigned to the Participant;

(iii) conviction of a felony;

(iv) continuous conduct bringing notoriety to the EVA Business Unit and having an adverse effect on the name or public image of the EVA Business Unit; or

(v) continued failure by the Participant to observe any provisions of any written employment contract with the EVA Business Unit after being informed of such breach.

"Change in Control" means that any of the following events shall occur or be deemed to have occurred:

(i) any "person", as such term is used in Section 13(d) and 14(d) of the Act (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same

proportion as their ownership of stock in the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities;

(ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were either directors at the beginning of the period or whose election or whose nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors;

(iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or

(iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.

"Chief Executive Officer" means the Chief Executive Officer of the Company as designated by the Board of Directors of the Company from time to time.

"Chief Financial Officer" means the Chief Financial Officer of the Company as designated by the Board of Directors of the Company from time to time.

"Committee" means the Compensation and Stock Option Committee of the Board of Directors of the Company or such other committee as such Board may designate from time to time. "Company" means EG&G, Inc., a Massachusetts corporation, and its successors and assigns, including any corporation with which the Company is merged or consolidated.

"Cost of Capital" means for a fiscal year the weighted average of the after-tax cost of debt and the cost of equity for such year, as determined by the Chief Financial Officer with the concurrence of the Committee.

"Declared Incentive" means, with respect to a Participant for a fiscal year, the product of the Initial Declared Incentive multiplied by the Individual Performance Factor, if any.

"EVA" means, with respect to an EVA Business Unit for a fiscal year, the NOPAT of such EVA Business Unit for such year minus the Capital Charge of such EVA Business Unit for such year, all as determined by the Chief Financial Officer with the concurrence of the Committee. EVA may be positive or negative.

"EVA Business Unit" means a business unit or group of business units, including the Company, that are uniquely identified for the purpose of calculating EVA.

"Expected Improvement in EVA" means the constant EVA improvement that is added to shift the target up each year as determined by the Company from time to time. This is determined by the expected growth in EVA per year with respect to an EVA Business Unit.

"Executive Officer" means a corporate officer of the Company elected by the Board of Directors of the Company.

"First Negative Year" means with respect to Highly-Compensated and Non-Highly Compensated Employees, the first year in an unbroken series of one or more such consecutive years in which both the Reserve Balance and the Declared Incentive are negative. If a year or series of years in which both the Reserve Balance and the Declared Incentive are negative is followed by a year or years in which either both the Reserve Balance and the Declared Incentive are positive or the Reserve Balance is negative and the Declared Incentive is positive, a new "First Negative Year" shall be deemed to have occurred the next time there is a year in which both the Reserve Balance and the Declared Incentive are negative.

"Incentive Multiple" means, with respect to an EVA Business Unit for a fiscal year, [(the Actual EVA minus the Target EVA) divided by the Leverage Factor] plus 1.0.

"Incentive Reserve For Highly-Compensated Employees" means, with respect to a Participant who is either an Executive Officer of the Company, a general manager of an EVA Business Unit, or a highly compensated employee as determined from time to time by the Committee, a bookkeeping record of an account to which any portion of the Declared Incentive remaining after current year distribution to the Participant is credited, or debited as the case may be, from time to time under the Plan, and from which distribution amounts not covered by the Declared Incentive are debited.

"Individual Performance Factor" means, with respect to a Participant, the addition or subtraction of up to 25% of the Declared Incentive adjusted to reflect individual job performance for the fiscal year. The Individual Performance Factor may be utilized at the discretion of the manager of an EVA Business Unit provided that the total accrued incentive for the EVA Business Unit does not increase or decrease as a result of the utilization of the Individual Performance Factor.

"Initial Declared Incentive" means, with respect to a Participant for a fiscal year, the product of the Target Incentive multiplied by the Incentive Multiple.

"Leverage Factor" means, with respect to an EVA Business Unit for a fiscal year, the negative (positive) deviation from Target EVA necessary before a zero (two times) Target Incentive is earned as determined by the Committee from time to time.

"Incentive Reserve For Non-Highly Compensated Employees" means, with respect to employees not subject to the Incentive Reserve For Highly-Compensated Employees, a bookkeeping record of an account to which only negative Declared Incentives are credited from time to time under the Plan and against which any positive incentive payments are offset in determining any current distribution.

"Reserve Balance For Non-Highly Compensated Employees" means, with respect to a Participant subject to the Incentive Reserve For Non-Highly Compensated Employees, a bookkeeping record of the net balance following the end of each fiscal year of the negative amounts , if any, credited against such Participant's Incentive Reserve For Non-Highly Compensated Employees as offset by any positive Declared Incentives. The Reserve Balance For Non-Highly Compensated Employees shall always be zero or a number less than zero.

"NOPAT " means, with respect to an EVA Business Unit for a fiscal year, the net operating profit after taxes for such fiscal year, as determined by the Chief Financial Officer with the concurrence of the Committee.

"Participant" means, for a fiscal year, each salaried employee who is designated as a Participant, in the case of Executive Officers of the Company, by the Committee, and in all other cases, by the Chief Executive Officer or his designee.

"Plan" means this EG&G, Inc. EVA Incentive Plan, as amended from time to time.

"Reserve Balance For Highly-Compensated Employees" means, with respect to a Participant subject to the Incentive Reserve For Highly-Compensated Employees, a bookkeeping record of the net balance of the amounts credited to and debited against such Participant's Incentive Reserve For Highly-Compensated Employees following the end of each fiscal year. For a Participant's first year of participation in the Plan, such Participant's Reserve Balance For Highly-Compensated Employees shall initially be equal to zero.

"Target EVA" means, with respect to an EVA Business Unit for the initial year that such EVA Business Unit is subject to the Plan, the level of EVA as determined by the Company.

After the initial year that an EVA Business Unit is subject to the Plan, the Target EVA for such EVA Business Unit for each succeeding fiscal year shall be revised according to the following formula:

Target EVA = [(Prior Fiscal Year's Actual EVA + Prior Fiscal Year's Target EVA) divided by 2] + Expected Improvement in EVA

"Target Incentive" means, with respect to a Participant for a fiscal year, the Target Incentive for such Participant for such fiscal year as determined by the Committee in the case of Participants who are Executive Officers of the Company at the time of determination, and, in all other cases, by the Chief Executive Officer or his designee.

ARTICLE III

DETERMINATIONS AND DISTRIBUTION OF INCENTIVES

3.1 DETERMINATIONS. For each fiscal year of the Company beginning with the 1995 fiscal year, the Company shall determine with respect to such fiscal year:

(1) the persons who will be Participants; (2) the EVA Business Unit or Units for each such Participant and the weighting between or among said Units; (3) the Target Incentive for each Participant; (4) the minimum and maximum ranges for the Individual Performance Factors; and (5) the Target EVA, Leverage Factor, and Expected Improvement in EVA for each EVA Business Unit.

