-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NMYOha0/h3MiiaV2PGht3zLRO3NBNKSL0TLIEVXEkReMxVV4y/vfqNlzHnFsuPRj eG4Ev5LruwS3VFz/ZcyzLw== 0000950135-99-001667.txt : 19990331 0000950135-99-001667.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950135-99-001667 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990103 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EG&G INC CENTRAL INDEX KEY: 0000031791 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 042052042 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-05075 FILM NUMBER: 99578838 BUSINESS ADDRESS: STREET 1: 45 WILLIAM ST CITY: WELLESLEY STATE: MA ZIP: 02481 BUSINESS PHONE: 7812375100 MAIL ADDRESS: STREET 1: 45 WILLIAM ST CITY: WELLESLEY STATE: MA ZIP: 02481 FORMER COMPANY: FORMER CONFORMED NAME: EDGERTON GERMESHAUSEN & GRIER INC DATE OF NAME CHANGE: 19670626 10-K405 1 EG&G, INC. 1 1998 Form 10-K [EG&G LOGO] UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 --------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 3, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-5075 ------------------------------------------------------ EG&G, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2052042 - ---------------------------------------------------- ---------------------------------------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.) organization) 45 WILLIAM STREET, WELLESLEY, MASSACHUSETTS 02481 - ---------------------------------------------------- ---------------------------------------------------- (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. [X] The aggregate market value of the common stock, $1 par value, held by nonaffiliates of the registrant on February 26, 1999, was $1,186,230,736. As of February 26, 1999, there were outstanding, exclusive of treasury shares, 44,994,317 shares of common stock, $1 par value. DOCUMENTS INCORPORATED BY REFERENCE PORTIONS OF EG&G, INC.'S PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS.......PART III (Items 10, 11 and 12) 2 PART I ITEM 1. BUSINESS GENERAL BUSINESS DESCRIPTION EG&G, Inc. (hereinafter referred to as "EG&G", the "Company", or the "Registrant", which terms include the Company's subsidiaries) is a global technology company that designs, manufactures and markets optoelectronic, mechanical and electromechanical components and instruments for manufacturers and end-user customers. The Company's continuing operations are classified into five operating segments: Life Sciences, Optoelectronics, Instruments, Engineered Products, and Technical Services. EG&G sells its products in a wide variety of markets, including the medical, telecom, aerospace, automotive, transportation, bioanalytical, semiconductor, photographic and security markets. The Company also delivers skilled support services to government and industrial customers. In 1998 the Company had sales of $1.4 billion from continuing operations. The Company was incorporated under the laws of the Commonwealth of Massachusetts in 1947. RECENT DEVELOPMENTS In March 1999, the Company announced that it plans to acquire Perkin-Elmer's Analytical Instruments Division, a leading producer of high quality analytical testing instruments, for a purchase price of approximately $425 million. The transaction is expected to close during the second quarter of 1999 and is subject to customary closing conditions, including regulatory approval. Perkin-Elmer Analytical Instruments generated 1998 fiscal year sales of $569 million and its systems are widely used for various applications, including among others, to achieve product uniformity in drugs and medicines, ensure the purity of food and water, protect the environment, and to measure and test the structural integrity of many different materials. The Company also announced in March 1999 that it will explore strategic alternatives for its Technical Services segment and that it has engaged Goldman, Sachs & Co. to conduct the review. In 1999, EG&G anticipates Technical Services will have a sales level of approximately $450 million. OPERATING SEGMENTS Set forth below is a brief summary of each of the Company's five operating segments together with a description of certain of their more significant or recently introduced products, services or operations. Life Sciences Through its Life Sciences segment, the Company designs, manufactures and markets high-performance bioanalytic and diagnostic instrument systems for use in hospitals, clinics and pharmaceutical and medical research facilities. These instrument systems have applications in pharmaceutical development, high throughput screening and clinical screening applications. The Company also sells reagents and consumables for use in connection with certain of these systems. Customers of the Life Sciences segment include large hospitals, medical laboratories, the pharmaceutical industry and academic research facilities. In 1998, this segment had sales of $148 million, representing 11% of the Company's total sales and 13% of the Company's operating profit before nonrecurring items and "Divestitures and Other" (which for the purpose of this filing includes (i) the results of operations from businesses which the Company has divested for the respective period presented, (ii) the related gain, as applicable, on the respective divestiture, (iii) certain allocations of corporate level expenses and provisions of the Company and (iv) a contribution by the Company to its charitable foundation for 1998.) The strategy of the Life Sciences segment is to aggressively develop new products and applications by building on its core technology base, expand direct market access by building its sales and field support, and continue to penetrate emerging markets in 2 3 Latin America and Asia. The Life Sciences segment also plans to continue to seek potential acquisition candidates in the bioanalytical research and clinical diagnostic screening markets. Principal products of the Life Sciences segment include the AutoDELFIA(TM) diagnostic system which employs fluorescence and luminescence technologies to screen samples for a wide range of genetic diseases and other disorders. These technologies do not involve the use of radioactive material, and thereby minimize many sample transport and waste disposal concerns. The AutoDELFIA(TM) diagnostic system is used for blood screening for thyroid dysfunction, fertility-related disorders, fetal defects and diseases in newborns and the detection of relapse in patients who have been treated for cancer. The Company's VICTOR(TM) multi-label counter is the world's first bioanalytic assay instrument to combine luminescence, absorbance, fluorescence and time-resolved fluorescence. The product is used in biotechnology and pharmaceutical research instrumentation. EG&G Wallac recently launched VICTOR(2)(TM), which is designed to support the future demands of clinical diagnostics and research laboratories by accommodating a wide range of tests and offering compatibility with other diagnostic tests currently used in clinical laboratories. The Life Sciences segment offers its products under various names, including Wallac and Berthold. In February 1998 the Company acquired Ohio-based Isolab, Inc., a company specializing in the manufacture of instrument systems for clinical diagnostic screening. In December 1998, the Company acquired Life Science Resources Ltd. of Cambridge, United Kingdom, a leading developer and supplier of biotechnology, biomedical and clinical research instrumentation using micro and macro imaging technology. Optoelectronics Through its Optoelectronics segment, the Company offers a broad variety of light sources, silicon-based sensor products, imaging technology and specially designed component assemblies. The Optoelectronics segment's products include micromachined sensors for use in medical and scientific applications, amorphous silicon detector panels for X-ray imaging, flashlamps for use in photocopy and reprographic equipment, specialty lighting, beacons, laser systems and flash tubes used in light sourcing applications, CCD arrays for imaging products and complex devices for weapons' trigger systems. Customers of the Optoelectronics segment include Kodak, Litton, Philips, Lockheed Martin, Boeing and Siemens. In 1998, this segment had sales of $269 million, representing 19% of the Company's total sales and 17% of the Company's operating profit before nonrecurring items and Divestitures and Other. The strategy of the Optoelectronics segment is to integrate recently acquired businesses, including Lumen Technologies, Inc. discussed below, in a timely, cost-effective manner, continue to develop its global sales organization, improve cost productivity through the implementation of production enhancement methodologies, consolidate its wafer fabrication operations and increase low-cost production at its Asian facilities. The Optoelectronics segment manufactures a variety of unique silicon-based sensor products, including micromachined pressure transducers and accelerometers, thermopiles and large-area photodetectors. The Optoelectronics segment's product offerings include airbag accelerometers, pressure sensors, flow-control products and an assortment of custom-designed sensors for specific customers and applications, such as ear thermometers that instantly measure body temperature. Optoelectronics sensors are used in automotive, medical, scientific monitoring and other applications that demand durability, reliability and precision in a variety of operating environments. The Company is developing an amorphous silicon detector for medical and industrial imaging systems. These systems are being designed to provide real-time images, eliminating the time-delay involved in developing film. The Company believes that amorphous silicon technology will offer 3 4 larger, higher-quality imaging capabilities than are currently available with conventional systems. The Company also believes that amorphous silicon technology is more precise than existing electronic X-ray imaging techniques, will be easier to maintain and operate, and will be less expensive. The Company expects the amorphous silicon detector to replace bulky image intensifiers and the film in conventional X-ray systems. In 1997, the Company obtained from G.E. Medical Systems the exclusive right to manufacture amorphous silicon detectors for use in high-end medical systems applications. This Optoelectronics segment offers its products under various names which include Electro-Optics, Heimann Optoelectronics, IC Sensors, Reticon, Judson and Vactec. In December 1998, the Company successfully completed its tender offer to purchase shares of Lumen Technologies, Inc., a maker of high-tech specialty light sources, for approximately $253 million in cash and assumed debt. The Optoelectronics segment operates substantially all of the Lumen businesses, including ILC Technology, ORC Technologies, and Wolfram Electric. Products manufactured by Lumen include specialty discharge lamps for medical fiberoptic illumination and cinema projection and stage and studio lighting. Lumen's products are used in a variety of applications, including high-intensity illumination systems and mini-systems that incorporate lamps, optics and electronic systems in the medical, aerospace, entertainment, semiconductor and military industries. Instruments Through its Instruments segment, the Company designs, manufactures and markets products for detection, measurement and testing applications. These products provide a wide range of measurement capabilities and options through the use of high-speed signal processing and image enhancement and a broad utilization of detector technologies. The products are used in medical diagnostics, automotive durability, food monitoring, and airport, cargo and industrial security applications. The Company's instruments include products that feature the accurate generation, detection and measurement of various segments of the electromagnetic spectrum. Customers of the Instruments segment include the Federal Aviation Administration, major airlines, Hoechst, BASF, Los Alamos National Engineering Laboratory, Lubrizol, General Motors and Daimler-Chrysler. In 1998, this segment had sales of $247 million, representing 18% of the Company's total sales and 24% of the Company's operating profit before nonrecurring items and Divestitures and Other. The strategy of the Instruments segment is to broaden its product offerings in the photolithography and food inspection applications, by both increasing sales in existing product lines and by adding new product lines, and to grow its range of after-market services offered to its existing customer base. Principal products of the Instruments segment include EG&G's PakScan(R) food screening system, which is used in food processing and packaging plants. PakScan's copyrighted intelligent software penetrates metallic pouches, vacuum packaging, waxed paper cartons and plastic trays to monitor and detect foreign objects in raw and processed food at various stages of production. The PakScan system removes contaminated packages from production lines. EG&G's Z-Scan(R) luggage screening system can identify the chemical and physical signatures of explosives and drugs with great accuracy and at speeds of up to 1,200 bags per hour. In March 1998, EG&G Astrophysics received an order of more than $3 million for its Z-Scan automatic explosives and contraband detection systems to be installed at San Francisco International Airport. In addition to Z-Scan, the Company's security-scanning products screen large cargo shipments at airports and customs check points, as well as baggage and packages in mail rooms, courthouses and schools. For the automobile, chemical additive and petroleum industries, the Company's Instruments segment 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 domestic, and a number of foreign, automobile manufacturers. Through a joint 4 5 venture with a subsidiary of Daimler-Chrysler the Company provides operational services to the recently opened Daimler-Chrysler automotive test track in Elmsland, Germany since 1997. The Instruments segment offers its products under various names which include Astrophysics, ORTEC, Automotive Research and Structural Kinematics. Engineered Products Through its Engineered Products segment, the Company produces static and dynamic seals, sealing systems, solenoid valves, bellows devices, advanced pneumatic components, systems and valves and sheet metal-formed products for market-leading OEMs and end users. Typical applications for these products are in the aerospace, semiconductor and power generation equipment markets. Customers of the Engineered Products segment include Boeing, AlliedSignal, United Technologies, and Applied Materials. In 1998, this segment had sales of $168 million, representing 12% of the Company's total sales and 15% of the Company's operating profit before nonrecurring items and Divestitures and Other. The strategy of the Engineered Products segment is to sell its existing products, product extensions and product service capabilities in new markets such as the aerospace aftermarket and the ground and aero turbine markets, and leverage its existing strength in the aerospace market. In addition, the Engineered Products segment plans to continue its efforts to improve and streamline its manufacturing processes. The principal products of the Engineered Products segment include metal bellows seals that hold the medication in pain reduction implants in patients, valves that provide propulsion and directional control on major satellites and bellows devices that safely contain dangerous dielectric fluids contained in locomotive cooling systems. The Engineered Products segment's brush seals and flexible, metallic C- and E-Seals(TM) minimize leakage and improve both efficiency and fuel consumption in power generation engines. The Engineered Products segment recently developed a family of ultra-high vacuum seals, called Alpha-C(R) and Beta-C(R) seals, for use in the increasingly harsh environments in which semiconductor processing and vacuum equipment operate. Integrating these seals into existing equipment to replace earlier generations of seals enables manufacturers to upgrade their capabilities to meet the demanding new requirements in these environments. The Engineered Products segment offers its products under various names, including Pressure Science, Wright Components, KT Aerofab and Belfab. In April 1998, the Company acquired substantially all of the assets of the Belfab Division of the TI Group, a Florida-based leading designer and manufacturer of bellows devices for the semiconductor process industry. Belfab supplies edge-welded bellows assemblies to semiconductor manufacturers for use in wafer and equipment positioning devices within process tools, as well as dynamic seals used in vacuum equipment. In November 1998, Belfab was awarded a major three-year contract to supply welded bellows products and electro-mechanical assemblies to Applied Materials, Inc. This contract represents the single largest award for metal bellows products in the Company's history. Technical Services Through its Technical Services segment, the Company provides engineering, scientific, management and technical support services to a broad range of governmental and industrial customers. The types of services provided and relevant customers include: technical and support services and chemical weapons disposal for the U.S. Department of Defense ("DoD"); seized-property administration for the U.S. Customs Service and Internal Revenue Service; consulting services for the U.S. Department of Transportation; science and engineering services for a variety of customers such as the U.S. Department of Energy (DOE), Environmental Protection Agency (EPA), National Oceanic and Atmospheric Administration (NOAA) and the National Aeronautic and Space Administration 5 6 (NASA); management services for the Greater Kelly Development Corporation in connection with the privatization of Kelly Air Force Base in San Antonio, Texas; physical security services for a variety of government agencies; operational and support services for NASA and the U.S. Air Force and technical support in a joint venture for the National Science Foundation in Antarctica. In 1998, this segment had sales of $554 million, representing 39% of the Company's total sales and 31% of the Company's operating profit before nonrecurring items and Divestitures and Other. The strategy of the Technical Services segment is to continue to develop its expertise in logistics management and privatization of government facilities, partner with other qualified vendors on government contracts, and deploy commercial practices designed to enhance quality and performance in the public contracting sector. The Company now offers many of the services in this segment through its EG&G Services division. In May 1998, EG&G Services was awarded a $113 million contract from the U.S. Navy to provide technical and support services at the Naval Surface Warfare Center, Crane, Indiana. In June of 1998, the U.S. Navy awarded the Company additional support services work totaling $54 million. In March 1998, the Company began operating the first Defense Logistics Agency (DLA) materials depot to be outsourced by DoD, located at Kelly Air Force Base, San Antonio, Texas. In July 1998, EG&G Services, the U.S. Customs Service's prime contractor for seized property management, was presented with the "Large Business Partner of the Year Award" from the U.S. Treasury Department. In September 1998, EG&G Services was awarded a contract that could total approximately $40 million over five years to provide logistics and support services for the U.S. Marine Corps' Advanced Amphibious Assault Vehicle, and a separate contract that could total approximately $144 million over five years to support the U.S. Navy's Fleet Technical Support Center. The Company is in the second year of a three-year contract with the Greater Kelly Development Corporation to assist in the implementation of a redevelopment plan for Kelly Air Force Base. The contract also has two three-year renewal options at the discretion of the Greater Kelly Development Corporation to provide additional activities related to the privatization of the base. In August 1998, the Company announced that its joint venture with Johnson Controls was unsuccessful in its bid to provide support services to NASA and the Air Force at Florida's Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base. The Company's recent announcement regarding its decision to undertake a strategic review of its Technical Services segment is discussed above under "Recent Developments". Discontinued Operations The Company had provided services under management and operations contracts to DOE and reports its former DOE Support segment as discontinued operations. Three of these DOE contracts expired in 1995, and a fourth expired 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. MARKETING Life Sciences, Optoelectronics, Instruments and Engineered Products, the Company's four product-based operating segments, market their products and services through their own specialized sales forces as well as through independent foreign and domestic manufacturer representatives and distributors. In certain foreign countries, these operating segments have entered into joint venture and license agreements with local firms to manufacture and market their products. The Company's Technical Services operating segment, which provides technical and management support services to government and industrial customers, focuses its marketing activities on 6 7 identifying and bidding on competitively bid procurements through its internal business development staff. For certain procurements, this segment markets its services through a joint venture or teaming arrangement with other qualified vendors. RAW MATERIALS AND SUPPLIES Raw materials and supplies used by the Company are generally readily available in adequate quantities from domestic and foreign sources. The Company does not believe that the loss of any one raw material or source of supply would have a materially adverse impact on the overall business of the Company or on any of its operating segments. 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 operating segments. EG&G(R), as well as certain product names, are registered trademarks of the Company. BACKLOG At January 3, 1999, the Company's backlog of unfilled orders was approximately $458 million, compared to $539 million at December 28, 1997. The decrease was primarily due to divestitures and the expiration of the Company's NASA contract. At January 3, 1999, approximately 34% of the backlog represented orders received from U.S. government agencies, primarily in the Technical Services segment. The Company estimates that 94% of its backlog as of January 3, 1999 will be billed during 1999. Because of possible changes in delivery schedules, possible cancellation of orders and potential delays in product shipments, the Company's backlog as of any particular date may not necessarily be representative of actual sales for any succeeding period. 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 $524 million, $537 million and $527 million in 1998, 1997 and 1996, respectively. In August 1998, the Company announced that its joint venture with Johnson Controls was unsuccessful in its bid to provide support services to NASA and the Air Force at Florida's Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base. The NASA contract at the Kennedy Space Center contributed sales of $134 million in 1998, $168 million in 1997 and $172 million in 1996. The Company recorded a charge of $2.3 million in 1998 in connection with the closeout of this contract. COMPETITION Because of the wide range of its products and services, the Company faces many different types of competition and competitors. In many markets, the Company faces strong competition, which affects its ability to sell its products and services and the prices at which such products and services are sold. Competitors range from large foreign and domestic organizations that produce a comprehensive array of goods and services and that may have greater financial and other resources than the Company, to small concerns producing a small number of goods or services for specialized market segments. 7 8 In the Life Sciences segment, the Company competes with manufacturers of bioanalytical research devices and clinical diagnostic equipment. Size of the competition ranges from large multinational companies with a broad range of products to specialized firms that in some cases have well established positions in their markets. The Company competes in these markets on the basis of innovative technologies, product differentiation and quality. The continued consolidation of competitors through acquisitions and mergers is expected to increase the proportion of large competitors in this segment. In the Optoelectronics segment, the Company competes with specialized manufacturing companies in the manufacture and sale of specialty flashtubes, certain photodetectors and photodiodes, and switched power supplies. This segment competes on the basis of price, technological innovation and operational efficiency. With the addition of the Lumen businesses, the Company will face additional competition based on product reliability and quality. In the Instruments segment, the Company competes with instrument companies that serve narrow segments of markets in X-ray and magnetic security systems and nuclear and industrial instrumentation. The Company competes in these markets primarily on the basis of product performance, product reliability, service and price. 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. In the Engineered Products segment, competition is typically based on product innovation, quality, service and price. No single competitor competes directly with this segment across its full product range. In a few markets, competitors are large organizations such as BTR Rexnord and Senior. Most of the Company's competitors, however, are small specialized manufacturing companies offering fewer product lines, such as Stein, Voss, Valve Research and Advanced Products. Contracts in the Technical Services segment are 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. Within all operating segments of the Company, competition for governmental purchases of both products and services is subject to mandated procurement procedures and competitive bidding practices. The Company competes primarily on the basis of product performance, technological innovation, service and price. RESEARCH AND DEVELOPMENT During 1998, 1997 and 1996, Company-sponsored research and development expenditures were approximately $46 million, $44.9 million and $42.8 million, respectively. These expenditures were incurred primarily in the Company's Life Sciences and Optoelectronics operating segments. 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 (PRP) 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 $9.5 million as of January 3, 1999, representing management's estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect any recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the 8 9 possible contamination, the nature of the potential remedies, possible joint and several liability, the timeframe over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that such accrued amounts could be paid out over a period of up to five years. 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. EMPLOYEES As of March 1, 1999, the Company employed approximately 13,000 persons. Certain of the Company's subsidiaries are parties to contracts with labor unions. The Company considers its relations with employees to be satisfactory. 9 10 FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS SALES AND OPERATING PROFIT BY OPERATING SEGMENT FOR THE FIVE YEARS ENDED JANUARY 3, 1999 The Company's businesses are reported as five reportable segments, which reflect the Company's management methodology and structure under five strategic business units (SBUs). A brief summary of each of the Company's five business segments is presented in Note 24 in the footnotes to the accompanying financial statements. The accounting policies of the segments are the same as those described in the footnotes to the accompanying consolidated financial statements. The Company evaluates performance based on operating profit of the respective segments. Summarized financial information covering the Company's reportable segments is shown in the table below. A detailed discussion of nonrecurring items as defined herein and as footnoted below is presented in the Management's Discussion and Analysis section of this document.
(IN THOUSANDS) 1998 1997 1996 1995 1994 - -------------- ---------- ---------- ---------- ---------- ---------- LIFE SCIENCES Sales.................. $ 148,124 $ 125,380 $ 111,759 $ 105,959 $ 93,162 Operating Profit (Loss)............... 9,046(1) 10,108 6,678 2,255 (657)(3) OPTOELECTRONICS Sales.................. 268,558 261,291 269,530 259,357 213,380 Operating Profit (Loss)............... (5,454)(1) (23,128)(2) 7,190 14,935 4,992(3) INSTRUMENTS Sales.................. 247,388 236,839 243,562 238,112 230,508 Operating Profit (Loss)............... 6,659(1) 17,966 25,920 22,368 (35,643)(3) ENGINEERED PRODUCTS Sales.................. 167,646 127,087 112,798 97,447 93,522 Operating Profit....... 5,194(1) 8,846 5,203 7,858 4,843(3) TECHNICAL SERVICES Sales.................. 553,514 533,323 498,965 532,265 508,720 Operating Profit....... 24,941(1) 22,776 23,363 24,064 17,767(3) DIVESTITURES AND OTHER Sales.................. 22,666 176,885 190,638 186,438 193,264 Operating Profit (Loss)............... 115,090(1) 23,030(2) 19,276 11,193 (2,249)(3) CONTINUING OPERATIONS Sales.................. 1,407,896 1,460,805 1,427,252 1,419,578 1,332,556 Operating Profit (Loss)............... 155,476(1) 59,598(2) 87,630 82,673 (10,947)(3)
- --------------- (1) The operating profit for 1998 reflected restructuring charges of $54.5 million. The impact of these charges on each segment was as follows: Life Sciences -- $4.6 million, Optoelectronics -- $20.3 million, Instruments -- $11.3 million, Engineered Products -- $9.9 million, Technical Services -- $4.5 million and Divestitures and Other -- $3.9 million. Optoelectronics' 1998 operating loss included an in-process research and development charge of $2.3 million. Instruments' 1998 operating profit reflected a $7.4 million asset impairment charge. Engineered Products' 1998 operating profit reflected integration costs of $0.6 million. Technical Services' 1998 operating profit reflected contract closeout costs of $2.3 million. The 1998 operating profit 10 11 for Divestitures and Other included gains on dispositions of $125.8 million and a charitable contribution of $3 million. (2) The operating profit for 1997 reflected a $28.2 million asset impairment charge. The impact of this charge was $26.7 million on the Optoelectronics segment and $1.5 million on Divestitures and Other. (3) The operating loss 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: Life Sciences -- $0.3 million, Optoelectronics -- $9.7 million, Instruments -- $54.4 million, Engineered Products -- $2.3 million, Technical Services -- $1 million and Divestitures and Other -- $3 million. See Note 24 to the consolidated financial statements for additional information on operating segments. Additional information relating to the Company's operations in the various operating segments is as follows:
DEPRECIATION AND AMORTIZATION EXPENSE CAPITAL EXPENDITURES ----------------------------- ----------------------------- (IN THOUSANDS) 1998 1997 1996 1998 1997 1996 - -------------- ------- ------- ------- ------- ------- ------- Life Sciences........ $ 5,059 $ 4,091 $ 4,835 $ 5,415 $ 3,352 $ 1,642 Optoelectronics...... 25,615 19,528 14,880 17,256 21,312 47,327 Instruments.......... 10,573 11,688 10,767 8,382 7,616 17,585 Engineered Products........... 6,042 3,090 2,736 10,325 9,488 4,739 Technical Services... 1,869 1,914 2,075 2,033 1,087 1,694 Divestitures and Other.............. 1,221 4,301 5,643 3,111 5,874 7,503 ------- ------- ------- ------- ------- ------- $50,379 $44,612 $40,936 $46,522 $48,729 $80,490 ======= ======= ======= ======= ======= =======
TOTAL ASSETS ---------------------- (IN THOUSANDS) 1998 1997 - -------------- ---------- -------- Life Sciences.............................. $ 128,970 $102,705 Optoelectronics............................ 479,818 216,096 Instruments................................ 183,590 157,716 Engineered Products........................ 112,898 60,619 Technical Services......................... 69,795 80,409 Divestitures and Other..................... 209,849 214,558 ---------- -------- $1,184,920 $832,103 ========== ========
Divestitures and Other total assets consisted primarily of cash and cash equivalents, prepaid pension, prepaid taxes and, in 1997, receivables and inventories of operations divested in 1998. 11 12 FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS The following geographic area information includes sales based on location of external customer and net property, plant and equipment based on physical location:
SALES -------------------------------------- (IN THOUSANDS) 1998 1997 1996 - -------------- ---------- ---------- ---------- U.S. .............................. $ 998,313 $1,022,644 $ 999,322 Germany............................ 68,493 72,436 63,502 United Kingdom..................... 47,794 65,462 48,971 Other Non-U.S. .................... 293,296 300,263 315,457 ---------- ---------- ---------- $1,407,896 $1,460,805 $1,427,252 ========== ========== ==========
NET PROPERTY, PLANT AND EQUIPMENT -------------------- (IN THOUSANDS) 1998 1997 - -------------- -------- -------- U.S. ........................................ $136,696 $108,415 Germany...................................... 21,923 16,351 Finland...................................... 15,431 13,181 Other Non-U.S. .............................. 47,776 43,196 -------- -------- $221,826 $181,143 ======== ========
ITEM 2. PROPERTIES As of March 1, 1999, the Company occupied approximately 7,842,200 square feet of building area, of which approximately 1,696,200 square feet is owned by the Company. 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 27 states, Washington, D.C., Puerto Rico and 23 foreign countries. Non-U.S. facilities account for approximately 970,200 square feet of owned and leased property, or approximately 12% 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) ---------- ---------- ---------- Life Sciences.......................................... 241,600 124,300 365,900 Optoelectronics........................................ 689,100 764,400 1,453,500 Instruments............................................ 456,000 291,800 747,800 Engineered Products.................................... 305,000 220,700 525,700 Technical Services..................................... 0 4,685,800 4,685,800 Corporate Offices...................................... 4,500 59,000 63,500 --------- --------- --------- Continuing Operations.................................. 1,696,200 6,146,000 7,842,200 ========= ========= =========
12 13 ITEM 3. LEGAL PROCEEDINGS The Company is subject to various 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 1994 tax years. The total additional tax proposed by the IRS amounts to $74 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. The Company and its subsidiary, EG&G Idaho, Inc., were named as defendants in a lawsuit filed in the United States District Court for the District of Idaho and served in November 1998. The suit was filed under the Civil False Claims Act by two former employees of EG&G Idaho, and names as defendants nine entities which were formerly, or currently are, prime or subcontractors to the Department of Energy at the Idaho National Engineering and Environmental Laboratory. The suit alleges that the defendants submitted false claims to the government for reimbursement of environmental activities which they knew or should have known were improperly performed or not performed at all. The damages claimed have not been quantified by the plaintiffs. The Company intends to defend itself vigorously in this matter and believes that its ultimate disposition will not have 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. 13 14 EXECUTIVE OFFICERS OF THE REGISTRANT Listed below are the executive officers of the Company as of March 1, 1999. No family relationship exists between any of the officers.
