BNS Holding, Inc. – ‘PRES14A’ for 8/31/94

As of:  Thursday, 6/30/94   ·   For:  8/31/94   ·   Accession #:  950109-94-1124   ·   File #:  1-05881

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Preliminary Proxy Solicitation Material — Special Meeting   —   Schedule 14A
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Document/Exhibit                   Description                      Pages   Size 

 1: PRES14A     Form 14A                                             207   1.11M 

Document Table of Contents

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO.  ) 

Filed by the Registrant [X ]                                                    
Filed by a Party other than the Registrant [ ]                                  

Check the appropriate box:                                                      

[X] Preliminary Proxy Statement                                                 
[ ] Definitive Proxy Statement                                                  
[ ] Definitive Additional Materials                                             
[ ] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12           

Brown & Sharpe Manufacturing Company    
----------------------------------------------------    
(Name of Registrant as Specified In Its Charter)    

----------------------------------------------    
(Name of Person(s) Filing Proxy Statement)    

Payment of Filing Fee (check the appropriate box):                              

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).    
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-   
6(i)(3).                                                                
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.    

1) Title of each class of securities to which transaction applies:      

2) Aggregate number of securities to which transaction applies:         

3) Per unit price or other underlying value of transaction computed     
pursuant to Exchange Act Rule 0-11:*                              

4) Proposed maximum aggregate value of transaction:                     

 * Set forth the amount on which the filing is calculated and state how it
was determined.                                                     

[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 
0-11(a)(2) and identify the filing for which the offsetting fee was paid
  previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.                     

1) Amount previously paid:                                              

2) Form, Schedule or Registration Statement No.:                        

3) Filing Party:                                                        

4) Date Filed:                                                          

Notes:                                                                          

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BROWN & SHARPE MANUFACTURING COMPANY

PRECISION PARK
200 FRENCHTOWN ROAD 
NORTH KINGSTOWN, RHODE ISLAND 02852 

                                                                    July  , 1994

Dear Stockholders,                                                              

You are cordially invited to attend a Special Meeting of the Stockholders of
Brown & Sharpe Manufacturing Company, to be held on August  , 1994, at 10:00    
a.m. at the executive offices of Brown & Sharpe, Precision Park, 200 Frenchtown 
Road, North Kingstown, Rhode Island.                                            

At the Special Meeting, you will be asked to consider and vote on a proposal
to approve the issuance of shares of Class A Common Stock, $1.00 par value, of  
Brown & Sharpe pursuant to the terms of (i) an acquisition agreement between    
Brown & Sharpe and Finmeccanica S.p.A., an Italian corporation, dated as of     
June 10, 1994, and (ii) a shareholders agreement to be entered into between     
Brown & Sharpe and Finmeccanica at the closing under the acquisition agreement. 
The acquisition agreement provides that Brown & Sharpe will acquire from        
Finmeccanica all of the issued and outstanding capital stock of DEA S.p.A., an  
Italian corporation conducting Finmeccanica's metrology business, in exchange   
for the issuance to Finmeccanica of 3,450,000 shares of Class A Common Stock    
plus such additional number of shares of Class A Common Stock, if any, as may   
be required pursuant to a post-closing purchase price adjustment provided for   
in the acquisition agreement. The shareholders agreement will provide           
Finmeccanica with certain preemptive rights with respect to subsequent          
issuances of equity securities by Brown & Sharpe, and provides for limitations  
on Finmeccanica's percentage ownership of shares of Brown & Sharpe stock. In    
connection with the acquisition, Brown & Sharpe has filed a registration        
statement with the Securities and Exchange Commission for its proposed offering 
of $75 million principal amount of eight-year senior notes. The terms of the    
acquisition agreement, the shareholders agreement and the proposed senior note  
offering are described in detail in the attached Proxy Statement.               

The Board of Directors of Brown & Sharpe has unanimously concluded that the 
acquisition transaction is in the best interests of Brown & Sharpe stockholders 
and recommends that you vote to approve the issuance of shares of Class A       
Common Stock described above. In making this recommendation, the Board of       
Directors relied on a number of factors, including an opinion of Wertheim       
Schroder & Co. Incorporated to the effect that the consideration to be paid by  
Brown & Sharpe in the acquisition is fair to the common stockholders of Brown & 
Sharpe from a financial point of view.                                          

To ensure that your shares are represented at this meeting, please complete,
sign, date and return the enclosed proxy in the enclosed postage paid envelope, 
whether or not you plan to attend the meeting. If you attend the meeting and    
express a desire to vote in person, your proxy will not be used.                