As soon as practicable following the close of such fiscal year, the Company shall determine the following with respect to such fiscal year for each Participant:

(1) the Actual EVA for each EVA Business Unit; (2) the Incentive Multiple by EVA Business Unit; (3) the Individual Performance Factors, if any; (4) the Initial Declared Incentive; and (5) the Declared Incentive.

3.2 DISTRIBUTION.

A. As soon as practicable following the close of each fiscal year of the Company, but no later than March 15 following such close, the Company, with respect to those Participants subject to the Incentive Reserve For Highly-Compensated Employees, shall:

(1) Pay out the prescribed distribution first, to the extent possible, from the Declared Incentive, and then from the Reserve Balance For Highly-Compensated Employees;

(2) Add the remaining portion, if any, of the Declared Incentive for such fiscal year (including any negative incentives) to the Incentive Reserve For Highly-Compensated Employees; and

(3) Carry the remaining Reserve Balance For Highly-Compensated Employees (positive or negative) forward to the next fiscal year.

The prescribed distribution ratios for the Incentive Reserve For Highly-Compensated Employees for a Participant are:

First year of the Plan 80% Second year of the Plan 67% Third year of the Plan 57% Fourth and subsequent years of the Plan 50%

All distributions from the Incentive Reserve For Highly-Compensated Employees shall be made on a last-in, first-out basis, such that the distribution for any given fiscal year shall come first from the Declared Incentive for that fiscal year, with any remainder of that distribution coming from the Reserve Balance For Highly-Compensated Employees attributable to years prior to the fiscal year for which the current distribution is being made.

B. As soon as practicable following the close of each fiscal year of the Company, but no later than March 15 following such close, the Company shall pay the Declared Incentive as offset by the Reserve Balance For Non-Highly Compensated Employees as of the close of the fiscal year, but before considering the Declared Incentive, to those Participants subject to the Incentive Reserve For Non-Highly Compensated Employees.

3.3 NEGATIVE RESERVE BALANCE.

(a) If, as a result of a negative EVA, a Reserve Balance For Highly-Compensated Employees, or a Reserve Balance For Non-Highly Compensated Employees has a deficit, no Participant shall be required, at any time, to make a cash reimbursement to his or her Incentive Reserve For Highly-Compensated Employees or Incentive Reserve For Non-Highly Compensated Employees. Except as hereinafter provided such negative Reserve Balance For Highly-Compensated Employees or Reserve Balance For Non-Highly Compensated Employees, however, will be carried forward and will be netted 100% against future Declared Incentives.

(b) In the event a First Negative Year should occur, for the first year after such First Negative Year, the negative Reserve Balance of a Participant shall be 100% netted against the Declared Incentive for that year. For the second year after such First Negative Year, 50% of any positive Declared Incentive or 1x the Target Incentive, whichever is less, shall be paid out to the Participant and the balance of the Declared Inventive shall be applied to the negative Reserve Balance. The payout system set forth above for the second year after such First Negative Year shall continue until the Reserve Balance becomes positive or until a new First Negative Year occurs, whichever occurs first.

3.4 LUMP SUM. All distributions from the Plan shall be made in a cash lump sum unless payment is deferred in a timely manner by the Participant with the consent of the Company under the Company's incentive deferral policy as in effect from time to time.

3.5 INTEREST. No interest shall be paid on or accrue to any Reserve Balance For Highly-Compensated Employees.

ARTICLE IV

PLAN MATTERS AND CHANGE IN STATUS

4.1 PLAN MATTERS. The Committee on behalf of the Company shall determine all Plan matters regarding the Plan with respect to Participants who are Executive Officers at the time of determination. Unless otherwise expressly reserved to the Committee, the Chief Executive Officer or his designee on behalf of the Company shall determine all Plan matters with respect to all other Participants.

4.2 HIRES, PROMOTIONS AND TRANSFERS. A Participant who is hired, transferred or promoted during a fiscal year into a position qualifying for participation in the Plan will participate on a prorated basis in the year of hire, transfer or promotion based on the percentage of the fiscal year the Participant is in such qualifying position. A Participant who transfers his or her employment from one participating EVA Business Unit to another EVA Business Unit will retain his or her Incentive Reserve For Highly-Compensated Employees or Incentive Reserve For Non-Highly Compensated Employees and the Initial Declared Incentive and Declared Incentive for such Participant shall be pro-rated based on the time spent in each EVA Business Unit.

4.3 RETIREMENT. A Participant who terminates employment with the Company during a fiscal year by virtue of retirement at age 55 or older shall be entitled to receive the positive Reserve Balance For Highly-Compensated Employees, if any, and may be eligible for a share of the Declared Incentive. The Declared Incentive shall be

calculated as if the Participant had remained employed as of the end of the fiscal year. Participant's share of the Declared Incentive will be calculated by multiplying the Declared Incentive by a proration factor equal to the number of full weeks of Participant's actual employment during the fiscal year divided by fifty-two (52). Eligibility will be based on the authorization of the Participant's manager and must be approved at the start of the fiscal year in which the retirement is to occur. Payment of the positive Reserve Balance For Highly-Compensated Employees, if any, and Participant's share of any Declared Incentive will be made at the same time as payments under the Plan are made to Participants actively employed by the Company.

4.4 DISABILITY. A Participant who becomes permanently disabled, as defined in the Company's long-term disability benefits program, shall be entitled to receive the positive Reserve Balance For Highly-Compensated Employees, if any, and may be eligible for a share of the Declared Incentive. The Declared Incentive shall be calculated as if the Participant had remained employed as of the end of the fiscal year. Participant's share of the Declared Incentive will be calculated by multiplying the Declared Incentive by a proration factor equal to the number of full weeks of Participant's actual employment during the fiscal year divided by fifty-two (52). Eligibility will be based on the authorization of the Participant's manager. Payment of the positive Reserve Balance For Highly-Compensated Employees, if any, and Participant's share of any Declared Incentive will be made at the same time as payments under the Plan are made to Participants actively employed by the Company.

4.5 DEATH. If a Participant terminates employment with the Company during a fiscal year by reason of death, the estate of the Participant shall be entitled to receive the positive Reserve Balance For Highly-Compensated Employees, if any, and may be eligible for a share of the Declared Incentive. The Declared Incentive shall be calculated as if the Participant had remained employed as of the end of the fiscal year. Participant's share of the Declared Incentive will be calculated by multiplying the Declared Incentive by a proration factor equal to the number of full weeks of Participant's actual employment during the fiscal year divided by fifty-two (52). Eligibility will be based on the authorization of the Participant's manager. Payment of the positive Reserve Balance For Highly-Compensated Employees, if any, and Participant's share of any Declared Incentive will be made at the same time as payments under the Plan are made to Participants actively employed by the Company.