NAME POSITION AGE - ---- -------- --- John M. Kucharski................................. Chairman of the Board 63 Gregory L. Summe.................................. President and Chief Executive Officer 42 Robert F. Friel................................... Senior Vice President and Chief 43 Financial Officer Murray Gross...................................... Senior Vice President, 62 General Counsel and Clerk Angelo D. Castellana.............................. Senior Vice President 57 Richard F. Walsh.................................. Senior Vice President 46 Robert A. Barrett................................. Vice President 55 Stephen DeFalco................................... Vice President 38 Hansford T. Johnson............................... Vice President 63 Rabbe Klemets..................................... Vice President 45 Deborah S. Lorenz................................. Vice President 49 Daniel T. Heaney.................................. Treasurer 45 Gregory D. Perry.................................. Controller 38
Mr. Kucharski joined the Company in 1972. He was elected a Vice President in 1979, a Senior Vice President in 1982, an Executive Vice President in 1985, and President and Chief Operating Officer in 1986. Mr. Kucharski served as Chief Executive Officer from 1987 through 1998, and has been Chairman of the Board of Directors since 1988. Mr. Summe joined the Company in 1998 as President and Chief Operating Officer, and was elected President and Chief Executive Officer in December 1998. Until late 1997, he was President of AlliedSignal's Automotive Products Group. AlliedSignal Inc. is a $15 billion multi-product company, which has operations in aerospace, automotive and engineered materials businesses. Prior to being appointed President of AlliedSignal's Automotive Products Group in 1997, Mr. Summe served as President of AlliedSignal's Aerospace Engines from 1995 to 1997 and as President of AlliedSignal's General Aviation Avionics from 1993 to 1995. Mr. Friel joined the Company in 1999 as Senior Vice President and Chief Financial Officer. From 1997 to 1999 he was Corporate Vice President and Treasurer of AlliedSignal Inc. Prior to that he was Vice President, Finance and Administration of AlliedSignal Engines from 1992 to 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 and a Senior Vice President in 1997 and serves as a principal executive in the Office of the Chief Executive Officer, overseeing the Optoelectronics and Instruments operating segments. Mr. Walsh joined the Company in July 1998 as Senior Vice President of Human Resources. From 1989 to 1998, he served as Senior Vice President of Human Resources of ABB Americas, Inc., the U.S. based subsidiary of an international engineering company. Mr. Barrett serves as Vice President of the Company and President of the Engineered Products Strategic Business Unit, positions he has held since January 1997 and May 1998, respectively. From 1990 to 1997, he served as President and General Manager of EG&G Pressure Science, Inc. Mr. DeFalco serves as Vice President of Strategic Planning and Business Development of the Company, a position he has held since September 1998. From 1996 to 1998, he worked at United 14 15 Technologies, a provider of technology related products and services, as Director of Strategic Planning and subsequently at their subsidiary Carrier Corporation as the Vice President of Strategic Planning. From 1988 to 1996, he served with McKinsey & Co., a consulting company, most recently as Senior Engagement Manager, assisting high technology companies in the development of business strategies. Mr. Johnson serves as Vice President of the Company and President of the Technical Services Strategic Business Unit, positions he has held since 1998. Prior to 1998, he served as Chief Operating Officer of the Credit Union National Association (a national affiliation of credit unions) from 1997 to 1998, as Chairman, President and Chief Executive Officer of the Greater Kelly Development Corporation (a quasi-public agency established to oversee the privatization of Kelly Air Force Base, San Antonio, Texas) from 1995 to 1997, and as Vice Chairman of the Board of Directors of USAA Capital Corporation (a provider of diversified financial services) from 1993 to 1995. Mr. Klemets is Vice President of the Company and President of the Life Sciences Segment Business Unit, positions he has held since May 1998. From 1991 to 1998, he served as Managing Director of Wallac Oy, a subsidiary of the Company. Mr. Klemets is a citizen of Finland. Ms. Lorenz joined the Company in 1990. She was elected a Vice President in 1992 and is responsible for Investor Relations and Corporate Communications. 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 from 1994 to 1995. He was elected Treasurer in 1995. Mr. Perry joined the Company in September 1998 as Controller. From 1997 to 1998, he served as Chief Financial Officer of AlliedSignal's Automotive Products Group and as Chief Financial Officer of AlliedSignal's Fram and Autolite Units. Prior to 1997, he served as Vice President, Finance of GE Medical Systems Europe from 1994 to 1997, and served as Manager in charge of business development for GE Motors from 1991 to 1994. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET PRICE OF COMMON STOCK
1997 QUARTERS ------------------------------------ FIRST SECOND THIRD FOURTH ------ ------ ------ ------ High......................................... $24.63 $21.13 $22.63 $23.00 Low.......................................... 19.63 18.13 18.75 18.00
1998 QUARTERS ------------------------------------ FIRST SECOND THIRD FOURTH ------ ------ ------ ------ High......................................... $28.50 $33.75 $30.13 $29.44 Low.......................................... 19.44 27.13 18.88 20.50
DIVIDENDS
1997 QUARTERS ------------------------------------ FIRST SECOND THIRD FOURTH ------ ------ ------ ------ Cash Dividends Per Common Share.............. $ .14 $ .14 $ .14 $ .14
1998 QUARTERS ------------------------------------ FIRST SECOND THIRD FOURTH ------ ------ ------ ------ Cash Dividends Per Common Share.............. $ .14 $ .14 $ .14 $ .14
15 16 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 26, 1999, was approximately 9,400. In October 1998, 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, 1999, to stockholders of record at the close of business on January 22, 1999. ITEM 6. SELECTED FINANCIAL DATA SELECTED FINANCIAL INFORMATION FOR THE FIVE YEARS ENDED JANUARY 3, 1999
(IN THOUSANDS WHERE APPLICABLE) 1998 1997 1996 1995 1994 - ------------------------------- ---------- ---------- ---------- ---------- ---------- OPERATIONS: Sales......................................... $1,407,896 $1,460,805 $1,427,252 $1,419,578 $1,332,556 Operating income (loss) from continuing operations.................................. 155,476(1) 59,598(4) 87,630 82,673 (10,947)(7) Income (loss) from continuing operations...... 102,002(2) 30,645(5) 54,480 54,304 (32,107)(8) Income from discontinued operations, net of income taxes................................ -- 3,047 5,676 13,736 26,452 Net income (loss)............................. 102,002(2) 33,692(5) 60,156 68,040 (5,655)(8) Basic earnings (loss) per share: Continuing operations....................... 2.25(2) .67(5) 1.15 1.05 (.58)(8) Discontinued operations..................... -- .07 .12 .27 .48 Net income (loss)........................... 2.25(2) .74(5) 1.27 1.32 (.10)(8) Diluted earnings (loss) per share: Continuing operations....................... 2.22(2) .67(5) 1.15 1.05 (.58)(8) Discontinued operations..................... -- .07 .12 .27 .48 Net income (loss)........................... 2.22(2) .74(5) 1.27 1.32 (.10)(8) Return on equity............................ 28.0%(3) 9.7%(6) 16.4% 16.8% (1.2)%(9) Weighted-average common shares outstanding: Basic....................................... 45,322 45,757 47,298 51,483 55,271 Diluted..................................... 45,884 45,898 47,472 51,573 55,324 FINANCIAL POSITION: Working capital............................... $ 41,284 $ 202,571 $ 194,915 $ 218,235 $ 199,656 Current ratio................................. 1.08:1 1.71:1 1.75:1 1.87:1 1.71:1 Total assets.................................. 1,184,920 832,103 822,900 803,915 793,129 Short-term debt............................... 157,888 46,167 21,499 5,275 59,988 Long-term debt................................ 129,835 114,863 115,104 115,222 812 Long-term liabilities......................... 131,320 103,237 82,894 71,296 65,129 Stockholders' equity.......................... 399,667 328,388 365,106 366,946 445,366 - -- Per share.................................. 8.93 7.24 7.88 7.71 8.08 Total debt/total capital...................... 42% 33% 27% 25% 12% Common shares outstanding..................... 44,746 45,333 46,309 47,610 55,124
16 17
(IN THOUSANDS WHERE APPLICABLE) 1998 1997 1996 1995 1994 - ------------------------------- ---------- ---------- ---------- ---------- ---------- CASH FLOWS: Cash flows from continuing operations......... $ 69,762 $ 32,142 $ 73,238 $ 123,831 $ 70,341 Cash flows from discontinued operations....... (207) 2,696 6,920 26,334 25,542 Cash flows from operating activities.......... 69,555 34,838 80,158 150,165 95,883 Depreciation and amortization................. 50,379 44,612 40,936 39,426 36,790 Capital expenditures.......................... 46,522 48,729 80,490 61,839 37,277 Cost of acquisitions.......................... 217,937 3,611 -- -- 32,841 Proceeds from dispositions.................... 210,505 24,287 1,744 15,238 2,872 Purchases of common stock..................... 41,217 28,104 30,760 135,079 19,139 Cash dividends per common share............... .56 .56 .56 .56 .56
- --------------- (1) Included net nonrecurring income items totaling $55.7 million, $37.8 million after-tax ($.83 basic earnings per share, $.82 diluted earnings per share); nonrecurring items as defined herein and as discussed in the accompanying consolidated financial statements and related footnotes are more fully discussed in the Management's Discussion and Analysis section of the Annual Report on Form 10-K. (2) Included the nonrecurring items in Note 1 above and an investment gain of $4.3 million, $2.7 million after-tax ($.06 basic and diluted per share). (3) Return on equity before effects of nonrecurring items was 17.9%. (4) Reflected an asset impairment charge of $28.2 million, $23.5 million after-tax ($.51 basic and diluted loss per share). (5) Reflected the asset impairment charge in Note 4 above and a cost of capital reimbursement of $3.4 million, $2.3 million after-tax ($.05 basic and diluted earnings per share). (6) Return on equity before effects of nonrecurring items was 15.4%. (7) Included a goodwill write-down of $40.3 million and restructuring charges of $30.4 million, $64 million after-tax ($1.16 basic and diluted loss per share). (8) Included the nonrecurring items in Note 7 above and an investment write-down of $2.1 million, $1.4 million after-tax ($.03 basic and diluted loss per share). (9) Return on equity before effects of nonrecurring items was 12.1%. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW During 1998, the Company implemented various initiatives for sustainable profitability and earnings per share growth. The Company achieved important milestones to restructure and rebalance its portfolio into 1999 and beyond. The Company divested certain non-core operations during the year and utilized the proceeds to accelerate certain consolidation programs, and completed four strategic acquisitions. Acquisitions in early 1998 included Isolab in our Life Sciences segment and Belfab in our Engineered Products segment. The Company accelerated its growth initiative with fourth quarter 1998 acquisitions of Lumen Technologies, Inc. (Lumen) and Life Sciences Resources, Ltd. (LSR) in our Optoelectronics and Life Sciences segments, respectively. On December 16, 1998, the Company completed its acquisition of Lumen, a maker of high-technology specialty light sources, at a purchase price of approximately $253 million, including approximately $75 million of assumed debt. Lumen will be reported primarily as a component of the Company's Optoelectronics segment. Also in December, 1998, the Company acquired LSR, a developer of biotechnology, biomedical and clinical research instrumentation, at a purchase price of approximately $11 million. LSR will be reported in the Life Sciences segment of the Company. Due to the timing of the transactions, the financial results of Lumen and LSR were not material to the Company's consolidated results of operations for 1998. 17 18 Base operations results of operations exclude certain nonrecurring items which are presented in the table below. Reference to nonrecurring items herein relates to the items presented below. A reconciliation of reported operating income to base operating income results for 1998 compared to 1997 is as follows:
OPERATING INCOME --------------------- (IN THOUSANDS) 1998 1997 - -------------- --------- -------- As reported...................................... $ 155,476 $ 59,598 Gains on dispositions............................ (125,822) (10,646) In-process R&D charge............................ 2,300 -- Restructuring charges............................ 54,500 4,900 Integration costs & other........................ 600 3,382 Asset impairment charge.......................... 7,400 28,200 Charitable contribution (SG&A)................... 3,000 -- Contract closeout costs.......................... 2,300 -- Employee benefit plan charge..................... -- 2,800 Results of divested operations................... (2,127) (26,590) --------- -------- Base operations.................................. $ 97,627 $ 61,644 ========= ========
In March, 1999, the Company announced that it had entered into an agreement to acquire Perkin-Elmer's Analytical Instruments Division, a leading producer of high quality analytical testing instruments, for a purchase price of approximately $425 million. The Company plans to finance the transaction with a combination of existing cash and equivalents, borrowings under its existing credit facilities and other financing, as required. The closing of the acquisition is subject to certain customary closing conditions including regulatory approval. The transaction is expected to close during the second quarter of 1999. Perkin-Elmer Analytical Instruments generated 1998 fiscal year sales of $569 million. Its systems are widely used to achieve product uniformity in drugs and medicines, ensure the purity of food and water, protect the environment, measure and test the structural integrity of many different materials and various other applications. The division sells to traditional analytical instruments and life sciences markets. The Company also announced that it will explore strategic alternatives for its Technical Services business unit and has engaged Goldman, Sachs & Co. to conduct the review. In 1999, EG&G anticipates Technical Services will have a sales level of approximately $450 million. DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS -- 1998 COMPARED TO 1997 Sales, excluding the effect of divested operations of $22.7 million and $175.4 million in 1998 and 1997, respectively, increased 8% in 1998 versus 1997. Reported sales decreased $52.9 million, or 4%, in 1998 compared to 1997 due primarily to the absence of revenues from divested operations and lower revenues from the Company's NASA contract which expired at the end of the third quarter of 1998. Decreases in revenues from divested operations and the Company's NASA contract were $152.8 million and $37.5 million, respectively, and were offset by increases in base sales, excluding 1998 acquisitions, of approximately $113.6 million. 1998 results included an in-process research and development charge of $2.3 million related to the fourth quarter acquisitions of Lumen and LSR and also included contract closeout costs of $2.3 million in Technical Services related to the termination of the Kennedy Space Center Contract. Restructuring charges recorded during 1998 were $54.5 million. The impact of these charges on each segment was as follows: Life Sciences-$4.6 million, Optoelectronics-$20.3 million, Instruments-$11.3 million, Engineered Products-$9.9 million, Technical Services-$4.5 million, and Divestitures and Other-$3.9 million. Also included in 1998 operating income was a $7.4 million asset impairment charge related to the Instruments segment and a $3 million charitable contribution recorded in selling, general and administrative expenses. Gains of $125.8 million on dispositions of businesses were included in 1998 operating income in Divestitures and Other. Beginning in 1998, the Company began reporting on the basis of five business segments in accordance with the 18 19 requirements of SFAS No. 131. The prior period results herein have been reclassed between segments for comparability and the basis of presentation has been revised to conform to the 1998 format. The operating income from continuing operations in 1997 included an asset impairment charge of $28.2 million. The impact of this charge was $26.7 million in the Optoelectronics segment and $1.5 million in Divestitures and Other. Base operating income excludes certain nonrecurring items which are discussed herein and a summary of the respective 1998 nonrecurring items is as follows:
DILUTED EARNINGS (LOSS) (IN THOUSANDS) BEFORE-TAX AFTER-TAX PER SHARE - -------------- ---------- --------- --------------- Gains on dispositions.................. $125,822 $87,833 $1.91 Integrations costs..................... (600) (384) (.01) Restructuring charges.................. (54,500) (39,531) (.86) Asset impairment charge................ (7,400) (4,425) (.10) Charitable contribution (SG&A)......... (3,000) (1,920) (.04) Contract closeout costs................ (2,300) (1,472) (.03) In-process R&D charge.................. (2,300) (2,300) (.05) -------- ------- ----- Subtotal............................... 55,722 37,801 .82 Gain on investment..................... 4,254 2,723 .06 -------- ------- ----- Total.................................. $ 59,976 $40,524 $ .88 ======== ======= =====
Reported operating income from continuing operations for 1998 was $155.5 million, an increase of 161% from 1997. Base operating income of $97.6 million increased 58% compared to 1997 due primarily to higher gross profit across most businesses. A reconciliation of reported operating income in 1998 and 1997 versus base operating income is presented in the preceding table in the Overview section of Management's Discussion and Analysis. Discussion of segment results of operations during 1998 versus 1997 is presented below. DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS -- 1997 COMPARED TO 1996 Sales from continuing operations increased 2% in 1997 compared to 1996. Excluding the effects of currency translation and results of divested operations, 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. These gains were offset by $11.1 million of planned integration and other costs consisting of $8.3 million incurred in connection with the consolidation, integration 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 1996. SEGMENT RESULTS OF OPERATIONS The Company's businesses are reported as five reportable segments, which reflect the Company's management methodology and structure under five SBUs as discussed above. A brief summary of each of the Company's five business segments is presented in Note 24 in the footnotes to the accompanying consolidated financial statements. The accounting policies of the segments are the same as those described in the footnotes to the accompanying consolidated financial statements. The Company evaluates performance based on operating profit of the respective segments. The discussion that 19 20 follows is a summary analysis of the primary changes in operating results by segment for 1998 versus 1997 and 1997 versus 1996. Life Sciences 1998 Compared to 1997 Sales for 1998 were $148.1 million compared to $125.4 million for 1997, which represents a $22.7 million, or 18%, increase. Higher sales volumes from certain base businesses, revenues from recently developed products and the Isolab acquisition revenues of $6.5 million were the primary reasons for the increase during 1998. The higher volumes during 1998 primarily related to the diagnostic and bioanalytical business. Reported operating profit for 1998 was $9.0 million compared to $10.1 million for 1997 which represents a $1.1 million, or 11%, decrease. Restructuring charges of $4.6 million recorded in the first half of fiscal 1998 contributed to this decrease. 1998 base operating profit was $13.7 million compared to $10.3 million for 1997, which represents a $3.4 million, or 33%, increase. The increase was due primarily to the higher revenues discussed above and improved gross margins from most businesses resulting from a more favorable product mix. 1997 Compared to 1996 Sales for 1997 were $125.4 million which represented a $13.6 million, or 12%, increase compared to the prior year. 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 government funded research revenue decreases and delays in certain product improvements. Base operating income increased 54% versus the prior year to $10.3 million for 1997. Higher sales discussed above contributed to the increase combined with the effects of increased profitability from an enhanced product offering and an improved sales mix. Optoelectronics 1998 Compared to 1997 Sales for 1998 were $268.6 million compared to $261.3 million for 1997, which represents a $7.3 million, or 3%, increase. Slight increases in sales across most businesses were partially offset by lower 1998 printer circuit board assembly sales versus 1997. Reported operating loss for 1998 was $5.5 million compared to a loss of $23.1 million for 1997 which represents an increase of $17.6 million, or 76%. Restructuring charges of $20.3 million were recorded in the first half of fiscal 1998 and a fourth quarter charge of $2.3 million was recorded for an in-process research and development charge related to the Lumen acquisition; each contributed to the 1998 operating loss. 1998 base operating profit was $17.2 million compared to $5.3 million for 1997, which represents an $11.9 million, or 225%, increase. Higher gross margins across most businesses, favorable product mix, and various operational improvement initiatives to lower production costs were the primary contributors to this increase. 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 $30.3 million decrease in reported income resulted primarily from the noncash asset impairment charge of $26.7 million. 20 21 Excluding the impairment charge, operating income decreased $3.6 million as a result of lower sales, higher operating losses at IC Sensors and higher development costs for the advanced micromachined sensors technology. 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. Instruments 1998 Compared to 1997 Sales for 1998 were $247.4 million compared to $236.8 million for 1997, which represents a $10.6 million, or 4%, increase. This was due primarily to the effects of a $4.5 million increase in automotive business revenues and $4 million of royalty and licensing fees from a multi-year agreement consummated in the fourth quarter of 1998. These increases were partially offset by a 6% decrease in 1998 X-Ray revenues due to an overall softening in the security markets. Delays of certain international shipments during the fourth quarter of 1998 also contributed to lower 1998 sales. Reported operating profit for 1998 was $6.7 million compared to $18.0 million for 1997, which represents a decrease of $11.3 million, or 63%. Restructuring charges of $11.3 million and an asset impairment charge of $7.4 million were recorded in the first half of 1998 and contributed to this decrease. 1998 base operating profit was $25.3 million compared to $20.6 million for 1997 which represents a $4.7 million, or 23%, increase. Base operating income in 1998 increased versus 1997 due primarily to the royalty and licensing fees, which contributed $3.1 million to operating income, and a $2 million refund of sales and use taxes which were offset in part by customer contract provisions. 1997 Compared to 1996 Instruments sales decreased $6.7 million, and operating income decreased $8 million. The Instruments results included a $3.4 million net reduction in patent infringement costs. This increase was offset by restructuring and integration costs of $2.7 million and the absence of income ($1.1 million) from the expiration of a grant liability in 1996, start-up costs, price reductions due to continued competitive pressure on conventional explosives-detection systems and lower sales experienced by some businesses. Engineered Products 1998 Compared to 1997 Sales for 1998 were $167.6 million compared to $127.1 million for 1997, which represents a $40.5 million, or 32%, increase. Modest strength in the Company's aerospace business partially contributed to the increase and was offset in part by continued declining sales from the semiconductor business. The Belfab acquisition completed in the second quarter contributed $17.2 million while most other segment businesses recorded higher 1998 sales compared to 1997. Excluding the acquisition, revenues in 1998 increased approximately 18% compared to 1997. Reported operating profit for 1998 was $5.2 million compared to $8.8 million for 1997 which represents a decrease of $3.6 million, or 41%. Restructuring charges of $9.9 million recorded in the first half of 1998 and $0.6 million of integration costs recorded in the third quarter of 1998 contributed to this decrease. 1998 base operating profit was $15.7 million compared to $9.3 million for 1997, which represents an increase of $6.4 million, or 69%. Higher gross margins driven primarily by higher sales levels and certain manufacturing cost improvements across most businesses within the segment contributed to this increase. Belfab did not contribute to operating profit during 1998. 21 22 1997 Compared to 1996 Sales increased $14.3 million, or 13%, due to higher demand for aerospace products, reflecting continued strength in that market. Operating income increased $3.6 million as the result of income on higher sales and improved contract margins. These increases were partially offset by costs associated with the consolidation and relocation of manufacturing facilities and warranty costs. Technical Services 1998 Compared to 1997 Sales for 1998 were $553.5 million compared to $533.3 million for 1997, which represents a $20.2 million, or 4%, increase. At the end of the third quarter of 1998, the Company announced that its joint venture with Johnson Controls was unsuccessful in its bid to provide support services to NASA and the U.S. Air Force at Florida's Kennedy Space Center, Cape Canaveral and Patrick Air Force Base (the "Florida contract"). The Florida contract contributed sales of approximately $134 million and $168 million in 1998 and 1997, respectively. The overall increase in 1998 sales versus 1997 was due primarily to privatization sector contributions, and increased sales for the Defense Materials and Services units, offset by lower fourth quarter 1998 sales as a result of the loss of the Florida contract. Reported operating profit for 1998 was $24.9 million compared to $22.8 million for 1997, which represents a $2.1 million, or 9.2%, increase. Restructuring charges of $4.5 million were recorded in the first half of fiscal 1998 and $2.3 million of contract closeout costs were recorded in the third quarter of 1998. 1998 base operating profit was $31.7 million compared to $23.5 million for 1997, which represents a $8.2 million, or 35%, increase. The increase in operating profit was due primarily to higher revenues discussed above and improved gross margins from most businesses. This revenue increase was due primarily to higher base sales levels discussed above, improved grades on the chemical weapons disposal contract and the shutdown of an environmental services business which incurred a 1997 loss. Base operating profit as a percentage of sales increased due in part to the loss of the Florida contract, a low margin contributor. 1997 Compared to 1996 Sales increased $34.4 million (7%), primarily reflecting final shipments under a contract for the development and installation of communication systems and higher billings under government contracts. Base operating income in 1997 increased 1% compared to the prior year. RESTRUCTURING AND INTEGRATION CHARGES The Company developed restructuring plans during 1998 to integrate and consolidate its businesses. The Company recorded restructuring charges in the first and second quarters of 1998, which are discussed separately below. These restructuring plans were points in the continuing transformation of the Company that began in 1994 and continued into 1998 with the addition of new leadership and new management, changes in the organization of the businesses and the realignment and consolidation of operations. Further details of the actions are presented below. In connection with the Company's continued transformation of its portfolio of companies, during the first quarter of 1998, management developed a plan to restructure certain businesses. A discussion of the businesses affected within each segment is presented below. The plan resulted in pre-tax restructuring charges totaling $31.4 million. The principal actions in the restructuring plan include close-down or consolidation of a number of offices and facilities, transfer of assembly activities to lower cost geographic locations, disposal of underutilized assets, withdrawal from 22 23 certain product lines and general cost reductions. The restructuring charges were broken down as follows by operating segment:
TERMINATION OF DISPOSAL OF LEASES AND OTHER EMPLOYEE CERTAIN PRODUCT CONTRACTUAL ($ IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL - --------------- ---------------- ---------------- ---------------- ----- Life Sciences............ $ .3 $ .2 $ .2 $ .7 Optoelectronics.......... 6.7 .8 1.1 8.6 Instruments.............. 4.8 2.9 2.0 9.7 Engineered Products...... 4.8 1.9 1.8 8.5 Technical Services....... .3 .4 .2 .9 Corporate and Other...... 3.0 -- -- 3.0 ----- ---- ---- ----- Total.......... $19.9 $6.2 $5.3 $31.4 ===== ==== ==== ===== Amounts incurred through 1/3/99................. $ 6.8 $6.2 $ .7 $13.7 Ending accrual at 1/3/99................. $13.1 -- $4.6 $17.7
The headcount reduction, by function, resulting in the Employee Separation Costs detailed above is as follows:
HEADCOUNT REDUCTION --------- Sales & Marketing.... 38 Production........... 492 General & Administrative..... 88 --- Total...... 618 ===
Further details of the actions are presented below. Specific businesses within each segment which were affected by the restructuring actions are as follows: The Engineered Products business affected primarily manufactures mechanical components and systems. The Optoelectronics businesses affected produce various lighting and sensor components and systems. The Instruments restructuring relates primarily to its X-ray imaging business which produces security screening equipment, as well as its Instruments for Research and Applied Science business which produces particle detector equipment. Close-down of certain facilities: Costs have been accrued for the closing down of facilities. These costs relate to the affected businesses discussed above within the Engineered Products and Optoelectronics segments. Transfer of assembly activities: The Company plans to relocate certain activities, primarily in its Optoelectronics segment, to lower cost geographic areas such as Indonesia and China. The costs included in the restructuring charges relate to costs associated with exiting the previous operations. Actual costs to physically relocate are charged to operations as incurred. Disposal of underutilized assets: The Company plans to dispose of underutilized assets either through sale or abandonment, primarily in its Instruments and Optoelectronics segments. Withdrawal from certain product lines: The Company has made a strategic decision to discontinue certain unprofitable product-lines discussed above, primarily in its Instruments and Optoelectronics segments. During the second quarter of 1998, the Company expanded its continuing effort to restructure certain businesses to further improve performance. The plan resulted in additional pre-tax restructuring charges of $23.1 million. The principal actions in this restructuring plan included the 23 24 integration of current operating divisions into five strategic business units, close-down or consolidation of a number of production facilities and general cost reductions. Details are provided following the table presented below. The restructuring charges were broken down as follows by operating segment:
TERMINATION OF DISPOSAL OF LEASES AND OTHER EMPLOYEE CERTAIN PRODUCT CONTRACTUAL ($ IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL - --------------- ---------------- ---------------- ---------------- ----- Life Sciences............ $ 3.3 $ .2 $ .4 $ 3.9 Optoelectronics.......... 1.8 5.6 4.3 11.7 Instruments.............. 1.6 -- -- 1.6 Engineered Products...... 1.4 -- -- 1.4 Technical Services....... 3.4 -- .2 3.6 Corporate and Other...... .8 -- .1 .9 ----- ---- ---- ----- Total.......... $12.3 $5.8 $5.0 $23.1 ===== ==== ==== ===== Amounts incurred through 1/3/99................. $ 2.5 $5.8 $ .3 $ 8.6 Ending accrual at 1/3/99................. $ 9.8 -- $4.7 $14.5
The headcount reduction, by function, resulting in the Employee Separation Costs detailed above is as follows:
HEADCOUNT REDUCTION ------------------- Sales & Marketing..... 44 Production............ 137 General & Administrative...... 110 --- Total....... 291 ===
Integration of Current Operating Divisions and Consolidation of Certain Production Facilities As part of the Company's second quarter restructuring plan, management reorganized its current operating divisions into five strategic business units (SBUs). This resulted in termination of employees as well as the integration and consolidation of certain facilities and product lines. This effort is company-wide and affects all five SBUs. The major components within the Optoelectronics plan consisted of a development program and the closing of two wafer fab production facilities. The total restructuring charges in 1998 included $10.3 million for termination of leases and other contractual obligations. This amount includes approximately $7.0 million for termination of facility leases and other lease-related costs, $1.5 million for termination of distributor arrangements and $1.8 million for various other commitments. The facility leases have remaining terms ranging from six months to five years. The amount accrued reflects the Company's best estimate of actual costs to buy out the leases in certain cases or the net cost to sublease the properties in other cases. Approximately 300 employees of the total of 900 employees expected to be terminated as part of the two restructuring plans had been severed as of January 3, 1999. The plans will be mainly implemented by the segments by mid-1999, except for the SBU consolidation, which will occur by the end of 1999. Cash outlays, primarily for employee separation costs, were $10.2 million in 1998. The Company expects to incur approximately $32 million of cash outlays in connection with its restructuring plans throughout 1999. These funds will come primarily from operating cash flows or borrowings from existing credit facilities. Pre-tax cost savings under these restructuring plans, due primarily to reduced depreciation and lower employment costs, totaled approximately $6.8 million during 1998, or $.09 per share. Fiscal year 2000 will reflect a full year's savings from the restructuring plans, and pre-tax annual savings are anticipated to be approximately $24 million, or $.33 per share. In 1997, as part of a plan to reposition its operations, the Company recorded $8.3 million of integration costs which included $4.9 million related to employee separation costs and $3.4 million 24 25 related to its consolidation effort. These costs were included in selling, general and administrative expenses. The components of the restructuring charges met the criteria set forth in Emerging Issues and Task Force Issue (EITF) 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The charges do not include additional costs associated with the restructuring plans, such as training, consulting, purchase of equipment and relocation of employees and equipment. These costs will be charged to operations or capitalized, as appropriate, when incurred. ASSET IMPAIRMENT CHARGES During the second quarter of 1998, the Company recorded a $7.4 million noncash impairment charge related to a light truck testing facility that is part of the Instruments segment. The impairment charge resulted from projected changes in the principal customer's demand for future services. The charge applied to fixed assets and will reduce future depreciation by approximately $1.4 million annually. During the second quarter of 1997, the Company recorded a noncash impairment charge of $28.2 million, with $26.7 million related to IC Sensors in the Optoelectronics segments and $1.5 million related to the goodwill of an environmental services business in Divestitures and Other. As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan, it continued operating at a loss in the second quarter of 1997, triggering an impairment review of its long-lived assets. The Company developed a revised operating plan 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, for the write-down of goodwill of $13.6 million and fixed assets of $13.1 million. The components of the revised operating plan included hiring a new general manager, transferring assembly and test operations to a lower cost environment (Batam, Indonesia), introducing new products and reviewing manufacturing processes to improve production yields. All of these components were implemented during 1997 and 1998. DIVESTITURES AND OTHER In January 1998, the Company sold its Rotron business unit for proceeds of $103 million. In April 1998, the Company sold its Sealol Industrial Seals operation for proceeds of $100 million, of which $45 million was utilized for the Belfab acquisition. The Company realized gains of $125.8 million on the dispositions. DISCONTINUED OPERATIONS Income from discontinued operations, net of income taxes, in 1997 reflected the results of the Mound contract for the Department of Energy (DOE), which expired in September 1997. All contracts with the DOE are now completed. OTHER 1998 Compared to 1997 Other income was $0.6 million for 1998 versus other expense reported in 1997 of $5.6 million. This net decrease of $6.2 million in other expense in 1998 was due primarily to the impact of higher interest income on increased cash balances resulting from the 1998 dispositions and lower interest expense on reduced debt levels during most of 1998. Included in 1998 other income was a $4.3 million gain on investment. Other expense in 1997 included income of $3.4 million for a cost of 25 26 capital reimbursement. The 1998 effective tax rate of 34.6% was impacted by the tax consequences of the gains on dispositions and restructuring charges. Excluding these items and their related tax effects, the 1998 effective tax rate was higher than the 1997 base effective tax rate of 34.1%, due primarily to the changes in the geographical distribution of income resulting from the divestiture of the Sealol Industrial Seals business unit. 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% before nonrecurring items 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. FINANCIAL CONDITION In March 1999, two of the Company's $100 million credit facilities were renewed and increased to a $250 million credit facility that expires in March 2000. The Company has an additional revolving credit agreement for $100 million that expires in March 2002. The Company had no borrowings outstanding under its credit facilities at the end of fiscal 1998. These facilities are used primarily as back up for the Company's commercial paper program. In addition to financing ongoing operations, the Company plans to utilize its commercial paper program to fund a portion of anticipated acquisitions as they occur in 1999 and beyond. Debt at year end 1998 consisted of $150 million of short-term debt which represents commercial paper borrowings, $115 million of unsecured long-term notes and approximately $22 million of debt assumed in connection with the Lumen acquisition. On December 16, 1998, Lighthouse Weston Corp. ("Lighthouse"), a wholly owned subsidiary of the Company, completed its tender offer for shares of common stock of Lumen for a purchase price of $253 million, including $75 million of assumed debt. Lighthouse acquired approximately 92.3% of Lumen's common stock pursuant to the tender offer. On January 4, 1999, Lumen became a wholly owned subsidiary of the Company, as a result of the merger of Lighthouse with and into Lumen. The acquisition of Lumen by the Company was accounted for as a purchase. The Company financed the transaction with a combination of available cash and short-term debt. Debt assumed in connection with the Lumen transaction was approximately $75 million on the date of the acquisition. The Company paid down this debt to approximately $22 million by year-end. In January 1999, the Company filed a shelf registration statement with the Securities and Exchange Commission (SEC) to register $465 million of securities. This registration statement, together with the $35 million of securities covered by a previously filed registration statement, will provide the Company with financing flexibility to offer up to $500 million aggregate principal amount of common stock, preferred stock, depository shares, debt securities, warrants, stock purchase contracts and/or stock purchase units. The Company expects to use the net proceeds from the sale of the securities for general corporate purposes, which may include, among other things: the repayment of outstanding indebtedness, working capital, capital expenditures, the repurchase of shares of common stock and acquisitions. The precise amount and timing of the application of such proceeds will depend upon the Company's funding requirements and the availability and cost of other funds. Cash and cash equivalents increased by $37.6 million and were $95.6 million at 1998 year-end. Net cash provided by continuing operations was $69.8 million in 1998 versus $32.1 million in 1997. This increase was due primarily to the collection of receivables offset in part by lower base operations' accounts payable and accrued expenses and the effects of certain deferred tax assets which increased prepaid expenses and other assets. Capital expenditures were $46.5 million for 1998, slightly below 1997 levels. Capital expenditures for 1999 are not expected to exceed $50 million. The Company realized gross proceeds of over $200 million from divestitures of non- 26 27 core operations during 1998 and $28.3 million of cash was realized from issuance of common stock for options exercised. The proceeds were utilized to accelerate certain consolidation programs, to fund a portion of the purchase price for four 1998 strategic acquisitions, to fund share repurchases during 1998 and fund domestic and international operations, as required. The Company plans to fund the Perkin-Elmer transaction with a combination of existing cash and equivalents, borrowings under its existing credit facilities and other financing, as required. During 1998, the Company purchased 1.8 million shares of its common stock through periodic purchases on the open market at a cost of $41.2 million. As of January 3, 1999, the Company had authorization to purchase 5.9 million additional shares. 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 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 $41.6 million as of January 3, 1999. Demand for certain of our products has been adversely affected by the economic problems in Asia and Brazil. In addition, the Asian economic problems have weakened the currencies of some Asian countries, making products of our competitors who are located in Asia more price competitive. However, during 1998, the economic and financial crisis in portions of Asia and Brazil did not have a material effect on the Company's results of operations or financial position. DIVIDENDS In January 1999, the Company's 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 1999. EG&G has paid cash dividends, without interruption, for 34 years and continues to retain what management believes to be sufficient earnings to support the funding requirements of the Company's planned growth. ENVIRONMENTAL 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 (PRP) 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 $9.5 million as of January 3, 1999, representing management's estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect any recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the timeframe over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that such accrued amounts could be paid out over a period of up to five years. 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 27 28 exposure. The Company adopted the provisions of Statement of Position 96-1, Environmental Remediation Liabilities in 1997. Its adoption did not have a material effect on results of operations. THE YEAR 2000 ISSUE The following Year 2000 statements constitute a Year 2000 Readiness Disclosure within the meaning of the Year 2000 Readiness and Disclosure Act of 1998. The operations of the Company rely on various computer technologies which, as is common to most corporations, may be affected by what is commonly referred to as the Year 2000 ("Y2K") issue. The Y2K issue is the result of computer programs that were written using two digits rather than four to define the applicable year. Computer equipment and software, as well as devices with embedded technology that are time-sensitive, may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruption of operations and normal business activities. THE COMPANY'S STATE OF READINESS OVERVIEW The Company has an extensive worldwide program in place to assess and minimize its exposure to the Y2K issue. The Company began addressing the Y2K issue on a Company-wide basis in late 1997. The Company's Y2K program is designed to assess, prioritize, correct, monitor and report on certain key elements of the Company's business and operations, which may be adversely affected by the Y2K issue. This program is organized, structured and implemented around six areas of potential risk related to the Y2K issue: - --------------- - Factory and shopfloor control - Facilities - Information technology (IT) systems and related applications - Products of the Company - Suppliers, vendors and service providers - Customers PHASES OF THE COMPANY'S Y2K PROGRAM The Company's Y2K program, which it implements Company-wide and at each of its Strategic Business Units ("SBU") consists of five phases. A description of each phase is presented below: Phase 1 -- Inventory The purpose of this phase was to identify, collect, analyze and prioritize Y2K compliance information on components, systems, software and other devices containing program logic. As part of this process, a physical inventory was conducted focusing on four areas of each SBU: factory/plant, facilities, IT and products. Each inventoried item was assigned an internal business risk rating of high, medium or low risk. The Company also identified key and sole source suppliers to whom Y2K compliance questionnaires and surveys were sent. Phase 2 -- Assessment The purpose of this phase was to compile and review the inventoried information gathered during Phase 1, assess potential Y2K risks and prepare compliance initiatives. The Y2K status 28 29 of each inventoried item was determined through compliance statements, direct communication with vendors and on-site item testing at each Company location. Phase 3 -- Remediation Planning The purpose of this phase was to develop remediation plans for inventoried items that were identified in Phase 2 as Y2K non-compliant. Remediation plans were developed for each non-compliant item including a detailed timetable with completion milestones and target dates based on the business risk priority rating of the item. The Remediation Planning Phase also included the evaluation and development of contingency plans at the SBU and operating unit level. Each Y2K segment team is developing a contingency plan intended to mitigate potential adverse effects from the Y2K issue in the event that the remediation plan for "high" business impact items previously identified fails or is delayed beyond schedule. Phase 4 -- Remediation Plan Execution The purpose of this phase is to execute the remediation and contingency plans developed in Phase 3. Each item in the remediation plan is allotted a timeframe for completion, and percentage of completion is monitored and discussed regularly. All SBUs of the Company have targeted mid-1999 for the completion of all remediation activities. Phase 5 -- Final Testing The purpose of this phase is to perform follow-up testing of previously non-compliant items that have been corrected through the implementation of Phase 4. This phase is scheduled to commence in mid-1999 and continue until completion later in the year. A progress chart for the Company's Y2K program as of January 3, 1999 is set forth below. Percentages in the table reflect the Company's best estimate of progress completed to date in each risk area by phase as a percentage of the total estimated time to complete the respective phase.
REMEDIATION REMEDIATION FINAL INVENTORY ASSESSMENT PLANNING PLAN EXECUTION TESTING --------- ---------- ----------- -------------- ------- Factory/Plant.................. 100% 100% 100% 70% (a) Facilities..................... 100% 100% 100% 75% (a) Applications................... 100% 100% 100% 80% (a) Products....................... 100% 100% 100% 95% (a) Suppliers, Vendors & Service Providers.................... 100% 100% 100% (a) (a) Customers...................... (b) (b) (b) (b) (a)
- --------------- (a) Scheduled to begin in mid-1999 and continue until completion later in the year. (b) Planned completion in Q2 1999. State of Readiness by SBU The Company has various worldwide operations. It has planned and continues to execute its Y2K Program utilizing a strategic business unit and critical and key operational unit focus. All of the SBUs have developed Y2K programs to address the critical and primary risks assessed based on each SBU's Y2K risk assessment and remediation processes. The primary areas of overall risk assessment, including material third party risk, at the Life Sciences, Optoelectronics, Engineering Products and Instruments SBUs of the Company include but are not limited to: - Raw materials availability and procurement, - Factory/plant manufacturing systems, - Continuity of heat, light, power and fuel sources for manufacturing and office functionality, - IT for financial reporting and accounting, and 29 30 - Internal and external telecommunications and network systems to support communication and business with vendors, suppliers and customers. Year 2000 risks for the Company's Technical Services SBU include risks noted above, other than the risks associated with raw materials procurement and purchase; this is not a major area of risk for this SBU based on the nature of the business. On an SBU basis, the Life Sciences, Optoelectronics and Engineered Products SBUs are making significant progress along the various phases of the program, and the Company does not expect any significant Y2K exposures. The most significant areas of risk identified relate to two operational units within the Instruments and Technical Services SBUs. The Instruments SBU has developed an aggressive remediation plan for its Automotive business unit and expects to complete it and related contingency plans by mid-1999. A governmental services unit of the Company's Technical Services SBU is awaiting government direction on how to proceed with remediation activities. This SBU has developed a contingency plan which will ensure safe shutdowns of the facilities to minimize operational and environmental exposures related to chemical weapons disposal operations. Further remediation for these units will be developed and implemented as necessary. A shutdown of this unit, if it occurs, is not anticipated to have a material adverse effect on the Company's consolidated results of operations or financial position. Third Party Review As part of its Y2K program, the Company has sought to assess the effect on the Company of the Y2K compliance of its significant customers, vendors, suppliers, raw materials suppliers, primary service suppliers, and financial institutions. The Company has followed a strategy of identification of risks, risk assessment, continuous material third party monitoring and evaluation, and contingency planning. The Company did not use or engage outside firms for the purpose of independent verification and validation of the reliability of third party risks assessed and cost estimates related thereto under the Company's Y2K program. The Company has identified critical third parties and performed risk assessments using structured questionnaires and other procedures to estimate the potential monetary and operational impact to the Company. Questionnaires and surveys were sent out to approximately 6,000 key vendors and suppliers that comprise approximately 30% of the Company's vendor/supplier population. The responses received comprised approximately an 82% response rate. Approximately 92% of those who responded confirmed they were Y2K compliant. For those who were not compliant or who did not respond, the Company developed or is in the process of developing contingency plans in the event that these material third parties are non-compliant. A complete discussion of the Company's contingency plans for critical areas is discussed in this Year 2000 discussion and follows below. The Company plans to send out questionnaires and surveys to approximately 1,000 key customers in Q2 1999. The Company also plans to perform on-site readiness reviews for certain key customers. Company Products Although the Company has reviewed the Y2K compliance of a substantial number of its material third parties, it is currently unable to predict the final readiness of all of its material third parties. Certain of the Company's products are used in conjunction with products of other companies in applications that may be critical to the operations of its customers. Any Company product's Y2K non-compliance, whether standing alone or used in conjunction with the products of other companies, may expose the Company to claims from its customers, material third parties or others, and could impair market acceptance of the Company's products or services, increase service and warranty costs, or result in payment of damages, which in turn could materially adversely affect the results of operations and financial position of the Company. While the Company expects such material third parties to address the Y2K issue based on the representations made by such third parties to the Company, it cannot guarantee that these systems will be made Y2K compliant in a 30 31 timely manner and cannot guarantee that it will not experience a material adverse effect as a result of such non-compliance. THE COSTS TO ADDRESS THE YEAR 2000 ISSUE The Company has estimated costs for it's Y2K Program based on internal estimates and independent quotes for IT and non-IT corrective actions, products and services, as applicable, in each phase of the Company's Y2K program. The following table sets forth the estimated costs incurred by the Company through January 3, 1999 to address the Y2K issue. These amounts include the costs to lease, purchase or expense new software and equipment needed to achieve Year 2000 compliance and enhance existing systems, as well as internal costs related to this effort.