                    Sincerely yours,

                        Henry D. Sharpe, Jr.
                         Chairman of the Board

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE          
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED     
ENVELOPE.                                                                       

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BROWN & SHARPE MANUFACTURING COMPANY

PRECISION PARK
200 FRENCHTOWN ROAD 
NORTH KINGSTOWN, RHODE ISLAND 02852 

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

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS 

TO BE HELD AUGUST  , 1994 

A Special Meeting of Stockholders of Brown & Sharpe Manufacturing Company   
("Brown & Sharpe") will be held at the executive offices of Brown & Sharpe at   
Precision Park, 200 Frenchtown Road, North Kingstown, Rhode Island, on August   
, 1994 at 10 a.m., for the following purpose:                                 

To consider and vote on a proposal to approve the issuance of shares of 
Class A Common Stock, $1.00 par value, of Brown & Sharpe (the "Class A      
Common Stock") pursuant to the terms of (i) an acquisition agreement        
between Brown & Sharpe and Finmeccanica S.p.A., an Italian corporation      
("Finmeccanica"), dated as of June 10, 1994 (the "DEA Acquisition           
Agreement"), and (ii) a shareholders agreement to be entered into between   
Brown & Sharpe and Finmeccanica (the "Shareholders Agreement") at the       
closing under the DEA Acquisition Agreement.                                

Pursuant to Delaware law and the by-laws of the Company, no other business may  
come before the Special Meeting.                                                

The DEA Acquisition Agreement provides that Brown & Sharpe will acquire from
Finmeccanica all of the issued and outstanding capital stock of DEA S.p.A., an  
Italian corporation conducting Finmeccanica's metrology business (the "DEA      
Acquisition"), in exchange for the issuance to Finmeccanica of 3,450,000 shares 
of Class A Common Stock plus such additional number of shares of Class A Common 
Stock, if any, as may be required pursuant to a post-closing purchase price     
adjustment provided for in the DEA Acquisition Agreement. The Shareholders      
Agreement provides Finmeccanica with certain preemptive rights with respect to  
subsequent issuances of equity securities by Brown & Sharpe, and provides for   
limitations on Finmeccanica's percentage ownership of shares of Brown & Sharpe  
stock. In connection with the DEA Acquisition, Brown & Sharpe has filed a       
registration statement with the Securities and Exchange Commission for the      
proposed offering of $75 million principal amount of eight-year senior notes.   
The terms of the DEA Acquisition Agreement, the Shareholders Agreement and the  
proposed senior note offering are described in detail in the Proxy Statement.   

 The Board of Directors has fixed the close of business on July  , 1994 as the
record date for the Special Meeting to determine the stockholders entitled to   
notice of and to vote at the meeting and any adjournments thereof.              

                                      By Order of the Board of Directors

                       James W. Hayes, III
             Secretary

North Kingstown, Rhode Island                                                   
July  , 1994                                                                    

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE SPECIAL MEETING, PLEASE          
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED     
ENVELOPE.                                                                       

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BROWN & SHARPE MANUFACTURING COMPANY

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

PROXY STATEMENT 

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

SPECIAL MEETING OF STOCKHOLDERS 
OF BROWN & SHARPE MANUFACTURING COMPANY 

TO BE HELD AUGUST  , 1994 

This Proxy Statement is furnished in connection with the solicitation of    
proxies on behalf of the Board of Directors of Brown & Sharpe Manufacturing     
Company ("Brown & Sharpe") for use at the Special Meeting of Stockholders of    
Brown & Sharpe to be held on August  , 1994, and at any and all adjournments or 
postponements thereof (collectively, the "Special Meeting"). This Proxy         
Statement is being sent to stockholders of Brown & Sharpe on or about July  ,   
1994.                                                                           