4.6 INVOLUNTARY TERMINATION WITHOUT CAUSE. A Participant whose employment is terminated by the Company or any subsidiary without Cause shall forfeit his or her Declared Incentive, Incentive Reserve For Highly-Compensated Employees and any Reserve Balance For Highly-Compensated Employees unless a different determination is made by the Company.

4.7 VOLUNTARY TERMINATION. In the event that a Participant voluntarily terminates employment with the Company or any of its subsidiaries, the right of the Participant to his or her Declared Incentive, Incentive Reserve For Highly-Compensated Employees and any Reserve Balance For Highly-Compensated Employees shall be forfeited unless a different determination is made by the Company.

4.8 INVOLUNTARY TERMINATION FOR CAUSE. In the event of termination of employment for Cause, the right of the Participant to his or her Declared Incentive, Incentive Reserve For Highly-Compensated Employees and any Reserve Balance For Highly-Compensated Employees shall be forfeited unless a different determination is made by the Company.

4.9 BREACH OF AGREEMENT. Notwithstanding any other provision of the Plan or any other agreement, in the event that a Participant shall breach any non-competition agreement or provision relating to the Company or breach any agreement with respect to the post-employment conduct of such Participant, including those contained in any benefit or incentive plan or award, the Incentive Reserve For Highly-Compensated Employees held by such Participant shall be forfeited.

4.10 CHANGE IN CONTROL. Upon a Change in Control, the Plan shall terminate and positive Reserve Balances For Highly-Compensated Employees shall be paid to Participants unless the Plan is continued on no less beneficial terms to the Participants. Payments under this Section 4.10 shall be made without regard to whether the deductibility of such payments (or any other "parachute payments," as that term is defined in Section 280G of the Code, to or for the benefit of the Participant) would be limited or precluded by Section 280G and without regard to whether such payments (or any other "parachute payments" as so defined) would subject the Participant to the federal excise tax levied on certain "excess parachute payments" under Section 4999 of the Code; provided that if the total of all "parachute payments" to or for the benefit of the Participant, after reduction for all federal, state and local taxes (including the tax described in Section 4999 of the Code, if applicable) with respect to such payments (the "Total After-Tax Payments"), would be increased by the limitation or elimination of any payment under this Section 4.10, amounts payable under this Section 4.10 shall be reduced to the extent, and only to the extent, necessary to maximize the Total After-Tax Payments. The determination as to whether and to what extent payments under this Section 4.10 are required to be reduced in accordance with the preceding sentence shall be made at the Company's expense by Arthur Andersen LLP or by such other certified public accounting firm as the Board of Directors of the Company may designate prior to a Change in Control of the Company. In the event of any underpayment or overpayment under this Section 4.10 as determined by Arthur Andersen LLP (or such other firm as may have been designated in accordance with the preceding sentence), the amount of such

underpayment or overpayment shall forthwith be paid to the Participant or refunded to the Company, as the case may be, with interest at the applicable federal rate provided for in Section 7872 (f)(2) of the Code.

4.11 NO GUARANTEE. Participation in the Plan is no guarantee that payments under the Plan will be made or that selection as a Participant will be made for the subsequent fiscal year.

ARTICLE V

GENERAL PROVISIONS

5.1 WITHHOLDINGS. The Company shall have the right to withhold all amounts, including but not limited to, taxes, which in the determination of the Company, are required to be withheld under law with respect to any amount due or paid under the Plan.

5.2 EXPENSES. All expenses and costs in connection with the adoption and administration of the Plan shall be borne by the Company out of its general funds.

5.3 CLAIMS FOR BENEFITS. Participants who terminate service for any reason will be deemed to have made a claim for benefits and no written claim will be required. Claims for benefits will be decided by the Chief Executive Officer or, in the case of a claim pertaining to an Executive Officer, by the Committee (collectively referred to as the "Adjudicator"). If the Adjudicator believes that a terminated Participant is not entitled to benefits, it shall notify the Participant in writing of the denial of benefits within 90 days of the Participant's termination of service. In the event that a claim is wholly or partially denied, the Participant or his representative will receive a written explanation of the reason for denial. The Participant or his representative may request a review of the denied claim within 60 days of receipt of the denial and, in connection therewith, may review pertinent documents and submit comments in writing. Upon receipt of an appeal, the Adjudicator shall decide the appeal within 60 days of receipt. The decision on appeal shall be in writing, shall include specific reasons for the decision and shall refer to pertinent provisions of the Plan on which the decision is based. In reaching its decision, the Adjudicator shall have complete discretionary authority to determine all questions arising in the interpretation and administration of the Plan and to construe the terms of the Plan, including any doubtful or disputed terms and the eligibility of a Participant for benefits.

5.4 ACTION TAKEN IN GOOD FAITH. The Company may employ attorneys, consultants, accountants or other persons and the Company's directors and officers shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee or Chief Executive Officer in good faith shall be final and binding upon all

employees, the Company and all other interested parties. No member of the Committee and no officer, director, employee or representative of the Company, or any of its affiliates acting on behalf of or in conjunction with the Committee, shall be personally liable for any action, determination, or interpretation, whether of commission or omission, taken or made with respect to the Plan.

5.5 RIGHTS PERSONAL TO EMPLOYEES. Any rights provided to an employee under the Plan shall be personal to such employee, shall not be transferable (except by will or pursuant to the laws of descent or distribution), and shall be exercisable during the employee's lifetime, only by such employee.

5.6 DISTRIBUTION. Upon termination of the Plan or suspension for a period of more than 90 days, the positive Reserve Balance For Highly-Compensated Employees of each Participant shall be distributed as soon as practicable but in no event later than 90 days from such event. The Committee, in its sole discretion, may accelerate distribution of the balance of any Incentive Reserve For Highly-Compensated Employees, in whole or in part, at any time without penalty.

5.7 NON-ALLOCATION OF AWARD. In the event of a suspension or termination of the Plan during any fiscal year, as provided herein at Section 10.1, the Declared Incentive for such year shall be deemed forfeited and no portion thereof shall be allocated to Participants. In the event of a suspension, any such forfeiture shall not affect the calculation of EVA in any subsequent year.

ARTICLE VI

LIMITATIONS

6.1 NO CONTINUED EMPLOYMENT. Nothing contained herein shall provide any employee with any right to continued employment or in any way abridge the rights of the Company and its subsidiaries to determine the terms and conditions of employment and whether to terminate employment of any employee. Neither the establishment of the Plan or the grant of an award or bonus hereunder shall be deemed to constitute an express or implied contract of employment for any period of time or in any way abridge the rights of the Company or any of its subsidiaries to determine the terms and conditions of employment or to terminate the employment of any employee with or without Cause at any time.