HISTORICAL/PLANNING REMEDIATION/IMPLEMENTATION ---------------------- -------------------------- REPLACE/ REMEDIATION UPGRADE/ TOTAL AS OF (IN THOUSANDS) INVENTORY ASSESSMENT PLANNING REPAIR 1/3/99 - -------------- --------- ---------- ----------- -------- ----------- Factory/plant........................... $ 37 $162 $ 69 $ 559 $ 827 Facilities.............................. 25 135 127 196 383 IT...................................... 85 192 135 2,923 3,335 Products................................ 32 98 79 182 391 Suppliers/vendors....................... 46 89 -- -- 135 Key customers........................... 1 24 -- -- 25 ---- ---- ---- ------ ------ Totals........................ $226 $700 $310 $3,860 $5,096 ==== ==== ==== ====== ======
Amounts expended for remediation activities during 1998 were outside of and incremental to the Company's IT budget for ongoing operational projects. With the exception of new hardware or software which qualify for capitalization under generally accepted accounting principles, the Company expenses all costs associated with the Y2K program. Funding requirements for the Company's Y2K Program activities during 1999 are estimated to be approximately $3 million and have been incorporated into the Company's 1999 capital and operating plans. The Company will utilize cash and equivalents and cash flows from operations to fund remaining Y2K program costs during 1999. None of the Company's other IT projects have been deferred due to its Y2K efforts. RISK ANALYSIS Reasonably Likely Worst Case Scenario Although no reasonable assurance can be made, the Company believes that due to the diversity of the Company's business portfolio, there is no single event or one likely worst case scenario, short of a major national infrastructure catastrophe, which would have a material adverse effect on the Company's results of operations or financial condition. The most reasonably likely worst case scenario is that a short-term disruption will occur with a small number of customers or suppliers, requiring an appropriate response. In the event of an internal system failure caused by a Y2K problem, the Company could have trouble accessing accurate internal data, processing transactions and maintaining accurate books and records. Accordingly, the Company might be unable to prepare its financial statements for the fourth quarter of 1999 or periods thereafter. Additionally, the Company's manufacturing operating systems and other applications could be impaired resulting in the Company's inability to manufacture and sell its products to customers. The Company believes its current products, with any applicable updates, are well-prepared for Y2K date issues, and the Company plans to support these products for date issues that may arise related to the Y2K issue. However, there can be no guarantee that one or more of the Company's current products do not contain Y2K date issues that may result in material costs to the Company. 31 32 The outcome of litigation, if any, resulting from the Company's products that are proven to be noncompliant for Y2K cannot be determined at this time. The Company could also experience a slowdown or reduction of sales if customers are adversely affected by Y2K. If the vendors of the Company's most important goods and services, or the suppliers of the Company's necessary energy, telecommunications and transportation needs, fail to provide the Company with (1) the materials and services necessary to produce, distribute and sell its products, (2) the electrical power and other utilities necessary to sustain it operations, or (3) reliable means of transporting products and supplies, such failure could result in the Company's inability to manufacture and sell its products to customers. The Company's contingency plans, when complete, will include steps to pre-order and build up raw materials and finished goods as appropriate to avoid stock-outs that would have a negative impact on the Company's ability to manufacture and sell its products. Additionally, the Company's operations are dependent on infrastructures within all countries in which it operates and therefore a failure of any one of those infrastructures related to Y2K could have a material adverse effect on the Company's operations. The Company is not currently able to estimate the financial impact of the Y2K failures addressed above as they relate to lost revenues or additional resources that would be required to address such failures. CONTINGENCY PLANS The Company believes that the IT and non-IT which support its critical functions will be ready for the transition to the Year 2000. There can be no assurance, however, that similar unforeseen issues for key commercial partners (including utilities, financial services, building services and transportation services) will not cause a material adverse effect on the Company. To address these risks, and to address a risk that its own IT and non-IT will not perform as expected during the Y2K transition, the Company has begun to develop appropriate Y2K contingency plans. These plans will be established and revised as necessary during the course of 1999. During the second quarter of 1999, on-site readiness reviews will be conducted by the Company at its most critical vendor and supplier locations. For the Company's material, key and sole source vendors / suppliers whom cannot be classified or certified as Y2K compliant, contingency plans include, but are not limited to: (i) replacing the vendor / supplier with one that is Y2K compliant, (ii) pre-ordering raw material where applicable, (iii) pre-building product or products, or (iv) pre-shipping product where practicable. These contingency plans are expected to be finalized during the third quarter of 1999. The Company believes that its contingency plans are sufficient to address any material business disruption in a reasonable period of time to minimize the effects of an adverse impact to the operations of the Company. If the contingency plans fail, or if the Company is for some unforeseen reason "not ready" for the Y2K issue at a key level of the operations of the business or a contingency plan cannot be implemented in a timely manner, the Company will rely on alternative means of communications, alternative power generation sources for the manufacture of key products, and other manual or backup systems and processes on an interim basis until the Y2K issues can be corrected. EURO CONVERSION On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing sovereign currencies and the new common legal currency, the "euro", which was adopted on that date. There is a transition period between January 1, 1999 and January 1, 2002, during which the euro will be adopted into the operations. During 1998, the Company formed a cross-functional task force to assess the potential impact to the Company that may result from the euro conversion. Areas of assessment include the following: cross-border price transparencies and the resulting competitive impact; adaptation of information technology and other system requirements to accommodate euro transactions; the impact on currency exchange rate risk; the impact on existing contracts; and taxation and accounting. The 32 33 Company's assessment is that the anticipated impact of the euro conversion on the Company's operations will not be material. FORWARD-LOOKING INFORMATION AND FACTORS AFFECTING FUTURE PERFORMANCE This Annual Report on Form 10-K contains "forward-looking statements." For this purpose, any statements contained in this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Words such as "believes," "anticipates," "plans," "expects," "will" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of EG&G to differ materially from those indicated by these forward-looking statements including among others, the factors set forth below. The following important factors affect our business and operations generally or affect multiple segments of our business and operations: - We face strong competition in many of the markets that we serve, which affects our ability to sell our products and services and the prices that we obtain. Certain of our competitors are larger than we are and have greater financial and other resources. - We need to successfully implement the restructuring plans that we have adopted. If we are unable to do so, we will not be able to achieve anticipated cost savings, our ability to produce and deliver the products and services may be adversely affected and we may lose key personnel. - Our business plan depends on our ability to continue to innovate, to develop new products and services based on such innovations and to introduce these new products and services successfully into the market. If we are unable to successfully implement this business plan, it could have a material adverse effect on the Company's results of operations, financial condition and liquidity. - Our business plan depends on our ability to acquire attractive businesses on favorable terms and integrate these businesses into our other operations. We have begun the process of integrating Lumen Technologies, which we acquired in December 1998. In addition, in March 1999, we entered into an agreement to acquire the analytical instruments division of Perkin-Elmer. The acquisition is subject to customary closing conditions, including regulatory approval. If we are unable to successfully implement this business plan or integrate these acquisitions, it could have a material adverse effect on the Company's results of operations, financial condition and liquidity. - In many of our segments, we serve as a supplier of components to other businesses. As a result, our success depends on the business success of our customers. - We need to be able to continue to access the capital markets to fund our growth. - Our product businesses can be affected by currency risks. - We need to achieve satisfactory results in connection with certain litigation to which we are a party, particularly the tax litigation with the Internal Revenue Service. - We need to attract and retain key management, operational and technical personnel. - We are affected by general economic conditions. In particular, demand for certain of our products has been adversely affected by the economic problems in Asia. In addition, the Asian economic problems have weakened the currencies of some Asian countries, making products of our competitors who are located in Asia more price competitive. - We could be impacted by unanticipated issues associated with Year 2000 software problems. 33 34 - 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 issued and changes in the portfolio of businesses. There are certain important factors that affect our particular business segments, including the following: Life Sciences - We will implement a new enterprise software system for this business segment in early 1999. We need this implementation to be effected in a manner that does not disrupt operations. - Our business plan for this segment is significantly dependent upon the successful introduction of products currently under development as well as the expansion of the geographic markets for this segment's products. - Many of our products in this segment are subject to regulation by the Food and Drug Administration and other regulatory bodies. Optoelectronics - We need to complete the development of our amorphous silicon technology and successfully introduce products based on this technology to the market. - In our IC Sensors business, we need to develop new products for both existing customers and new markets that we desire to access. We also need to successfully shift the production of certain products of this business to our manufacturing facilities that are in lower cost locations in order to compete more effectively. Instruments - Our ability to obtain Federal Aviation Administration certification of our Z scan system for screening of checked baggage on a timely basis will affect this segment's success. - We need to successfully complete construction/installation and obtain customer acceptance of certain major cargo screening projects that are in process. Engineered Products - A key market for certain of this segment's products is manufacturers of equipment used in semiconductor production. As a result, the success of this segment's operations is dependent in part upon a recovery of economic conditions in the semiconductor industry. - We are in the process of implementing new lower cost manufacturing processes for certain of this segment's products. The success of this segment's operations depends in part upon our successfully implementing these new manufacturing processes. - A key market for the products that we produce in this segment is manufacturers of air frames and engines for regional and business jets. As a result, the success of this segment is dependent in part on the growth of the regional and business jet market. - The success of our operations in this segment depends in part on entering into long-term contracts for the sale of seals to major engine manufacturers on favorable terms. Technical Services - Our operations in this segment are materially affected by our ability to win new service contracts and to compete successfully for renewals of existing contracts. 34 35 - We need to comply with contractually specified performance criteria on an ongoing basis. Our compliance affects both the grades that we receive from the government, and therefore the level of contract payments, as well as our ability to win new contracts. - Our contracts with the U.S. government are subject to early termination for the convenience of the government. MARKET RISK The Company is exposed to the impact of interest rate changes, foreign currency fluctuations and changes in the market values of its investments. In the normal course of business, the Company employs established policies and procedures to manage its exposure to changes in interest rates and fluctuations in the value of foreign currencies. The Company's objective in managing the exposure to foreign currency fluctuations is to reduce earnings and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on its core business issues and challenges. Accordingly, the Company enters into various forward contracts that change in value as foreign exchange rates change to protect the value of its existing foreign currency assets, liabilities, commitments and anticipated foreign currency revenues. The principal currencies hedged are the Finnish marka, Singapore dollar, Canadian dollar, British pound, German mark, French franc, and Japanese yen. In those currencies where there is a liquid, cost-effective forward market, the Company maintains hedge coverage between minimum and maximum percentages of its anticipated transaction exposure for periods not to exceed one year. The gains and losses on these contracts offset changes in the value of the related exposure. It is the Company's policy to enter into foreign currency and interest rate transactions only to the extent considered necessary to meet its objectives as stated above. The Company does not enter into foreign currency or interest rate transactions for speculative purposes. 35 36 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA CONSOLIDATED INCOME STATEMENTS FOR THE THREE YEARS ENDED JANUARY 3, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996 - -------------------------------------------- ---------- ---------- ---------- Sales: Products......................................... $ 784,520 $ 860,598 $ 867,623 Services......................................... 623,376 600,207 559,629 ---------- ---------- ---------- TOTAL SALES.............................. 1,407,896 1,460,805 1,427,252 ---------- ---------- ---------- Cost of Sales: Products......................................... 496,861 553,551 547,504 Services......................................... 544,878 531,140 501,239 ---------- ---------- ---------- Total Cost of Sales...................... 1,041,739 1,084,691 1,048,743 Research and Development Expenses.................. 46,031 44,907 42,841 Selling, General and Administrative Expenses....... 226,272 243,409 248,038 In-Process Research and Development Charge (Note 2)............................................... 2,300 -- -- Restructuring Charges (Note 3)..................... 54,500 -- -- Asset Impairment Charges (Note 4).................. 7,400 28,200 -- Gains on Dispositions (Note 5)..................... (125,822) -- -- ---------- ---------- ---------- OPERATING INCOME FROM CONTINUING OPERATIONS........ 155,476 59,598 87,630 Other Income (Expense), Net (Note 6)............... 558 (5,572) (7,276) ---------- ---------- ---------- Income From Continuing Operations Before Income Taxes............................................ 156,034 54,026 80,354 Provision for Income Taxes (Note 7)................ 54,032 23,381 25,874 ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS.................. 102,002 30,645 54,480 Income From Discontinued Operations, Net of Income Taxes (Note 8)................................... -- 3,047 5,676 ---------- ---------- ---------- NET INCOME......................................... $ 102,002 $ 33,692 $ 60,156 ========== ========== ========== BASIC EARNINGS PER SHARE (NOTE 9): CONTINUING OPERATIONS............................ $ 2.25 $ .67 $ 1.15 Discontinued Operations.......................... -- .07 .12 ---------- ---------- ---------- NET INCOME......................................... $ 2.25 $ .74 $ 1.27 ========== ========== ========== DILUTED EARNINGS PER SHARE (NOTE 9): CONTINUING OPERATIONS............................ $ 2.22 $ .67 $ 1.15 Discontinued Operations.......................... -- .07 .12 ---------- ---------- ---------- NET INCOME......................................... $ 2.22 $ .74 $ 1.27 ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 36 37 CONSOLIDATED BALANCE SHEETS AS OF JANUARY 3, 1999 AND DECEMBER 28, 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 - -------------------------------------------- ---------- --------- Current Assets: Cash and cash equivalents................................. $ 95,565 $ 57,934 Accounts receivable (Note 10)............................. 229,955 243,963 Inventories (Note 11)..................................... 128,262 112,875 Other current assets (Note 7)............................. 111,600 73,414 ---------- --------- TOTAL CURRENT ASSETS.............................. 565,382 488,186 ---------- --------- Property, Plant and Equipment: At cost (Notes 4 and 12).................................. 510,107 482,382 Accumulated depreciation and amortization................. (288,281) (301,239) ---------- --------- Net Property, Plant and Equipment........................... 221,826 181,143 ---------- --------- Investments (Note 13)....................................... 16,650 16,730 Intangible Assets (Notes 4 and 14).......................... 317,713 79,257 Other Assets (Notes 7 and 17)............................... 63,349 66,787 ---------- --------- TOTAL ASSETS...................................... $1,184,920 $ 832,103 ========== ========= Current Liabilities: Short-term debt (Note 15)................................. $ 157,888 $ 46,167 Accounts payable.......................................... 81,841 73,360 Accrued restructuring costs (Note 3)...................... 37,522 3,492 Accrued expenses (Note 16)................................ 246,847 162,596 ---------- --------- TOTAL CURRENT LIABILITIES......................... 524,098 285,615 ---------- --------- Long-Term Debt (Note 15).................................... 129,835 114,863 Long-Term Liabilities (Notes 7, 17 and 18).................. 131,320 103,237 Contingencies (Note 19) Stockholders' Equity (Note 21): 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........................................... 623,591 540,379 Accumulated other comprehensive income (loss)............... 3,729 (3,857) Cost of shares held in treasury; 15,355,000 shares in 1998 and 14,769,000 shares in 1997............................. (287,755) (268,236) ---------- --------- Total Stockholders' Equity........................ 399,667 328,388 ---------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,184,920 $ 832,103 ========== =========
The accompanying notes are an integral part of these consolidated financial statements. 37 38 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED JANUARY 3, 1999
ACCUMULATED OTHER COST OF TOTAL COMPREHENSIVE COMMON RETAINED COMPREHENSIVE SHARES HELD STOCKHOLDERS' (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) INCOME STOCK EARNINGS INCOME (LOSS) IN TREASURY EQUITY - -------------------------------------------- ------------- ------- -------- ------------- ----------- ------------- BALANCE, DECEMBER 31, 1995..................... $60,102 $498,181 $ 28,923 $(220,260) $366,946 Comprehensive income: Net income................................... $ 60,156 -- 60,156 -- -- 60,156 -------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments... (10,451) -- -- (10,451) -- (10,451) Unrealized gains on securities: Gains arising during the period............ 1,202 Reclassification adjustment................ (242) -------- Net unrealized gains........................... 960 -- -- 960 -- 960 -------- Other comprehensive income (loss).............. (9,491) -------- Comprehensive income........................... $ 50,665 ======== Cash dividends ($.56 per share)................ -- (26,589) -- -- (26,589) Exercise of employee stock options and related income tax benefits.......................... -- 295 -- 4,549 4,844 Purchase of common stock for treasury.......... -- -- -- (30,760) (30,760) ------- -------- -------- --------- -------- BALANCE, DECEMBER 29, 1996..................... 60,102 532,043 19,432 (246,471) 365,106 Comprehensive income: Net income................................... $ 33,692 -- 33,692 -- -- 33,692 -------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustments... (22,608) -- -- (22,608) -- (22,608) Unrealized losses on securities: Losses arising during the period........... (655) Reclassification adjustment................ (26) -------- Net unrealized losses.......................... (681) -- -- (681) -- (681) -------- Other comprehensive income (loss).............. (23,289) -------- Comprehensive income........................... $ 10,403 ======== Cash dividends ($.56 per share)................ -- (25,684) -- -- (25,684) Exercise of employee stock options and related income tax benefits.......................... -- 328 -- 6,339 6,667 Purchase of common stock for treasury.......... -- -- -- (28,104) (28,104) ------- -------- -------- --------- -------- BALANCE, DECEMBER 28, 1997..................... 60,102 540,379 (3,857) (268,236) 328,388 Comprehensive income: Net income................................... $102,002 -- 102,002 -- -- 102,002 -------- Other comprehensive income, net of tax: Gross foreign currency translation adjustments.............................. 4,608 -- -- 4,608 -- 4,608 Reclassification adjustment for translation losses realized upon sale of Sealol Industrial Seals......................... 3,115 -- -- 3,115 -- 3,115 Unrealized losses on securities arising during the period........................ (137) -- -- (137) -- (137) -------- Other comprehensive income................. 7,586 -------- Comprehensive income........................... $109,588 ======== Cash dividends ($.56 per share)................ -- (25,408) -- -- (25,408) Exercise of employee stock options and related income tax benefits.......................... -- 6,618 -- 21,698 28,316 Purchase of common stock of treasury........... -- -- -- (41,217) (41,217) ------- -------- -------- --------- -------- BALANCE, JANUARY 3, 1999....................... $60,102 $623,591 $ 3,729 $(287,755) $399,667 ======= ======== ======== ========= ========
The accompanying notes are an integral part of these consolidated financial statements. 38 39 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE YEARS ENDED JANUARY 3, 1999
(DOLLARS IN THOUSANDS) 1998 1997 1996 - ---------------------- -------- ------- ------- Operating Activities: Net income................................................ $102,002 $33,692 $60,156 Deduct net income from discontinued operations............ -- (3,047) (5,676) -------- ------- ------- Income from continuing operations......................... 102,002 30,645 54,480 Adjustments to reconcile income from continuing operations to net cash provided by continuing operations: Noncash portion of restructuring charges................ 12,020 -- -- Restructuring charges to be paid in future periods...... 32,522 3,492 -- Asset impairment charges................................ 7,400 28,200 -- Depreciation and amortization........................... 50,379 44,612 40,936 Deferred taxes.......................................... 11,330 1,385 7,326 Gains on dispositions and sales of investments, net..... (130,545) (11,713) (1,714) Changes in assets and liabilities which provided (used) cash, excluding effects from companies purchased and divested: Accounts receivable..................................... 17,417 (35,945) (11,781) Inventories............................................. 1,426 725 (6,659) Accounts payable and accrued expenses................... 3,863 5,561 (3,940) Noncurrent prepaid pension.............................. -- (10,040) (2,876) Prepaid taxes........................................... (23,689) (5,700) 1,467 Prepaid expenses and other.............................. (14,363) (19,080) (4,001) -------- ------- ------- Net Cash Provided by Continuing Operations.................. 69,762 32,142 73,238 Net Cash Provided by (Used in) Discontinued Operations...... (207) 2,696 6,920 -------- ------- ------- NET CASH PROVIDED BY OPERATING ACTIVITIES................... 69,555 34,838 80,158 -------- ------- ------- Investing Activities: Capital expenditures...................................... (46,522) (48,729) (80,490) Reimbursement of invested capital (Note 18)............... -- 27,000 -- Proceeds from dispositions of businesses and sales of property, plant and equipment........................... 210,505 24,287 1,744 Cost of acquisitions, net of cash and cash equivalents acquired................................................ (217,937) (3,611) -- Proceeds from sales of investments........................ 7,623 4,129 9,447 Other..................................................... (160) (1,156) (2,000) -------- ------- ------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... (46,491) 1,920 (71,299) -------- ------- ------- Financing Activities: Increase in commercial paper borrowings................... 104,156 27,879 17,965 Payment of Lumen revolving credit borrowings.............. (59,090) -- -- Other debt increases (decreases).......................... 7,270 (3,443) (1,959) Proceeds from issuance of common stock for options exercised............................................... 28,316 6,667 4,844 Purchases of common stock................................. (41,217) (28,104) (30,760) Cash dividends............................................ (25,408) (25,684) (26,589) -------- ------- ------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 14,027 (22,685) (36,499) -------- ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents............................................... 540 (3,985) (718) -------- ------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 37,631 10,088 (28,358) Cash and Cash Equivalents at Beginning of Year.............. 57,934 47,846 76,204 -------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 95,565 $57,934 $47,846 ======== ======= ======= Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest................................................ $ 12,367 $12,351 $13,526 Income taxes............................................ 59,029 26,683 35,678
The accompanying notes are an integral part of these consolidated financial statements. 39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES 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. Nature of Operations: The Company designs, manufactures and markets optoelectronic, mechanical and electromechanical components and instruments for manufacturers and end-user customers. The Company sells its products in a wide variety of markets, including the medical, telecom, aerospace, automotive, transportation, bioanalytical, semiconductor, photographic and security markets. The Company also delivers skilled support services to government and industrial customers. The Company's operating segments are Life Sciences, Optoelectronics, Instruments, Engineered Products and Technical Services. 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: The Company currently has outstanding cost-reimbursement contracts for operations, management and engineering services in a variety of fields including defense, transportation, physical security and property management. These contracts are all with governmental agencies including the U.S. Departments of Defense, Transportation, State and Treasury, the U.S. Customs Service and the Environmental Protection Agency. These contracts include both cost plus fixed fee contracts and cost plus award fee contracts based on performance. 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. Product sales are recorded at the time of shipment. Other service sales are generally recorded as the services are rendered or, in the case of certain contracts, as milestones are achieved. 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 40 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adjustments are made directly to a component of stockholders' equity. The net transaction gains (losses) were not material for the years presented. Intangible Assets: 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, and Accounting Principles Board Opinion No. 17, Intangible Assets, the Company reviews long-lived assets and all intangible assets (including goodwill) for impairment whenever events 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 4 for further discussion of asset impairment charges.) Stock-Based Compensation: In accordance with 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 Statements 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 the adoption of SFAS No. 128. Comprehensive Income: In the first quarter of 1998, the Company adopted the provisions of SFAS No. 130, Reporting Comprehensive Income, which established standards for reporting and display of comprehensive income and its components. Comprehensive income is the total of net income and all other nonowner changes in stockholders' equity. Segments and Related Information: In the fourth quarter of 1998, the Company adopted the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. The statement established 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. Derivative Instruments and Hedging: The Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, in June 1998. The new statement is effective for fiscal years beginning after June 15, 1999; earlier adoption is allowed. The statement requires companies to record derivatives on the balance sheet as assets or liabilities, 41 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company currently expects that, due to its relatively limited use of derivative instruments, the adoption of SFAS No. 133 will not have a material effect on the Company's results of operations or financial position. Start-up Activities: During 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting on the Costs of Start-up Activities (SOP 98-5). This Statement requires a change in the method of accounting for start-up costs on major projects to expense these costs as incurred. Prior to this accounting change, these costs could be capitalized. The effect of this accounting change does not have a material effect on the Company's results of operations or financial position. Reclassifications: Certain amounts from prior years have been reclassified to conform to the 1998 financial statement presentation. 2. ACQUISITIONS On December 16, 1998, the Company acquired substantially all of the outstanding common stock and options of Lumen Technologies, Inc. (Lumen), a maker of high-technology specialty light sources. The purchase price of approximately $253 million, which included $75 million of assumed debt, was funded with existing cash and commercial paper borrowings. The acquisition was accounted for as a purchase under Accounting Principles Board Opinion No. 16 (APB No. 16). In accordance with APB No. 16, the Company allocated the purchase price of Lumen based on the fair value of the assets acquired and liabilities assumed. Portions of the purchase price, including intangible assets, were identified by independent appraisers utilizing proven valuation procedures and techniques. These intangible assets include approximately $2.3 million for acquired in-process research and development (in-process R&D) for projects that did not have future alternative uses. This allocation represents the estimated fair value based on risk-adjusted cash flows related to the in-process R&D projects. At the date of the acquisition, the development of these projects had not yet reached technological feasibility, and the R&D in progress had no alternative future uses. Accordingly, these costs were expensed in the fourth quarter of 1998. Acquired intangibles totaling $11.8 million included the fair value of trade names, trademarks and patents. These intangibles are being amortized over their estimated useful life of ten years. Goodwill resulting from the Lumen acquisition is being amortized over 30 years. Approximately $5 million has been recorded as accrued restructuring charges in connection with the acquisition. The restructuring plans include initiatives to integrate the operations of the Company and Lumen, and reduce overhead. The primary components of these plans relate to: (a) the transfer of certain manufacturing activities to lower cost facilities, (b) integration of the sales and marketing organization and (c) the termination of certain contractual obligations. The Company expects that these actions will result in a reduction in workforce of approximately 200 individuals. Management is in the process of finalizing its restructuring plans related to Lumen, and accordingly, the amounts recorded are based on management's current estimates of those costs. The Company will finalize these plans during 1999, and the majority of the restructuring actions are expected to occur by 1999-2000. 42 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the purchase price and preliminary allocation are as follows:
(IN THOUSANDS) -------------- Consideration and acquisition costs: Cash paid to Lumen for stock and options.... $162,050 Debt assumed................................ 74,388 Fair value of options exchanged............. 6,500 Deferred purchase price for subsidiary minority interest........................ 6,000 Acquisition costs........................... 3,925 -------- $252,863 ======== Preliminary allocation of purchase price: Current assets.............................. $ 66,829 Property, plant and equipment............... 52,525 Acquired intangibles........................ 11,800 In-process R&D.............................. 2,300 Goodwill.................................... 175,446 Liabilities assumed and other............... (56,037) -------- $252,863 ========
As indicated earlier, some allocations are based on studies and valuations which are currently being finalized. Management does not believe that the final purchase price allocation will produce materially different results than those reflected herein. In December 1998, the Company acquired Life Science Resources Limited (LSR), a U.K.-based developer and supplier of biotechnology, biomedical and clinical research instrumentation, for $11 million. In April 1998, in connection with the divestiture of the Sealol Industrial Seals division, the Company purchased Belfab, the advanced metal bellows division of John Crane, Inc. for $45 million in cash. In February 1998, the Company acquired Isolab, Inc., a supplier of systems for clinical diagnostic screening, for $10 million. These acquisitions were accounted for using the purchase method. While the Company has not yet finalized the Belfab purchase price allocation, the excess of the cost over the fair market value of the net assets acquired is estimated to be $33 million, which is being amortized over 20 years using a straight-line method. The Company does not expect that the final allocation of purchase price for Belfab will produce materially different results from those reflected herein. The results of operations of the acquisitions are included in the consolidated results of the Company from the date of each respective acquisition. Unaudited pro forma operating results for the Company, assuming the acquisition of Lumen occurred on December 29, 1996, are as follows:
(IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 - ------------------------------------ ---------- ---------- Sales.............................. $1,550,951 $1,564,451 Net income......................... 82,476 19,103 Basic earnings per share........... 1.82 .42 Diluted earnings per share......... 1.80 .42
The pro forma amounts in the table above exclude the $2.3 million in-process R&D charge. Pro forma amounts for the other 1998 acquisitions are not included as their effect is not material to the Company's financial statements. 43 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3. RESTRUCTURING AND INTEGRATION CHARGES The Company developed restructuring plans during 1998 to integrate and consolidate its businesses. The Company recorded restructuring charges in the first and second quarters of 1998, which are discussed separately below. These restructuring plans were points in the continuing transformation of the Company that began in 1994 and continued into 1998 with the addition of new leadership and new management, changes in the organization of the businesses and the realignment and consolidation of operations. Further details of the actions are presented below. In connection with the Company's continued transformation of its portfolio of companies, during the first quarter of 1998, management developed a plan to restructure certain businesses. A discussion of the businesses affected within each segment is presented below. The plan resulted in pre-tax restructuring charges totaling $31.4 million. The principal actions in the restructuring plan include close-down or consolidation of a number of offices and facilities, transfer of assembly activities to lower cost geographic locations, disposal of underutilized assets, withdrawal from certain product lines and general cost reductions. The restructuring charges were broken down as follows by operating segment:
TERMINATION OF DISPOSAL OF LEASES AND OTHER EMPLOYEE CERTAIN PRODUCT CONTRACTUAL ($ IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL - --------------- ---------------- ---------------- ---------------- ----- Life Sciences...................... $ .3 $ .2 $ .2 $ .7 Optoelectronics.................... 6.7 .8 1.1 8.6 Instruments........................ 4.8 2.9 2.0 9.7 Engineered Products................ 4.8 1.9 1.8 8.5 Technical Services................. .3 .4 .2 .9 Corporate and Other................ 3.0 -- -- 3.0 ----- ---- ---- ----- Total.................... $19.9 $6.2 $5.3 $31.4 ===== ==== ==== ===== Amounts incurred through 1/3/99.... $ 6.8 $6.2 $ .7 $13.7 Ending accrual at 1/3/99........... $13.1 -- $4.6 $17.7
The headcount reduction, by function, resulting in the Employee Separation Costs detailed above is as follows:
HEADCOUNT REDUCTION ------------------- Sales & Marketing............... 38 Production...................... 492 General & Administrative........ 88 --- Total................. 618 ===
Further details of the actions are presented below. Specific businesses within each segment which were affected by the restructuring actions are as follows: The Engineered Products business affected primarily manufactures mechanical components and systems. The Optoelectronics businesses affected produce various lighting and sensor components and systems. The Instruments restructuring relates primarily to its X-ray imaging business which produces security screening equipment, as well as its Instruments for Research and Applied Science business which produces particle detector equipment. Close-down of certain facilities: Costs have been accrued for the closing down of facilities. These costs relate to the affected businesses discussed above within the Engineered Products and Optoelectronics segments. 44 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Transfer of assembly activities: The Company plans to relocate certain activities, primarily in its Optoelectronics segment, to lower cost geographic areas such as Indonesia and China. The costs included in the restructuring charges related to costs associated with exiting the previous operations. Actual costs to physically relocate are charged to operations as incurred. Disposal of underutilized assets: The Company plans to dispose of underutilized assets either through sale or abandonment, primarily in its Instruments and Optoelectronics segments. Withdrawal from certain product lines: The Company has made a strategic decision to discontinue certain unprofitable product lines discussed above, primarily in its Instruments and Optoelectronics segments. During the second quarter of 1998, the Company expanded its continuing effort to restructure certain businesses to further improve performance. The plan resulted in additional pre-tax restructuring charges of $23.1 million. The principal actions in this restructuring plan included the integration of current operating divisions into five strategic business units, close-down or consolidation of a number of production facilities and general cost reductions. Details are provided following the table presented below. The restructuring charges were broken down as follows by operating segment:
TERMINATION OF DISPOSAL OF LEASES AND OTHER EMPLOYEE CERTAIN PRODUCT CONTRACTUAL ($ IN MILLIONS) SEPARATION COSTS LINES AND ASSETS OBLIGATIONS TOTAL - --------------- ---------------- ---------------- ---------------- ----- Life Sciences...................... $ 3.3 $ .2 $ .4 $ 3.9 Optoelectronics.................... 1.8 5.6 4.3 11.7 Instruments........................ 1.6 -- -- 1.6 Engineered Products................ 1.4 -- -- 1.4 Technical Services................. 3.4 -- .2 3.6 Corporate and Other................ .8 -- .1 .9 ----- ---- ---- ----- Total.................... $12.3 $5.8 $5.0 $23.1 ===== ==== ==== ===== Amounts incurred through 1/3/99.... $ 2.5 $5.8 $ .3 $ 8.6 Ending accrual at 1/3/99........... $ 9.8 -- $4.7 $14.5
The headcount reduction, by function, resulting in the Employee Separation Costs detailed above is as follows:
HEADCOUNT REDUCTION ------------------- Sales & Marketing............... 44 Production...................... 137 General & Administrative........ 110 --- Total................. 291 ===
Integration of Current Operating Divisions and Consolidation of Certain Production Facilities As part of the Company's second quarter restructuring plan, management reorganized its current operating divisions into five strategic business units (SBUs). This resulted in termination of employees as well as the integration and consolidation of certain facilities and product lines. This effort is company-wide and affects all five SBUs. The major components within the Optoelectronics plan consisted of the closing of two wafer fab production facilities and a development program. The total restructuring charges in 1998 include $10.3 million for termination of leases and other contractual obligations. This amount included approximately $7.0 million for termination of facility 45 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) leases and other lease-related costs, $1.5 million for termination of distributor arrangements and $1.8 million for various other commitments. The facility leases have remaining terms ranging from six months to five years. The amount accrued reflects the Company's best estimate of actual costs to buy out the leases in certain cases or the net cost to sublease the properties in other cases. Approximately 300 employees of the total of 900 employees expected to be terminated as part of the two restructuring plans have been severed as of January 3, 1999. The plans will be mainly implemented by the segments by mid-1999, except for the SBU consolidation, which will occur by the end of 1999. Cash outlays, primarily for employee separation costs, were $10.2 million in 1998. The Company expects to incur approximately $32 million of cash outlays in connection with its restructuring plans throughout 1999. These funds will come primarily from operating cash flows or borrowings from existing credit facilities. In 1997, as part of a plan to reposition its operations, the Company recorded $8.3 million of integration costs which included $4.9 million related to employee separation costs and $3.4 million related to its consolidation effort. These costs were included in selling, general and administrative expenses. The components of the restructuring charges met the criteria set forth in Emerging Issues and Task Force Issue (EITF) 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The charges do not include additional costs associated with the restructuring plans, such as training, consulting, purchase of equipment and relocation of employees and equipment. These costs will be charged to operations or capitalized, as appropriate, when incurred. The following table summarizes restructuring activity for the two years ended January 3, 1999:
(IN THOUSANDS) 1998 1997 - -------------- ---- ---- Accrued restructuring costs at beginning of year............ $ 3,492 $ -- Provisions.................................................. 54,500 4,900 Charges/write-offs.......................................... (25,470) (1,408) Accrued restructuring charges related to Lumen acquisition............................................... 5,000 -- ------- ------ Accrued restructuring costs at end of year.................. $37,522 $3,492 ======= ======
4. ASSET IMPAIRMENT CHARGES During the second quarter of 1998, the Company recorded a $7.4 million noncash impairment charge related to an automotive testing facility in the Instruments segment. The impairment charge applied to fixed assets and resulted from projected changes in the principal customer's demand for services. The Company calculated the present value of expected cash flows of the testing facility to determine the fair value of the assets. During the second quarter of 1997, the Company recorded a noncash impairment charge of $28.2 million, with $26.7 million related to IC Sensors in the Optoelectronics segment and $1.5 million related to the goodwill of an environmental services business in Divestitures and Other. As a result of IC Sensors' inability to achieve the improvements specified in its corrective action plan, 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 46 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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, for a write-down of goodwill of $13.6 million and fixed assets of $13.1 million. The components of the revised operating plan included hiring a new general manager, transferring assembly and test operations to a lower cost environment (Batam, Indonesia), introducing new products and reviewing manufacturing processes to improve production yields. All of these components were implemented during 1997 and 1998. 5. GAINS ON DISPOSITIONS In April 1998, the Company sold its Sealol Industrial Seals division for cash of $100 million, resulting in a pre-tax gain of $58.3 million. The after-tax gain of this divestiture was $42.6 million, or $.93 diluted earnings per share. Sealol Industrial Seals, which manufactured mechanical seals, had 1997 sales of $88 million and operating income of $11.4 million ($.21 diluted earnings per share). In January 1998, the Company sold its Rotron division for $103 million in cash, resulting in a pre-tax gain of $64.4 million. During the first quarter of 1998, the Company also sold a small product line for $4 million in cash, resulting in a pre-tax gain of $3.1 million. The after-tax gain of these divestitures was $45.2 million, or $.99 diluted earnings per share. Rotron, which manufactured fans, blowers and motors, had 1997 sales of $70 million and operating income of $11.9 million ($.16 diluted earnings per share). The Company has deferred gain recognition of approximately $16 million of sales proceeds from these divestitures pending the resolution in 1999 of certain events and contingencies related to the sales. In 1997, the Company sold its Chandler, Flow and Birtcher divisions for $23 million, resulting in pre-tax gains of $10.6 million. These gains were recorded in selling, general and administrative expenses. 6. OTHER INCOME (EXPENSE) Other income (expense), net, consisted of the following:
(IN THOUSANDS) 1998 1997 1996 - -------------- -------- -------- -------- Interest income......................... $ 6,873 $ 1,969 $ 3,879 Interest expense........................ (11,391) (12,482) (13,427) Gains on sales of investments, net...... 4,465 711 1,714 Other................................... 611 4,230 558 -------- -------- -------- $ 558 $ (5,572) $ (7,276) ======== ======== ========
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 18.) 7. INCOME TAXES The components of income from continuing operations before income taxes for financial reporting purposes were as follows:
(IN THOUSANDS) 1998 1997 1996 - -------------- -------- ------- ------- U.S. ...................................... $ 64,371 $12,079 $36,235 Non-U.S. .................................. 91,663 41,947 44,119 -------- ------- ------- $156,034 $54,026 $80,354 ======== ======= =======
47 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the provision for income taxes for continuing operations were as follows:
DEFERRED (IN THOUSANDS) CURRENT (PREPAID) TOTAL - -------------- ------- --------- ------- 1998 Federal.................................. $45,726 $ (8,000) $37,726 State.................................... 5,364 (1,030) 4,334 Non-U.S. ................................ 15,951 (3,979) 11,972 ------- -------- ------- $67,041 $(13,009) $54,032 ======= ======== ======= 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 ======= ======== =======
The total provision for income taxes included in the consolidated financial statements was as follows:
(IN THOUSANDS) 1998 1997 1996 - -------------- ------- ------- ------- Continuing operations....................... $54,032 $23,381 $25,874 Discontinued operations..................... -- 1,640 3,056 ------- ------- ------- $54,032 $25,021 $28,930 ======= ======= =======
The major differences between the Company's effective tax rate for continuing operations and the federal statutory rate were as follows:
1998 1997 1996 ----- ----- ----- Federal statutory rate............................. 35.0% 35.0% 35.0% Non-U.S. rate differential, net.................... (14.4) (14.2) (10.1) Future remittance of non-U.S. earnings............. 6.4 -- -- State income taxes, net............................ 2.1 4.1 3.1 Goodwill amortization.............................. .5 3.3 2.4 Goodwill write-downs............................... -- 9.7 -- Increase (decrease) in valuation allowance......... 1.5 5.5 (1.1) Other, net......................................... 3.5 (0.1) 2.9 ----- ----- ----- Effective tax rate................................. 34.6% 43.3% 32.2% ===== ===== =====
The 1997 tax provision and effective rate for continuing operations were significantly impacted by non-deductible goodwill write-downs. Excluding the impairment charge and its related tax effect, the effective tax rate was 34.1% in 1997. 48 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of temporary differences and carryforwards which gave rise to prepaid (deferred) income taxes as of January 3, 1999 and December 28, 1997 were as follows:
(IN THOUSANDS) 1998 1997 - -------------- -------- -------- Deferred tax assets: Inventory reserves......................... $ 7,522 $ 5,569 Other reserves............................. 17,865 10,425 Reimbursement of invested capital.......... 5,286 7,401 Vacation pay............................... 5,119 6,958 Net operating loss carryforwards........... 35,349 32,113 Postretirement health benefits............. 4,338 4,373 Restructuring reserve...................... 16,782 343 All other, net............................. 42,707 31,635 -------- -------- Total deferred tax assets.................... 134,968 98,817 -------- -------- Deferred tax liabilities: Award and holdback fees.................... (545) (1,756) Pension contribution....................... (12,505) (12,837) Amortization............................... (11,006) (7,310) Depreciation............................... (4,065) 2,935 All other, net............................. (24,364) (15,514) -------- -------- Total deferred tax liabilities............... (52,485) (34,482) -------- -------- Valuation allowance.......................... (32,628) (31,145) -------- -------- Net prepaid taxes............................ $ 49,855 $ 33,190 ======== ========
At January 3, 1999, the Company had non-U.S. (primarily from Germany) net operating loss carryforwards of $68.1 million, substantially all of which carry forward indefinitely. The $32.6 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 $82.3 million and $44.3 million were included in other current assets at January 3, 1999 and December 28, 1997, respectively. Long-term deferred income taxes of $32.5 million and $11.1 million were included in long-term liabilities at January 3, 1999 and December 28, 1997, 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. In connection with current year divestitures, certain proceeds will not be permanently reinvested in those operations, and, accordingly, federal taxes in the amount of $10 million have been provided in connection with those earnings. Accumulated net earnings of non-U.S. subsidiaries for which no federal taxes have been provided as of January 3, 1999 were $94.5 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 $30.1 million at January 3, 1999. 8. DISCONTINUED OPERATIONS The former DOE Support segment, which provided services under management and operations contracts, is presented as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. The EG&G Mound Applied Technologies contract, the Company's last DOE 49 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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. Summary operating results of the discontinued operations were as follows:
(IN THOUSANDS) 1997 1996 - -------------- ------- -------- Sales................................................. $79,795 $141,181 Costs and expenses.................................... 75,108 132,449 ------- -------- Income from discontinued operations before income taxes............................................... 4,687 8,732 Provision for income taxes............................ 1,640 3,056 ------- -------- Income from discontinued operations, net of income taxes............................................... $ 3,047 $ 5,676 ======= ========
9. EARNINGS PER SHARE Basic earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding during the year. Diluted earnings per share was computed by dividing net income by the weighted-average number of common shares outstanding plus all potentially dilutive common shares outstanding, primarily shares issuable upon the exercise of stock options using the treasury stock method. The following table reconciles the number of shares utilized in the earnings per share calculations:
(IN THOUSANDS) 1998 1997 1996 - -------------- ------ ------ ------ Number of common shares-basic.................. 45,322 45,757 47,298 Effect of dilutive securities: Stock options................................ 516 141 174 Other........................................ 46 -- -- ------ ------ ------ Number of common shares-diluted................ 45,884 45,898 47,472 ====== ====== ======
Options to purchase 92,000, 1,477,000 and 1,724,000 shares of common stock were not included in the computation of diluted earnings per share for 1998, 1997 and 1996, respectively, because the options' exercise prices were greater than the average market price of the common shares and their effect would have been antidilutive. 10. ACCOUNTS RECEIVABLE Accounts receivable as of January 3, 1999 and December 28, 1997 included unbilled receivables of $38 million and $48 million, respectively, which were due primarily from U.S. government agencies. Accounts receivable were net of reserves for doubtful accounts of $4.6 million and $4.8 million as of January 3, 1999 and December 28, 1997, respectively. 11. INVENTORIES Inventories as of January 3, 1999 and December 28, 1997 consisted of the following:
(IN THOUSANDS) 1998 1997 - -------------- -------- -------- Finished goods............................... $ 36,552 $ 31,570 Work in process.............................. 26,818 24,810 Raw materials................................ 64,892 56,495 -------- -------- $128,262 $112,875 ======== ========
50 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Due to the divestitures in 1998, the portion of total inventories accounted for using the LIFO method of determining inventory costs dropped from 25% in 1997 to 12% in 1998. The excess of current cost of inventories over the LIFO value was approximately $5 million as of January 3, 1999 and $8 million as of December 28, 1997. 12. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, as of January 3, 1999 and December 28, 1997 consisted of the following:
(IN THOUSANDS) 1998 1997 - -------------- -------- -------- Land......................................... $ 23,884 $ 12,712 Buildings and leasehold improvements......... 129,766 114,698 Machinery and equipment...................... 356,457 354,972 -------- -------- $510,107 $482,382 ======== ========
The increase in property, plant and equipment was primarily due to the acquisition of Lumen ($53 million) and capital expenditures ($46.5 million) in 1998. These increases were partially offset by the Rotron and Sealol Industrial Seals divestitures ($50 million). 13. INVESTMENTS Investments as of January 3, 1999 and December 28, 1997 consisted of the following:
(IN THOUSANDS) 1998 1997 - -------------- ------- ------- Marketable investments......................... $10,695 $11,142 Joint venture investments...................... 5,955 5,588 ------- ------- $16,650 $16,730 ======= =======
Joint venture investments are accounted for using the equity method. 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 January 3, 1999, the fixed-income securities, on average, had maturities of approximately nine years. The net unrealized holding gain on marketable investments, net of deferred income taxes, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity, was $0.4 million at January 3, 1999 and $0.5 million at December 28, 1997. 51 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Marketable investments classified as available for sale as of January 3, 1999 and December 28, 1997 consisted of the following:
GROSS UNREALIZED HOLDING MARKET ------------------ (IN THOUSANDS) VALUE COST GAINS (LOSSES) - -------------- ------- ------- ------ -------- 1998 Common stocks.......................... $ 6,838 $ 6,367 $ 633 $(162) Fixed-income securities................ 3,549 3,506 43 -- Other.................................. 308 281 27 -- ------- ------- ------ ----- $10,695 $10,154 $ 703 $(162) ======= ======= ====== ===== 1997 Common stocks.......................... $ 7,466 $ 6,665 $1,003 $(202) Fixed-income securities................ 3,543 3,495 48 -- Other.................................. 133 132 1 -- ------- ------- ------ ----- $11,142 $10,292 $1,052 $(202) ======= ======= ====== =====
14. INTANGIBLE ASSETS Intangible assets consist mainly of goodwill from acquisitions accounted for using the purchase method of accounting representing the excess of cost over the fair market value of the net assets of the acquired businesses. Goodwill is being amortized over periods of 10-30 years. Other identifiable intangible assets from acquisitions include patents, trademarks, trade names and developed technology. Approximately $11.8 million was allocated to trade names, trademarks and patents in connection with the Lumen acquisition and will be amortized over ten years. Intangible assets were shown net of accumulated amortization of $57.3 million and $48.7 million as of January 3, 1999 and December 28, 1997, respectively. The increase resulted primarily from goodwill and other intangibles related to the Lumen, Belfab, LSR and Isolab acquisitions in 1998. 15. DEBT Short-term debt at January 3, 1999 and December 28, 1997 consisted primarily of commercial paper borrowings of $150 million and $45.8 million, respectively, that had maturities of 60 days or less. The weighted-average interest rate on commercial paper borrowings was 5.4% at January 3, 1999 and 6.1% at December 28, 1997. Commercial paper borrowings averaged $23 million during 1998 at an average interest rate of 5.5%, compared to average borrowings of $47 million during 1997 at an average interest rate of 5.6%. At January 3, 1999, short-term debt also included $6.2 million outstanding under a revolving credit agreement, bearing interest at 9%, assumed by the Company in connection with the Lumen acquisition. In March 1999, two of the Company's $100 million credit facilities were renewed and increased to a $250 million credit facility that expires in March 2000. The Company has an additional revolving credit agreement for $100 million that expires in March 2002. These agreements serve as backup facilities for the commercial paper borrowings. During 1998, the Company did not draw down its credit facilities; there are no significant commitment fees. At January 3, 1999 and December 28, 1997, 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 carrying amount approximated the estimated fair value at January 3, 1999 and December 28, 1997 based on a quoted market price. The total notes authorized were $150 million, and the unissued notes of $35 million are covered by a shelf registration statement. At January 3, 1999, long-term 52 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) debt also included $14.8 million assumed by the Company in connection with the Lumen acquisition. This debt consisted of unsecured notes of $12.4 million at 8% due in 2002, which were retired at a premium in February 1999, and a $2.4 million term loan at prime plus 1.75% due in 2000. 16. ACCRUED EXPENSES Accrued expenses as of January 3, 1999 and December 28, 1997 consisted of the following:
(IN THOUSANDS) 1998 1997 - -------------- -------- -------- Payroll and incentives............................... $ 29,314 $ 24,473 Employee benefits.................................... 44,566 48,936 Federal, non-U.S. and state income taxes............. 36,211 22,352 Other accrued operating expenses..................... 136,756 66,835 -------- -------- $246,847 $162,596 ======== ========
The increase in other accrued operating expenses resulted primarily from accruals related to the Lumen acquisition ($47 million) and deferred gain recognition related to dispositions ($16 million). 17. 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 $6.2 million in 1998, $6.5 million in 1997 and $5.8 million in 1996. 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) 1998 1997 1996 - -------------- -------- -------- -------- Service cost............................ $ 9,356 $ 9,081 $ 9,248 Interest cost........................... 18,300 18,126 17,335 Expected return on plan assets.......... (23,360) (21,288) (19,770) Net amortization and deferral........... (816) (743) 599 -------- -------- -------- $ 3,480 $ 5,176 $ 7,412 ======== ======== ========
53 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table sets forth the changes in 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 Sheets as of January 3, 1999 and December 28, 1997:
1998 1997 -------------------- -------------------- (IN THOUSANDS) NON-U.S. U.S. NON-U.S. U.S. - -------------- -------- -------- -------- -------- Actuarial present value of benefit obligations: Accumulated benefit obligations..... $29,387 $232,978 $23,706 $212,659 ======= ======== ======= ======== Projected benefit obligations at beginning of year................... $27,912 $240,176 $31,663 $213,146 Service cost.......................... 886 8,470 961 8,120 Interest cost......................... 1,860 16,440 1,876 16,249 Benefits paid......................... (948) (11,734) (1,133) (10,602) Actuarial loss (gain)................. 1,182 23,318 (1,573) 12,574 Plan amendments....................... -- -- -- 689 Effect of exchange rate changes....... 1,679 -- (3,882) -- Dispositions.......................... -- (17,202) -- -- ------- -------- ------- -------- Projected benefit obligations at end of year............................. 32,571 259,468 27,912 240,176 ------- -------- ------- -------- Fair value of plan assets at beginning of year............................. -- 294,790 -- 249,431 Actual return on plan assets.......... -- 26,968 -- 43,630 Employer contributions................ -- -- -- 12,331 Benefits paid......................... -- (11,734) -- (10,602) ------- -------- ------- -------- Fair value of plan assets at end of year................................ -- 310,024 -- 294,790 ------- -------- ------- -------- Plan assets less (greater) than projected benefit obligations....... 32,571 (50,556) 27,912 (54,614) Unrecognized net transition asset..... -- 2,254 -- 3,005 Unrecognized prior service costs...... (1,146) (77) (1,162) (38) Unrecognized net gain................. 2,619 7,779 3,758 10,287 ------- -------- ------- -------- Accrued pension liability (asset)..... $34,044 $(40,600) $30,508 $(41,360) ======= ======== ======= ======== Actuarial assumptions as of the year-end measurement date: Discount rate....................... 6.5% 6.5% 6.5% 7.0% Rate of compensation increase....... 4.0% 4.5% 4.0% 4.5% Expected rate of return on assets... -- 9.0% -- 9.0%
The non-U.S. accrued pension liability included $33.8 million and $30.2 million classified as long-term liabilities as of January 3, 1999 and December 28, 1997, 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 January 3, 1999 and December 28, 1997, the projected benefit obligations were $13.8 million and $11.9 million, respectively. Assets with a fair value of $10.1 million and $10.2 million, segregated in a trust, were available to meet this obligation as of January 3, 1999 and December 28, 1997, respectively. 54 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Pension expense for this plan was approximately $1.4 million in 1998, $1.3 million in 1997 and $1.5 million in 1996. 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 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) 1998 1997 1996 - -------------- ------- ------- ------ Service cost................................. $ 360 $ 317 $ 349 Interest cost................................ 1,250 1,237 1,459 Expected return on plan assets............... (1,245) (804) (698) Net amortization and deferral................ (402) (1,148) (134) ------- ------- ------ $ (37) $ (398) $ 976 ======= ======= ======
The following table sets forth the changes in the postretirement medical plan's funded status and the amounts recognized in the Company's Consolidated Balance Sheets at January 3, 1999 and December 28, 1997:
(IN THOUSANDS) 1998 1997 - -------------- ---- ---- Actuarial present value of accumulated benefit obligations: Retirees.................................................. $11,448 $15,699 Active employees eligible to retire....................... 565 563 Other active employees.................................... 5,032 4,848 ------- ------- Projected benefit obligations at beginning of year.......... 17,045 21,110 ------- ------- Service cost................................................ 360 317 Interest cost............................................... 1,250 1,237 Benefits paid............................................... (1,394) (1,160) Actuarial loss (gain)....................................... 2,467 (4,459) ------- ------- Change in projected benefit obligations during the year..... 2,683 (4,065) ------- ------- Retirees.................................................... 13,672 11,448 Active employees eligible to retire......................... 800 565 Other active employees...................................... 5,256 5,032 ------- ------- Projected benefit obligations at end of year................ 19,728 17,045 ------- ------- Fair value of plan assets at beginning of year.............. 13,839 8,470 Actual return on plan assets................................ 1,416 1,592 Employer contributions...................................... -- 3,777 ------- ------- Fair value of plan assets at end of year.................... 15,255 13,839 ------- -------
55 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS) 1998 1997 - -------------- ---- ---- Fair value of plan assets less than projected benefit obligations............................................... 4,473 3,206 Unrecognized net gain....................................... 7,483 9,123 ------- ------- Accrued postretirement medical liability.................... $11,956 $12,329 ======= ======= Actuarial assumptions as of the year-end measurement date: Discount rate............................................... 6.5% 7.0% Expected rate of return on assets........................... 9.0% 9.0% Health care cost trend rate: First year................................................ 9.0% 10.0% Ultimate.................................................. 5.5% 5.5% Time to reach ultimate...................................... 5 years 6 years
The accrued postretirement medical liability included $11 million and $11.3 million classified as long-term liabilities as of January 3, 1999 and December 28, 1997, respectively. If the health care cost trend rate was increased 1%, the accumulated postretirement benefit obligations would have increased by approximately $1 million at January 3, 1999. The effect of this increase on the annual cost for 1998 would have been approximately $0.1 million. If the health care cost trend rate was decreased 1%, the accumulated postretirement benefit obligations would have decreased by approximately $0.8 million at January 3, 1999. The effect of this decrease on the annual cost for 1998 would have been approximately $0.1 million. Deferred Compensation Plans: During 1998, the Company implemented certain nonqualified deferred compensation programs that provide benefits payable to officers and certain key employees or their designated beneficiaries at specified future dates, upon retirement or death. Benefit payments under these plans are funded by a combination of contributions from participants and the Company. Employee Stock Purchase Plan: In May 1998, the Company's Board of Directors adopted an Employee Stock Purchase Plan (ESPP), whereby the Company is authorized to issue up to 2.5 million shares of its common stock to its employees who participate in the ESPP. Under the Plan, participating employees will have the right to purchase common stock at a price equal to the lesser of 90% of the closing price on either the first day of the offering period or the last day of the offering period. The first offering period began on September 1, 1998 and ends on June 30, 1999. The number of shares which an employee may purchase, subject to certain aggregate limits, is determined by the employee's voluntary contribution which may not exceed 10% of base compensation. 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.) 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. The Company incurred a $2.8 million charge in 1997 related to a cash deficit in an employee benefit plan. 56 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 18. REIMBURSEMENT OF INVESTED CAPITAL In 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 $20.4 million as of January 3, 1999 and $24.7 million as of December 28, 1997. 19. CONTINGENCIES The Company is subject to various claims, legal proceedings and investigations 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. 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 (PRP) 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 $9.5 million as of January 3, 1999, representing management's estimate of the total cost of ultimate disposition of known environmental matters. Such amount is not discounted and does not reflect any recovery of any amounts through insurance or indemnification arrangements. These cost estimates are subject to a number of variables, including the stage of the environmental investigations, the magnitude of the possible contamination, the nature of the potential remedies, possible joint and several liability, the timeframe over which remediation may occur and the possible effects of changing laws and regulations. For sites where the Company has been named a PRP, management does not currently anticipate any additional liability to result from the inability of other significant named parties to contribute. The Company expects that such accrued amounts could be paid out over a period of up to five years. 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. The Company adopted the provisions of Statement of Position 96-1, Environmental Remediation Liabilities, in 1997. Its adoption did not have a material effect on results of operations. The Company has received notices from the Internal Revenue Service (IRS) asserting deficiencies in federal corporate income taxes for the Company's 1985 to 1994 tax years. The total additional tax proposed by the IRS amounts to $74 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. 57 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 20. RISKS AND UNCERTAINTIES During 1998, demand for certain products was adversely affected by problems in Asia. In addition, the Asian economic problems have weakened the currencies of some Asian countries, making products of competitors located in Asia more price competitive. Optoelectronics' future results are dependent on integration of the Lumen acquisition and completion of the development of amorphous silicon technology and successful market introduction of products based on this technology. In the IC Sensors business, new product development and shifting production to lower cost locations will be required in order to compete more effectively. In 1998, 37% of the Company's sales 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. In August 1998 the Company announced that its joint venture with Johnson Controls was unsuccessful in its bid to provide support services to NASA and the Air Force at Florida's Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base. The Company recorded a charge of $2.3 million in 1998 in connection with the closeout of this contract. The NASA contract at the Kennedy Space Center contributed sales of $134 million in 1998. 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 19. For information concerning factors affecting future performance, see Management's Discussion and Analysis. 21. STOCKHOLDERS' EQUITY At January 3, 1999, 8.7 million shares of the Company's common stock were reserved for employee benefit plans. In 1998, the Company awarded 65,000 shares of common stock to two officers. Sale of 35,000 shares is restricted for one year from the date of grant, and sale of the remaining 30,000 shares is restricted for two years. 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 10 years from the date of grant. Options granted since 1994 become exercisable, in ratable installments, over periods of 3-5 years from the date of grant. The Stock Option 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. 58 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of certain stock option information is as follows:
(SHARES IN THOUSANDS) 1998 1997 1996 --------------------- --------------------- --------------------- --------------------- WEIGHTED- WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE --------- --------- --------- --------- --------- --------- Outstanding at beginning of year..... 4,187 $19.64 4,161 $19.56 3,276 $18.81 Granted.............................. 568 22.82 927 19.19 1,392 20.67 Exercised............................ (1,209) 19.87 (363) 16.74 (266) 17.00 Lapsed............................... (246) 20.29 (538) 20.23 (241) 18.57 ------ ----- ----- Outstanding at end of year........... 3,300 20.05 4,187 19.64 4,161 19.56 ====== ===== ===== Exercisable at end of year........... 1,540 19.46 2,195 19.85 2,477 19.67 ====== ===== ===== Available for grant at end of year... 2,866 2,290 1,831 ====== ===== =====
In January 1998, the Board of Directors granted 400,000 options to an officer at an exercise price of $21.19 per share; 200,000 options were granted pursuant to the EG&G, Inc. 1992 Stock Option Plan, and 200,000 options were granted pursuant to a plan other than the 1992 Stock Option Plan. In addition, 167,500 options were granted pursuant to the 1992 Plan at various dates in 1998 at exercise prices ranging from $23.13 per share to $30.25 per share. 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 January 3, 1999:
(SHARES IN THOUSANDS) OPTIONS OUTSTANDING OPTIONS EXERCISABLE - --------------------- -------------------------------------- ---------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE RANGE OF NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE - --------------- --------- ------------ --------- --------- --------- $14.25-21.19............ 2,363 7.1 $18.96 984 $17.99 21.63-30.25............ 937 5.4 22.77 556 22.06 ----- ----- 14.25-30.25............ 3,300 6.6 20.05 1,540 19.46 ===== =====
In connection with the acquisition of Lumen Technologies, Lumen options were converted into 429,000 EG&G stock options, effective January 5, 1999. These options have an average exercise price of $14.47 per share and are fully vested. Also in January 1999, the Board of Directors granted 1,235,000 options at an exercise price of $27.25 per share. These options have not been reflected in the preceding tables. 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. 59 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table reflects pro forma net income from continuing operations and diluted earnings per share had the Company elected to adopt the fair value approach of SFAS No. 123:
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) 1998 1997 1996 - ---------------------- -------- ------- ------- Income from continuing operations: As reported................................ $102,002 $30,645 $54,480 Pro forma.................................. 100,000 29,844 53,986 Diluted earnings per share: As reported................................ 2.22 .67 1.15 Pro forma.................................. 2.18 .65 1.14
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. The weighted-average fair value of options at their grant dates during 1998 was $6.83. 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 1998 1997 1996 1996 ------- -------- -------- ------- Risk-free interest rate......... 5.4% 5.9% 6.3% 5.5% Expected dividend yield......... 2% 2% 2% 2% Expected lives.................. 6 years 7 years 7 years 7 years Expected stock volatility....... 27% 26% 24% 25%
Under a Shareholder Rights 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. 60 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of accumulated other comprehensive income (loss) were as follows:
FOREIGN CURRENCY ACCUMULATED OTHER TRANSLATION UNREALIZED GAINS COMPREHENSIVE (IN THOUSANDS) ADJUSTMENTS ON SECURITIES INCOME (LOSS) - -------------- ---------------- ---------------- ----------------- Balance, December 31, 1995........... $ 28,679 $ 244 $ 28,923 Current year change.................. (10,451) 960 (9,491) Balance, December 29, 1996........... 18,228 1,204 19,432 Current Year change.................. (22,608) (681) (23,289) Balance, December 28, 1997........... (4,380) 523 (3,857) Current year change.................. 7,723 (137) 7,586 -------- ------ -------- Balance, January 3, 1999............. $ 3,343 $ 386 $ 3,729 ======== ====== ========
The tax effects related to each component of other comprehensive income (loss) were as follows:
BEFORE-TAX TAX (PROVISION) AFTER-TAX (IN THOUSANDS) AMOUNT BENEFIT AMOUNT - -------------- ---------- --------------- --------- 1998 Gross foreign currency translation adjustments... $ 4,608 $ -- $ 4,608 Reclassification adjustment for translation losses realized upon sale of Sealol Industrial Seals.......................................... 3,115 -- 3,115 Unrealized losses on securities arising during the period..................................... (211) 74 (137) -------- ----- -------- Other comprehensive income....................... $ 7,512 $ 74 $ 7,586 ======== ===== ======== 1997 Foreign currency translation adjustments......... $(22,608) $ -- $(22,608) Unrealized losses on securities: Losses arising during the period................. (1,008) 353 (655) Reclassification adjustment...................... (40) 14 (26) -------- ----- -------- Net unrealized losses............................ (1,048) 367 (681) -------- ----- -------- Other comprehensive income (loss)................ $(23,656) $ 367 $(23,289) ======== ===== ======== 1996 Foreign currency translation adjustments......... $(10,451) $ -- $(10,451) Unrealized gains on securities: Gains arising during the period.................. 1,849 (647) 1,202 Reclassification adjustment...................... (372) 130 (242) -------- ----- -------- Net unrealized gains............................. 1,477 (517) 960 -------- ----- -------- Other comprehensive income (loss)................ $ (8,974) $(517) $ (9,491) ======== ===== ========
22. 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 January 3, 1999. 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 61 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 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 $41.6 million as of January 3, 1999 and $75.8 million as of December 28, 1997. The carrying value as of January 3, 1999 and December 28, 1997, which approximated fair value, was not significant. See Notes 1, 13 and 15 for disclosures about fair values, including methods and assumptions, of other financial instruments. 23. LEASES The Company leases certain property and equipment under operating leases. Rental expense charged to earnings for 1998, 1997 and 1996 amounted to $19.4 million, $15.6 million and $17.2 million, respectively. Minimum rental commitments under noncancelable operating leases are as follows: $17.8 million in 1999, $15.6 million in 2000, $11.1 million in 2001, $7.6 million in 2002, $3.7 million in 2003 and $11.5 million after 2003. 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. 24. INDUSTRY SEGMENT AND GEOGRAPHIC AREA INFORMATION In 1998, the Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, which changes the way the Company reports information about its operating segments. Information for prior years has been restated in order to conform to the 1998 presentation. The Company's businesses are reported as five reportable segments which reflect the Company's management and structure under five SBUs. The accounting policies of the reportable segments are the same as those described in Note 1. The Company evaluates the performance of its operating segments based on operating profit. Intersegment sales and transfers are not significant. The operating segments and their principal products or service areas are: Life Sciences: High-performance bioanalytic and diagnostic instruments for use in hospitals, clinics and pharmaceutical and medical research facilities. The Company also sells reagents and consumables for use in connection with certain of these instruments. Optoelectronics: A broad variety of components that emit and detect light, including photocells, imaging systems, light sources with various types of flashtubes and laser diodes, and devices for weapons' trigger systems. Products included micromachined detectors, amorphous silicon detector panels, flashlamps, specialty lighting, CCDs, X-ray tubes, detectors, photodiodes and high-intensity specialty discharge lamps. Instruments: Instruments and systems for X-ray imaging, security screening, food screening, process measurement, nuclear, electro-chemical and photolithography applications. The Company also conducts lubricant and structural testing simulations for the transportation industry. Engineered Products: Static and dynamic sealing, bellows devices, advanced pneumatic components, systems and valves for use in the aerospace, power generation and semiconductor industries. 62 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Technical Services: Engineering, scientific, environmental, management and technical support services for a broad range of governmental and industrial customers. Sales and operating profit by segment are shown in the Sales and Operating Profit by Operating Segment section of this report; such information with respect to 1998, 1997 and 1996 is considered an integral part of this note. Sales to U.S. government agencies, which were predominantly to the Department of Defense and NASA in the Technical Services segment, were $524 million, $537 million and $527 million in 1998, 1997 and 1996, respectively. In August 1998, the Company announced that its joint venture with Johnson Controls was unsuccessful in its bid to provide support services to NASA and the Air Force at Florida's Kennedy Space Center, Cape Canaveral Air Station and Patrick Air Force Base. The NASA contract at the Kennedy Space Center contributed sales of $134 million in 1998, $168 million in 1997 and $172 million in 1996. Additional information relating to the Company's operations in the various operating segments is as follows:
DEPRECIATION AND AMORTIZATION EXPENSE CAPITAL EXPENDITURES --------------------------- --------------------------- (IN THOUSANDS) 1998 1997 1996 1998 1997 1996 - -------------- ------- ------- ------- ------- ------- ------- Life Sciences............... $ 5,059 $ 4,091 $ 4,835 $ 5,415 $ 3,352 $ 1,642 Optoelectronics............. 25,615 19,528 14,880 17,256 21,312 47,327 Instruments................. 10,573 11,688 10,767 8,382 7,616 17,585 Engineered Products......... 6,042 3,090 2,736 10,325 9,488 4,739 Technical Services.......... 1,869 1,914 2,075 2,033 1,087 1,694 Divestitures and Other...... 1,221 4,301 5,643 3,111 5,874 7,503 ------- ------- ------- ------- ------- ------- $50,379 $44,612 $40,936 $46,522 $48,729 $80,490 ======= ======= ======= ======= ======= =======
TOTAL ASSETS ---------------------- (IN THOUSANDS) 1998 1997 - -------------- ---------- -------- Life Sciences.............................. $ 128,970 $102,705 Optoelectronics............................ 479,818 216,096 Instruments................................ 183,590 157,716 Engineered Products........................ 112,898 60,619 Technical Services......................... 69,795 80,409 Divestitures and Other..................... 209,849 214,558 ---------- -------- $1,184,920 $832,103 ========== ========
Divestitures and Other total assets consisted primarily of cash and cash equivalents, prepaid pension, prepaid taxes and, in 1997, receivables and inventories of operations divested in 1998. 63 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following geographic area information includes sales based on location of external customer and net property, plant and equipment based on physical location:
SALES -------------------------------------- (IN THOUSANDS) 1998 1997 1996 - -------------- ---------- ---------- ---------- U.S................................ $ 998,313 $1,022,644 $ 999,322 Germany............................ 68,493 72,436 63,502 United Kingdom..................... 47,794 65,462 48,971 Other Non-U.S...................... 293,296 300,263 315,457 ---------- ---------- ---------- $1,407,896 $1,460,805 $1,427,252 ========== ========== ==========
NET PROPERTY, PLANT AND EQUIPMENT ------------------------ (IN THOUSANDS) 1998 1997 - -------------- ---------- ---------- U.S.................................. $136,696 $108,415 Germany.............................. 21,923 16,351 Finland.............................. 15,431 13,181 Other Non-U.S........................ 47,776 43,196 -------- -------- $221,826 $181,143 ======== ========
25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Selected quarterly financial information follows:
QUARTERS ----------------------------------------- ---------- (IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH YEAR - ------------------------------------ -------- -------- -------- -------- ---------- 1998 Sales................................. $355,936 $356,282 $343,487 $352,191 $1,407,896 Operating income from continuing operations.......................... 54,897 45,824 20,195 34,560 155,476 Income from continuing operations before income taxes................. 53,695 44,946 24,120 33,273 156,034 Income from continuing operations..... 34,483 31,614 15,437 20,468 102,002 Net income............................ 34,483 31,614 15,437 20,468 102,002 Basic earnings per share: Continuing operations............... .76 .69 .34 .46 2.25 Net income.......................... .76 .69 .34 .46 2.25 Diluted earnings per share: Continuing operations............... .75 .68 .33 .45 2.22 Net income.......................... .75 .68 .33 .45 2.22 Cash dividends per common share..... .14 .14 .14 .14 .56 Market price of common stock: High................................ 28.50 33.75 30.13 29.44 33.75 Low................................. 19.44 27.13 18.88 20.50 18.88 Close............................... 27.75 29.69 22.63 27.81 27.81 1997 Sales................................. $347,006 $368,672 $358,368 $386,759 $1,460,805 Operating income (loss) from continuing operations............... 16,555 (10,234) 20,329 32,948 59,598
64 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
QUARTERS ----------------------------------------- ---------- (IN THOUSANDS EXCEPT PER SHARE DATA) FIRST SECOND THIRD FOURTH YEAR - ------------------------------------ -------- -------- -------- -------- ---------- Income (loss) from continuing operations before income taxes...... 14,497 (12,852) 21,030 31,351 54,026 Income (loss) from continuing operations.......................... 9,568 (13,390) 13,879 20,588 30,645 Net income (loss)..................... 10,026 (11,845) 14,590 20,921 33,692 Basic and diluted earnings (loss) per share: Continuing operations............... .21 (.29) .30 .45 .67 Net income (loss)................... .22 (.26) .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 24.63 Low................................. 19.63 18.13 18.75 18.00 18.00 Close............................... 21.38 20.81 20.81 20.06 20.06
26. SUBSEQUENT EVENTS Shelf Registration In January 1999, the Company filed a shelf registration statement with the SEC to register $465 million of securities. This registration statement, together with $35 million of securities covered by a previously filed registration statement, will provide the Company with financing flexibility to offer up to $500 million aggregate principal amount of common stock, preferred stock, depository shares, debt securities, warrants, stock purchase contacts and/or stock purchase units. The Company expects to use the net proceeds from the sale of the securities for general corporate purposes, which may include, among other things: the repayment of outstanding indebtedness, working capital, capital expenditures, the repurchase of shares of common stock and acquisitions. The precise amount and timing of the application of such proceeds will depend upon our funding requirements and the availability and cost of other funds. Acquisition In March 1999, the Company announced that it had entered into an agreement to acquire Perkin-Elmer's Analytical Instruments Division, a leading producer of high quality analytical testing instruments, for a purchase price of approximately $425 million. The Company plans to finance the transaction with a combination of existing cash and equivalents, borrowings under existing credit facilities and other financing, as required. Under the current terms of the agreement, the Company will also assume a long-term pension liability of approximately $65 million. The closing of the acquisition is subject to certain customary closing conditions, including regulatory approval. The transaction is expected to close during the second quarter of 1999. Perkin-Elmer Analytical Instruments generated 1998 fiscal year sales of $569 million. Its systems are widely used to achieve product uniformity in drugs and medicines, ensure the purity of food and water, protect the environment, measure and test the structural integrity of many different materials and various other applications. The division sells to traditional analytical instruments and life sciences markets. The Company expects to incur a charge for acquired in-process R&D in the quarter the transaction closes. The amount of such charge has not yet been determined. The Company also announced that it will explore strategic alternatives for its Technical Services business unit and has engaged Goldman, Sachs & Co. to conduct the review. 65 66 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 January 3, 1999 and December 28, 1997, and the related consolidated statements of income, stockholders' equity and cash flows for the years ended January 3, 1999, December 28, 1997 and December 29, 1996. 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 January 3, 1999 and December 28, 1997, and the results of their operations and their cash flows for the years ended January 3, 1999, December 28, 1997 and December 29, 1996 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP - ------------------------------------------------------ Arthur Andersen LLP Boston, Massachusetts January 23, 1999 (except with respect to the matters discussed in Note 26, for which the date is March 8, 1999) 66 67 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 in part under the caption "Executive Officers of the Registrant" in Part I of this Report, and the remainder is contained in the Company's 1999 Proxy Statement for the Annual Meeting of Stockholders to be held on April 27, 1999 (the "1999 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. The Company expects to file the 1999 Proxy Statement within 120 days after the close of the fiscal year ended January 3, 1999. (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 by this Item is contained under the captions "Summary Compensation Table" up to and including "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Value Option Table" and Notes thereto in the 1999 Proxy Statement, and is herein incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item is contained under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the 1999 Proxy Statement, and is herein incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 67 68 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 Income Statements for the Three Years Ended January 3, 1999 Consolidated Balance Sheets as of January 3, 1999 and December 28, 1997 Consolidated Statements of Stockholders' Equity for the Three Years Ended January 3, 1999 Consolidated Statements of Cash Flows for the Three Years Ended January 3, 1999 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 February 9, 1999, is attached hereto as Exhibit 3.1. 3.2 The Company's By-Laws as amended and restated by the Board of Directors on December 17,1997 were filed with the Commission as Exhibit 3.1 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 28, 1997, and are herein incorporated by reference. 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. *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.