 At the meeting, stockholders of record on July  , 1994 will consider and vote
on a proposal to approve the issuance of shares of Class A Common Stock, $1.00  
par value, of Brown & Sharpe (the "Class A Common Stock") pursuant to the terms 
of (i) an acquisition agreement between Brown & Sharpe and Finmeccanica S.p.A., 
an Italian corporation ("Finmeccanica"), dated as of June 10, 1994 (the "DEA    
Acquisition Agreement"), and (ii) a shareholders agreement to be entered into   
between Brown & Sharpe and Finmeccanica (the "Shareholders Agreement") at the   
closing under the DEA Acquisition Agreement. The DEA Acquisition Agreement      
provides that Brown & Sharpe will acquire from Finmeccanica all of the issued   
and outstanding capital stock of DEA S.p.A., an Italian corporation conducting  
Finmeccanica's metrology business (the "DEA Acquisition"), in exchange for the  
issuance to Finmeccanica of 3,450,000 shares of Class A Common Stock plus such  
additional number of shares of Class A Common Stock, if any, as may be required 
pursuant to a post-closing purchase price adjustment provided for in the DEA    
Acquisition Agreement. The Shareholders Agreement provides Finmeccanica with    
certain preemptive rights with respect to subsequent issuances of equity        
securities of Brown & Sharpe, and provides for limitations on Finmeccanica's    
percentage ownership of shares of Brown & Sharpe stock. See "The DEA            
Acquisition." In connection with the DEA Acquisition, Brown & Sharpe has filed  
a registration statement with the Securities and Exchange Commission for the    
proposed offering of $75 million principal amount of eight-year senior notes    
(the "Note Offering"). See "Description of Senior Notes."                       

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

JULY  , 1994

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BROWN & SHARPE MANUFACTURING COMPANY

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

TABLE OF CONTENTS 

                                                                [Download Table]
                                                                                
SUMMARY.....................................................................   1
  General...................................................................   1
  Brown & Sharpe Manufacturing Company......................................   1
  DEA.......................................................................   2
  The Special Meeting.......................................................   2
  The DEA Acquisition.......................................................   3
  Note Offering and Revolving Credit Facility...............................   4
  Recommendation of Brown & Sharpe's Board of Directors.....................   4
  Fairness Opinion..........................................................   4
  Risk Factors..............................................................   4
  Summary Pro Forma Combined Financial Data.................................   5
  Brown & Sharpe Summary Consolidated Financial Data........................   5
  DEA Summary Combined Financial Data.......................................   5

RISK FACTORS................................................................   6
  Risks Related to 1994 Strategic Acquisitions..............................   6
  Lack of Liquidity.........................................................   6
  Substantial Indebtedness..................................................   7
  Risks Relating to the Note Offering.......................................   7
  Historical Losses.........................................................   7
  Foreign Operations........................................................   8
  Cyclical Nature of the Metrology Industry.................................   8
  Competition...............................................................   8
  Control of the Combined Company...........................................   8

PRO FORMA COMBINED FINANCIAL STATEMENTS.....................................   9

THE SPECIAL MEETING.........................................................  16
  Record Date; Quorum; Vote Required........................................  16
  Proxy Card................................................................  16
  Expenses..................................................................  17

THE DEA ACQUISITION.........................................................  18
  Background and Reasons for the DEA Acquisition............................  18
  Recommendation of the Board of Directors..................................  19
  Fairness Opinion..........................................................  20
  Terms of the DEA Acquisition Agreement....................................  21
  Terms of the Shareholders Agreement.......................................  23
  No Appraisal Rights.......................................................  24
  Accounting Treatment......................................................  24
  Federal Tax Consequences..................................................  24

STOCK INFORMATION...........................................................  25

BROWN & SHARPE MANUFACTURING COMPANY........................................  27
  General...................................................................  27
  Dimensional Metrology Industry............................................  27
  Metrology Business Strategy...............................................  28
  MS Division...............................................................  29
  PMI Division..............................................................  30
  CM Division...............................................................  31

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                                                                [Download Table]
                                                                               
  Foreign Operations.......................................................  31
  Engineering and Product Development......................................  31
  Raw Materials and Sources of Supply......................................  32
  Patents, Licenses, Trademarks and Proprietary Information................  32
  Properties...............................................................  33
  Employees................................................................  33
  Competition..............................................................  34
  Litigation...............................................................  35

BROWN & SHARPE SELECTED CONSOLIDATED FINANCIAL DATA........................  37

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     
 OPERATIONS OF BROWN & SHARPE..............................................  38
  Results of Operations....................................................  38
  Liquidity and Capital Resources..........................................  42
  Effects of Roch Acquisition and DEA Acquisition..........................  44

DEA S.p.A..................................................................  48
  General..................................................................  48
  Engineering and Product Development......................................  48
  Properties...............................................................  49
  Employees................................................................  49
  Competition..............................................................  50