6.2 NO VESTED RIGHTS. Except as otherwise expressly provided herein, no employee or other person shall have any claim of right (legal, equitable, or otherwise) to any award, allocation, or distribution or any right, title, or vested interest in any amounts in such employee's Incentive Reserve For Highly-Compensated Employees and no officer or employee of the Company or any subsidiary or any

other person shall have any authority to make representations or agreements to the contrary. No interest conferred herein to a Participant shall be assignable or subject to any lien or pledge or any claim by a Participant's creditors. The right of the Participant to receive a distribution thereunder shall be an unsecured claim against the general assets of the Company and the Participant shall have no rights in or against any specific assets of the Company as the result of participation hereunder. 6.3 NOT PART OF OTHER BENEFITS. The benefits provided in this Plan shall not be deemed a part of any other benefit provided by the Company or any of its subsidiaries to its employees. Neither the Company nor any of its subsidiaries assumes any obligation to Participants except as specified herein. This is a complete statement of the terms and conditions of the Plan as in effect on January 1, 1995 and as amended on April 23, 1996.

6.4 OTHER PLANS. Nothing contained herein shall limit the power of either the Company or its subsidiaries or the power of the Committee to grant bonuses to employees of the Company or any of its subsidiaries, whether or not Participants in this Plan.

6.5 UNFUNDED PLAN. This Plan is unfunded. Nothing herein shall create or be deemed to create a trust or separate fund of any kind or a fiduciary relationship between the Company (or any of its subsidiaries) and any Participant.

ARTICLE VII

AUTHORITY

7.1 Full and sole power and authority to interpret and administer this Plan shall be vested in the Committee which shall have the sole authority to make rules and regulations for the administration of the Plan. The Committee may from time to time make such decisions and adopt such rules and regulations for implementing the Plan as it deems appropriate for any Participant under the Plan. Any decision taken by the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be final, conclusive and binding upon all Participants and any person claiming under or through them. The Committee may delegate its power and authority with respect to the Plan to the Chief Executive Officer from time to time as it determines.

ARTICLE VIII

NOTICE

8.1 Any notice to be given pursuant to the provisions of the Plan shall be in writing and directed to the appropriate recipient thereof at his or her business address or office location.

ARTICLE IX EFFECTIVE DATE

9.1 This Plan shall be effective as of January 1, 1995.

9.2 The Incentive Reserve For Non-Highly Compensated Employees and the Reserve Balance For Non-Highly Compensated Employees shall be effective commencing with the 1996 fiscal year.

ARTICLE X

AMENDMENTS

10.1 This Plan may be amended, suspended or terminated in whole or in part at any time from time to time at the sole discretion of the Committee; provided, however, that no such change in the Plan shall be effective to eliminate or diminish the distribution of any award that has been allocated to the Incentive Reserve of a Participant prior to the date of such amendment, suspension or termination. Notice of any such amendment, suspension or termination shall be given promptly to each Participant.

ARTICLE XI APPLICABLE LAW

11.1 This Plan shall be construed in accordance with the provisions of the laws of the Commonwealth of Massachusetts. 1

EXHIBIT 10.4

TERMINATION, REPLACEMENT AND RESTATEMENT AGREEMENT (this "TRR Agreement") dated as of March 6, 1998, of the 364-day Competitive Advance and Revolving Credit Facility Agreement dated as of March 21, 1994, among EG&G, INC., a Massachusetts corporation (the "Company"), the Borrowing Subsidiaries (as such term is defined therein; together with the Company, the "Borrowers"), the financial institutions listed in Schedule 2.01 hereto under the caption "Lenders" (the "Lenders") and THE CHASE MANHATTAN BANK (as successor to Chemical Bank), a New York banking corporation, as administrative agent (in such capacity, the "Administrative Agent") for the Lenders. Capitalized terms used and not defined herein shall have the meanings assigned to such terms in the New Credit Agreement (as defined below).

WHEREAS, the Borrowers, the Lenders, and the Administrative Agent are parties to a 364-day Competitive Advance and Revolving Credit Facility Agreement dated as of March 21, 1994 (as amended, the "Original Credit Agreement");

WHEREAS, the Original Credit Agreement is to be terminated as provided herein; and

WHEREAS, the Lenders are willing, subject to the terms and conditions of this TRR Agreement, to replace the Original Credit Agreement with a new credit agreement as provided herein.

NOW, THEREFORE, in consideration of the mutual agreements contained in this TRR Agreement and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION 1. TERMINATION, REPLACEMENT AND RESTATEMENT. Subject to the conditions set forth in Section 3 hereof:

(a) the Original Credit Agreement, including all schedules and exhibits thereto, is hereby terminated, subject to applicable provisions set forth therein as to the survival of certain rights and obligations, and simultaneously replaced by a new credit agreement (the "New Credit Agreement") identical in form and substance to the Original Credit Agreement except as expressly set forth below.

(b) The heading of the New Credit Agreement shall read as follows:

"364-DAY COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT dated as of March 6, 1998, among EG&G, INC., a Massachusetts corporation (the "Company"), the Borrowing Subsidiaries (as such term is defined herein; together with the Company, the "Borrowers"), the lenders listed in Schedule 2.01 (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, the "Administrative Agent")." and all references to the "Closing Date" in the New Credit Agreement shall be deemed to refer to March 6, 1998.

(ii) The definition of "Maturity Date" in Section 1.01 of the New Credit Agreement shall read as follows:

"'Maturity Date' shall mean March 5, 1999."

(d) The reference to "March 31, 1996" in Section 2.05(a) of the Original Credit Agreement shall be changed to a reference to "March 31, 1998" in the New Credit Agreement.

(e) Section 3.04(a) of the New Credit Agreement shall read as follows:

"The Company has heretofore furnished to the Administrative Agent and the Lenders copies of its consolidated financial statements as of and for the fiscal year ended December 31, 1996, and as of and for the period of nine months ended September 30, 1997. Such financial statements present fairly, in all material respects, the consolidated financial condition and the results of operations of the Company as of such dates and for such periods in accordance with GAAP."

(f) Section 4.02(d) of the New Credit Agreement shall read as follows:

"The commitments under the 364-day Competitive Advance and Revolving Credit Facility Agreement dated as of March 21, 1994, among the Borrowers, the lenders party thereto and The Chase Manhattan

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Bank, as administrative agent shall have been terminated and all principal, interest and other amounts outstanding thereunder (including all Fees accrued thereunder to the Closing Date) shall have been paid in full."

(g) The references to "March 21, 1994" in Exhibit A-1, Exhibit A-2, Exhibit A-3, Exhibit A-4, Exhibit A-5, Exhibit C, Exhibit D-1, Exhibit D-2 and Exhibit E of the Original Credit Agreement shall be changed to references to "March 6, 1998" in the New Credit Agreement.