68 69 *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 was filed with the Commission as Exhibit 10.2 to EG&G's Annual Report on Form 10-K for the fiscal year ended December 28, 1997, and is herein incorporated by reference. 10.3 5-Year Competitive Advance and Revolving Credit Facility Agreement ("5-Year Agreement", formerly referred to as the "3-Year Agreement") dated as of March 21, 1994 among EG&G, Inc., the Lenders Named Herein and The Chase Manhattan Bank (as successor to Chemical Bank) as Administrative Agent; Amendment No. 1 to 5-Year Agreement dated as of March 15, 1995; and Amendment No. 2 to 5-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 5-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 also herein incorporated by reference. Amendment No. 4 to 5-Year Agreement dated as of November 20, 1998 is attached hereto as Exhibit 10.3. 10.4 Competitive Advance and Revolving Credit Facility Agreement dated as of March 5, 1999 among EG&G, Inc., the Lenders Named Herein and The Chase Manhattan Bank as Administrative Agent is attached hereto as Exhibit 10.4. *10.5 Employment Contracts: (1) Employment contract between Gregory L. Summe and EG&G dated January 8, 1998. (2) Employment contract between Murray Gross and EG&G dated November 1, 1993. (3) Employment contract between Angelo Castellana and EG&G dated November 1, 1993. (4) Employment contract between Robert F. Friel and EG&G dated December 21, 1998. (5) Employment contract between Richard F. Walsh and EG&G dated July 1, 1998. (6) Employment contract between Robert A. Barrett and EG&G dated May 21, 1998. (7) Employment contract between Stephen DeFalco and EG&G dated August 13, 1998. (8) Employment contract between Daniel T. Heaney and EG&G dated June 1, 1995. (9) Employment contract between Hansford T. Johnson and EG&G dated March 28, 1998. (10) Employment contract between Deborah S. Lorenz and EG&G dated November 1, 1993. (11) Employment contract between Gregory D. Perry and EG&G dated September 14, 1998.
69 70 Except for the name of the officer in the employment contracts identified by numbers 3 through and including 11, 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 11 except that they provide for a longer contract term, three years as opposed to one year. The employment contract between Angelo Castellana 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. *10.8 The EG&G, Inc. 1998 EMPLOYEE STOCK PURCHASE PLAN adopted by the Board of Directors on May 21, 1998 is attached hereto as Exhibit 10.8. *10.9 Agreement and General Release between EG&G, Inc. and John F. Alexander dated November 2, 1998. 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 23, 1998 regarding a press release issued on October 21, 1998 reporting on the Company's financial results for the third quarter of 1998. A report on Form 8-K was filed with the Commission on November 4, 1998 regarding the Company's announcement that it had entered into a definitive agreement to acquire Lumen Technologies, Inc., a maker of high-technology specialty light sources, for cash and assumed debt totaling approximately $250 million. A report on Form 8-K was filed with the Commission on November 5, 1998 regarding the Company's announcement on October 22, 1998 that it had received authorization from the Company's Board of Directors to purchase up to 5 million shares of the Company's Common Stock. A report on Form 8-K was filed with the Commission on December 29, 1998 regarding a press release announcing that the Company's Board of Directors had elected Gregory L. Summe to assume the position of Chief Executive Officer, effective January 1, 1999. A report on Form 8-K was filed with the Commission on December 30, 1998 regarding the completion of the Company's tender offer for shares of common stock of Lumen Technologies, Inc. (c) PROXY STATEMENT EG&G's 1999 Proxy Statement, in definitive form, will be filed with the Securities and Exchange Commission in Washington, D.C. pursuant to the Commission's Rule 14a-6 within 120 days after the close of the fiscal year ended January 3, 1999. 70 71 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 23, 1999 (except with respect to the matters discussed in Note 26, for which the date is March 8, 1999). 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 23, 1999 71 72 SCHEDULE II EG&G, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED JANUARY 3, 1999 (IN THOUSANDS)
BALANCE AT BALANCE BEGINNING OF CHARGES/ AT END DESCRIPTION YEAR PROVISIONS WRITE-OFFS OTHER OF YEAR - ----------- ------------ ---------- ---------- ------ ------- RESERVE FOR DOUBTFUL ACCOUNTS 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 Year Ended January 3, 1999............. $4,792 $ 1,323 $ (1,099) $ 825(a) $ 5,841 ACCRUED RESTRUCTURING COSTS Year Ended December 29, 1996........... $3,748 $ -- $ (3,748) $ -- $ -- Year Ended December 28, 1997........... $ -- $ 4,900 $ (1,408) $ -- $ 3,492 Year Ended January 3, 1999............. $3,492 $54,500 $(25,470) $5,000(b) $37,522
- --------------- (a) Includes reserves of $1,371 related to companies acquired in 1998. (b) Represents accrued restructuring costs of $5,000 related to a company acquired in 1998. 72 73 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports dated January 23, 1999 (except with respect to the matters discussed in Note 26, for which the date is March 8, 1999), 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; Form S-3, File No. 33-59675; Form S-8, File No. 333-50953; Form S-8, File No. 333-56921; Form S-8, File No. 333-58517; Form S-8, File No. 333-61615; Form S-8, File No. 333-65367; Form S-8, File No. 333-69115; Form S-8, File No. 333-70977 and Form S-3, File No. 333-71069. /s/ ARTHUR ANDERSEN LLP - ------------------------------------------------------ Arthur Andersen LLP Boston, Massachusetts March 30, 1999 POWER OF ATTORNEY We, the undersigned officers and directors of EG&G, Inc., hereby severally constitute Gregory L. Summe, 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 30, 1999 By: /s/ GREGORY L. SUMME ----------------------------------------------------- Gregory L. Summe President and Chief Executive Officer (Principal Executive Officer) March 30, 1999 By: /s/ ROBERT F. FRIEL ----------------------------------------------------- Robert F. Friel Senior Vice President and Chief Financial Officer (Principal Financial Officer) March 30, 1999 By: /s/ GREGORY D. PERRY ----------------------------------------------------- Gregory D. Perry Corporate Controller (Principal Accounting Officer)
73 74 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 18, 1999 By: /s/ TAMARA J. ERICKSON - ----------------------------------------------------- Tamara J. Erickson, Director Date: March 18, 1999 By: /s/ JOHN B. GRAY - ----------------------------------------------------- John B. Gray, Director Date: March 22, 1999 By: /s/ KENT F. HANSEN - ----------------------------------------------------- Kent F. Hansen, Director Date: March 17, 1999 By: /s/ JOHN F. KEANE - ----------------------------------------------------- John F. Keane, Director Date: March 17, 1999 By: /s/ NICHOLAS A. LOPARDO - ----------------------------------------------------- Nicholas A. Lopardo, Director Date: March 18, 1999 By: /s/ GRETA E. MARSHALL - ----------------------------------------------------- Greta E. Marshall, Director Date: March 23, 1999 By: /s/ MICHAEL C. RUETTGERS - ----------------------------------------------------- Michael C. Ruettgers, Director Date: March 18, 1999 By: /s/ GREGORY L. SUMME - ----------------------------------------------------- Gregory L. Summe, Director Date: March 30, 1999 By: /s/ JOHN LARKIN THOMPSON - ----------------------------------------------------- John Larkin Thompson, Director Date: March 17, 1999 By: /s/ G. ROBERT TOD - ----------------------------------------------------- G. Robert Tod, Director Date: March 17, 1999
74 75 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT NAME - ------- ------------ 3.1 EG&G, Inc. Restated Articles of Organization as filed with the Massachusetts Secretary of the Commonwealth on February 9, 1999. 10.3 Amendment No. 4 to 5-Year Agreement dated as of November 20, 1998 among EG&G, Inc., the Lenders Named Herein and The Chase Manhattan Bank (as successor to Chemical Bank) as Administrative Agent. 10.4 Competitive Advance and Revolving Credit Facility Agreement dated as of March 5, 1999 among EG&G, Inc., the Lenders Named Herein and The Chase Manhattan Bank as Administrative Agent. 10.5 Employment Contract between Angelo Castellana and EG&G, Inc. 10.8 EG&G, Inc. 1998 Employee Stock Purchase Plan adopted by the Board of Directors on May 21, 1998. 10.9 Agreement and General Release between EG&G, Inc. and John F. Alexander dated November 2, 1998. 21 Subsidiaries of the Registrant. 27 Financial Data Schedule.
75 EX-3.1 2 RESTATED ARTICLES OF ORGANIZATION 1 EXHIBIT 3.1 FEDERAL IDENTIFICATION NO. 04-205-2042 ------------------ - -------- Examiner - -------- THE COMMONWEALTH OF MASSACHUSETTS William Francis Galvin Secretary, of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) - -------- Name Approved - -------- We, Gregory L. Summe, ,*President --------------------------------------------- and Murray Gross, ,*Clerk --------------------------------------------- of EG&G, Inc. --------------------------------------------- (Exact name of corporation) located at 45 William Street, Wellesley, MA --------------------------------------------- (Street address of corporation Massachusetts) do hereby certify that the following Restatement of the Articles of Organization was duly adopted at a meeting held on January 20, 1999 by a vote of the directors. shares of of shares outstanding, - ----- ------------------------------ ------ (type, class & series, if any) shares of of shares outstanding, and - ----- ------------------------------ ------ (type, class & series, if any) shares of of shares outstanding, - ----- ------------------------------ ------ (type, class & series, if any) - -------- C [ ] P [ ] M [ ] R.A. [ ] - -------- ARTICLE I The name of the corporation is: EG&G, Inc. ARTICLE II The purpose of the corporation is to engage in the following business activities: See Attached Article II *Delete the inapplicable words. **Delete the inapplicable clause. NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON SEPARATE 8 1/2 X 11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS CLEARLY INDICATED. - -------- P. C. - -------- 2 ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue: - -------------------------------- ---------------------------------------------- WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------- ---------------------------------------------- TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE - -------------------------------- ---------------------------------------------- Common: Common: 100,000,000 $1.00 - -------------------------------- ---------------------------------------------- Preferred: Preferred: 1,000,000 $1.00 - -------------------------------- ---------------------------------------------- ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class. See Attached Article IV ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: None ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: See Attached Article VI **If there are no provisions state "None". Note:The preceding six (6) articles are considered to be permanent and may ONLY be changed by filing appropriate Articles of Amendment. 3 ARTICLE II The purpose of the corporation is to engage in the following business activities: To manufacture, buy, sell, store, alter, and otherwise deal in or with electrical, electronic, photographic and mechanical equipment, devices, machinery, products, supplies, and material of all kinds. To render consulting and advisory services of all kinds. To engage in research, experimentation, and development work of all kinds either for its own account or for others. To engage in, conduct, and carry on any other business or businesses and to engage in any lawful act or activity for which corporations may be organized under Chapter 156B of the Laws of the Commonwealth of Massachusetts or any amendment or substitution therefor. To purchase, lease, exchange or otherwise acquire, hold, store, sell, encumber, or otherwise deal in or with any real or personal property or any rights or privileges which the corporation may consider necessary or convenient for the purpose of its business, provided, however, that this Corporation shall not engage in the real estate business. To acquire by purchase, lease, exchange or otherwise the whole or any part of the good will, patents, trade names, rights, licenses, and property of any person or persons, firm, association, or corporation heretofore or hereafter engaged in any of these businesses or any similar business or businesses or in any business which this corporation is authorized to carry on and pay for the same in cash or in stock or other securities of this corporation or otherwise, and hold and in any manner dispose of the whole or any part of the property so acquired, and conduct in any lawful manner the whole or any part of the business or businesses so acquired. To borrow money, to issue notes, bonds or other obligations, secured or unsecured, of the corporation for any purpose for which it is incorporated. To purchase or otherwise receive, hold, sell, and otherwise deal in or with all or any part of the capital stock of any class, bonds, notes, debentures, or other securities of any corporation, 1 of 2 4 including this corporation, association, government, state municipality, or other organization. To do any and all other acts and things and to exercise any and all other powers which a partnership or a natural person could do and exercise which now or hereafter may be authorized by the law governing business corporations in furtherance of these purposes. To carry on any business herein described either for its own account or as agent broker, or otherwise. 2 of 2 5 ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other class of which shares are outstanding and of each series then established within any class: The following is a description of each class of stock of the corporation and the respective preferences, powers, qualifications and special or relative rights or privileges as to each class. A. Preferred Stock. The Preferred Stock may be issued in one or more series at such time or times and for such considerations as the Board of Directors may determine. Each series shall be so designated as to distinguish the shares thereof from the shares of all other series and classes. Except as to the relative rights and preferences referred to hereinafter in respect of any or all of which there may be variations between different series, and except that shares of any one series issued at different times may differ as to the dates from which dividends thereon shall accrue and be cumulative, all shares of Preferred Stock shall be identical. Different series of Preferred Stock shall not be construed to constitute different classes of shares for the purpose of voting by classes. The Board of Directors is expressly authorized, subject to the limitations prescribed by law and the provisions of these Articles, to provide by adopting a resolution or resolutions, a certificate of which shall be filed in accordance with the Business Corporation Law of the Commonwealth of Massachusetts, for the issue of the Preferred Stock in one or more series, each with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions creating such series. The authority of the Board of Directors with respect to each such series shall include, without limitation of the foregoing, the right to determine and fix: (1) The distinctive designation of such series and the number of shares to constitute such series; 1 of 11 6 (2) The rate at which dividends on the shares of such series shall be declared and paid, or set aside for payment, before any dividends on the Common Stock with respect to the same dividend period shall be declared and paid or set aside for payment; whether dividends at the rate so determined shall be cumulative and if so from what date or dates and on what terms; and whether the shares of such series shall be entitled to any participating or other dividends in addition to dividends at the rate so determined, and if so on what terms; (3) The right, if any, of the corporation to redeem shares of the particular series and, if redeemable, the terms and conditions of such redemption, including the redemption price or prices which the shares of such series shall be entitled to receive upon redemption; (4) The preferences, if any, and the amount or amounts per share, which the shares of such series shall be entitled to receive upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation; (5) The terms and conditions, if any, upon which shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or other series of the same class, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; (6) The obligation, if any, of the corporation to retire or purchase shares of such series pursuant to a sinking fund of a similar nature or otherwise, and the terms and conditions of such obligations; (7) Voting rights, if any, provided that the shares of all series with voting rights shall not have more than one vote per share; (8) The status as to reissuance or sale of shares of such series redeemed, purchased or otherwise reacquired, or surrendered to the corporation on conversion; (9) The conditions and restrictions, if any, on the payment of dividends or on the making of other distributions on, or the purchase, redemption or other acquisition by the corporation or any subsidiary, of the Common Stock or of any other class of stock of the corporation ranking junior 2 of 11 7 to the shares of such series as to dividends or upon liquidation; (10) The conditions and restrictions, if any, on the creation of indebtedness of the corporation, or any subsidiary, or on the issue of any additional stock ranking on a parity with or prior to the shares of such series as to dividends or upon liquidation; (11) Such other preferences or restrictions or qualifications thereof as the Board of Directors may deem advisable and are not inconsistent with law and the provisions of these Articles. No holder of shares of the Preferred Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the corporation, or of securities convertible into stock of any class, whether now or hereafter authorized, or whether issued for cash or other consideration or by way of dividend. TERMS OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK: I. DESIGNATION AND AMOUNT The shares of such series shall be designated as "Series C Junior Participating Preferred Stock" (the "Series C Preferred Stock") and the number of shares constituting the Series C Preferred Stock shall be 70,000. Such number of shares may be increased or decreased by resolution of the Board of Directors; PROVIDED, that no decrease shall reduce the number of shares of Series C Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series C Preferred Stock. II. DIVIDENDS AND DISTRIBUTIONS (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series C Preferred Stock with respect to dividends, the holders of shares of Series C Preferred Stock, in preference to the holders of Common Stock, par value $1 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of 3 of 11 8 Directors out of funds of the Corporation legally available for the payment of dividends, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series C Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series C Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series C Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock) and the Corporation shall pay such dividend or distribution on the Series C Preferred Stock before the dividend or distribution declared on the Common Stock is paid or set apart; provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the Series C Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series C Preferred Stock from the Quarterly 4 of 11 9 Dividend Payment Date next preceding the date of or is a date after the record date for the determination of holders of shares of Series C Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series C Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Director may fix a record date for the determination of holders of shares of Series C Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. III. VOTING RIGHTS The holders of shares of Series C Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series C Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein, by law, or in any other Certificate of Vote of Directors creating a series of Preferred Stock or any similar stock, the holders of shares of Series C Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. 5 of 11 10 (C) (i) If at any time dividends on any Series C Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series C Preferred Stock, voting as a separate series from all other series of Preferred Stock and classes of capital stock, shall be entitled to elect two members of the Board of Directors in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of Directors of this Corporation shall, as soon as may be practicable, call a special meeting of holders of Series C Preferred Stock for the purpose of electing such members of the Board of Directors. Said special meeting shall in any event be held within 45 days of the occurrence of such arrearage. (ii) During any period when the holders of Series c Preferred Stock, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then and during such time as such right continues (a) the then authorized number of Directors shall be increased by two, and the holders of Series C Preferred Stock, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of any existing class of the Board of Directors, but shall serve until the next annual meeting of stockholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section III(C). (iii) A Director elected pursuant to the terms hereof may be removed with or without cause by the holders of Series C Preferred Stock entitled to vote in an election of such Director. (iv) If, during any interval between annual meetings of stockholders for the election of Directors and while the holders of Series C Preferred Stock shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board of Directors shall call a special meeting of the holders of Series C Preferred Stock for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting. Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy. (v) At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any shares of Series C Preferred Stock outstanding are paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant to this Section 6 of 11 11 III(C), or his successor, shall automatically terminate, and the authorized number of Directors shall automatically decrease by two, the rights of the holders of the shares of the Series C Preferred Stock to vote as provided in this Section III(C) shall cease, subject to renewal from time to time upon the same terms and conditions, and the holders of shares of the Series C Preferred Stock shall have only the limited voting rights elsewhere herein set forth. (D) Except as set forth herein, or as otherwise provided by law, holders of Series C Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. IV. CERTAIN RESTRICTIONS (A) Whenever quarterly dividends or other dividends or distributions payable on the Series C Preferred Stock as provided in Section II are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series C Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (I) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except dividends paid ratably on the Series C Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series C Preferred Stock; or 7 of 11 12 (iv) redeem or purchase or otherwise acquire for consideration any shares of Series C Preferred Stock, or any shares of stock ranking on a parity with the Series C Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section IV, purchase or otherwise acquire such shares at such time and in such manner. V. REACQUIRED SHARES Any shares of Series C Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Organization, in any other Certificate of Vote of Directors creating a series of Preferred Stock or any similar stock or as otherwise required by law. VI. LIQUIDATION, DISSOLUTION OR WINDING UP (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series C Preferred Stock unless, prior thereto, the holders of shares of Series C Preferred Stock shall have received $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series C Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series C Preferred Stock, except distributions 8 of 11 13 made ratably on the Series C Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. (B) Neither the consolidation, merger or other business combination of the Corporation with or into any other corporation nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section VI. (C) In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a divided in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series C Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section VI shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. VII. CONSOLIDATION, MERGER, ETC. Notwithstanding anything to the contrary contained herein, in case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series C Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series C Preferred Stock shall be adjusted by 9 of 11 14 multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. VIII. REDEMPTION The shares of Series C Preferred Stock shall not be redeemable. IX. RANK The Series C Preferred Stock shall rank, with respect to the payment of dividends and the distribution of assets, junior to all series of any other class of the Corporation's Preferred Stock issued either before or after the issuance of the Series C Preferred Stock, unless the terms of any such series shall provide otherwise. X. AMENDMENT The Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preference or special rights of the Series C Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series C Preferred Stock, voting together as a single series. XI. FRACTIONAL SHARES Series C Preferred Stock may be issued in fractions of a share which are integral multiples of one-thousandth of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series C Preferred Stock. B. Common Stock. After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of paragraph A of this Article 4) shall have been met and after the corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of paragraph A of this Article 4), then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors. 10 of 11 15 After distribution in full of the preferential amount (fixed in accordance with the provisions of paragraph A of this Article 4) to be distributed to the holders of Preferred Stock in the event of voluntary and involuntary liquidation, distribution or sale of assets, dissolution or winding up of this corporation, the holders of the Common Stock shall be entitled to receive all the remaining assets of this corporation, tangible and intangible, of whatever kind available for distribution to the stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. Except as may otherwise be required by law or the provisions of these Articles, or by the Board of Directors pursuant to authority granted in these Articles, each holder of Common Stock shall have one vote in respect of each share of stock held by him in all matters voted upon by the stockholders. No holder of shares of the Common Stock shall be entitled as such, as a matter of right, to subscribe for or purchase any part of any new or additional issue of stock of any class whatsoever of the corporation, or of securities authorized, or whether issued for cash or other consideration or by way of dividend. 11 of 11 16 ARTICLE VI Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders. Meetings of Stockholders may be held within the Commonwealth of Massachusetts or elsewhere in the United States of America to the extent permitted by the By-laws of the Corporation. 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, designating the number necessary to constitute a quorum at meetings of the Stockholders, governing procedure with respect to the removal of Directors, and affording indemnification to Directors or officers may be made, amended, or repealed only by the Stockholders. 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 Article 6, 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 in the year following their election, the members of the second 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 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 1 of 2 17 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. A vacancy in the Board of Directors, however occurring, unless and until filled by the stockholders, may be filled by the Directors. 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 the Directors then in office. For so long as the Directors are divided into classes in accordance with the terms of this Article 6, 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. A Director may be removed from office (a) with or without cause, by 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 Directors may be removed for cause only after reasonable notice and opportunity to be heard before the body proposing to remove him. To the fullest extent permitted by Chapter 156B of the Massachusetts General Laws, as it exists or may be amended, a Director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, notwithstanding any provision of law imposing such liability. 2 of 2 18 ARTICLE VIII (b)
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Gregory L. Summe 466 Glen Road Weston, MA 02493 Treasurer: Daniel T. Heaney 10 Hillcrest Road Reading, MA 01867 Clerk: Murray Gross 9 Eliot Lane Weston, MA 02193 Directors: Tamara J. Erickson 886 Lowell Street Carlisle, MA 01741 John B. Gray 175 Dedham Street Dover, MA 02030 Dr. Kent F. Hansen 780 Boylston Apt. 17H Boston, MA 02199 John F. Keane 55 Black Horse Lane Cohasset, MA 02025 John M. Kucharski 38 Decatur Lane Wayland, MA 01778 Nicholas A. Lopardo 62 Boren Lane Boxford, MA 01921 Greta E. Marshall 346 Second Tee Drive P.O. Box 4169 Incline Village, NV 89450 Incline Village, NV 89450 Michael C. Ruettgers 453 Bedford Road Carlisle, MA 01741 Gregory L. Summe 466 Glen Road Weston, MA 02493 John Larkin Thompson Zero Lightship Lane No. Scituate, MA 02066 G. Robert Tod 116 Estabrook Road P.O. Box 650 Concord, MA 01742 Concord, MA 01742
1 of 1 19 ARTICLE VII The effective date of the restated Articles of Organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a later effective date is desired, specify, such date which shall not be more than thirty days after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VIII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the corporation in Massachusetts is: 45 William Street, Wellesley, MA 02181 b. The name, residential address and post office address of each director and officer of the corporation is as follows: NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Treasurer: See Attached Article VIII (b) Clerk: Directors: c. The fiscal year (i.e., tax year) of the corporation shall end on the last day of the month of: the Sunday closest to December 31 d. The name and business address of the resident agent, if any, of the corporation is: CT Corporation System 2 Oliver Street Boston, MA 02109 **We further certify that the foregoing Restated Articles of Organization affect no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following articles. Briefly describe amendments below None SIGNED UNDER THE PENALTIES OF PERJURY, this 20th day of January, 1999. /s/ Gregory L. Summe ,*President - ------------------------------------------------------ /s/ Murray Gross ,*Clerk - ------------------------------------------------------ * Delete the inapplicable words. ** If there are no amendments, state 'None'. 20 THE COMMONWEALTH OF MASSACHUSETTS RESTATED ARTICLES OF ORGANIZATION (General Laws, Chapter 156B, Section 74) ============================================== I hereby approve the within Restated Articles of Organization and, the filing fee in the amount of $__________ having been paid, said articles are deemed to have been filed with me this _______ day of _____________, 19__. Effective Date: __________________________________________________ WILLIAM FRANCIS GALVIN Secretary of the Commonwealth TO BE FILLED IN BY CORPORATION PHOTOCOPY OF DOCUMENT TO BE SENT TO: Murray Gross, Clerk EG&G Inc. 45 William Street Wellesley, MA 02181 Telephone: (781) 431-4135 EX-10.3 3 AMENDMENT NO. 4 TO 5-YEAR AGREEMENT 1 EXHIBIT 10.3 FOURTH AMENDMENT (this "Amendment"), dated as of November 20, 1998, to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of March 21, 1994 (as amended from time to time, the "Credit Agreement"), 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 Lenders listed in Schedule 2.01 thereof (the "Lenders") and THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). A. The Borrowers have requested and the Administrative Agent and the Lenders are willing to amend certain provisions of the Credit Agreement for the limited purposes described and on the terms and conditions set forth herein. B. Capitalized terms used and not defined herein are used with the meanings assigned to such terms in the Credit Agreement. NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, on the terms and subject to the conditions set forth herein, as follows: SECTION 1. AMENDMENT OF SECTION 1.01 OF THE CREDIT AGREEMENT. Section 1.01 of the Credit Agreement is hereby amended as follows: In the definition of "Applicable Percentage", the Eurodollar Spread and Facility Fee Percentage grid is hereby amended and restated in its entirety:
=============================================================================== CATEGORY 1 EURODOLLAR SPREAD FACILITY FEE PERCENTAGE - ------------------------------------------------------------------------------- Aa3 or higher by Moody's; .230% .070% AA- or higher by S&P - ------------------------------------------------------------------------------- CATEGORY 2 A1 or A2 by Moody's; .300% .100% A+ or A by S&P - ------------------------------------------------------------------------------- CATEGORY 3 A3 by Moody's; .375% .125% A- by S&P - ------------------------------------------------------------------------------- CATEGORY 4 Baa1 by Moody's; .450% .150% BBB+ by S&P - -------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------- CATEGORY 5 Baa2 by Moody's; .575% .175% BBB by S&P - ------------------------------------------------------------------------------- CATEGORY 6 Baa3 by Moody's; .650% .225% BBB- by S&P - ------------------------------------------------------------------------------- CATEGORY 7 Ba1 or lower by Moody's; .700% .300% BB+ or lower by S&P ===============================================================================
SECTION 2. AMENDMENT OF SECTION 2.07 OF THE CREDIT AGREEMENT. Section 2.07(a)(i) of the Credit Agreement is hereby amended and restated as follows: "(i) in the case of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage from time to time in effect plus an additional .125% per annum on any day on which (A) the sum of (1) the outstanding aggregate principal amount of all Standby Loans made by all Lenders plus (2) the outstanding aggregate principal amount of all Competitive Loans made by all Lenders exceeds (B) 33% of the Total Commitment and" SECTION 3. AMENDMENT OF SECTION 5.01 OF THE CREDIT AGREEMENT. Section 5.01 of the Credit Agreement is hereby amended by adding the following after the heading thereof: "The Company will give the Administrative Agent prompt written notice of any change in any Rating that results in a change in the Category on which the Applicable Percentage is based." SECTION 4. AMENDMENT OF SECTION 5.07 OF THE CREDIT AGREEMENT. Section 5.07(b)(ii) of the Credit Agreement is hereby amended by replacing the reference to "0.35:1.00" with a reference to "0.55:1.00". SECTION 5. AMENDMENT OF SECTION 5.08 OF THE CREDIT AGREEMENT. Section 5.08(h) of the Credit Agreement is hereby amended and restated as follows: "(h) to the extent that the value of all Margin Stock owned by the Company and its Consolidated Subsidiaries (determined in accordance with Regulation U) exceeds 25% of the value of the total assets of the Company and its Consolidated Subsidiaries subject to this Section 5.08 (as so determined), Liens on such excess Margin Stock (it being understood that Margin Stock not in excess of 25% of the value of such assets will be subject to the restrictions of this Section 5.08)." 3 SECTION 6. AMENDMENT OF SECTION 5.09 OF THE CREDIT AGREEMENT. Section 5.09 of the Credit Agreement is hereby amended by adding the following at the end thereof: "(c) Notwithstanding anything in the foregoing to the contrary, to the extent that the value of all Margin Stock owned by the Company and its Consolidated Subsidiaries (determined in accordance with Regulation U) exceeds 25% of the value of the total assets of the Company and its Consolidated Subsidiaries subject to this Section 5.09 (as so determined), the restrictions contained in subsections (a)(ii) and (b)(ii) of this Section 5.09 shall not apply to such excess Margin Stock (it being understood that Margin Stock not in excess of 25% of the value of such assets will be subject to the restrictions of this Section 5.09)." SECTION 7. AMENDMENT OF ARTICLE V OF THE CREDIT AGREEMENT. Article V of the Credit Agreement is hereby amended by adding the following at the end thereof: "SECTION 5.10. OWNERSHIP OF MARGIN STOCK. The Company will not, and will not permit its Subsidiaries to, own Margin Stock to the extent the value of such Margin Stock would exceed 28% of the value of the total assets of the Company and its Consolidated Subsidiaries." SECTION 8. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to each of the Lenders and the Administrative Agent, on and as of the date hereof, that: (a) This Amendment has been duly authorized, executed and delivered by the Company, and each of this Amendment and the Credit Agreement, as amended hereby, constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms. (b) The representations and warranties set forth in Article III of the Credit Agreement are true and correct in all material respects with the same effect as if made on and as of the date hereof, except to the extent such representations and warranties expressly relate to an earlier date. (c) Immediately before and immediately after the effectiveness of this Amendment, no Event of Default or Default has occurred and is continuing. (d) Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's and each Subsidiary's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's or any Subsidiary's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by July 1, 1999 except to the extent that the failure to complete such reprogramming and testing could not in the aggregate result in a Material Adverse Effect. The cost to the Company and the Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and the Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or 4 equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Company and each Subsidiary are and, with ordinary course upgrading, replacement and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Company and each Subsidiary to conduct its business without a Material Adverse Effect. SECTION 9. CONDITIONS TO EFFECTIVENESS. This Amendment shall become effective when the Administrative Agent shall have received counterparts of this Amendment that, when taken together, bear the signatures of the Required Lenders. SECTION 10. CREDIT AGREEMENT. Except as specifically stated herein, the provisions of the Credit Agreement are and shall remain in full force and effect. As used therein, the terms "Agreement", "herein", "hereunder", "hereinafter", "hereto", "hereof" and words of similar import shall, unless the context otherwise requires, refer to the Credit Agreement as amended hereby. SECTION 11. EFFECT OF AMENDMENT. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders under the Credit Agreement, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing herein shall be deemed to entitle the Borrowers to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement in similar or different circumstances. This Amendment shall apply and be effective only with respect to the provisions of the Credit Agreement specifically referred to herein. SECTION 12. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK. SECTION 13. COUNTERPARTS. This Amendment 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 14. EXPENSES. The Company agrees to reimburse the Administrative Agent for all reasonable out-of-pocket expenses incurred by it in connection with this Amendment, including, but not limited to, the reasonable fees, charges and disbursements of Cravath, Swaine & Moore, counsel for the Administrative Agent. 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written. EG&G, INC., by /s/ Daniel T. Heaney ----------------------------- Name: Daniel T. Heaney Title: Treasurer THE CHASE MANHATTAN BANK, individually and as Administrative Agent for the Lenders, by /s/ Karen M. Sharf ----------------------------- Name: Karen M. Sharf Title: Vice President DRESDNER BANK A.G., NEW YORK BRANCH AND GRAND CAYMAN BRANCH, by /s/ Ken Hamilton ----------------------------- Name: Ken Hamilton Title: Senior Vice President by /s/ Deborah Slusarczyk ----------------------------- Name: Deborah Slusarczyk Title: Vice President BANKBOSTON N.A., by /s/ Jorge A. Schwarz ----------------------------- Name: Jorge A. Schwarz Title: Director THE FIRST NATIONAL BANK OF CHICAGO, by /s/ Robert Mcmillan ----------------------------- Name: Robert McMillan Title: Corporate Banking Officer 6 THE NORTHERN TRUST COMPANY, by /s/ Darren F. Baer ----------------------------- Name: Darren F. Baer Title: Vice President ROYAL BANK OF CANADA, by /s/ Sheryl L. Greenberg ----------------------------- Name: Sheryl L. Greenberg Title: Senior Manager STANDARD CHARTERED BANK, by /s/ Leslie Shaw Bright ----------------------------- Name: Leslie Shaw Bright Title: Vice President by /s/ Natalie S. Yang ----------------------------- Name: Natalie S. Yang Title: Vice President WACHOVIA BANK, N.A., by /s/ John P. Rafferty ----------------------------- Name: John P. Rafferty Title: Senior Vice President EX-10.4 4 COMPETITIVE ADVANCE AND REVOLVING CREDIT 1 EXHIBIT 10.4 ================================================================================ COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT Dated as of March 5, 1999 among EG&G, INC. THE LENDERS NAMED HEREIN and THE CHASE MANHATTAN BANK as Administrative Agent ------------------------------ CHASE SECURITIES INC., as Advisor and Lead Arranger ================================================================================ [CS&M 6700.795] 2 TABLE OF CONTENTS PAGE ARTICLE I DEFINITIONS SECTION 1.01. Defined Terms............................................. 1 SECTION 1.02. Terms Generally........................................... 13 ARTICLE II THE CREDITS SECTION 2.01. Commitments............................................... 14 SECTION 2.02. Loans..................................................... 14 SECTION 2.03. Competitive Bid Procedure................................. 17 SECTION 2.04. Standby Borrowing Procedure............................... 19 SECTION 2.05. Facility Fees............................................. 20 SECTION 2.06. Conversion and Continuation of Standby Borrowings......... 21 SECTION 2.07. Repayment of Loans; Evidence of Debt...................... 22 SECTION 2.08. Interest on Loans ........................................ 23 SECTION 2.09. Default Interest.......................................... 24 SECTION 2.10. Alternate Rate of Interest................................ 24 SECTION 2.11. Termination and Reduction of Commitments.................. 25 SECTION 2.12. Prepayment................................................ 25 SECTION 2.13. Reserve Requirements; Change in Circumstances............. 26 SECTION 2.14. Change in Legality........................................ 28 SECTION 2.15. Indemnity................................................. 29 SECTION 2.16. Pro Rata Treatment........................................ 29 SECTION 2.17. Sharing of Setoffs........................................ 30 SECTION 2.18. Payments.................................................. 31 SECTION 2.19. Duty To Mitigate; Assignment of Commitments Under Certain Circumstances................................... 31 SECTION 2.20. Taxes..................................................... 32 ARTICLE III REPRESENTATIONS AND WARRANTIES 3 SECTION 3.01. Corporate Existence and Power............................. 36 SECTION 3.02. Corporate and Governmental Authorization; Contravention........................................... 36 SECTION 3.03. Binding Effect............................................ 36 SECTION 3.04. Financial Information..................................... 36 SECTION 3.05. Litigation................................................ 37 SECTION 3.06. Compliance with ERISA..................................... 37 SECTION 3.07. Taxes..................................................... 37 SECTION 3.08. Subsidiaries.............................................. 38 SECTION 3.09. Representations and Warranties of Each Borrowing Subsidiary.............................................. 38 SECTION 3.10. Federal Reserve Regulations............................... 39 SECTION 3.11. Investment Company Act; Public Utility Holding Company Act............................................. 39 SECTION 3.12. Environmental and Safety Matters.......................... 39 SECTION 3.13. Year 2000 Compliance...................................... 40 SECTION 3.14. No Material Adverse Change................................ 40 SECTION 3.15. Solvency.................................................. 41 ARTICLE IV CONDITIONS OF LENDING SECTION 4.01. All Borrowings............................................ 41 SECTION 4.02. Closing Date.............................................. 42 SECTION 4.03. First Borrowing by Each Borrowing Subsidiary.............. 43 ARTICLE V COVENANTS SECTION 5.01. Information............................................... 44 SECTION 5.02. Corporate Existence; Businesses and Properties............ 46 SECTION 5.03. Insurance................................................. 46 SECTION 5.04. Litigation and Other Notices.............................. 46 SECTION 5.05. Maintaining Records; Access to Properties and Inspections............................................. 47 SECTION 5.06. Fixed Charge Coverage..................................... 47 SECTION 5.07. Net Debt to Capitalization Ratio.......................... 47 SECTION 5.08. Negative Pledge........................................... 47 SECTION 5.09. Consolidations, Mergers and Sales of Assets.................................................. 48 SECTION 5.10. Ownership of Margin Stock................................. 49 ARTICLE VI 4 Contents, p. 3 Events of Default........................................................... 49 ARTICLE VII Guarantee................................................................... 53 ARTICLE VIII The Administrative Agent.................................................... 56 ARTICLE IX MISCELLANEOUS SECTION 9.01. Notices................................................... 59 SECTION 9.02. Survival of Agreement..................................... 59 SECTION 9.03. Binding Effect............................................ 60 SECTION 9.04. Successors and Assigns.................................... 60 SECTION 9.05. Expenses; Indemnity....................................... 63 SECTION 9.06. Applicable Law............................................ 64 SECTION 9.07. Waivers; Amendment........................................ 64 SECTION 9.08. Entire Agreement.......................................... 65 SECTION 9.09. Severability.............................................. 65 SECTION 9.10. Counterparts.............................................. 66 SECTION 9.11. Headings.................................................. 66 SECTION 9.12. Right of Setoff........................................... 66 SECTION 9.13. Jurisdiction; Consent to Service of Process............... 66 SECTION 9.14. Waiver of Jury Trial...................................... 67 SECTION 9.15. Addition of Borrowing Subsidiaries........................ 67 SECTION 9.16. Confidentiality........................................... 67 SECTION 9.17. Collateral ............................................... 68 SECTION 9.18. Interest Rate Limitation.................................. 68 EXHIBITS Exhibit A-1 Form of Competitive Bid Request Exhibit A-2 Form of Notice of Competitive Bid Request Exhibit A-3 Form of Competitive Bid Exhibit A-4 Form of Competitive Bid Accept/Reject Letter Exhibit A-5 Form of Standby Borrowing Request Exhibit B Administrative Questionnaire Exhibit C Form of Assignment and Acceptance 5 Contents, p. 4 Exhibit D-1 Form of Opinion of Murray Gross, Esq. Exhibit D-2 Form of Opinion of Murray Gross, Esq. Exhibit E Form of Borrowing Subsidiary Agreement SCHEDULES Schedule 2.01 Commitments Schedule 3.08 Subsidiaries Schedule 3.12(a) Environmental and Safety Matters Schedule 3.12(b) Environmental and Safety Matters Schedule 3.12(c) Environmental and Safety Matters 6 COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (the "Agreement") dated as of March 5, 1999, 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"). The Lenders have been requested to extend credit to the Borrowers to enable them to borrow on a standby revolving credit basis on and after the date hereof and at any time and from time to time prior to the Termination Date a principal amount not in excess of $250,000,000 at any time outstanding. The Lenders have also been requested to provide a procedure pursuant to which the Borrowers may invite the Lenders to bid on an uncommitted basis on short-term borrowings by the Borrowers. The proceeds of all such borrowings are to be used by the Borrowers for general corporate purposes, including commercial paper back-up and to finance acquisitions, and to provide working capital for use in the ordinary course of their businesses. The Lenders are willing to extend such credit on the terms and subject to the conditions herein set forth. Capitalized terms used but not defined herein shall have the meanings assigned to such terms in Article I. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.01. DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings specified below: "ABR BORROWING" shall mean a Borrowing comprised of ABR Loans. 7 "ABR LOAN" shall mean any Standby Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "ADMINISTRATIVE QUESTIONNAIRE" shall mean an Administrative Questionnaire in the form of Exhibit B hereto. "AFFILIATE" shall mean, when used with respect to a specified person, another person that directly or indirectly controls or is controlled by or is under common control with the person specified. "ALTERNATE BASE RATE" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as released on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so released for any day which is a Business Day, the arithmetic average (rounded upwards to the next 1/100th of 1%), as determined by the Administrative Agent, of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. 8 3 "APPLICABLE PERCENTAGE" shall mean on any date, with respect to Eurodollar Standby Loans or with respect to the Facility Fee, as the case may be, the applicable percentage set forth below under the caption "Eurodollar Spread" or "Facility Fee Percentage", as the case may be, based upon the Ratings in effect on such date:
======================================================================= RATING EURODOLLAR SPREAD FACILITY FEE PERCENTAGE - ----------------------------------------------------------------------- CATEGORY 1 Aa3 or higher by Moody's; .250% .050% AA- or higher by S&P - ----------------------------------------------------------------------- CATEGORY 2 A1 or A2 by Moody's; .320% .080% A+ or A by S&P - ----------------------------------------------------------------------- CATEGORY 3 A3 by Moody's; .400% .100% A- by S&P - ----------------------------------------------------------------------- CATEGORY 4 Baa1 by Moody's; .475% .125% BBB+ by S&P - ----------------------------------------------------------------------- CATEGORY 5 Baa2 by Moody's; .600% .150% BBB by S&P - ----------------------------------------------------------------------- CATEGORY 6 Baa3 by Moody's; .700% .175% BBB- by S&P - ----------------------------------------------------------------------- CATEGORY 7 Ba1 or lower by Moody's; .750% .250% BB+ or lower by S&P =======================================================================
For purposes of the foregoing, (i) if the Ratings shall fall within different Categories, the Applicable Percentage shall be based upon the higher of the two Categories; PROVIDED, HOWEVER, that if the difference in the Ratings is greater than one Category, the Applicable Percentage will be based on the Category which is one Category below the higher Rating; (ii) if no Ratings exist, the Applicable Percentage shall be 9 4 based upon Category 7, and (iii) if any Rating shall be changed (other than as a result of a change in the rating system of Moody's or S&P), such change shall be effective as of the date on which it is first announced by the rating agency making such change. Each such change in the Applicable Percentage shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of Moody's or S&P shall change, or if either such rating agency shall cease to be in the business of rating corporate debt obligations, the parties hereto shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system or the non-availability of ratings from such rating agency, and pending the effectiveness of any such amendment the Applicable Percentage shall be determined by reference to the rating most recently in effect prior to such change or cessation. "ASSIGNMENT AND ACCEPTANCE" shall mean an assignment and acceptance entered into by a Lender and an assignee in the form of Exhibit C. "BOARD" shall mean the Board of Governors of the Federal Reserve System of the United States. "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company or any duly authorized committee thereof. "BORROWING" shall mean a group of Loans of a single Type made by the Lenders to a single Borrower (or, in the case of a Competitive Borrowing, by the Lender or Lenders whose Competitive Bids have been accepted pursuant to Section 2.03) on a single date and as to which a single Interest Period is in effect. "BORROWING SUBSIDIARY" shall mean any Subsidiary which shall have executed and delivered to the Administrative Agent and each Lender a Borrowing Subsidiary Agreement. "BORROWING SUBSIDIARY AGREEMENT" shall mean an agreement, in the form of Exhibit E hereto, duly executed by the Company and a Subsidiary. 10 5 "BUSINESS DAY" shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City; PROVIDED, HOWEVER, that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. "A CHANGE IN CONTROL" shall be deemed to have occurred if (a) any person or group of persons shall have acquired beneficial ownership of more than 50% of the outstanding Voting Shares of the Company (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder), or (b) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who on the first day of such period were directors of the Company (together with any replacement or additional directors who were nominated or elected by a majority of directors then in office) cease to constitute a majority of the Board of Directors of the Company. "CHARGES" shall have the meaning assigned to such term in Section 9.18. "CLOSING DATE" shall mean the date hereof. "CODE" shall mean the Internal Revenue Code of 1986, as the same may be amended from time to time. "COMMITMENT" shall mean, with respect to each Lender, the commitment of such Lender hereunder as set forth as of the Closing Date in Schedule 2.01 hereto as such Lender's Commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11. The Commitment of each Lender shall automatically and permanently terminate on the Termination Date if not terminated earlier pursuant to the terms hereof. "COMPETITIVE BID" shall mean an offer by a Lender to make a Competitive Loan pursuant to Section 2.03. "COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a notification made by a Borrower pursuant to Section 2.03(d) in the form of Exhibit A-4. 11 6 "COMPETITIVE BID RATE" shall mean, as to any Competitive Bid, (i) in the case of a Eurodollar Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Lender making such Competitive Bid. "COMPETITIVE BID REQUEST" shall mean a request made pursuant to Section 2.03 in the form of Exhibit A-1. "COMPETITIVE BORROWING" shall mean a Borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted under the bidding procedure described in Section 2.03. "COMPETITIVE LOAN" shall mean a Loan made pursuant to the bidding procedure described in Section 2.03. Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan. "CONSOLIDATED EBIT" shall mean, for any period, Consolidated Net Income of the Company and its Consolidated Subsidiaries excluding the effect of non-cash extraordinary items and accounting changes for such period, plus income taxes during such period, plus the aggregate amount deducted in determining such Consolidated Net Income for such period in respect of Consolidated Net Interest Expense of the Company and its Consolidated Subsidiaries for such period, all determined in accordance with GAAP. "CONSOLIDATED NET INCOME" shall mean, for any period, the consolidated net income (or loss) of the Company and its Consolidated Subsidiaries for such period, determined in accordance with GAAP. "CONSOLIDATED NET INDEBTEDNESS" shall mean, for any date, (a) the sum of all outstanding Indebtedness of the Company and its Consolidated Subsidiaries as of such date less (b) the lesser of (i) $50,000,000 and (ii) Eligible Investments as of such date, all determined on a consolidated basis in accordance with GAAP. "CONSOLIDATED NET INTEREST EXPENSE" shall mean, for any period, (a) the gross interest expense of the Company and its Consolidated Subsidiaries (excluding the amortization of transaction costs) in respect of Indebtedness included within 12 7 clauses (i) through (iv) of the definition of Indebtedness for such period minus (b) interest income for such period, all determined in accordance with GAAP. "CONSOLIDATED SUBSIDIARY" shall mean, at any date, any Subsidiary or other entity the accounts of which would be consolidated with those of the Company in its consolidated financial statements as of such date. "DEFAULT" shall mean any event or condition which upon notice, lapse of time or both would constitute an Event of Default. "DOLLARS" or "$" shall mean lawful money of the United States of America. "ELIGIBLE INVESTMENTS" shall mean: (a) cash and cash equivalents; (b) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof by the Company or any Subsidiary; (c) investments in money market funds the assets of which are invested in obligations of the type described in (b) above (irrespective of maturity); and (d) other money market investments offered by any of the Lenders or a commercial bank having the highest credit rating available from Standard & Poor's Corporation or Moody's Investors Service, Inc. and having maturities of less than 90 days. "ENVIRONMENTAL LAWS" shall have the meaning assigned to such term in Section 3.12(a). "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. 13 8 "ERISA AFFILIATE" shall mean any trade or business (whether or not incorporated) that, together with the Company, is treated as a single employer under Section 414 of the Code. "EURODOLLAR BORROWING" shall mean a Borrowing comprised of Eurodollar Loans. "EURODOLLAR COMPETITIVE LOAN" shall mean any Competitive Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II. "EURODOLLAR LOAN" shall mean any Eurodollar Competitive Loan or Eurodollar Standby Loan. "EURODOLLAR STANDBY LOAN" shall mean any Standby Loan bearing interest at a rate determined by reference to the LIBO Rate in accordance with the provisions of Article II. "EVENT OF DEFAULT" shall have the meaning assigned to such term in Article VI. "FACILITY FEE" shall have the meaning assigned to such term in Section 2.05(a). "FINANCIAL OFFICER" of any corporation shall mean the chief financial officer, principal accounting officer, treasurer or assistant treasurer of such corporation. "FIVE-YEAR FACILITY" shall mean the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of March 21, 1994 and amended from time to time, among the Company, certain of the Subsidiaries, the lenders named therein and The Chase Manhattan Bank, as administrative agent. "FIXED RATE BORROWING" shall mean a Borrowing comprised of Fixed Rate Loans. "FIXED RATE LOAN" shall mean any Competitive Loan bearing interest at a fixed percentage rate per annum (expressed in the form of a decimal to no more than four decimal places) specified by the Lender making such Loan in its Competitive Bid. 14 9 "GAAP" shall mean generally accepted accounting principles, applied on a consistent basis. "GOVERNMENTAL AUTHORITY" shall mean any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. "GUARANTEED OBLIGATIONS" shall mean the principal of and interest on the Loans made to, and the other obligations, monetary or otherwise, of, the Borrowing Subsidiaries under this Agreement. "INDEBTEDNESS" of any person shall mean at any date, without duplication, (i) all obligations of such person for borrowed money (but not including non-recourse obligations of such person), (ii) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, except trade payables and reimbursement obligations in respect of performance bonds and standby letters of credit to the extent the obligations underlying such letters of credit would not be considered Indebtedness, all of which arise in the ordinary course of business, (iii) all obligations of such person to pay the deferred purchase price of property or services, except trade accounts payable and accrued expenses arising in the ordinary course of business, (iv) all obligations of such person as lessee under capital leases, (v) all Indebtedness of others secured by a Lien on any asset of such person (but not including non-recourse obligations of such person) and (vi) all Indebtedness of others guaranteed by such person. "INFORMATION" shall mean any materials, documents and information (other than annual reports, prospectuses, proxy statements and other materials distributed to the Company's shareholders) that the Company or any of its Subsidiaries may have furnished or may hereafter furnish to the Administrative Agent or any Lender in connection with Sections 4.03(d), 5.01, 5.04 and 5.05 of this Agreement. "INTEREST PAYMENT DATE" shall mean (i) as to any Eurodollar Loan for which the Interest Period is 1, 2 or 3 months, the last day of the Interest Period, (ii) as to any Eurodollar Loan for which the Interest Period is 6 months, the last day of the Interest Period and the date that would be the last day of an Interest Period commencing on the same date but having a duration of 3 months, (iii) as to any ABR 15 10 Loan, the last day of March, June, September and December in each year, or if such day is not a Business Day, the next succeeding Business Day and (iv) as to any Fixed Rate Loan, the last day of the Interest Period applicable thereto. "INTEREST PERIOD" shall mean (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the next succeeding March 31, June 30, September 30 or December 31, or, if earlier, on the Maturity Date or the date such Borrowing is repaid or prepaid in accordance with Section 2.07 or Section 2.12 and (c) as to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing and ending on the date specified in the Competitive Bids in which the offers to make the Fixed Rate Loans comprising such Borrowing were extended, which shall not be earlier than seven days after the date of such Borrowing or later than 360 days after the date of such Borrowing; PROVIDED, HOWEVER, that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. "LIBO RATE" shall mean, with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the arithmetic average of the rates at which dollar deposits approximately equal in principal amount to (i) in the case of a Standby Borrowing, the Administrative Agent's portion of such Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a principal amount that would have been the Administrative Agent's portion of such Competitive Borrowing had such Competitive Borrowing been a 16 11 Standby Borrowing, and for a maturity comparable to such Interest Period are offered to the principal London offices of the Administrative Agent (or, if the Administrative Agent does not at the time maintain a London office, the principal London office of any Affiliate of the Administrative Agent) in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind whatsoever (including any conditional sale or other title retention agreement, any lease in the nature thereof and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "LOAN" shall mean a Competitive Loan or a Standby Loan, whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as permitted hereby. "MARGIN" shall mean, as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from the LIBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. "MARGIN REGULATIONS" shall mean Regulations U and X of the Board as from time to time in effect, and all official rulings and interpretations thereunder or thereof. "MARGIN STOCK" shall have the meaning given such term under Regulation U of the Board. "MATERIAL ADVERSE EFFECT" shall mean a materially adverse effect on the business, assets, operations or condition, financial or otherwise, of the Company and its Consolidated Subsidiaries taken as a whole. "MATURITY DATE" shall mean March 2, 2001. "MAXIMUM RATE" shall have the meaning assigned to such term in Section 9.18. "MOODY'S" shall mean Moody's Investors Service, Inc., or any of its successors. 17 12 "MULTIEMPLOYER PLAN" shall mean a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "NEW LENDING OFFICE" shall have the meaning assigned to such term in Section 2.20(g). "NON-U.S. LENDER" shall mean any Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia. "OTHER TAXES" shall have the meaning assigned to such term in Section 2.20(b). "PERSON" shall mean any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation referred to and defined in ERISA. "PLAN" shall mean any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code that is maintained for current or former employees, or any beneficiary thereof, of the Company or any ERISA Affiliate. "RATINGS" shall mean the ratings from time to time established by Moody's and S&P for senior, unsecured, non-credit-enhanced long-term debt of the Company. "REGISTER" shall have the meaning given such term in Section 9.04(d). "REGULATION D" shall mean Regulation D of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof. 18 13 "REPORTABLE EVENT" shall mean any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414). "REQUIRED LENDERS" shall mean, at any time, Lenders having Commitments representing more than 50% of the Total Commitment or, for purposes of acceleration pursuant to clause (ii) of Article VI, Lenders holding Loans representing more than 50% of the aggregate principal amount of the Loans outstanding. "S&P" shall mean Standard and Poor's Rating Group, a division of The McGraw-Hill Companies, Inc., or any of its successors. "SHAREHOLDERS' EQUITY" shall mean, with respect to the Company at any date, (a) the sum of (i) common stock and preferred stock taken at par or stated value at such date, (ii) capital in excess of par value at such date, (iii) cumulative translation adjustments and other adjustments required by GAAP at such date and (iv) retained earnings (or deficit) at such date minus (b) treasury stock at such date, all determined in accordance with GAAP. "STANDBY BORROWING" shall mean a Borrowing consisting of simultaneous Standby Loans from each of the Lenders. "STANDBY BORROWING REQUEST" shall mean a request made pursuant to Section 2.04 in the form of Exhibit A-5. "STANDBY LOANS" shall mean the revolving loans made pursuant to Section 2.04. Each Standby Loan shall be a Eurodollar Standby Loan or an ABR Loan. "SUBSIDIARY" shall mean, with respect to any person (the "parent"), any corporation, association or other business entity of which securities or other ownership interests representing more than 50% of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. 19 14 "SUBSIDIARY" shall mean a subsidiary of the Company. "TAXES" shall have the meaning assigned to such term in Section 2.20(a). "TERMINATION DATE" shall mean March 3, 2000. "TOTAL COMMITMENT" shall mean, at any time, the aggregate amount of Commitments of all the Lenders, as in effect at such time. "TRANSFEREE" shall have the meaning assigned to such term in Section 2.20(a). "TYPE", when used in respect of any Loan or Borrowing, shall refer to the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "RATE" shall include the LIBO Rate, the Alternate Base Rate and the Fixed Rate. "VOTING SHARES" shall mean, as to any corporation, outstanding shares of stock of any class of such corporation entitled to vote in the election of directors, excluding shares entitled so to vote only upon the happening of some contingency. "WITHDRAWAL LIABILITY" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. TERMS GENERALLY. The definitions in Section 1.01 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall 20 15 be construed in accordance with GAAP, as in effect from time to time; PROVIDED, HOWEVER, that for purposes of determining compliance with any covenant set forth in Article V, such terms shall be construed in accordance with GAAP as in effect on the date hereof applied on a basis consistent with the application used in preparing the Company's audited financial statements referred to in Section 3.04. ARTICLE II THE CREDITS SECTION 2.01. COMMITMENTS. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Standby Loans to the Borrowers, at any time and from time to time on and after the Closing Date hereof and until the earlier of the Termination Date and the termination of the Commitment of such Lender, in an aggregate principal amount at any time outstanding not to exceed such Lender's Commitment minus the amount by which the Competitive Loans outstanding at such time shall be deemed to have used such Commitment pursuant to Section 2.16, subject, however, to the conditions that (i) at no time shall (A) the sum of (x) the outstanding aggregate principal amount of all Standby Loans made by all Lenders plus (y) the outstanding aggregate principal amount of all Competitive Loans made by all Lenders exceed (B) the Total Commitment and (ii) at all times the outstanding aggregate principal amount of all Standby Loans made by each Lender shall equal the product of (A) the percentage which its Commitment represents of the Total Commitment times (B) the outstanding aggregate principal amount of all Standby Loans. Within the foregoing limits, the Borrowers may borrow, pay or prepay and reborrow Standby Loans hereunder, on and after the Closing Date and prior to the Termination Date, subject to the terms, conditions and limitations set forth herein. SECTION 2.02. LOANS. (a) Each Standby Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments; PROVIDED, HOWEVER, that the failure of any Lender to make any Standby Loan shall not in itself relieve 21 16 any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.03. The Standby Loans or Competitive Loans comprising any Borrowing shall be in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments). (b) Each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as any Borrower may request pursuant to Section 2.03 or 2.04, as applicable. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; PROVIDED that (i) any exercise of such option shall not affect the obligation of such Borrower to repay such Loan in accordance with the terms of this Agreement and (ii) the Borrowers shall not be liable for increased costs under Section 2.13 or 2.14 to the extent that (A) such costs could be avoided by the use of a different branch or Affiliate to make Eurodollar Loans and (B) such use would not, in the judgment of such Lender, entail any expense for which such Lender shall not be indemnified hereunder. Borrowings of more than one Type may be outstanding at the same time; PROVIDED, HOWEVER, that no Borrowing shall be requested which, if made, would result in an aggregate of more than 10 separate Standby Borrowings comprised of Eurodollar Loans being outstanding hereunder at any one time. For purposes of the foregoing, Borrowings having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Borrowings. (c) Subject to Section 2.02(d), each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 12:00 noon, New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the general deposit account of the applicable Borrower with the Administrative Agent or, if a Borrowing shall not occur on such date because any condition 22 17 precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are accepted pursuant to Section 2.03 in the amounts so accepted. Standby Loans shall be made by the Lenders pro rata in accordance with Section 2.16. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the applicable Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the applicable Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid to the Administrative Agent at (i) in the case of such Borrower, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Effective Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. (d) Any Borrower may refinance all or any part of any Borrowing with a Borrowing of the same or a different Type made pursuant to Section 2.03 or Section 2.04, subject to the conditions and limitations set forth herein and elsewhere in this Agreement, including refinancings of Competitive Borrowings with Standby Borrowings and Standby Borrowings with Competitive Borrowings. Any Borrowing or part thereof so refinanced shall be deemed to be repaid in accordance with Section 2.07 with the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing, to the extent they do not exceed the principal amount of the Borrowing being refinanced, shall not be paid by the Lenders to the Administrative Agent or by the Administrative Agent to the applicable Borrower pursuant to Section 2.02(c); PROVIDED, HOWEVER, that (i) if the principal amount extended by a Lender in a refinancing is greater than the principal 23 18 amount extended by such Lender in the Borrowing being refinanced, then such Lender shall pay such difference to the Administrative Agent for distribution to the Lender described in (ii) below, (ii) if the principal amount extended by a Lender in the Borrowing being refinanced is greater than the principal amount being extended by such Lender in the refinancing, the Administrative Agent shall return the difference to such Lender out of amounts received pursuant to (i) above and (iii) to the extent any Lender fails to pay the Agent amounts due from it pursuant to (i) above, any Loan or portion thereof being refinanced with such amounts shall not be deemed repaid in accordance with Section 2.07 and shall be payable by the Company. SECTION 2.03. COMPETITIVE BID PROCEDURE. (a) In order to request Competitive Bids, a Borrower shall hand deliver or telecopy to the Administrative Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, four Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and the Administrative Agent shall promptly notify the applicable Borrower of such rejection by telecopy. Each Competitive Bid Request shall refer to this Agreement and specify whether the Borrowing then being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, the date of such Borrowing (which shall be a Business Day), the aggregate principal amount thereof, which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000, and the Interest Period with respect thereto (which may not end after the Termination Date). Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall invite by telecopy (in the form set forth in Exhibit A-2 hereto) the Lenders to bid, on the terms and conditions of this Agreement, to make Competitive Loans. (b) Each Lender invited to bid may, in its sole discretion, make one or more Competitive Bids to the applicable Borrower responsive to such Borrower's Competitive Bid 24 19 Request. Each Competitive Bid by a Lender must be received by the Administrative Agent by telecopy, in the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing. Multiple bids will be accepted by the Administrative Agent. Competitive Bids that do not conform substantially to the format of Exhibit A-3 may be rejected by the Administrative Agent, and the Administrative Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested) of the Competitive Loan or Loans that the Lender is willing to make, (y) the Competitive Bid Rate or Rates at which the Lender is prepared to make the Competitive Loan or Loans and (z) the Interest Period and the last day thereof. If any Lender invited to bid shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent by telecopy (I) in the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing; PROVIDED, HOWEVER, that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable. (c) The Administrative Agent shall promptly notify the applicable Borrower, by telecopy, of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each bid. The Administrative Agent shall send a copy of all Competitive Bids to such Borrower for its records as soon as practicable after completion of the bidding process set forth in this Section 2.03. 25 20 (d) The applicable Borrower may in its sole and absolute discretion, subject only to the provisions of this paragraph (d), accept or reject any Competitive Bid referred to in paragraph (c) above. Such Borrower shall notify the Administrative Agent by telephone, confirmed by telecopy in the form of a Competitive Bid Accept/Reject Letter, whether and to what extent it has decided to accept or reject any of or all the bids referred to in paragraph (c) above, (x) in the case of a Eurodollar Competitive Borrowing, not later than 10:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (y) in the case of a Fixed Rate Borrowing, not later than 10:30 a.m., New York City time, on the day of a proposed Competitive Borrowing; PROVIDED, HOWEVER, that (i) the failure of such Borrower to give such notice shall be deemed to be a rejection of all the bids referred to in paragraph (c) above, (ii) such Borrower shall not accept a bid made at a particular Competitive Bid Rate if it has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by such Borrower shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if such Borrower shall accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids shall cause the total amount of bids to be accepted to exceed the amount specified in the Competitive Bid Request, then such Borrower shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000; PROVIDED FURTHER, HOWEVER, that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded to integral multiples of $1,000,000 in a manner which shall be in the discretion of the applicable Borrower. A notice given pursuant to this paragraph (d) shall be irrevocable. 26 21 (e) The Administrative Agent shall promptly notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopy, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan or Loans in respect of which its bid has been accepted. (f) A Competitive Bid Request shall not be made within five Business Days after the date of any previous Competitive Bid Request. (g) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the applicable Borrower one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to the Administrative Agent pursuant to paragraph (b) above. (h) All notices required by this Section 2.03 shall be given in accordance with Section 9.01. SECTION 2.04. STANDBY BORROWING PROCEDURE. In order to request a Standby Borrowing, a Borrower shall hand deliver or telecopy to the Administrative Agent a duly completed Standby Borrowing Request in the form of Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than 10:30 a.m., New York City time, three Business Days before such Borrowing, and (b) in the case of an ABR Borrowing, not later than 10:30 a.m., New York City time, on the day of such Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable and shall in each case specify (i) whether the Borrowing then being requested is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date of such Standby Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar Standby Borrowing, the Interest Period with respect thereto, which shall not end after the Termination Date. If no election as to the Type of Standby Borrowing is specified in any such notice, then the requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Standby Borrowing is specified in any such notice, then the Borrower shall be deemed to have selected an Interest Period of one 27 22 month's duration. The Administrative Agent shall promptly advise the Lenders of any notice given pursuant to this Section 2.04 and of each Lender's portion of the requested Borrowing. SECTION 2.05. FACILITY FEES. (a) The Company agrees to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31 (with the first payment being due on March 31, 1999), on the Termination Date, on the Maturity Date and on the date on which the Commitment of such Lender shall be terminated as provided herein, a facility fee (a "Facility Fee"), at a rate per annum equal to the Applicable Percentage from time to time in effect (i) on the average daily amount of the Commitment of such Lender, whether used or unused, on or prior to the Termination Date, and (ii) on the daily average amount of the outstanding Loans of such Lender after the Termination Date, in each case during the preceding quarter (or other period commencing on the date of this Agreement, or ending with the Termination Date or the Maturity Date or the date on which the Commitment of such Lender shall be terminated). All Facility Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Facility Fee due to each Lender shall commence to accrue on the date of this Agreement and shall cease to accrue on the earlier of the Maturity Date and the date on which the Commitment of such Lender shall have been terminated and the Loans of such Lender shall have been repaid. (b) All Facility Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, none of the Facility Fees shall be refundable under any circumstances. 28 23 SECTION 2.06. CONVERSION AND CONTINUATION OF STANDBY BORROWINGS. The applicable Borrower shall have the right on or after the Termination Date, upon prior irrevocable notice to the Administrative Agent, (a) not later than 11:00 a.m., New York City time, one Business Day prior to conversion, to convert any Eurodollar Standby Borrowing into an ABR Borrowing, (b) not later than 11:00 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Standby Borrowing or to continue any Eurodollar Standby Borrowing as a Eurodollar Standby Borrowing for an additional Interest Period, and (c) not later than 11:00 a.m., New York City time, three Business Days prior to conversion, to convert the Interest Period with respect to any Eurodollar Standby Borrowing to another permissible Interest Period subject in each case to the following: (i) each conversion or continuation shall be made pro rata among the Lenders in accordance with the respective principal amounts of the Loans comprising the converted or continued Standby Borrowing; (ii) if less than all the outstanding principal amount of any Standby Borrowing shall be converted or continued, the aggregate principal amount of such Standby Borrowing converted or continued shall be an integral multiple of $1,000,000 and not less than $5,000,000; (iii) if any Eurodollar Standby Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the applicable Borrower shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.15; (iv) any portion of a Standby Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Standby Borrowing; (v) any portion of a Eurodollar Standby Borrowing which cannot be converted into or continued as a Eurodollar Standby Borrowing by reason of clause (iv) above shall be automatically converted at the end of the Interest Period in effect for such Borrowing into an ABR Borrowing; and 29 24 (vi) no Interest Period may be selected for any Eurodollar Standby Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.06 shall be by hand delivery or telecopier and irrevocable and shall refer to this Agreement and specify (A) the identity and amount of the Standby Borrowing that the Borrower requests be converted or continued, (B) whether such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing or an ABR Borrowing, (C) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and (D) if such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Standby Borrowing, the Borrower shall be deemed to have selected an Interest Period of one month's duration. The Administrative Agent shall advise the other Lenders of any notice given pursuant to this Section 2.06 and of each Lender's portion of any converted or continued Standby Borrowing. If, with respect to any Interest Period ending on or after the Termination Date, the applicable Borrower shall not have given notice in accordance with this Section 2.06 to continue any Standby Borrowing into a subsequent Interest Period (and shall not otherwise have given notice in accordance with this Section 2.06 to convert such Standby Borrowing), such Standby Borrowing shall, at the end of such Interest Period (unless repaid pursuant to the terms hereof), automatically be continued into such subsequent Interest Period as an ABR Borrowing. SECTION 2.07 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) Each Borrower hereby agrees that the outstanding principal balance of each Standby Loan shall be payable on the Maturity Date and that the outstanding principal balance of each Competitive Loan shall be payable on the last day of the Interest Period applicable thereto and on the Termination Date. Each Loan shall bear interest on the outstanding principal balance thereof as set forth in Section 2.08. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from each Loan made by 30 25 such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from each Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from each Borrower and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) of this Section 2.07 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations therein recorded; PROVIDED, HOWEVER, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Borrowers to repay the Loans in accordance with their terms. SECTION 2.08. INTEREST ON LOANS. (a) Subject to the provisions of Section 2.09, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Standby Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Percentage from time to time in effect plus an additional .125% per annum on any day on which (A) the sum of (1) the outstanding aggregate principal amount of all Standby Loans made by all Lenders plus (2) the outstanding aggregate principal amount of all Competitive Loans made by all Lenders exceeds (B) 33% of the Total Commitment and (ii) in the case of each Eurodollar Competitive Loan, the LIBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Lender making such Loan and accepted by the applicable Borrower pursuant to Section 2.03. (b) Subject to the provisions of Section 2.09, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, for periods during which the Alternate Base Rate is determined by 31 26 reference to the Prime Rate and 360 days for other periods) at a rate per annum equal to the Alternate Base Rate. (c) Subject to the provisions of Section 2.09, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Lender making such Loan and accepted by the Borrower pursuant to Section 2.03. (d) Interest on each Loan shall be payable on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. The applicable LIBO Rate or Alternate Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. SECTION 2.09. DEFAULT INTEREST. If a Borrower shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, whether by scheduled maturity, notice of prepayment, acceleration or otherwise, such Borrower shall owe interest, payable on demand, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed as provided in Section 2.08(b)) equal to the Alternate Base Rate plus 2%. SECTION 2.10. ALTERNATE RATE OF INTEREST. (a) In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined (i) that dollar deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market or (ii) that reasonable means do not exist for ascertaining the LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give telecopy notice of such determination to the Borrowers and the Lenders. In the event of any such determination under clauses (i) or (ii) above, until the Administrative Agent shall have advised the Borrowers and the Lenders that the circumstances giving rise to such notice no longer exist, (x) any request by a Borrower for a Eurodollar Competitive Borrowing pursuant to Section 2.03 shall be of no force and effect and shall be 32 27 denied by the Administrative Agent and (y) any request by a Borrower for a Eurodollar Standby Borrowing pursuant to Section 2.04 shall be deemed to be a request for an ABR Borrowing. (b) In the event a Lender notifies the Administrative Agent that the rates at which dollar deposits are being offered will not adequately and fairly reflect the cost to such Lender of making or maintaining its Eurodollar Loan during such Interest Period, the Administrative Agent shall notify the applicable Borrower of such notice and until the Lender shall have advised the Administrative Agent that the circumstances giving rise to such notice no longer exist, any request by such Borrower for a Eurodollar Standby Borrowing shall be deemed a request for an ABR Borrowing for the same Interest Period with respect to such Lender. (c) Each determination by the Administrative Agent hereunder shall be made in good faith and shall be conclusive absent manifest error. SECTION 2.11. TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Commitments shall be automatically terminated on the Termination Date. (b) Upon at least three Business Days' prior irrevocable telecopy notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment; PROVIDED, HOWEVER, that (i) each partial reduction of the Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $5,000,000 and (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the aggregate outstanding principal amount of the Loans. (c) Each reduction in the Total Commitment hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. The Company shall pay to the Administrative Agent for the account of the Lenders, on each date of reduction of any portion of the Total Commitment, the Facility Fees on the amount of the Commitments so terminated accrued through the date of such termination or reduction. 33 28 SECTION 2.12. PREPAYMENT. (a) Each Borrower shall have the right at any time and from time to time to prepay any Standby Borrowing, in whole or in part, upon giving telecopy notice (or telephone notice promptly confirmed by telecopy) to the Administrative Agent: (i) before 10:00 a.m., New York City time, three Business Days prior to prepayment, in the case of Eurodollar Loans, and (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans; PROVIDED, HOWEVER, that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $5,000,000. No prepayment may be made in respect of any Competitive Borrowing. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.11(b), the Borrowers shall pay or prepay so much of the Standby Borrowings as shall be necessary in order that the aggregate principal amount of the Competitive Loans and Standby Loans outstanding will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the applicable Borrower to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.15 but otherwise without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.13. RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall result in the imposition, modification or applicability of any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender, or shall result in the imposition on any Lender or the London interbank market of any other condition affecting this Agreement, such Lender's Commitment or any Eurodollar Loan or 34 29 Fixed Rate Loan made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received or receivable by such Lender with respect to any Eurodollar Loan or Fixed Rate Loan hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender to be material, then such additional amount or amounts as will compensate such Lender for such additional costs or reduction will be paid by the Borrowers to such Lender upon demand. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this paragraph with respect to any Competitive Loan if the change giving rise to such request was applicable to such Lender at the time of submission of the Competitive Bid pursuant to which such Competitive Loan was made. (b) If any Lender shall have determined that the adoption after the date hereof of any law, rule, regulation or guideline arising out of the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards," or the adoption after the date hereof of any other law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital as a consequence of this Agreement, such Lender's Commitment or the Loans made by such Lender pursuant hereto to a level below that which such Lender could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time such additional amount or amounts as will compensate such Lender for such reduction will be paid by the Borrowers to such Lender. (c) A certificate of each Lender setting forth such amount or amounts as shall be necessary to compensate such Lender as specified in paragraph (a) or (b) above, as 35 30 the case may be, shall be delivered to the Company promptly by such Lender upon becoming aware of any costs pursuant to paragraphs (a) or (b) above and shall be conclusive absent manifest error. The Company shall pay each Lender the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period. The protection of this Section shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. No Lender shall be entitled to compensation under this Section 2.13 for any costs incurred or reduction suffered with respect to any date unless such Lender shall have notified the Company that it will demand compensation for such costs or reductions not more than 90 days after the later of (i) such date and (ii) the date on which such Lender shall have become aware of such costs or reductions. Notwithstanding any other provision of this Section 2.13, no Lender shall demand compensation for any increased cost or reduction referred to above if it shall not at the time be the general policy or practice of such Lender to demand such compensation in similar circumstances under comparable provisions of other credit agreements, if any. 36 31 SECTION 2.14. CHANGE IN LEGALITY. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Company and to the Administrative Agent, such Lender may: (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon such Lender shall not submit a Competitive Bid in response to a request for Eurodollar Competitive Loans and any request for a Eurodollar Standby Borrowing shall, as to such Lender only, be deemed a request for an ABR Loan unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.14, a notice by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt. SECTION 2.15. INDEMNITY. The Borrowers shall indemnify each Lender against any out-of-pocket loss or expense which such Lender may sustain or incur as a consequence of (a) any failure to borrow or to refinance any Loan hereunder after irrevocable notice of such borrowing or refinancing has been given pursuant to Section 2.03 or 2.04, 37 32 (b) any payment, prepayment or conversion, or assignment required under Section 2.19, of a Eurodollar Loan required by any other provision of this Agreement (other than Section 2.14) or otherwise made or deemed made on a date other than the last day of the Interest Period, if any, applicable thereto, (c) any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise) or (d) the occurrence of any Event of Default, including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan or a Fixed Rate Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, refinanced or not borrowed or so assigned (assumed to be the LIBO Rate applicable thereto or, in the case of a Fixed Rate Loan, the fixed rate of interest applicable thereto) for the period from the date of such payment, prepayment, refinancing or failure to borrow or refinance or such assignment, to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow or refinance the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying in similar investments the funds so paid, prepaid or not borrowed or refinanced or so assigned for the remainder of such period or Interest Period, as the case may be. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section 2.15 shall be delivered to the Borrowers and shall be conclusive absent manifest error. SECTION 2.16. PRO RATA TREATMENT. Except as required under Section 2.13, each payment or prepayment of principal of any Standby Borrowing, each payment of interest on the Standby Loans, each payment of the Facility Fees, each reduction of the Commitments and each refinancing of any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective 38 33 principal amounts of their outstanding Standby Loans). Each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For purposes of determining the available Commitments of the Lenders at any time, each outstanding Competitive Borrowing shall be deemed to have utilized the Commitments of the Lenders (including those Lenders which shall not have made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. SECTION 2.17. SHARING OF SETOFFS. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Standby Loan or Loans as a result of which the unpaid principal portion of its Standby Loans shall be proportionately less than the unpaid principal portion of the Standby Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Standby Loans of such other Lender, so that the aggregate unpaid principal amount of the Standby Loans and participations in the Standby Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Standby Loans then outstanding as the principal amount of its Standby Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Standby Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event; PROVIDED, HOWEVER, that, if any such purchase or purchases or 39 34 adjustments shall be made pursuant to this Section 2.17 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Any Lender holding a participation in a Standby Loan deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing to such Lender by reason thereof as fully as if such Lender had made a Standby Loan in the amount of such participation. SECTION 2.18. PAYMENTS. (a) The Borrowers shall make each payment (including principal of or interest on any Borrowing and any Facility Fees or other amounts) hereunder from an account in the United States not later than 12:00 noon, New York City time, on the date when due in dollars to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds. (b) Whenever any payment (including principal of or interest on any Borrowing or any Facility Fees or other amounts) hereunder shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Facility Fees, if applicable. SECTION 2.19. DUTY TO MITIGATE; ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES. (a) Any Lender (or Transferee) claiming any additional amounts payable pursuant to Section 2.13 or Section 2.20 or exercising its rights under Section 2.14 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue or avoid the circumstances giving rise to such exercise and would not, in the sole determination of such Lender (or Transferee), be otherwise disadvantageous to such Lender (or Transferee). (b) In the event that any Lender shall have delivered a notice or certificate pursuant to 40 35 Section 2.10(b), 2.13 or 2.14, or the Borrower shall be required to make additional payments to any Lender under Section 2.20, the Company shall have the right, at its own expense (which shall include the processing and recordation fee referred to in Section 9.04(b)), upon notice to such Lender and the Administrative Agent, to require such Lender to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 9.04) all interests, rights and obligations contained hereunder to another financial institution approved by the Administrative Agent (which approval shall not be unreasonably withheld) which shall assume such obligations; provided that (i) no such assignment shall conflict with any law, rule or regulation or order of any Governmental Authority and (ii) the assignee or the Borrowers, as the case may be, shall pay to the affected Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by it hereunder and all other amounts accrued for its account or owed to it hereunder. SECTION 2.20. TAXES. (a) Any and all payments to the Lenders hereunder shall be made, in accordance with Section 2.18, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING (i) income taxes imposed on the net income of the Administrative Agent or any Lender (or any transferee or assignee thereof, including a participation holder (any such entity a "Transferee")) and (ii) franchise taxes imposed on the net income of the Administrative Agent or any Lender (or Transferee), in each case by the jurisdiction under the laws of which the Administrative Agent or such Lender (or Transferee) is organized or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, "Taxes"). If any Borrower shall be required to deduct any Taxes from or in respect of any sum payable hereunder to any Lender (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount (an "additional amount") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.20) such Lender (or Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been 41 36 made, (ii) such Borrower shall make such deductions and (iii) such Borrower shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. (b) In addition, the Borrowers shall pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement ("Other Taxes"). (c) The Borrowers shall indemnify each Lender (or Transferee) and the Administrative Agent for the full amount of Taxes and Other Taxes paid by such Lender (or Transferee) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto. A certificate as to the amount of such payment or liability prepared by a Lender, or the Administrative Agent on its behalf, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Lender (or Transferee) or the Administrative Agent, as the case may be, makes written demand therefor. (d) If a Lender (or Transferee) or the Administrative Agent shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Taxes or Other Taxes as to which it has been indemnified by the Borrowers, or with respect to which the Borrowers have paid additional amounts, pursuant to this Section 2.20, it shall promptly notify the Borrowers of the availability of such refund claim and shall, within 30 days after receipt of a request by the Borrowers, make a claim to such Governmental Authority for such refund at the Borrowers' expense. If a Lender (or Transferee) or the Administrative Agent receives a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section 2.20, it shall within 30 days from the date of such receipt pay over such refund to the Borrowers (but only to the extent of indemnity 42 37 payments made, or additional amounts paid, by the Borrowers under this Section 2.20 with respect to the Taxes or Other Taxes giving rise to such refund), without interest (other than interest paid by the relevant Governmental Authority with respect to such refund); PROVIDED, HOWEVER, that the Borrowers, upon the request of such Lender (or Transferee) or the Administrative Agent, agree to repay the amount paid over to the Borrowers (plus penalties, interest or other charges) to such Lender (or Transferee) or the Administrative Agent in the event such Lender (or Transferee) or the Administrative Agent is required to repay such refund to such Governmental Authority. (e) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Borrowers to the relevant Governmental Authority, the Borrowers will deliver to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (f) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.20 shall survive the payment in full of the principal of and interest on all Loans made hereunder for a period of 3 years. (g) Each Non-U.S. Lender shall deliver to the Company and the Administrative Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Company and is not a controlled foreign corporation related to the Company (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Company under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the 43 38 date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "New Lending Office"). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.20(g), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.20(g) that such Non-U.S. Lender is not legally able to deliver. (h) The Borrowers shall not be required to indemnify any Non-U.S. Lender, or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan; PROVIDED, HOWEVER, that this clause (i) shall not apply to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of the Company; and PROVIDED FURTHER, HOWEVER, that this clause (i) shall not apply to the extent the indemnity payment or additional amounts any Transferee, or Lender (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (i)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of paragraph (g) above. 44 39 (i) Any Lender (or Transferee) claiming any indemnity payment or additional amounts payable pursuant to this Section 2.20 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the Company or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the sole determination of such Lender (or Transferee), be otherwise disadvantageous to such Lender (or Transferee). (j) Nothing contained in this Section 2.20 shall require any Lender (or Transferee) or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). 45 40 ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants to each of the Lenders that: SECTION 3.01. CORPORATE EXISTENCE AND POWER. The Company and each Borrowing Subsidiary is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 3.02. CORPORATE AND GOVERNMENTAL AUTHORIZATION; CONTRAVENTION. The execution, delivery and performance by the Company of this Agreement (a) is within the Company's corporate powers, (b) has been duly authorized by all necessary corporate action, (c) requires no action by or in respect of, or filing with, any Governmental Authority and (d) does not (i) contravene, or constitute a default under, any applicable provision of law or regulation either of the United States or a particular state thereof or of the certificate of incorporation or by-laws of the Company or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Company or (ii) result in the creation or imposition of any Lien on any asset of the Company or any of its Subsidiaries. SECTION 3.03. BINDING EFFECT. This Agreement constitutes a valid and binding agreement of the Company, enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of the rights of its creditors generally and subject to general legal and equitable principles with respect to the availability of particular remedies. SECTION 3.04. FINANCIAL INFORMATION. (a) The unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of January 3, 1999, and the related consolidated statements of earnings and changes in financial position for the fiscal year then ended, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with GAAP, the consolidated financial 46 41 position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such fiscal year. (b) The unaudited consolidated balance sheet of the Company and its Consolidated Subsidiaries as of September 27, 1998, and the related unaudited consolidated statements of earnings and changes in financial position for the nine months then ended, set forth in the Company's quarterly report on Form 10-Q for the fiscal quarter ended September 27, 1998, a copy of which has been delivered to each of the Lenders, fairly present, in conformity with GAAP applied on a basis consistent with the financial statements referred to in paragraph (a) of this Section 3.04, the consolidated financial position of the Company and its Consolidated Subsidiaries as of such date and their consolidated results of operations and changes in financial position for such nine month period (subject to normal year-end adjustments). SECTION 3.05. LITIGATION. There is no action, suit or proceeding pending against, or to the knowledge of the Company threatened against or affecting, the Company or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable possibility of a final adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Company and its Consolidated Subsidiaries taken as a whole or which in any manner draws into question the validity of this Agreement. SECTION 3.06. COMPLIANCE WITH ERISA. The Company and each ERISA Affiliate has fulfilled its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Code relating to the Plans, and has not incurred any liability to the PBGC or a Plan under Title IV of ERISA. SECTION 3.07. TAXES. United States Federal income tax returns of the Company and its Subsidiaries have been examined and closed through the fiscal year ended January 3, 1988. The Company and its Subsidiaries have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all material taxes due pursuant to such returns or pursuant 47 42 to any assessment received by the Company or any Subsidiary which the Company or any Subsidiary is not disputing in a good faith manner. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Company, adequate. SECTION 3.08. SUBSIDIARIES. Attached hereto as Schedule 3.08 is a schedule which correctly identifies all Subsidiaries as of the date of this Agreement. Except as noted on Schedule 3.08, all of the issued and outstanding shares of the capital stock of each Subsidiary is duly issued and outstanding, fully paid and non-assessable and except for directors' qualifying shares and shares issued solely for the purpose of satisfying local requirements concerning the minimum number of shareholders is owned by the Company or a Subsidiary free and clear of any mortgage, pledge, lien or encumbrance. SECTION 3.09. REPRESENTATIONS AND WARRANTIES OF EACH BORROWING SUBSIDIARY. Each Borrowing Subsidiary shall be deemed by the execution and delivery of a Borrowing Subsidiary Agreement to have represented and warranted as of the date thereof as follows: (a) It is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to do business and in good standing in each other jurisdiction in which it owns property and/or conducts its business and in which failure to be so qualified and in good standing would have a materially adverse effect on the business of such Borrowing Subsidiary. (b) The execution, delivery and performance by it of its Borrowing Subsidiary Agreement, and the performance by it of the provisions of this Agreement applicable to it, are within its corporate powers, have been duly authorized by all necessary corporate action and do not contravene (i) its charter or by-laws (or the equivalent thereof) or (ii) any law or regulation or any agreement, judgment, injunction, order, decree or other instrument binding on or affecting it. (c) No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and 48 43 performance by it of its Borrowing Subsidiary Agreement or for the performance by it of the provisions of this Agreement applicable to it, except for those which have been duly obtained or made and are in full force and effect. (d) It is not in breach of or default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which would have a material adverse effect on its ability to perform its obligations hereunder after taking into consideration its other financial obligations. (e) This Agreement is a legal, valid and binding obligation of such Borrowing Subsidiary enforceable against it in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of the rights of its creditors generally and subject to general legal and equitable principles with respect to the availability of particular remedies. (f) The proceeds of each Loan made to it will be used solely for general corporate purposes, including the acquisition of new businesses. SECTION 3.10. FEDERAL RESERVE REGULATIONS. (a) Neither any Borrower nor any Subsidiary is engaged principally, or as a substantial part of its activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock (within the meaning of Regulation U). (b) No part of the proceeds of any Loan has been or will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, in any manner or for any purpose that has resulted or will result in a violation of Regulation U. SECTION 3.11. INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. Neither any Borrower nor any Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. 49 44 SECTION 3.12. ENVIRONMENTAL AND SAFETY MATTERS. (a) With respect to all facilities owned and operated by the Company and its Subsidiaries, or at which the Company or any of its Subsidiaries has a leasehold interest, other than any facilities referred to in (b) below, except as set forth in Schedule 3.12(a) (i) the Company and each Subsidiary is in compliance in all material respects with all Federal, state, local and other statutes, ordinances, orders, judgments, rulings and regulations relating to environmental pollution or to environmental regulation or control or to employee health or safety (collectively "Environmental Laws") except where the failure to be in compliance so would not be reasonably likely, individually or in the aggregate, to result in a Material Adverse Effect; (ii) neither the Company nor any Subsidiary has received notice of any material failure so to comply, which non-compliance neither has been remedied nor is the subject of the Company's good faith efforts to achieve compliance, except where the failure to be in compliance would not be reasonably likely, individually or in the aggregate, to result in a Material Adverse Effect and (iii) the Company is aware of no events, conditions or circumstances involving environmental pollution or contamination or employee health or safety that in its judgment would be reasonably likely to result in a Material Adverse Effect. (b) With respect to the Federally owned or operated facilities listed on Schedule 3.12(b) at which the Company and/or its Subsidiaries are the management and operations contractor or such facilities at which the Company and/or its Subsidiaries may act as such after the date of this Agreement, except as set forth in Schedule 3.12(c) neither the Company nor any of its Subsidiaries has received notice of any claim under any Environmental Laws which in its judgment would be reasonably likely to result in a Material Adverse Effect. SECTION 3.13. YEAR 2000 COMPLIANCE. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (i) the Company's and each Subsidiary's computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which the Company's or any Subsidiary's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by July 1, 1999 except to the extent that the failure to complete such 50 45 reprogramming and testing could not in the aggregate result in a Material Adverse Effect. The cost to the Company and the Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Company and the Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Company and each Subsidiary are and, with ordinary course upgrading, replacement and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Company and each Subsidiary to conduct its business without a Material Adverse Effect. SECTION 3.14. NO MATERIAL ADVERSE CHANGE. Since January 3, 1999, there has occurred no event, condition or change in or affecting the Company or the Subsidiaries that, individually or in the aggregate with other such events, conditions or changes, has had or could reasonably be expected to have a Material Adverse Effect. SECTION 3.15. SOLVENCY. On the Closing Date, (i) the fair value of the assets of the Company and the Subsidiaries on a consolidated basis, at a fair valuation, will exceed their debts and liabilities, subordinated, contingent or otherwise; (ii) the present fair saleable value of the property of the Company and the Subsidiaries on a consolidated basis will be greater than the amount that will be required to pay their probable liability on their debts and other liabilities, subordinated, contingent or otherwise, as such debts and other liabilities become absolute and matured; (iii) the Company and the Subsidiaries will on a consolidated basis be able to pay their debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured; and (iv) the Company and the Subsidiaries on a consolidated basis will not have unreasonably small capital with which to conduct the businesses in which they are engaged as such businesses are now conducted and are proposed to be conducted following the Closing Date. 51 46 ARTICLE IV CONDITIONS OF LENDING The obligations of the Lenders to make Loans hereunder are subject to the satisfaction of the following conditions: SECTION 4.01. ALL BORROWINGS. On the date of each Borrowing: (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.03 or Section 2.04, as applicable. (b) The representations and warranties set forth in Article III (except in the case of a refinancing that does not increase the aggregate principal amount of Loans of any Lender outstanding, the representations set forth in Section 3.05 and 3.12) hereof shall be true and correct in all material respects on and as of the date of such Borrowing with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) At the time of and immediately after such Borrowing no Event of Default or Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the applicable Borrower on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Section 4.01. SECTION 4.02. CLOSING DATE. On the Closing Date: (a) The Administrative Agent (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. 52 47 (b) The Administrative Agent shall have received the favorable written opinion of Murray Gross, Esq., dated the Closing Date and addressed to the Lenders and satisfactory to Cravath, Swaine & Moore, counsel for the Administrative Agent, to the effect set forth in Exhibit D-1 hereto. (c) The Administrative Agent shall have received (i) a copy of the certificate of incorporation, including all amendments thereto, of the Company, certified as of a recent date by the Secretary of State of its state of incorporation, 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 Clerk or an Assistant Clerk of the Company dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Company as in effect on the Closing Date 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 the execution, delivery and performance of this Agreement and the Borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation referred to in clause (i) above has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to such clause (i) and (D) as to the incumbency and specimen signature of each officer executing this Agreement or any other document delivered in connection herewith on behalf of the Company; and (iii) a certificate of another officer of the Company as to the incumbency and specimen signature of the Clerk or Assistant Clerk executing the certificate pursuant to (ii) above. (d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Financial Officer of the Company, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.01. (e) The Company shall have terminated the 364-Day Competitive Advance and Revolving Credit Facility 53 48 Agreement, dated as of March 6, 1998, and the Competitive Advance and Revolving Credit Facility Agreement, dated as of November 23, 1998, and all principal, interest, fees and other amounts due and payable under such agreements shall have been paid. SECTION 4.03. FIRST BORROWING BY EACH BORROWING SUBSIDIARY. On the first date on which Loans are made to each Borrowing Subsidiary: (a) The Administrative Agent shall have received the favorable written opinion of Murray Gross, Esq., dated the date of such Loans, addressed to the Lenders and satisfactory to Cravath, Swaine & Moore, counsel for the Administrative Agent, to the effect set forth in Exhibit D-2 hereto. (b) Each Lender shall have received a copy of the Borrowing Subsidiary Agreement executed by such Borrowing Subsidiary. (c) Such Loans shall not violate any law, rule or regulation binding on any of the Lenders. (d) Each Lender shall have received from the Company an unaudited consolidated balance sheet and related consolidated statements of earnings and changes in financial position for the fiscal year most recently ended of such Borrowing Subsidiary. ARTICLE V COVENANTS The Company covenants and agrees with each Lender and the Administrative Agent that so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Facility Fees or any other amounts payable hereunder shall be unpaid, unless the Required Lenders shall otherwise consent in writing: 54 49 SECTION 5.01. INFORMATION. The Company will give the Administrative Agent prompt written notice of any change in any Rating that results in a change in the Category on which the Applicable Percentage is based. The Company will deliver to each of the Lenders: (a) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of earnings and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Arthur Andersen & Co. or other independent public accountants of nationally recognized standing acceptable to the Required Lenders and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present the financial condition and results of operations of the Company and the Consolidated Subsidiaries in accordance with GAAP; (b) as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Company, a consolidated balance sheet of the Company and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of earnings and cash flows for such quarter and for the portion of the Company's fiscal year ended at the end of such quarter, setting forth in each case in comparative form the figures for the corresponding quarter and the corresponding portion of the Company's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, compliance with GAAP and consistency by a Financial Officer of the Company; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, a certificate of a Financial Officer of the Company (i) setting forth in reasonable detail the calculations required to establish whether the Company was in compliance with the requirements of Sections 5.06 and 5.07 on the date of such financial statements and (ii) stating whether there exists on the date of such certificate any Default and, if any Default then exists, setting forth the details thereof 55 50 and the action which the Company is taking or proposes to take with respect thereto; (d) forthwith upon the occurrence of any Default, a certificate of the chief financial officer or the chief accounting officer of the Company setting forth the details thereof and the action which the Company is taking or proposes to take with respect thereto; (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (f) promptly upon the filing thereof, copies of all annual or quarterly reports and upon request by any Lender copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) which the Company shall have filed with the Securities and Exchange Commission; (g) (i) as soon as possible after, and in any event within 30 days after the Company or any ERISA Affiliate knows or has reason to know that, any Reportable Event has occurred that alone or together with any other Reportable Event could reasonably be expected to result in liability of the Company to the PBGC in an aggregate amount exceeding $5,000,000, a statement of a Financial Officer setting forth details as to such Reportable Event and the action that the Company proposes to take with respect thereto, together with a copy of the notice, if any, of such Reportable Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any notice that the Company or any ERISA Affiliate may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate that is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) or to appoint a trustee to administer any such Plan, (iii) within 10 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code a notice of failure to make a required installment or other payment with respect to a Plan, a statement of a Financial Officer setting forth details as to such failure and the action that the Company proposes to take with respect thereto, together with a copy of any such notice given to the PBGC and (iv) promptly and in any event within 30 days after receipt thereof by the Company or any ERISA Affiliate from the sponsor of a 56 51 Multiemployer Plan, a copy of each notice received by the Company or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, both within the meaning of Title IV of ERISA; and (h) from time to time such additional information regarding the financial position or business of the Company as any Lender may reasonably request. SECTION 5.02. CORPORATE EXISTENCE; BUSINESSES AND PROPERTIES. (a) The Company will, and will cause each Borrowing Subsidiary to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its corporate existence. (b) Except to the extent that failure to do so would not have a Material Adverse Effect, the Company will, and will cause each Borrowing Subsidiary to, (i) do or cause to be done all things necessary to preserve, renew and keep in full force and effect all rights, licenses, permits and franchises material to the conduct of the business of the Company and the Subsidiaries, taken as a whole, (ii) comply with all laws and regulations applicable to it and (iii) conduct its business in substantially the same manner as heretofore conducted or as at the time permitted under applicable law. SECTION 5.03. INSURANCE. The Company will, and will cause each Subsidiary to, keep its insurable properties adequately insured at all times by financially sound and reputable insurers, and maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses. 57 52 SECTION 5.04. LITIGATION AND OTHER NOTICES. The Company will give each Lender prompt written notice of the following: (a) the filing or commencement of, or any written threat or written notice of intention of any person to file or commence, any action, suit or proceeding which could reasonably be expected to result in a Material Adverse Effect; and (b) any development in the business or affairs of the Company or any Subsidiary that has resulted in a Material Adverse Effect. SECTION 5.05. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS. The Company will, and will cause each Subsidiary to, maintain financial records in accordance with GAAP and, upon reasonable notice, at all reasonable times, permit (a) any authorized representative designated by any Lender to discuss the affairs, finances and condition of the Company and the Subsidiaries with a Financial Officer of the Company and such other officers as the Company shall deem appropriate and (b) any authorized representative designated by the Administrative Agent or the Required Lenders to visit and inspect the properties of the Company and of any Subsidiary. SECTION 5.06. FIXED CHARGE COVERAGE. The Company will not permit the ratio of (a) Consolidated EBIT to (b) Consolidated Net Interest Expense for any period of four consecutive fiscal quarters ending on the last day of any fiscal quarter to be less than 5:1. SECTION 5.07. NET DEBT TO CAPITALIZATION RATIO. The Company will not permit on any date the ratio of (a) Consolidated Net Indebtedness on such date to (b) the sum of (i) Shareholders' Equity on such date and (ii) Consolidated Net Indebtedness on such date to be greater than 0.55:1.00. 58 53 SECTION 5.08. NEGATIVE PLEDGE. Neither the Company nor any Consolidated Subsidiary will create, assume or suffer to exist any Lien securing Indebtedness on any asset now owned or hereafter acquired by it, except: (a) Liens on all or part of the assets of Consolidated Subsidiaries securing Indebtedness owing by Consolidated Subsidiaries to the Company and Consolidated Subsidiaries; (b) mortgages on real property or security interests in personal property securing Indebtedness of the Company and Consolidated Subsidiaries in an aggregate amount not exceeding ten percent (10%) of the consolidated total assets of the Company and the Consolidated Subsidiaries; (c) Liens to secure taxes, assessments and other governmental charges or claims for labor, material or supplies to the extent that payment thereof shall not at the time be required to be made in accordance with Section 3.07 hereof; (d) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age, pension or other social security obligations; (e) Liens in respect of judgments or awards not exceeding $1,000,000 in the aggregate at any time, and any other Liens with respect to which the execution or enforcement thereof is being effectively stayed and the claims secured thereby are being contested in good faith by appropriate proceedings; (f) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens, in existence less than 120 days from the date of creation thereof; (g) encumbrances consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Company or a Consolidated Subsidiary is a party, and other similar encumbrances none of which in the opinion of the Company interferes materially with 59 54 the use of the property in the ordinary conduct of the business of the Company and the Consolidated Subsidiaries; and similar encumbrances on interests in real estate located outside the United States, which defects do not individually or in the aggregate have a material adverse effect on the business of the Company individually or of the Company and the Consolidated Subsidiaries on a consolidated basis; and (h) to the extent that the value of all Margin Stock owned by the Company and its Consolidated Subsidiaries (determined in accordance with Regulation U) exceeds 25% of the value of the total assets of the Company and its Consolidated Subsidiaries subject to this Section 5.08 (as so determined), Liens on such excess Margin Stock (it being understood that Margin Stock not in excess of 25% of the value of such assets will be subject to the restrictions of this Section 5.08). SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. (a) The Company will not (i) consolidate or merge with or into any other person unless (A) the Company shall be the surviving entity and (B) immediately thereafter no Default or Event of Default shall have occurred and be continuing or (ii) sell, lease or otherwise transfer all or any substantial part of its assets to any other person. The Company will not sell, lease or otherwise transfer any of its assets to any other person except for full and adequate consideration. (b) No Borrowing Subsidiary will (i) consolidate or merge with or into any other person unless (A) if the surviving entity shall be other than such Borrowing Subsidiary, (x) such surviving entity or the Company shall have assumed in writing all obligations of such Borrowing Subsidiary relating to this Agreement and (y) such surviving entity shall be 100% owned by the Company and (B) no Default or Event of Default shall have occurred and be continuing either before or immediately after such consolidation or merger or (ii) sell, lease or otherwise transfer all or any substantial part of its assets to any other person. No Borrowing Subsidiary will sell, lease or otherwise transfer any of its assets to any other person except for full and adequate consideration. 60 55 (c) Notwithstanding anything in the foregoing to the contrary, to the extent that the value of all Margin Stock owned by the Company and its Consolidated Subsidiaries (determined in accordance with Regulation U) exceeds 25% of the value of the total assets of the Company and its Consolidated Subsidiaries subject to this Section 5.09 (as so determined), the restrictions contained in subsections (a)(ii) and (b)(ii) of this Section 5.09 shall not apply to such excess Margin Stock (it being understood that Margin Stock not in excess of 25% of the value of such assets will be subject to the restrictions of this Section 5.09). SECTION 5.10. OWNERSHIP OF MARGIN STOCK. The Company will not, and will not permit its Subsidiaries to, own Margin Stock to the extent the value of such Margin Stock would exceed 28% of the value of the total assets of the Company and its Consolidated Subsidiaries. ARTICLE VI EVENTS OF DEFAULT In case of the happening of any of the following events (each an "Event of Default"): (a) any representation or warranty made or deemed made in or in connection with the execution and delivery of this Agreement or the Borrowings hereunder or any representation, warranty, statement or information contained in any report, certificate, financial statement or other instrument furnished in connection with this Agreement shall prove to have been incorrect in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Facility Fee or any other amount (other than an amount referred to in paragraph (b) above) due hereunder, when and as the same 61 56 shall become due and payable, and such default shall continue unremedied for a period of three Business Days; (d) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Sections 5.02 or 5.06 through 5.09; (e) default shall be made in the due observance or performance of any covenant, condition or agreement contained herein (other than those specified in paragraphs (b), (c) or (d) above) and such default shall continue unremedied for a period of 10 days after notice thereof from the Administrative Agent or any Lender to the Company; (f) the Company or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of any Indebtedness in an aggregate principal amount in excess of $15,000,000, when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Subsidiary, or of a substantial part of the property or assets of the Company or a Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of the property or assets of the Company or a Subsidiary or (iii) the winding up or liquidation of the Company or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 62 57 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Company or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of the property or assets of the Company or any Subsidiary, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) one or more final and nonappealable judgments for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against the Company, any Subsidiary or any combination thereof and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon assets or properties of the Company or any Subsidiary to enforce any such final and nonappealable judgment or judgments aggregating in excess of $5,000,000; (j) a Reportable Event or Reportable Events, or a failure to make a required installment or other payment (within the meaning of Section 412(n)(l) of the Code), shall have occurred with respect to any Plan or Plans that reasonably could be expected to result in liability of the Company to the PBGC or to a Plan in an aggregate amount exceeding $5,000,000 and, within 30 days after the reporting of any such Reportable Event to the Administrative Agent, the Administrative Agent shall have notified the Company in writing that (i) the 63 58 Required Lenders have made a determination that, on the basis of such Reportable Event or Reportable Events or the failure to make a required payment, there are reasonable grounds (A) for the termination of such Plan or Plans by the PBGC, (B) for the appointment by the appropriate United States District Court of a trustee to administer such Plan or Plans or (C) for the imposition of a lien in favor of a Plan and (ii) as a result thereof an Event of Default exists hereunder; or a trustee shall be appointed by a United States District Court to administer any such Plan or Plans; or the PBGC shall institute proceedings to terminate any Plan or Plans; (k) (i) the Company or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or such ERISA Affiliate does not have reasonable grounds for contesting such Withdrawal Liability or is not in fact contesting such Withdrawal Liability in a timely and appropriate manner and (iii) the amount of the Withdrawal Liability specified in such notice, when aggregated with all other amounts required to be paid to Multiemployer Plans in connection with Withdrawal Liabilities (determined as of the date or dates of such notification), exceeds $5,000,000 or requires payments exceeding $1,000,000 in any year; (1) the Company or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, if solely as a result of such reorganization or termination the aggregate annual contributions of the Company and its ERISA Affiliates to all Multiemployer Plans that are then in reorganization or have been or are being terminated have been or will be increased over the amounts required to be contributed to such Multiemployer Plans for their most recently completed plan years by an amount exceeding $1,000,000; (m) any guarantee purported to be created by Article VII hereof shall cease to be, or shall be asserted by the Company not to be, a valid and enforceable guarantee of the Guaranteed Obligations; or 64 59 (n) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Company described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Facility Fees and all other liabilities of the Borrowers accrued hereunder, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived anything contained herein to the contrary notwithstanding; and, in any event with respect to the Company described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Facility Fees and all other liabilities of the Borrowers accrued hereunder shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived anything contained herein to the contrary notwithstanding. ARTICLE VII GUARANTEE The Company unconditionally and irrevocably guarantees the due and punctual payment and performance, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, of the Guaranteed Obligations. The Company further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from it and that it will remain bound upon its guarantee notwithstanding any extension or renewal of any Guaranteed Obligations. The Company waives presentment to, demand of payment from and protest to the Borrowing Subsidiaries of any of the Guaranteed Obligations, and also waives notice of 65 60 acceptance of its guarantee and notice of protest for nonpayment. The obligations of the Company hereunder shall not be affected by (a) the failure of any Lender or the Administrative Agent to assert any claim or demand or to enforce any right or remedy against the Borrowing Subsidiaries under the provisions of this Agreement or otherwise; (b) any rescission, waiver, amendment or modification of any of the terms or provisions of this Agreement, any guarantee or any other agreement; or (c) the failure of any Lender or the Administrative Agent to exercise any right or remedy against any other guarantor of the Guaranteed Obligations. The Company further agrees that its guarantee constitutes a guarantee of payment when due and not of collection, and waives any right to require that any resort be had by the Administrative Agent or any Lender to any security, if any, held for payment of the Guaranteed Obligations or to any balance of any deposit account or credit on its books, in favor of the Borrowing Subsidiaries or any other person. The obligations of the Company hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise. Without limiting the generality of the foregoing, the obligations of the Company hereunder shall not be discharged or impaired or otherwise affected by the failure of the Administrative Agent or any Lender to assert any claim or demand or to enforce any remedy under this Agreement, any guarantee or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, wilful or otherwise, in the performance of the Guaranteed Obligations, or by any other act or omission which may or might in any manner or to any extent vary the risk of the Company or otherwise operate as a discharge of the Company as a matter of law or equity. To the extent permitted by applicable law, the Company waives any defense based on or arising out of any defense available to the Borrowing Subsidiaries, including 66 61 any defense based on or arising out of any disability of the Borrowing Subsidiaries, or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrowing Subsidiaries, other than final payment in full of the Guaranteed Obligations. The Administrative Agent and the Lenders may, at their election, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, or exercise any other right or remedy available to them against the Borrowing Subsidiaries, or any security without affecting or impairing in any way the liability of the Company hereunder except to the extent the Guaranteed Obligations have been fully and finally paid. The Company waives any defense arising out of any such election even though such election operates to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of the Company against any Borrowing Subsidiary or any security. The Company further agrees that its guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment, or any part thereof, of principal of or interest on any Guaranteed Obligation is rescinded or must otherwise be restored by any Lender upon the bankruptcy or reorganization of any Borrowing Subsidiary or otherwise. In furtherance of the foregoing and not in limitation of any other right which the Administrative Agent or any Lender may have at law or in equity against the Company by virtue hereof, upon the failure of any Borrowing Subsidiary to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, the Company hereby promises to and will, upon receipt of written demand by the Administrative Agent or any Lender, forthwith pay or cause to be paid to the Administrative Agent or such Lender in cash the amount of such unpaid Guaranteed Obligation. Upon payment by the Company of any sums to the Administrative Agent or any Lender, as provided above, all rights of the Company against the other Borrowers arising as a result thereof by way of right of subrogation or otherwise shall in all respects be subordinated and junior in right of payment to the prior indefeasible payment in full of all the Guaranteed Obligations to the Administrative Agent and the Lenders. 67 62 ARTICLE VIII THE ADMINISTRATIVE AGENT In order to expedite the transactions contemplated by this Agreement, The Chase Manhattan Bank is hereby appointed to act as Administrative Agent on behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender or holder and to exercise such powers as are specifically delegated to the Administrative Agent by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Borrowers of any Event of Default of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder; and (c) to distribute promptly to each Lender copies of all notices, financial statements and other materials delivered by the Borrowers pursuant to this Agreement as received by the Administrative Agent. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his or her own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Borrowers of any of the terms, conditions, covenants or agreements contained in this Agreement. The Administrative Agent shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or other instruments or agreements. The Administrative Agent may deem and treat the Lender that makes any Loan as the holder of the indebtedness resulting therefrom for all purposes hereof until it shall have received notice from such Lender, given as provided 68 63 herein, of the transfer thereof. The Administrative Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. The Administrative Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Borrowers on account of the failure of or delay in performance or breach by any other Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Borrowers of any of their respective obligations hereunder or in connection herewith. The Administrative Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent reasonably acceptable to the Company. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then, the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent 69 64 hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 9.05 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. With respect to the Loans made by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrowers or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent. Each Lender agrees (i) to reimburse the Administrative Agent, on demand, in the amount of its pro rata share (based on its Commitment hereunder or, if the Commitments shall have been terminated, the amount of its outstanding Loans) of any out-of-pocket expenses incurred for the benefit of the Lenders by the Administrative Agent, including reasonable counsel fees and compensation of agents paid for services rendered on behalf of the Lenders, which shall not have been reimbursed by the Borrowers and (ii) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by it under this Agreement to the extent the same shall not have been reimbursed by the Borrowers; PROVIDED that no Lender shall be liable to the Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent or any of its directors, officers, employees or agents. Each Lender 70 65 agrees that any allocation made in good faith by the Administrative Agent of expenses or other amounts referred to in this paragraph between this Agreement and the Five-Year Facility shall be conclusive and binding for all purposes. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any related agreement or any document furnished hereunder or thereunder. ARTICLE IX MISCELLANEOUS SECTION 9.01. NOTICES. Except as otherwise expressly provided herein, notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy, as follows: (a) if to any Borrower, to EG&G, Inc., 45 William Street, Wellesley, Massachusetts 02181, Attention of Treasurer, (Telecopy No. 781-431-4113); (b) if to the Administrative Agent, to it at One Chase Manhattan Plaza, 8th Floor, New York, New York 10081, Attention of Sharon Hamboussi, (Telecopy No. 212-552-5662); and (c) if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.01 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if 71 66 delivered by hand or overnight courier service or sent by telecopy to such party as provided in this Section 9.01 or in accordance with the latest unrevoked direction from such party given in accordance with this Section 9.01. SECTION 9.02. SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by the Borrowers herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making by the Lenders of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Facility Fee or any other amount payable under this Agreement is outstanding and unpaid or the Commitments have not been terminated. SECTION 9.03. BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have received copies hereof (telecopied or otherwise) which, when taken together, bear the signature of each Lender, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrowers shall not have the right to assign any rights hereunder or any interest herein without the prior consent of all the Lenders. SECTION 9.04. SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any party that are contained in this Agreement shall bind and inure to the benefit of its successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); PROVIDED, HOWEVER, that (i) except in the case of an assignment to a Lender or a domestic Affiliate of a Lender, the Company must give its prior written consent to such assignment (which consent shall not be unreasonably 72 67 withheld), (ii) the amount of the Commitment (or, after the Termination Date, the outstanding Loans) of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent) shall not be less than $10,000,000, (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, and a processing and recordation fee of $3,500 and (iv) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section 9.04, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto (but shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.20 and 9.05, as well as to any Facility Fees accrued for its account hereunder and not yet paid)). Notwithstanding the foregoing, any Lender assigning its rights and obligations under this Agreement may retain any Competitive Loans made by it outstanding at such time, and in such case shall retain its rights hereunder in respect of any Loans so retained until such Loans have been repaid in full in accordance with this Agreement. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this 73 68 Agreement or any other instrument or document furnished pursuant hereto or the financial condition of the Borrowers or the performance or observance by the Borrowers of any obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Section 5.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain at one of its offices in the City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and the principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive in the absence of manifest error and the Borrowers, the Administrative Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by each party hereto, at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee together with an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and 74 69 recordation fee referred to in paragraph (b) above and, if required, the written consent of the Company to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register. (f) Each Lender may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) each participating bank or other entity shall be entitled to the benefit of the cost protection provisions contained in Sections 2.13, 2.15 and 2.20 to the same extent as if it was the selling Lender (but limited to the amount that could have been claimed by the selling Lender had it continued to hold the interest of such participating bank or other entity), except that all claims made pursuant to such Sections shall be made through such selling Lender, and (iv) the Borrowers, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such Lender's rights and obligations under this Agreement, and such selling Lender shall retain the sole right to enforce the obligations of the Borrowers relating to the Loans and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing any fees payable hereunder or the amount of principal of or the rate at which interest is payable on the Loans, extending any scheduled principal payment date or date fixed for the payment of interest on the Loans or changing or extending the Commitments). (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrowers furnished to such Lender; PROVIDED that, prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of any such information. 75 70 (h) The Borrowers shall not assign or delegate any rights and duties hereunder without the prior written consent of all Lenders. (i) Any Lender may at any time pledge all or any portion of its rights under this Agreement to a Federal Reserve Bank; PROVIDED that no such pledge shall release any Lender from its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, each Borrower shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to such Borrower by the assigning Lender hereunder. SECTION 9.05. EXPENSES; INDEMNITY. (a) The Borrowers agree, jointly and severally, to pay the fees and disbursements of counsel for the Administrative Agent in connection with entering into this Agreement and in connection with any amendments, modifications or waivers of the provisions hereof, and agree, jointly and severally, to pay the reasonable out-of-pocket expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of their rights in connection with this Agreement or the Loans made hereunder, including the reasonable fees and disbursements of counsel for the Administrative Agent or any Lender. (b) The Borrowers agree, jointly and severally, to indemnify the Administrative Agent, each Lender, each of their Affiliates and the directors, officers, employees and agents of the foregoing (each such person being called an "Indemnitee") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated thereby, the performance by the parties thereto of their respective obligations thereunder or the consummation of the transactions contemplated thereby, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto; PROVIDED that such indemnity shall not, as to any Indemnitee, be 76 71 available to the extent that such losses, claims, damages, liabilities or related expenses are finally determined by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee or from such Indemnitee's violation of the Federal securities laws prohibiting insider trading. (c) The provisions of this Section shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any investigation made by or on behalf of the Administrative Agent or any Lender. All amounts due under this Section shall be payable on written demand therefor. SECTION 9.06. APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. SECTION 9.07. WAIVERS; AMENDMENT. (a) No failure or delay of the Administrative Agent or any Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or consent to any departure therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on any Borrower or any Subsidiary in any case shall entitle such party to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrowers and the Required Lenders; PROVIDED, HOWEVER, that no such agreement shall (i) decrease the principal amount of, 77 72 or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) increase the Commitment or decrease the Facility Fee of any Lender or extend any date for payment thereof without the prior written consent of such Lender, (iii) amend or modify the provisions of Section 2.16 or Section 9.04(h), the provisions of this Section or the definition of the "Required Lenders," or (iv) release the Company from any of its obligations under Article VII hereof without the prior written consent of each Lender; PROVIDED FURTHER, HOWEVER, that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section and any consent by any Lender pursuant to this Section shall bind any assignee of its rights and interests hereunder. SECTION 9.08. ENTIRE AGREEMENT. This Agreement constitutes the entire contract among the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 9.09. SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. SECTION 9.10. COUNTERPARTS. This 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, and shall become effective as provided in Section 9.03. 78 73 SECTION 9.11. HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. SECTION 9.12. RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or account of the Company and any Borrowing Subsidiary now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after such setoff and application made by such Lender, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of setoff) which such Lender may have. SECTION 9.13. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to the foregoing and to paragraph (b) below, nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding 79 74 relating to this Agreement against any other party hereto in the courts of any jurisdiction. (b) Each Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 9.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 9.14. WAIVER OF JURY TRIAL. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each party hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (b) acknowledges that it and other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certification in this Section. SECTION 9.15. ADDITION OF BORROWING SUBSIDIARIES. Each wholly owned Subsidiary of the Company which shall deliver to the Administrative Agent a Borrowing Subsidiary Agreement executed by such Subsidiary and the Company shall, upon such delivery and without further act, become a party hereto and a Borrower hereunder with the same effect as if it had been an original party to this Agreement. SECTION 9.16. CONFIDENTIALITY. Each Lender and the Administrative Agent agree to keep confidential the Information, except that any such Lender and the Administrative Agent shall be permitted to disclose Information (a) to such of its officers, directors, employees, agents and representatives as need to know such 80 75 Information; (b) to the extent required by applicable laws and regulations or by any subpoena or similar legal process, including with respect to the enforcement of this Agreement, PROVIDED that such Lender and the Administrative Agent shall use reasonable efforts to notify the Company of such prospective disclosure a reasonable time prior to any such disclosure and shall take such actions reasonably requested by the Company to assist the Company in obtaining a protective order or confidential treatment with respect to such Information (it being understood that failure to give such notice after having made any such reasonable efforts shall not result in any liability hereunder to such Lender or the Administrative Agent, as the case may be); (c) to the extent requested by any bank regulatory authority; (d) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Agreement, (ii) becomes available to such Lender or the Administrative Agent on a non-confidential basis from a source other than the Company and its Affiliates or (iii) was available to such Lender or the Administrative Agent on a non-confidential basis prior to its disclosure to such Lender or the Administrative Agent by the Company or its Affiliates; (e) to any actual or prospective assignee or participant in any rights of such Lender or the Administrative Agent under this Agreement, provided that such assignee or participant delivers to the Administrative Agent or such Lender, as applicable, a confidentiality letter containing substantially the undertakings set forth in this Section 9.16 and (f) to the extent the Company shall have consented to such disclosure in writing. SECTION 9.17. COLLATERAL. Each of the Lenders represents to each of the other Lenders that it in good faith is not relying upon any Margin Stock as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.18. INTEREST RATE LIMITATION. Notwithstanding anything herein to the contrary, if at any time the applicable interest rate, together with all fees and charges which are treated as interest under applicable law (collectively the "Charges"), as provided for herein or in any other document executed in connection herewith, or otherwise contracted for, charged, received, taken or reserved by any Lender, shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, 81 76 taken, received or reserved by such Lender in accordance with applicable law, all Charges payable to such Lender shall be limited to the Maximum Rate. 82 77 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. 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/ Michael Lancia ---------------------------------------- Name: Michael Lancia Title: Vice President ABN AMRO BANK N.V., by /s/ James S. Adelsheim ---------------------------------------- Name: James S. Adelsheim Title: Group Vice President by /s/ John D. Rogers ---------------------------------------- Name: John D. Rogers Title: Vice President BANKBOSTON, N.A., by /s/ Jorge A. Schwarz ---------------------------------------- Name: Jorge A. Schwarz Title: Director 83 78 THE FIRST NATIONAL BANK OF CHICAGO, by /s/ Tom Dao ---------------------------------------- Name: Tom Dao Title: Corporate Banking Officer THE NORTHERN TRUST COMPANY, by /s/ James F.T. Monhart ---------------------------------------- Name: James F.T. Monhart Title: Senior Vice President STANDARD CHARTERED BANK, by /s/ Kristina McDavid ---------------------------------------- Name: Kristina McDavid Title: Vice President by /s/ Peter G.R. Dodds ---------------------------------------- Name: Peter G.R. Dodds Title: Senior Credit Officer DRESDNER BANK AG NEW YORK AND GRAND CAYMAN ISLAND BRANCHES, 84 by /s/ Ken Hamilton ---------------------------------------- Name: Ken Hamilton Title: Senior Vice President by /s/ B. Craig Erickson ---------------------------------------- Name: B. Craig Erickson Title: Vice President ROYAL BANK OF CANADA, by /s/ Sheryl L. Greenberg ---------------------------------------- Name: Sheryl L. Greenberg Title: Senior Manager SOCIETE GENERALE, by /s/ Sedare Coradin ---------------------------------------- Name: Sedare Coradin Title: Vice President EX-10.5 5 EMPLOYMENT CONTRACT - ANGELO CASTELLANA 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 Angelo D. Castellana of Lynnfield, 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. 2 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 - 2 - 3 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 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; - 3 - 4 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) 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 - 4 - 5 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 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 - 5 - 6 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." 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 - 6 - 7 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 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 - 7 - 8 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) 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 - 8 - 9 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 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). - 9 - 10 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/ Angelo D. Castellana ------------------------------------ Angelo D. Castellana - 10 - EX-10.8 6 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 10.8 EG&G, INC., 1998 EMPLOYEE STOCK PURCHASE PLAN The purpose of this Plan is to provide eligible employees of EG&G, Inc. (the "Company") and certain of its subsidiaries with opportunities to purchase shares of the Company's common stock, $ 1.00 par value (the "Common Stock"), commencing on September 1, 1998. Two Million Five Hundred Thousand (2,500,000) shares of Common Stock in the aggregate have been approved for this purpose. 1. ADMINISTRATION. The Plan will be administered by a Committee appointed by the Board of Directors of the Company (the "Board" and the "Committee" respectively). The Committee has authority to make rules and regulations for the administration of the Plan and its interpretation and decisions with regard thereto shall be final and conclusive. 2. ELIGIBILITY. Participation in the Plan will neither be permitted nor denied contrary to the requirements of Section 423 of the United States Internal Revenue Code of 1986, as amended (the "Code"), and regulations promulgated thereunder. All employees of the Company, including Directors who are employees, and all employees of any subsidiary (foreign or domestic) of the Company (as defined in Section 424(f) of the Code) designated by the Committee from time to time (a "Designated Subsidiary"), subject to applicable collective bargaining agreements, are eligible to participate in any one or more of the offerings of Options (as defined in Section 9) to purchase Common Stock under the Plan provided that they are employees of the Company or a Designated Subsidiary on the first day of the applicable Offering Period (as defined below). No employee may be granted an option hereunder if such employee, immediately after the option is granted, owns 5% or more of the total combined voting power or value of the stock of the Company or any subsidiary. For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and all stock which the employee has a contractual right to purchase shall be treated as stock owned by the employee. 3. OFFERINGS. The Company will make one or more "Offerings" to employees to purchase stock under this Plan. Each Offering shall be of a duration of 12 months or such other period (the "Offering Period"), as determined by the Committee; the first Offering Period beginning September 1, 1998 will end on June 30, 1999. 4. PARTICIPATION. An employee eligible on the first date of any Offering (the "Offering Commencement Date") may participate in such Offering by completing and forwarding an enrollment form to the employee's appropriate Human Resource Office. The form will authorize a regular payroll deduction from the Compensation received by the employee during the Offering Period. Unless an employee files a new form or withdraws from the Plan, his deductions and purchases will continue at the same rate for future offerings under the Plan as long as the Plan remains in effect. The term "Compensation" means all regular straight time gross earnings, overtime, shift premium, and sales commissions, but excluding, incentive or bonus awards, allowances and reimbursements for expenses such as relocation allowances or travel expenses, income or gains on the exercise of Company stock options or stock appreciation rights, and similar items. The Committee will establish the method of enrolling, and the enrollment period for each Offering under the Plan. 2 5. DEDUCTIONS. The Company will maintain payroll deduction accounts for all participating employees. With respect to any Offering made under this Plan, an employee may authorize a payroll deduction in terms of whole number percentages up to a maximum of 10% of the Compensation he or she receives during the Offering Period or such shorter period during which deductions from payroll are made. Any change in Compensation during the Offering will result in an automatic corresponding change in the dollar amount withheld. No employee may be granted an Option (as defined in Section 9) which permits his rights to purchase Common Stock under this Plan and any other stock purchase plan of the Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such Common Stock (determined at the Offering Commencement Date of the Offering Period) for each calendar year in which the Option is outstanding at any time. 6. DEDUCTION CHANGES. An employee may decrease or discontinue his payroll deduction during an Offering Period, by filing a new payroll deduction authorization form. However, an employee may not increase his payroll deduction during an Offering Period. If an employee elects to discontinue his payroll deductions during an Offering Period, but does not elect to withdraw his funds pursuant to Section 8 hereof, funds deducted prior to his election to discontinue will be applied to the purchase of Common Stock on the Exercise Date (as defined below). 7. INTEREST. Interest will not be paid on any employee accounts, except to the extent that the Committee, in its sole discretion, elects to credit employee accounts with interest at such per annum rate as it may from time to time determine. 8. WITHDRAWAL OF FUNDS. An employee may at any time prior to the close of business on the last business day in an Offering Period and for any reason permanently draw out the balance accumulated in the employee's account and thereby withdraw from participation in an Offering. Partial withdrawals are not permitted. The employee may not begin participation again during the remainder of the Offering Period. The employee may participate in any subsequent Offering in accordance with terms and conditions established by the Committee. 9. PURCHASE OF SHARES. On the Offering Commencement Date of each Offering Period, the Company will grant to each eligible employee who is then a participant in the Plan an option ("Option") to purchase on the last business day of such Offering Period (the "Exercise Date"), at the Option Price hereinafter provided for, such number of whole shares of Common Stock of the Company reserved for the purposes of the Plan as does not exceed the number of shares determined by dividing $25,000 (i) or, (ii) in the case of an Offering Period which is less than twelve (12) months in length, such number determined by multiplying $2,083.33 by the number of full months in the Offering Period, by the closing price (as defined below) on the Offering Commencement Date. The purchase price for each share purchased will be 90% of the closing price of the Common Stock on (i) the first business day of such Offering Period or (ii) the Exercise Date, whichever closing price shall be less. Such closing price shall be the closing price on the New York Stock Exchange. If no sales of Common Stock were made on such a day, the closing price of the Common Stock shall be the reported closing price for the next preceding day on which sales were made. Following the first Offering Period under the Plan, the Committee may, from time to time, establish a percentage other than 90% of the closing price to be used in calculating the purchase price under this Plan provided that (i) such percentage is determined prior to the Offering Commencement Date of the Offering Period to which such percentage is to apply, and (ii) it is at least 85% of such closing price. 3 Each employee who continues to be a participant in the Plan on the Exercise Date shall be deemed to have exercised his Option at the Option Price on such date and shall be deemed to have purchased from the Company the largest number of full shares of Common Stock reserved for the purpose of the Plan that his accumulated payroll deductions on such date will pay for pursuant to the formula set forth above (but not in excess of the maximum number determined in the manner set forth above). Any balance remaining in an employee's payroll deduction account at the end of an Offering Period will be automatically refunded to the employee, except that any balance which is less than the purchase price of one share of Common stock will be carried forward into the employee's payroll deduction account for the following Offering, unless the employee elects not to participate in the following Offering under the Plan, in which case the balance in the employee's account shall be refunded. 10. ISSUANCE OF CERTIFICATES. Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or (in the Company's sole discretion) in the street name of a brokerage firm, bank or other nominee holder designated by the employee. The Company may, in its sole discretion and in compliance with applicable laws, authorize the use of book entry registration of shares in lieu of issuing stock certificates. 11. RIGHTS ON TERMINATION OF EMPLOYMENT. In the event of a participating employee's termination of employment prior to the last business day of an Offering Period, no payroll deduction shall be taken from any pay due and owing to an employee and the balance in the employee's account shall be paid to the employee or, in the event of the employee's death (a) to a beneficiary previously designated in a revocable notice signed by the employee (with any spousal consent required under state law) or ( b) in the absence of such a designated beneficiary, to the executor or administrator of the employee's estate or (c) if no such executor or administrator has been appointed to the knowledge of the Company, to such other person(s) as the Company may, in its discretion, designate. If, prior to the last business day of the Offering Period, the Designated Subsidiary by which an employee is employed shall cease to be a subsidiary of the Company, or if the employee is transferred to a subsidiary of the Company that is not a Designated Subsidiary, the employee shall be deemed to have terminated employment for the purposes of this Plan. 12. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an employee nor the deductions from his pay shall constitute such employee a stockholder of the shares of Common stock covered by an Option under this Plan until such shares have been purchased by and issued to him. 13. OPTIONS NOT TRANSFERABLE. Options under this Plan are not transferable by a participating employee other than by will or the laws of descent and distribution, and are exercisable during the employee's lifetime only by the employee. 14. APPLICATION OF FUNDS. All funds received or held by the Company under this Plan may be combined with other corporate funds and may be used for any corporate purposes. 15. ADJUSTMENT IN CASE OF CHANGES AFFECTING COMMON STOCK. In the event of a subdivision of outstanding shares of Common Stock, or the payment of a dividend in Common Stock, the number of shares approved for this Plan, and the share limitation set forth in Section 9, shall be increased proportionately, and such other adjustment shall be made as may be deemed equitable by the Committee. In the event of any other change affecting the Common Stock, such adjustment shall be made as may be deemed equitable by the Committee to give proper effect to such event. 4 16. MERGER. If the Company shall at any time merge or consolidate with another and the holders of the capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 80% by voting power of the capital stock of the surviving corporation ("Continuity of Control"), the holder of each Option then outstanding will thereafter be entitled to receive at the next Exercise Date upon the exercise of such Option for each share as to which such Option shall be exercised the securities or property which a holder of one share of the Common Stock was entitled to upon and at the time of such merger or consolidation, and the Committee shall take such steps in connection with such merger as the Committee shall deem necessary to assure that the provisions of Paragraph 15 shall thereafter be applicable, as nearly as reasonably may be, in relation to the said securities or property as to which such holder of such Option might thereafter be entitled to receive thereunder. In the event of a merger or consolidation of the Company with or into another corporation which does not result in Continuity of Control, or of a sale of all or substantially all of the assets of the Company while unexercised Options remain outstanding under the Plan, (a) subject to the provisions of clauses (b) and (c), after the effective date of such transaction, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive in lieu of shares of Common Stock, shares of such stock or other securities as the holders of shares of Common Stock received pursuant to the terms of such transaction; or (b) all outstanding Options may be cancelled by the Committee as of a date prior to the effective date of any such transaction and all payroll deductions shall be paid out to the participating employees; or (c) all outstanding Options may be cancelled by the Committee as of the effective date of any such transaction, provided that notice of such cancellation shall be given to each holder of an Option, and each holder of an Option shall have the right to exercise such Option in full based on payroll deductions then credited to his account as of a date determined by the Board or the Committee, which date shall not be less than ten (10) days preceding the effective date of such transaction. 17. AMENDMENT OF THE PLAN. The Committee or the Board may at any time, and from time to time, amend this Plan in any respect, except that (a) if the approval of any such amendment by the shareholders of the Company is required by Section 423 of the Code, such amendment shall not be effected without such approval, and (b) in no event may any amendment be made which would cause the Plan to fail to comply with Section 423 of the Code. 18. INSUFFICIENT SHARES. In the event that the total number of shares of Common Stock specified in elections to be purchased under any Offering plus the number of shares purchased under previous Offerings under this Plan exceeds the maximum number of shares issuable under this Plan, the Committee will allot the shares then available on a pro rata basis. 19. TERMINATION OF THE PLAN. This Plan may be terminated at any time by the Committee or the Board. Upon termination of this Plan, all amounts in the accounts of participating employees shall be promptly refunded. 20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and deliver Common Stock under this Plan is subject to listing on the New York Stock Exchange and the approval of all governmental authorities required in connection with the authorization, issuance or sale of such stock. The Plan shall be governed by the laws of the Commonwealth of Massachusetts except to the extent that such law is preempted by U.S. federal law. 21. ISSUANCE OF SHARES. Shares may be issued upon exercise of an Option from authorized but 5 unissued common Stock from shares held in the treasury of the Company, or from any other proper source. 22. NOTIFICATION UPON SALE OF SHARES. Each employee agrees, by entering the Plan, to promptly give the Company notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased. 23. EFFECTIVE DATE. The Plan shall take effect on September 1, 1998. EX-10.9 7 AGREEMENT AND GENERAL RELEASE 1 EXHIBIT 10.9 AGREEMENT AND GENERAL RELEASE EG&G, Inc., 45 William Street, Wellesley, Massachusetts, 02181, its affiliates, subsidiaries, divisions, successors and assigns and the employees, officers, directors and agents thereof (collectively referred to throughout this Agreement as "EG&G"), and John F. Alexander, II, 16 Liberty Drive, Southborough, MA, ("Alexander") agree that: 1. DATE OF CESSATION OF EMPLOYMENT. Alexander may at his election submit a letter to EG&G terminating his employment and his Employment Agreement dated November 1, 1993 effective December 31, 1999 or such earlier date after December 31, 1998 as may be determined by Alexander. 2. CONSIDERATION. In consideration for signing this Agreement and General Release and compliance with the promises made herein, EG&G agrees: a. to pay to Alexander one lump sum in the amount of Six Hundred Fourteen Thousand Dollars ($614,000) less lawful deductions, and appropriate withholdings provided that EG&G has received a letter from Alexander in the form attached hereto as Exhibit "A" at least twenty-one (21) days prior to the receipt of the consideration to be paid by EG&G hereunder and provided that Alexander did not revoke this Agreement pursuant to paragraph 4, said payment shall be deemed to be salary and a management incentive bonus payment attributable to work performed in the calendar year paid; b. to pay Alexander his full EVA incentive payment for 1998 less lawful deductions said payment to be made at the time such EVA payments are made to other officers; c. to allow Alexander to receive the Company car then currently assigned to him without charge, all taxes related thereto shall be paid by Alexander; d. to allow Alexander to keep the laptop computer currently being used by him; e. to pay a lump sum of $10,000 to be used for out placement services, training, job search related costs or relocation, said payment will be subject to appropriate tax withholdings; f. to continue until December 31, 1999 or until Alexander becomes eligible for other comparable coverage whichever comes first, Alexander' same medical and dental coverage as was in effect immediately prior to December 31, 1998, the cost of said coverage to 1 2 be borne by the Company; g. to pay the Company match in the EG&G Savings Plan for the 1998 Plan year; and h. all Employee Stock Options granted by EG&G to Alexander shall be deemed to have been vested as of December 31, 1998. Said options shall be exercisable until the earlier of the expiration dates specified in such options or two years following the date of resignation specified in the letter of resignation. 3. NO CONSIDERATION ABSENT EXECUTION OF THIS AGREEMENT. Alexander understands and acknowledges that he will not receive and will not be entitled to any of the items "a-h" above until ten (10) business days after the Company received from Alexander the letter in the form attached hereto as Exhibit A. Alexander also understands and acknowledges that he is responsible for the payment of all federal, state and payroll taxes associated with items "a-h" above. 4. REVOCATION. Alexander may revoke this Agreement and General Release for a period of seven (7) days following the day he executes this Agreement and General Release. Any revocation within this period must be submitted, in writing, to Murray Gross, Senior Vice President and General Counsel, and state, "I hereby revoke my acceptance of our Agreement and General Release." The revocation must be personally delivered to Mr. Gross or his designee, or mailed to Mr. Gross at EG&G, 45 William Street, Wellesley, Massachusetts 02181 and postmarked within seven (7) days of execution of this Agreement and General Release. This Agreement and General Release shall not become effective or enforceable until the revocation period has expired. If the last day of the revocation period is a Saturday, Sunday, or legal holiday in Massachusetts, then the revocation period shall not expire until the next following day which is not a Saturday, Sunday, or legal holiday. 5. GENERAL RELEASE OF CLAIMS. ALEXANDER KNOWINGLY AND VOLUNTARILY RELEASES AND FOREVER DISCHARGES EG&G, OF AND FROM ANY AND ALL CLAIMS, KNOWN AND UNKNOWN, which against EG&G, Alexander, his heirs, executors, administrators, successors, and assigns (referred to collectively throughout this Agreement as "Alexander") have or may have AS OF THE DATE OF EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE, including, but not limited to, any alleged violation of: - The National Labor Relations Act, as amended; - Title VII of the Civil Rights Act of 1964, as amended; - The Civil Rights Act of 1991 2 3 - Sections 1981 through 1988 of Title 42 of the United States Code, as amended; - The Employee Retirement Income Security Act of 1974, as amended; - The Immigration Reform Control Act, as amended; - The Americans with Disabilities Act of 1990, as amended; - The Age Discrimination in Employment Act of 1967, as amended; - The Fair Labor Standards Act, as amended; - The Occupational Safety and Health Act, as amended; - The Family and Medical Leave Act of 1993; - The Massachusetts Law Against Discrimination, G.L., c. 151B; - The Massachusetts Civil Rights Act, G.L. c. 12, sec sec 11H and 11I; - The Massachusetts Equal Rights Law, G.L. c. 93; - The Massachusetts Wage and Hour Laws, G.L. c.s 149 and 151; - The Massachusetts Privacy Statute, G.L. c. 214, sec 1B, as amended; - any other federal, state or local civil or human rights law or any other local, state or federal law, regulation or ordinance; - any public policy, contract, tort, or common law; or - any allegation for costs, fees, or other expenses including attorneys' fees incurred in these matters. 6. NO CLAIMS EXIST. Alexander confirms that no charge, complaint, or action exists in any forum or form. In the event that any such claim, charge, complaint or action is filed, Alexander shall not be entitled to recover any relief or recovery therefrom, including 3 4 costs and attorney's fees. Alexander acknowledges that he understands that if this Agreement were not signed, Alexander would have the right to voluntarily assist other individuals or entities in bringing claims against EG&G. Alexander hereby waives that right and he will not provide any such assistance other than assistance in an investigation or proceeding conducted by the United States Equal Employment Opportunity Commission. EG&G and Alexander further agree that Alexander may provide information pursuant to any valid subpoena. 7. CONFIDENTIALITY. Alexander agrees not to disclose or cause to be disclosed any information regarding the existence or substance of this Agreement and General Release, other than to an attorney with whom Alexander chooses to consult regarding his consideration of this Agreement and General Release, his immediate family, tax advisors or as required by law. Alexander agrees to instruct all of his representatives, including, without limitation, his attorney, immediate family and tax advisors, if applicable, not to disclose or cause to be disclosed any information regarding the existence or substance of this Agreement and General Release, except as required by law. 8. GOVERNING LAW AND INTERPRETATION. This Agreement and General Release shall be governed and conformed in accordance with the laws of the Commonwealth of Massachusetts without regard to its conflict of laws provision. Should any provision of this Agreement and General Release be declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, excluding the general release language, such provision shall immediately become null and void, leaving the remainder of this Agreement and General Release in full force and effect. However, if any portion of the general release language were ruled to be unenforceable for any proceeding initiated by Alexander, Alexander shall return the consideration paid hereunder to EG&G. 9. NONADMISSION OF WRONGDOING. Alexander agrees that neither this Agreement and General Release nor the furnishing of the consideration for this Release shall be deemed or construed at anytime for any purpose as an admission by EG&G of any liability or unlawful conduct of any kind. 10. AMENDMENT. This Agreement and General Release may not be modified, altered or changed except upon express written consent of both parties wherein specific reference is made to this Agreement and General Release. 11. ENTIRE AGREEMENT. This Agreement and General Release sets forth the entire agreement between the parties hereto, and fully supersedes any prior agreements between the parties, except Alexander agrees to abide by the agreement contained in paragraph 4(b) of the Employment Agreement between Alexander and EG&G made as of November 1, 1993. Alexander acknowledges that he has not relied on any representations, promises, or agreements of any kind made to him in connection with his decision to sign this Agreement and 4 5 General Release, except for those set forth in this Agreement and General Release. ALEXANDER HAS BEEN ADVISED THAT HE HAS AT LEAST TWENTY-ONE (21) DAYS TO CONSIDER THIS AGREEMENT AND GENERAL RELEASE AND HAS BEEN ADVISED IN WRITING TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTION OF THIS AGREEMENT AND GENERAL RELEASE. ALEXANDER AGREES THAT ANY MODIFICATIONS, MATERIAL OR OTHERWISE, MADE TO THIS AGREEMENT AND GENERAL RELEASE DO NOT RESTART OR AFFECT IN ANY MANNER THE ORIGINAL TWENTY-ONE DAY CONSIDERATION PERIOD. HAVING ELECTED TO EXECUTE THIS AGREEMENT AND GENERAL RELEASE, TO FULFILL THE PROMISES SET FORTH HEREIN, AND TO RECEIVE THEREBY THE SUMS AND BENEFITS SET FORTH IN PARAGRAPH "2" ABOVE, ALEXANDER FREELY AND KNOWINGLY, AND AFTER DUE CONSIDERATION, ENTERS INTO THIS AGREEMENT AND GENERAL RELEASE INTENDING TO WAIVE, SETTLE AND RELEASE ALL CLAIMS HE HAS OR MIGHT HAVE AGAINST EG&G. IN WITNESS WHEREOF, the parties hereto knowingly and voluntarily executed this Agreement and General Release as of the date set forth below: /s/John F. Alexander -------------------------- John F. Alexander Date: November 2, 1998 EG&G, Inc. By:/s/John M. Kucharski -------------------------- Date: November 2, 1998 5 6 EXHIBIT A ___________ ___, 1998 Murray Gross Senior Vice President and General Counsel EG&G, Inc. 45 William Street Wellesley, MA 02181 Re: Agreement and General Release ----------------------------- Dear Mr. Gross: On __________ ___, 1998 I executed an Agreement and General Release between EG&G and me. I was advised by EG&G, in writing, to consult with an attorney of my choosing, prior to executing this Agreement and General Release. More than seven (7) days have elapsed since I executed the above-mentioned Agreement and General Release. I have at no time revoked my acceptance or execution of that Agreement and General Release and hereby reaffirm my acceptance of that Agreement and General Release. Therefore, in accordance with the terms of our Agreement and General Release, I hereby request that EG&G begin payment of the monies described in paragraph 2 of that Agreement. Very truly yours, John F. Alexander, II 7 _________ ___, 1998 Mr. John F. Alexander 16 Liberty Drive Southborough, MA 01772 Re: Agreement and General Release ----------------------------- Dear Jack: This letter confirms that on _________ ___, 1998, I personally delivered to you the enclosed Agreement and General Release. You have until ____________ ___, 1998 [21 days after receipt by employee. Add extra days if the 21st day ends on a non-business day] to consider this Agreement and General Release. To this end, we advise you to consult with an attorney of your choosing prior to executing this Agreement and General Release. Very truly yours, EG&G, Inc. Murray Gross Senior Vice President & General Counsel EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Subsidiaries of the Registrant As of March 1, 1999, 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 Astrophysics California 1 3. EG&G ATP GmbH Germany 15 (80%) 4. EG&G ATP GmbH & Co. Automotive Germany 15 (80%) Testing Papenburg KG 5. EG&G Automotive Research, Inc. Texas 16 6. EG&G Benelux B.V. Netherlands 40 (100%) 7. EG&G Canada Investments, Inc. Canada 84 8. EG&G Canada Limited Canada 1 9. EG&G Defense Materials, Inc. Utah 1 10. EG&G do Brasil Ltda. Brazil 16 (95%) 84 (5%) 11. EG&G Emissions Testing Services, Inc. Virginia 1 12. EG&G Energy Measurements, Inc. Nevada 1 13. EG&G Exporters Ltd. U.S. Virgin Islands 16 14. EG&G Florida, Inc. Florida 1 15. EG&G GmbH Germany 16 16. EG&G Holdings, Inc. Massachusetts 1 (94%) 21 (6%) 17. EG&G Hong Kong Ltd. Delaware 1 18. EG&G IC Sensors, Inc. California 1 19. EG&G Idaho, Inc. Idaho 16 20. EG&G Information Technologies, Inc. California 1 21. EG&G Instruments, Inc. Delaware 16 22. EG&G Instruments International Ltd. Cayman Islands 84 23. EG&G Instruments International Ltd. & Co. KG Germany 84 24. EG&G Instruments GmbH Germany 1 25. EG&G Japan, Inc. Delaware 16 26. EG&G Langley, Inc. Virginia 14 27. EG&G Ltd. United Kingdom 16 (61%) 2 (39%) 28. EG&G Management Services of San Texas 16 Antonio, Inc. 29. EG&G Management Systems, Inc. New Mexico 1 30. EG&G Mound Applied Technologies, Inc. Ohio 1 31. EG&G Omni, Inc. Philippines 16 32. EG&G Rocky Flats, Inc. Colorado 1 33. EG&G Singapore Pte Ltd. Singapore 84 34. EG&G Special Projects, Inc. Nevada 1 35. EG&G S.A.S. France 6 36. EG&G SpA Italy 16 37. EG&G Technical Services of West Virginia, Inc. West Virginia 1 38. EG&G Vactec Philippines, Ltd. Cayman Islands 16 39. EG&G Ventures, Inc. Massachusetts 1 40. EG&G WALLAC, Inc. Maryland 1 41. EG&G Watertown, Inc. Massachusetts 16 42. Antarctic Support Associates (Partnership) Colorado 1 (40%) 43. Astrocam Ltd. United Kingdom 61 44. Astroscan Ltd. United Kingdom 61 45. Benelux Analytical Instruments S.A. Belgium 1 (92.3%) 46. Berthold A.G. Switzerland 16 47. Berthold France S.A. France 35
2
- ---------------------------------------------------------------------------------------------------------------- State or Country Number of Incorporation of Name of Company or Organization Parent - ---------------------------------------------------------------------------------------------------------------- 48. Berthold GmbH & Co. KG Germany 15 (58.0%) 24 (2.3%) 5 (39.7%) 49. Biozone Oy Finland 81 50. B.A.I. GmbH Austria 16 51. Eagle EG&G Aerospace Co. Ltd. Japan 1 (49%) 52. Eagle EG&G, Inc. Delaware 1 (49%) 53. EC III, Inc. New Mexico 1 (50%) 54. Energy & Environmental Solutions, LLC Delaware 1 (50%) 55. Heimann Optoelectronics GmbH Germany 48 56. Heimann Shenzhen Optoelectronics Co. Ltd. China 55 57. Idealquarz S.r.l. Italy 75 (65%) 58. ILC Light Source Foreign Sales Corporation U.S. Virgin Islands 59 59. ILC Technology, Inc. Delaware 62 60. Isolab, Inc. Ohio 40 61. Life Science Resources Limited United Kingdom 16 62. Lumen Technologies, Inc. Delaware 1 63. NOK EG&G Optoelectronics Corporation Japan 1 (49%) 64. Optical Radiation Foreign Sales Corporation U.S. Virgin Islands 65 65. ORC Technologies, Inc. Delaware 62 66. Pribori Oy Finland 81 67. PT EG&G Heimann Optoelectronics Indonesia 16 68. Q-Arc Ltd. United Kingdom 59 69. Reynolds Electrical & Engineering Co., Inc. Texas 1 70. Seiko EG&G Co. Ltd. Japan 1 (49%) 71. Shanghai EG&G Reticon Optoelectronics China 16 (50%) Co. Ltd. 72. Societe Civile Immobiliere France 1 (82.5%) 48 (17.5%) 73. The Launch Support Company, L.C. Florida 14 74. Voltarc Technologies, Inc. Delaware 65 (50%) 75. Voltarc Technologies S.r.l. Italy 74 76. WALLAC ADL AG Switzerland 77 (80%) 77. WALLAC ADL GmbH Germany 79 (52%) 78. WALLAC A/S Denmark 81 79. WALLAC Holding GmbH Germany 15 80. WALLAC Norge AS Norway 81 81. WALLAC Oy Finland 16 82. WALLAC Sverige AB Sweden 81 83. Wellesley B.V. Netherlands 85 84. Wellesley International, C.V. Netherlands 16 (99%) 1 (1%) 85. Wickford N.V. Netherlands Antilles 84 86. Wolfram Electric, Inc. Nevada 62 87. ZAO Pribori Russia 66
EX-27 9 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS JAN-03-1999 DEC-29-1997 JAN-03-1999 95,565 0 229,955 5,841 128,262 565,382 510,107 288,281 1,184,920 524,098 129,835 0 0 60,102 339,565 1,184,920 784,520 1,407,896 496,861 1,041,739 336,503 0 11,391 156,034 54,032 102,002 0 0 0 102,002 2.25 2.22
-----END PRIVACY-ENHANCED MESSAGE-----