DEA SELECTED COMBINED FINANCIAL DATA.......................................  51

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF     
 OPERATIONS OF DEA.........................................................  52
  Results of Operations....................................................  52
  Liquidity and Capital Resources..........................................  54

PRINCIPAL STOCKHOLDERS.....................................................  55

DESCRIPTION OF SENIOR NOTES................................................  57
  General..................................................................  57
  Optional Redemption......................................................  58
  Change of Control........................................................  58
  Certain Covenants........................................................  59
  Defaults and Remedies....................................................  65
  Transfer and Exchange....................................................  66
  Amendment, Supplement and Waiver.........................................  66
  Legal Defeasance and Covenant Defeasance.................................  66
  The Trustee..............................................................  67
  Certain Definitions......................................................  68

DESCRIPTION OF REVOLVING CREDIT FACILITY...................................  75

AVAILABLE INFORMATION......................................................  75

SHAREHOLDER PROPOSALS......................................................  75

EXHIBIT A--Consolidated Financial Statements of Brown & Sharpe Manufactur-     
 ing Company............................................................... A-1

EXHIBIT B--Combined Financial Statements of DEA S.p.A. .................... B-1

EXHIBIT C--Financial Statements of Ets. Pierre Roch S.A. .................. C-1

EXHIBIT D--Financial Statements of Mauser Prazisions-Messmittel GmbH....... D-1

EXHIBIT E--Fairness Opinion................................................ E-1

EXHIBIT F--DEA Acquisition Agreement....................................... F-1

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SUMMARY 

The following summary is qualified in its entirety by reference to, and     
should be read in conjunction with, the detailed information and financial      
statements contained or incorporated by reference herein and in the exhibits    
hereto. As used in this Proxy Statement, the term "Brown & Sharpe" refers to    
Brown & Sharpe Manufacturing Company and (unless the context otherwise          
requires) its consolidated subsidiaries before giving effect to its acquisition 
(the "DEA Acquisition") of DEA S.p.A., the term "DEA" refers to DEA S.p.A. and  
(unless the context otherwise requires) its consolidated subsidiaries before    
giving effect to the DEA Acquisition, and the term the "Combined Company"       
refers to Brown & Sharpe Manufacturing Company and (unless the context          
otherwise requires) its consolidated subsidiaries (including DEA) after giving  
effect to the DEA Acquisition. Unless otherwise noted, in this Proxy Statement  
Italian Lire, French Franc and German Mark amounts have been translated into    
U.S. dollars at the March 31, 1994 exchange rates of L1,611, FF5.81 and DM1.67  
to $1.00, respectively.                                                         

GENERAL                                                                         

This Proxy Statement relates to the issuance by Brown & Sharpe to           
Finmeccanica of 3,450,000 shares of Class A Common Stock (subject to a post-    
closing purchase price adjustment) in exchange for all the issued and           
outstanding capital stock of DEA, and the possible future issuance of Class A   
Common Stock to Finmeccanica pursuant to its preemptive rights under the        
Shareholders Agreement. DEA, which had 1993 sales of approximately $110         
million, produces and sells coordinate measuring machines ("CMMs") under the    
DEA (R) brand name. DEA's primary product lines are large gantry CMMs used      
principally in the automotive and aerospace industries, and sheet metal gauging 
systems used principally in automotive body production lines. A large number of 
DEA's CMM products are complementary to those of Brown & Sharpe, which focus on 
medium and small CMMs. Management believes that after the DEA Acquisition, the  
Combined Company will be able to offer a broader line of CMM products than any  
of its competitors. In addition, the combination of DEA's business with Brown & 
Sharpe's Measuring Systems Division business is expected to result in           
substantial cost savings through the elimination of duplicative administrative, 
sales and manufacturing personnel and facilities, duplicative marketing         
expenses such as advertising and trade shows, and some duplicative design       
engineering activities and personnel. See "Management's Discussion and Analysis 
of Financial Condition and Results of Operations of Brown & Sharpe--Effects of  
Roch Acquisition and DEA Acquisition."                                          

The DEA Acquisition will be effected pursuant to the DEA Acquisition        
Agreement and the related agreements entered into at the closing of the DEA     
Acquisition, including the Shareholders Agreement. The Shareholders Agreement   
provides Finmeccanica with certain preemptive rights with respect to subsequent 
issuances of equity securities by the Combined Company, and provides for        
limitations on Finmeccanica's percentage ownership of shares of the Combined    
Company's stock. In connection with the DEA Acquisition, Brown & Sharpe has     
filed a registration statement with the Securities and Exchange Commission for  
the Note Offering. See "The DEA Acquisition."                                   