(h) Schedule 2.01 to the New Credit Agreement shall be in the form of Schedule 2.01 to this TRR Agreement.

SECTION 2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to each of the Lenders that:

(a) This TRR Agreement and the New Credit Agreement have been duly authorized and, in the case of this TRR Agreement, executed and delivered by it and constitute its legal, valid and binding obligations enforceable in accordance with their terms.

(b) The representations and warranties set forth in Article III of the New Credit Agreement, after giving effect to this TRR Agreement, are true and correct in all material respects on the date hereof with the same effect as if made on the date hereof, except to the extent such representations and warranties expressly relate to an earlier date.

SECTION 3. CONDITIONS TO EFFECTIVENESS. This TRR Agreement shall become effective as of March 6, 1998 (the "Effective Date") upon the occurrence of the following conditions precedent:

(a) The Administrative Agent shall have received counterparts of this TRR Agreement which, when taken together, bear the signatures of all the parties hereto.

(b) The Administrative Agent shall have received, on behalf of itself and the Lenders, favorable written opinions of General Counsel for the Company, substantially to the effect set forth in Exhibit D-1 of the Original Credit Agreement but referring to this TRR Agreement and the New Credit Agreement, (i) dated the date hereof, (ii) addressed to the Administrative Agent and the Lenders,

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4 and (iii) covering such other matters relating to this TRR Agreement and the Transactions as the Administrative Agent shall reasonably request, and the Company hereby instructs such General Counsel to deliver such opinions.

(c) All legal matters incident to this TRR Agreement, the New Credit Agreement and the borrowings and extensions of credit hereunder shall be satisfactory to the Lenders and to Cravath, Swaine & Moore, counsel for the Administrative Agent.

(d) The Administrative Agent shall have received on the date hereof (i) a copy of the certificate or articles of incorporation, including all amendments thereto, of the Company, certified as of a recent date by the Secretary of State of the state of its organization, and a certificate as to the good standing of the Company as of a recent date, from such Secretary of State; (ii) a certificate of the Secretary or Assistant Secretary of the Company dated the date hereof and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Company as in effect on the date hereof and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Company authorizing this TRR Agreement and the execution, delivery and performance of this TRR Agreement and the borrowings under the New Credit Agreement, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate or articles of incorporation of the Company have not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to clause (i) above, and (D) as to the incumbency and specimen signature of each officer executing this TRR Agreement or any other document delivered in connection herewith on behalf of the Company; (iii) a certificate of another officer as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Lenders or Cravath, Swaine & Moore, counsel for the Administrative Agent, may reasonably request.

(e) The Administrative Agent shall have received a certificate, dated the date hereof and signed by a Financial Officer of the Company, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 2.

(f) The Administrative Agent shall have received all Fees and other amounts due and payable on or prior to the

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5 date hereof, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder.

SECTION 4. APPLICABLE LAW. THIS TRR AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

SECTION 5. ORIGINAL CREDIT AGREEMENT. Until the occurrence of the Effective Date as provided in Section 3 hereof, the Original Credit Agreement shall continue in full force and effect in accordance with the provisions thereof and the rights and obligations of the parties thereto shall not be affected hereby, and all Fees and interest accruing under the Old Credit Agreement shall continue to accrue at the rates provided for therein.

SECTION 6. COUNTERPARTS. This TRR Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract.

SECTION 7. EXPENSES. The Company agrees to reimburse the Administrative Agent for its out-of-pocket expenses in connection with this TRR Agreement including the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent.

IN WITNESS WHEREOF, the parties hereto have caused this TRR Agreement to be duly executed by their respective authorized officers as of the day and year first written above.

EG&G, INC,

by /s/ Daniel T. Heaney ------Name: Daniel T. Heaney Title: Treasurer

THE CHASE MANHATTAN BANK, individually and as Administrative Agent,

by /s/ Carol A. Ulmer ------Name: Carol A. Ulmer Title: Vice President

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BANKBOSTON, N.A.,

by /s/ Harvey H. Thayer ------Name: Harvey H. Thayer Title: Director

DRESDNER BANK AG, NEW YORK and Grand Cayman Branches

by /s/ Anthony J. Berti ------Name: Anthony J. Berti Title: Assistant Treasurer

by /s/ B. Craig Erickson ------Name: B. Craig Erickson Title: Vice President

THE FIRST NATIONAL BANK OF CHICAGO,

by /s/ Paul Chao ------Name: Paul Chao Title: Vice President

THE NORTHERN TRUST COMPANY,

by /s/ James F. McArdle ------Name: James F. McArdle Title: Vice President

ROYAL BANK OF CANADA,

by /s/ Charles Romano ------Name: Charles Romano Title: Manager SOCIETE GENERALE

by /s/ Michelle Martin ------Name: Michelle Martin Title: Assistant Vice President

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STANDARD CHARTERED BANK,

by /s/ Kristina McDavid ------Name: Kristina McDavid Title: Vice President

by /s/ David D. Cutting ------Name: David D. Cutting Title: Senior Vice President

WACHOVIA BANK, N.A.

by /s/ John P. Rafterty ------Name: John P. Rafterty Title: Senior Vice President

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SCHEDULE 2.01

LENDERS COMMITMENT

The Chase Manhattan Bank $16,000,000 BankBoston, N.A. $10,500,000 Dresdner Kleinwort Benson $10,500,000 The First National Bank of Chicago $10,500,000 The Northern Trust Company $10,500,000 Royal Bank of Canada $10,500,000 Societe Generale $10,500,000 Standard Chartered Bank $10,500,000 Wachovia Bank, N.A. $10,500,000 1

EXHIBIT 10.5

EG&G, INC.

EMPLOYMENT AGREEMENT

This Agreement made as of the 1st day of November, 1993, between EG&G, Inc., a Massachusetts corporation (hereinafter called the "Company"), and John F. Alexander, II of Southborough, Massachusetts (hereinafter referred to as the "Employee").

WITNESSETH:

WHEREAS, the Employee has been employed in a management position with the Company; and

WHEREAS, the Employee hereby agrees to continue to perform such services and duties of a management nature as shall be assigned to him; and

WHEREAS, the Employee hereby agrees to the compensation herein provided and agrees to serve the Company to the best of his ability during the period of this Agreement.

NOW, THEREFORE, in consideration of the sum of One Dollar, and of the mutual covenants herein contained, the parties agree as follows:

1. a) Except as hereinafter otherwise provided, the Company agrees to continue to employ the Employee in a management position with the Company, and the Employee agrees to remain in the employment of the Company in that capacity for a period of one year from the date hereof and from year to year thereafter until such time as this Agreement is terminated.

b) The Company will, during each year of the term of this Agreement, place in nomination before the Board of Directors of the Company the name of the Employee for election as an Officer of the Company except when a notice of termination has been given in accordance with Paragraph 5(b).

2. The Employee agrees that, during the specified period of employment, he shall, to the best of his ability, perform his duties, and shall not engage in any business, profession or occupation which would conflict with the rendition of the agreed upon services, either directly or indirectly, without the prior approval of the Board of Directors.

3. During the period of his employment under this Agreement, the Employee shall be compensated for his services as follows:

a) Except as otherwise provided in this Agreement, he shall be paid a salary during the period of this Agreement at a base rate to be determined by the Company on an annual basis. Except as provided in Subparagraph 3d, such annual base salary shall under no circumstances be fixed at a rate below the annual base rate then currently in effect.

b) He shall be reimbursed for any and all monies expended by him in connection with his employment for reasonable and necessary expenses on behalf of the Company in accordance with the policies of the Company then in effect;

c) He shall be eligible to participate under any and all bonus, benefit, pension, compensation, and option plans which are, in accordance with company policy, available to persons in his position (within the limitation as stipulated by such plans). Such eligibility shall not automatically entitle him to participate in any such plan;

d) if, because of adverse business conditions or for other reasons, the Company at any time puts into effect salary reductions applicable to all management employees of the Company generally, the salary payments required to be made under this Agreement to the Employee during any period in which such general reduction is in effect may be reduced by the same percentage as is applicable to all management employees of the Company generally. Any benefits made available to the Employee which are related to base salary shall also be reduced in accordance with any salary reduction;

4. a) During the period of his employment by the Company or for any period which the Company shall continue to pay the Employee his salary under this Agreement, whichever shall be the longer, the Employee shall not directly or indirectly own, manage, control, operate, be employed by, participate in or be connected with the ownership, management, operation or control of any business which competes with the Company or its subsidiaries, provided, however, that the foregoing shall not apply to ownership of stock in a publicly held corporation which ownership is disclosed to the Board of Directors nor shall it apply to any other relationship which is disclosed to and approved by the Board of Directors.

b) During the period of his employment by the Company and two years following the Company's last payment of salary

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3 to him, the Employee shall not utilize or disclose to others any proprietary or confidential information of any type or description which term shall be construed to mean any information developed or identified by the Company which is intended to give it an advantage over its competitors or which could give a competitor an advantage if obtained by him. Such information includes, but is not limited to, product or process design, specifications, manufacturing methods, financial or statistical information about the Company, marketing or sales information about the Company, sources or supply, lists of customers, and the Company's plans, strategies, and contemplated actions.

c) During the period of his employment by the Company or for any period during which the Company shall continue to pay the Employee his salary under this Agreement, whichever shall be longer, the Employee shall not in any way whatsoever aid or assist any party seeking to cause, initiate or effect a Change in Control of the Company as defined in Paragraph 6 without the prior approval of the Board of Directors.

5. Except for the Employee covenants set forth in Paragraph 4 which covenants shall remain in effect for the periods stated therein, and subject to Paragraph 6, this Agreement shall terminate upon the happening of any of the following events and (except as provided herein) all the Company's obligation under this Agreement, including, but not limited to, making payments to the Employee shall cease and terminate:

a) On the effective date set forth in any resignation submitted by the Employee and accepted by the Company, or if no effective date is agreed upon, the date of receipt of such letter.

b) One year after written notice of termination is given by either party to the other party.

c) At the end of the month in which the Employee shall have attained the age of sixty-five years;

d) At the death of the Employee;

e) At the termination of the Employee for cause. As used in the Agreement, the term "cause" shall mean:

1) Misappropriating any funds or property of the Company;

2) Unreasonable refusal to perform the duties assigned to him under this Agreement; -3-

3) Conviction of a felony;

4) Continuous conduct bringing notoriety to the Company and having an adverse effect on the name or public image of the Company;

5) Violation of the Employee's covenants as set forth in Paragraph 4 above; or

6) Continued failure by the Employee to observe any of the provisions of this Agreement after being informed of such breach.

f) At termination of the Employee by the Company without cause.

g) Twelve months after written notice of termination is given by the Company to the Employee based on a determination by the Board of Directors that the Employee is disabled (which, for purposes of this Agreement, shall mean that the Employee is unable to perform his regular duties, with such determination to be made by the Board of Directors, in reliance upon the opinion of the Employee's physician or upon the opinion of one or more physicians selected by the Company). Such notice shall be given by the Company to the Employee on the 106th day of continuous disability of the Employee. Notwithstanding the foregoing, if, during the twelve-month notice period referred to above, the Employee is no longer disabled and is able to return to work, such notice of employment termination shall be rescinded, and the employment of the Employee shall continue in accordance with the terms of this Agreement. During the first 106 days of continuous disability of the Employee, the Company will make periodic payments to the Employee in an amount equal to the difference between his base salary and the benefits provided by the Company's Short-Term Disability Income Plan. During the twelve-month notice period following 106 days of continuous disability, the Company will make periodic payments to the Employee in an amount equal to the difference between his base salary and the benefits provided by the Company's Long-Term Disability Plan. If the employment of the Employee terminates at the end of such twelve-month notice period, the Company will make periodic payments to the Employee, up to the amount remaining in his sick leave reserve account, in an amount equal to the difference between his base pay and the post-employment benefits provided to him under the Company's Long-Term Disability Plan. Due to the fact that payments to the Employee under the Company's Long-Term Disability Plan are not subject to federal income taxes, the payments to be made directly by the Company pursuant to the

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5 two preceding sentences shall be reduced such that the total amount received by the Employee (from the Company and from the Long-Term Disability Plan), after payment of any income taxes, is equal to the amount that the Employee would have received had he been paid his base salary, after payment of any income taxes on such base salary.

h) Notwithstanding the foregoing provisions, in the event of the termination of the Employee by the Company without cause, the Employee shall, until the expiration of his then current employment term or one year from the date of such termination, whichever is later, (i) continue to receive his Full Salary (as defined below), which shall be payable in accordance with the payment schedule in effect immediately prior to his employment termination, and (ii) continue to be entitled to participate in all employee benefit plans and arrangements of the Company (such as life, health and disability insurance and automobile arrangements) to the same extent (including coverage of dependents, if any) and upon the same terms as were in effect immediately prior to his termination. For purposes of this Agreement, "Full Salary" shall mean the Employee's annual base salary, plus the amount of any bonus or incentive payments received by the Employee with respect to the last full fiscal year of the Company for which all bonus or incentive payments to be made have been made.