BROWN & SHARPE MANUFACTURING COMPANY                                            

Brown & Sharpe is a leader in the design, manufacture and marketing of      
dimensional metrology products worldwide under several internationally          
recognized brand names. Brown & Sharpe's products measure the physical          
dimensions of objects and are used by a wide variety of industrial companies to 
improve product quality by monitoring product conformance to specifications.    
Brown & Sharpe's operations are conducted through three units. The Measuring    
Systems Division (the "MS Division"), Brown & Sharpe's largest unit,            

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manufactures and markets a wide range of manual and computer-controlled, high-  
precision coordinate measuring machines and measuring robots ("CMMs"). The      
Precision Measuring Instruments Division (the "PMI Division") manufactures and  
markets a wide range of mechanical and electronic measuring and inspection      
tools including micrometers, dial indicators, calipers, gauge blocks and height 
gauges. The Custom Metrology Division (the "CM Division") designs and engineers 
specialty products and systems to provide customized solutions for unique       
measurement or inspection problems. The CM Division also manufactures and       
markets probes, factory networks and inspection stations.                       

 Brown & Sharpe, founded in 1833, has been a leading manufacturer of precision
manufacturing tools and instruments for many years. For most of its history,    
Brown & Sharpe was principally known for the manufacture of metal cutting       
machine tools. From 1985 to 1993, Brown & Sharpe undertook a series of          
acquisitions, divestitures and other actions which transformed what had been    
principally a machine tool company into a leader in the field of dimensional    
metrology. In June of 1990, Brown & Sharpe acquired the Industrial Metrology    
Technology Division and certain related marketing and sales assets of Wild      
Leitz GmbH (such division and related assets, "Leitz"), a manufacturer of high  
accuracy CMMs headquartered in Germany. In March 1994, Brown & Sharpe acquired  
(the "Roch Acquisition") Ets. Pierre Roch S.A., based in France ("Roch"), and   
Roch's German affiliate, Mauser Prazisions-Messmittel GmbH ("Mauser"). Roch     
manufactures and, together with Mauser, markets mechanical and electronic       
measuring and inspection tools. In addition to its metrology operations, Brown  
& Sharpe also conducts a small education quality training products business.    
Brown & Sharpe's principal executive offices are located at Precision Park, 200 
Frenchtown Road, North Kingstown, Rhode Island 02852 and its telephone number   
is (401) 886-2000.                                                              

DEA                                                                             

DEA is a wholly owned subsidiary of Finmeccanica, and is a major competitor 
of Brown & Sharpe in the production and sale of CMMs in the dimensional         
metrology market. DEA is a worldwide leader in the manufacturing and marketing  
of CMMs and related accessories, software and services, with 1993 net sales and 
operating profit of approximately $110.7 million and $5.4 million,              
respectively. DEA derives over half of its revenues from medium-to-large        
vertical and horizontal-arm CMMs used principally in the automotive and         
aerospace industries and also derives a significant portion of its revenues     
through the sale of upgrades, enhancements, replacement parts and services.     
Products sold under the DEA (R) name are manufactured in Turin, Italy, and      
distributed in Europe, the United States, South America, the Middle East, India 
and China. DEA's principal executive offices are located at Corso Torino, 70-   
10024 Moncalieri (TO), Italy.                                                   

THE SPECIAL MEETING                                                             

Time; Place; Purpose. The Special Meeting of stockholders of Brown & Sharpe 
is scheduled to be held on August  , 1994, at 10:00 a.m. at the executive       
offices of Brown & Sharpe, Precision Park, 200 Frenchtown Road, North           
Kingstown, Rhode Island. At the Special Meeting, stockholders will be asked to  
consider and vote on a proposal to approve the issuance to Finmeccanica of      
shares of Class A Common Stock pursuant to the terms of (i) the DEA Acquisition 
Agreement, and (ii) the Shareholders Agreement. The DEA Acquisition Agreement   
provides that Brown & Sharpe will acquire all of the issued and outstanding     
capital stock of DEA from Finmeccanica in exchange for the issuance to          
Finmeccanica of 3,450,000 shares of Class A Common Stock plus such additional   
number of shares of Class A Common Stock, if any, as may be required pursuant   
to a post-closing purchase price adjustment provided for in the DEA Acquisition 
Agreement. The Shareholders Agreement provides Finmeccanica with certain        
preemptive rights with respect to subsequent issuances of equity securities by  
the Combined Company, and provides for limitations on Finmeccanica's percentage 
ownership of shares of the Combined Company's stock.                            