6. a) In the event that there is a Change in Control of the Company (as defined below), the provisions of this Agreement shall be amended as follows:

1) Paragraph 1a shall be amended to read in its entirety as follows:

"Except as hereinafter otherwise provided, the Company agrees to continue to employ the Employee in a management position with the Company, and the Employee agrees to remain in the employment in the Company in that capacity, for a period of five (5) years less one day from the date of the Change in Control. Except as provided in Paragraph 3d, the Employee's salary as set forth in Paragraph 3a and his other employee benefits pursuant to the plans described in Paragraph 3c shall not be decreased during such period."

2) Paragraph 5a shall be amended by the addition of the following provision at the end of such paragraph:

", provided that the Employee agrees not to resign, except for Good Reason (as defined below), during the one-year period following the date of the Change in Control."

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3) Paragraph 5b shall be deleted in its entirety.

4) Paragraph 5h shall be amended to read in its entirety as follows:

"Notwithstanding the foregoing provisions, in the event of the termination of the Employee by the Company without cause, or the resignation of the Employee for Good Reason, the Employee shall (i) receive, on the date of his employment termination, a cash payment in an amount equal to his Full Salary (as defined below) multiplied by the number of years (including any portions thereof) remaining until the expiration of his then current employment term or five years from the date of such termination, whichever is later (it being agreed that such amount shall not be discounted based upon the present value of such amount), and (ii) continue to be entitled to participate in all employee benefit plans and arrangements of the Company (such as life, health and disability insurance and automobile arrangements) to the same extent (including coverage of dependents, if any) and upon the same terms as were in effect immediately prior to his termination. For purposes of this Agreement, "Full Salary" shall mean the Employee's annual base salary, plus the amount of any bonus or incentive payments received by the Employee with respect to the last full fiscal year of the Company for which all bonus or incentive payments to be made have been made. Payments under this Paragraph 5h shall be made without regard to whether the deductibility of such payments (or any other "parachute payments," as that term is defined in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), to or for the benefit of the Employee) would be limited or precluded by Section 280G and without regard to whether such payments (or any other "parachute payments" as so defined) would subject the Employee to the federal excise tax levied on certain "excess parachute payments" under Section 4999 of the Code; provided that if the total of all "parachute payments" to or for the benefit of the Employee, after reduction for all federal, state and local taxes (including the tax described in Section 4999 of the Code, if applicable) with respect to such payments (the "Total After-Tax Payments"), would be increased by the limitation or elimination of any payment under this Paragraph 5h, amounts payable under this Paragraph 5h shall be reduced to the extent, and only to the extent, necessary to maximize the Total After-Tax Payments. The determination as to whether and to what extent payments under this Paragraph 5h are required to be reduced in accordance with the preceding sentence shall be made at the Company's expense by Arthur Andersen LLP or by such other certified public accounting firm as the Board of Directors of the Company may designate prior to a Change in Control of

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7 the Company. In the event of any underpayment or overpayment under this Paragraph 5h as determined by Arthur Andersen LLP (or such other firm as may have been designated in accordance with the preceding sentence), the amount of such underpayment or overpayment shall forthwith be paid to the Employee or refunded to the Company, as the case may be, with interest at the applicable federal rate provided for in Section 7872(f)(2) of the Code."

5) Paragraph 8 shall be amended to read in its entirety as follows:

"The Employee may pursue any lawful remedy he deems necessary or appropriate for enforcing his rights under this Agreement following a Change in Control of the Company, and all costs incurred by the Employee in connection therewith (including without limitation attorneys' fees) shall be promptly reimbursed to him by the Company, regardless of the outcome of such endeavor."

b) For purposes of this Agreement, a "Change in Control of the Company" shall occur or be deemed to have occurred only if (i) any "person", as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as their ownership of stock in the Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; (ii) during any period of two consecutive years ending during the term of this Agreement, individuals who at the beginning of such period constitute the Board of Directors of the Company, and any new director whose election by the Board of Directors or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who were either directors at the beginning of the period or whose election or whose nomination for election was previously so approved, cease for any reason to constitute a majority of the Board of Directors; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity)

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8 more than 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets.

c) For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events, except as provided in Paragraph 3d: (i) a reduction in the Employee's base salary as in effect on the date hereof or as the same may be increased from time to time; (ii) a failure by the Company to pay annual cash bonuses to the Employees in an amount at least equal to the most recent annual cash bonuses paid to the Employee; (iii) a failure by the Company to maintain in effect any material compensation or benefit plan in which the Employee participated immediately prior to the Change in Control, unless an equitable arrangement has been made with respect to such plan, or a failure to continue the Employee's participation therein on a basis not materially less favorable than existed immediately prior to the Change in Control; (iv) any significant and substantial diminution in the Employee's position, duties, responsibilities or title as in effect immediately prior to the Change in Control; (v) any requirement by the Company that the location at which the Employee performs his principal duties be changed to a new location outside a radius of 25 miles from the Employee's principal place of employment immediately prior to the Change in Control; or (vi) any requirement by the Company that the Employee travel on an overnight basis to an extent not substantially consistent with the Employee's business travel obligations immediately prior to the Change in Control. Notwithstanding the foregoing, the resignation shall not be considered to be for Good Reason if any such circumstances are fully corrected prior to the date of resignation.

7. Neither the Employee nor, in the event of his death, his legal representative, beneficiary or estate, shall have the power to transfer, assign, mortgage or otherwise encumber in advance any of the payments provided for in this Agreement, nor shall any payments nor assets or funds of the Company be subject to seizure for the payment of any debts, judgments, liabilities, bankruptcy or other actions.

8. Any controversy relating to this Agreement and not resolved by the Board of Directors and the Employee shall be settled by arbitration in the City of Boston, Commonwealth of Massachusetts, pursuant to the rules then obtaining of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction, and

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9 the Board of Directors and Employee agree to be bound by the arbitration decision on any such controversy. Unless otherwise agreed by the parties hereto, arbitration will be by three arbitrators selected from the panel of the American Arbitration Association. The full cost of any such arbitration shall be borne by the Company.

9. Failure to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other time or times by either party.

10. All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered personally to the Employee or to the General Counsel of the Company or when mailed by registered or certified mail to the other party (if to the Company, at 45 William Street, Wellesley, Massachusetts 02181, attention General Counsel; if to the Employee, at the last known address of the Employee as set forth in the records of the Company).

11. This Agreement has been executed and delivered and shall be construed in accordance with the laws of the Commonwealth of Massachusetts. This Agreement is and shall be binding on the respective legal representatives or successors of the parties, but shall not be assignable except to a successor to the Company by virtue of a merger, consolidation or acquisition of all or substantially all of the assets of the Company. All previous employment contracts between the Employee and the Company or any of the Company's present or former subsidiaries or affiliates is hereby canceled and of no effect.

IN WITNESS WHEREOF, the Company has caused its seal to be hereunto affixed and these presents to be signed by its proper officers, and the Employee has hereunto set his hand and seal the day and year first above written.

EG&G, INC.

(SEAL) BY: /s/ John M. Kucharski ------John M. Kucharski, Chairman and Chief Executive Officer

EMPLOYEE: /s/ John F. Alexander II ------John F. Alexander, II 1 EXHIBIT 21

Subsidiaries of the Registrant

As of March 23, 1998, the following is a list of the parent (Registrant) and its subsidiaries, together with their subsidiaries. Except as noted, all voting securities of the listed subsidiaries are 100% beneficially owned by the Registrant or a subsidiary thereof.

------State or Country Number of Incorporation of Name of Company or Organization Parent ------

1 EG&G, Inc. Massachusetts N/A 2 EG&G Alabama, Inc. Alabama 1 3 EG&G Astrophysics California 1 4 EG&G ATP GmbH Germany 19 (80%) 5 EG&G ATP GmbH & Co. Automotive Germany 19 (80%) Testing Papenburg KG 6 EG&G Automotive Research, Inc. Texas 20 7 EG&G California, Inc. California 1 8 EG&G Benelux BV. Netherlands 20 (77%) 1 (23%) 9 EG&G Canada Investments, Inc. Canada 87 10 EG&G Canada Limited Canada 1 (10%) 30 (43.5%) 40 (46.5%) 11 EG&G Defense Materials, Inc. Utah 1 12 EG&G do Brasil Ltda. Brazil 20 (95%) 86 (5%) 13 EG&G E.C. Bahrain 20 14 EG&G Emissions Testing Services, Inc. Virginia 1 15 EG&G Energy Measurements, Inc. Nevada 1 16 EG&G Environmental, Inc. Delaware 1 17 EG&G Exporters Ltd. U.S. Virgin Islands 20 18 EG&G Florida, Inc. Florida 1 19 EG&G GmbH Germany 20 20 EG&G Holdings, Inc. Massachusetts 1 (89%) 25 (6%) 69 (5%) 21 EG&G Hong Kong Ltd. Delaware 1 22 EG&G IC Sensors, Inc. California 1 23 EG&G Idaho, Inc. Idaho 20 24 EG&G Information Technologies, Inc. California 1 25 EG&G Instruments, Inc. Delaware 20 26 EG&G Instruments International Ltd. Cayman Islands 28 27 EG&G Instruments GmbH Germany 1 28 EG&G International, Ltd. Cayman Islands 20 29 EG&G Japan, Inc. Delaware 20 30 EG&G Judson Infrared, Inc. Pennsylvania 1 31 EG&G KT Aerofab, Inc. California 20 32 EG&G Langley, Inc. Virginia 17 33 EG&G Ltd. United Kingdom 20 (80.9%) 3 (19.1%) 34 EG&G Management Services of San Texas 20 Antonio, Inc. 35 EG&G Management Systems, Inc. New Mexico 1 36 EG&G Missouri Metal Shaping Company Missouri 20 37 EG&G Mound Applied Technologies, Inc. Ohio 1 38 EG&G Omni, Inc. Philippines 20 39 EG&G Power Systems, Inc. California 1 40 EG&G Pressure Science Incorporated Maryland 20 41 EG&G Rocky Flats, Inc. Colorado 1

------State or Country Number of Incorporation of Name of Company or Organization Parent ------

42 EG&G Sealol Eagle, Inc. Delaware 44 (51%) 43 EG&G Sealol Ltd. (Sealol Egypt) Egypt 20 (22%) 28 (78%) 44 EG&G Sealol, Inc. Delaware 20 45 EG&G Singapore Pte Ltd. Singapore 28 46 EG&G Special Projects, Inc. Nevada 1 47 EG&G Star City, Inc. Ohio 1 48 EG&G S.A. France 28 49 EG&G SpA Italy 20 50 EG&G Technical Services of West Virginia, Inc. West Virginia 1 51 EG&G Vactec Philippines, Ltd. Cayman Islands 28 52 EG&G Ventures, Inc. Massachusetts 1 53 EG&G Watertown, Inc. Massachusetts 20 54 Antarctic Support Associates (Partnership) Colorado 1 (40%) 55 Benelux Analytical Instruments S.A. Belgium 1 (92.3%) 56 Berthold Analytical Instruments, Inc. Delaware 1 57 Berthold A.G. Switzerland 20 58 Berthold France S.A. France 48 59 Biozone Oy Finland 84 60 B.A.I. GmbH Austria 20 61 Eagle EG&G Aerospace Co. Ltd. Japan 1 (49%) 62 EC III, Inc. New Mexico 1 (50%) 63 Heimann Optoelectronics GmbH Germany 65 64 Heimann Shenzhen Optoelectronics Co. Ltd. China 63 (60%) 28 (30%) 65 Berthold GmbH & Co. KG Germany 19 (58.0%) 27 (2.3%) 6 (39.7%) 66 NOK EG&G Optoelectronics Corporation Japan 1 (49%) 67 Pribori Oy Finland 84 68 PT EG&G Heimann Optoelectronics Indonesia 20 69 Reticon Corporation California 1 70 Reynolds Electrical & Engineering Co., Inc. Texas 1 71 Science Support Corporation Delaware 1 72 Sealol Hindustan Limited India 44 (20%) 73 Sealol S.A. Venezuela 44 74 Seiko EG&G Co. Ltd. Japan 1 (49%) 75 Shanghai EG&G Reticon Optoelectronics China 69 (50%) Co. Ltd. 76 Societe Civile Immobiliere France 1 (82.5%) 56 (17.5%) 77 The Launch Support Company, L.C. Florida 18 78 Vactec, Inc. Missouri 1 79 WALLAC ADL AG Switzerland 80 (80%) 80 WALLAC ADL Gmbh Germany 82 (52%) 81 WALLAC A/S Denmark 84 82 WALLAC Holding GmbH Germany 19 83 WALLAC Norge AS Norway 84 84 WALLAC Oy Finland 20 85 WALLAC Sverige AB Sweden 84 86 WALLAC, Inc. Maryland 1 87 Wellesley B.V. Netherlands 89 88 Wellesley International, C.V. Netherlands 20 (99%) 1 (1%) 89 Wickford N.V. Netherlands Antillies 28 90 Wright Components, Inc. New York 20 91 ZAO Pribori Russia 67

5 1,000

12-MOS DEC-28-1997 DEC-30-1996 DEC-28-1997 57,934 0 243,963 4,792 112,875 488,186 482,382 301,239 832,103 285,615 114,863 0 0 60,102 268,286 832,103 860,598 1,460,805 553,551 1,084,691 316,516 0 12,482 54,026 23,381 30,645 3,047 0 0 33,692 .74 .74