Record Date; Vote Required. The close of business on July  , 1994 is the    
record date for determining the holders of record of the Class A Common Stock   
and Brown & Sharpe's Class B Common Stock, $1.00 par value (the "Class B Common 
Stock"), entitled to notice of and to vote at the Special Meeting and any       

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adjournments thereof. On the record date, there were   shares of Class A Common 
Stock and   shares of Class B Common Stock outstanding. Each share of Class A   
Common Stock is entitled to one vote and each share of Class B Common Stock is  
entitled to ten votes. The affirmative vote of the holders of shares of Class A 
Common Stock and Class B Common Stock representing a majority of the votes cast 
on the proposal, provided that the total vote cast on the proposal represents   
over 50% in interest of all shares of Class A Common Stock and Class B Common   
Stock entitled to vote on the proposal, is necessary to approve the issuance of 
the shares of Class A Common Stock pursuant to terms of the DEA Acquisition     
Agreement and the Shareholders Agreement. Brown & Sharpe's Board of Directors   
is soliciting proxies because stockholder approval of the issuance of shares of 
Class A Common Stock pursuant to the DEA Acquisition Agreement and the          
Shareholders Agreement is required by the rules of the New York Stock Exchange  
(the "NYSE"). Neither Brown & Sharpe's certificate of incorporation nor its by- 
laws require stockholder approval of the issuance of shares of Class A Common   
Stock pursuant to the DEA Acquisition Agreement and the Shareholders Agreement. 
As of the record date for the Special Meeting, the officers and directors of    
Brown & Sharpe (as a group) were entitled to vote 678,219 shares of Class A     
Common Stock and 165,657 shares of Class B Common Stock, constituting           
approximately 17.2% of the votes entitled to be cast on the proposal to issue   
the shares of Class A Common Stock pursuant to the terms of the DEA Acquisition 
Agreement and the Shareholders Agreement. See "Principal Stockholders." All of  
such persons have indicated that they intend to vote their shares in favor of   
the proposal to issue the shares of Class A Common Stock pursuant to the terms  
of the DEA Acquisition Agreement and the Shareholders Agreement. Henry D.       
Sharpe, Jr., Chairman of the Board of Brown & Sharpe, and Charles A. Junkunc,   
Vice President and Chief Financial Officer of Brown & Sharpe are trustees of    
the Brown & Sharpe Employee Stock Ownership and Profit Participation Plan (the  
"ESOP") and have shared voting power with ESOP participants with respect to     
247,734 shares of Class A Common Stock and 166,063 shares of Class B Common     
Stock. In addition, Mr. Junkunc is a trustee of Brown & Sharpe's United Kingdom 
Pension Plan (the "UK Plan") and has shared voting power with plan participants 
with respect to 55,000 shares of Class A Common Stock and 28,333 shares of      
Class B Common Stock. Shares held by the ESOP or the UK Plan for which the      
trustees receive no voting instructions from the beneficial owner must be voted 
in proportion to the total shares for which instructions were received.         

THE DEA ACQUISITION                                                             

Terms. Brown & Sharpe has agreed to purchase all of the issued and          
outstanding capital stock of DEA from Finmeccanica for a purchase price of      
3,450,000 shares of Class A Common Stock (subject to post-closing adjustment),  
and the assumption of approximately $13.8 million of DEA's existing             
indebtedness. See "The DEA Acquisition--Terms of the DEA Acquisition            
Agreement." After the DEA Acquisition, Finmeccanica will hold approximately     
39.9% of the outstanding common stock of the Combined Company and 25.5% of the  
combined voting power of the Combined Company's outstanding common stock. See   
"Risk Factors--Control of the Combined Company."                                

 Conditions; Waiver and Modification; Termination. In addition to the approval
by Brown & Sharpe's stockholders of the issuance of shares of Class A Common    
Stock, there are other conditions to the obligations of the parties to          
consummate the DEA Acquisition, including a condition that Brown & Sharpe       
complete the Note Offering on terms deemed acceptable to Brown & Sharpe or      
enter into a refinancing of the Combined Company's indebtedness. Any of these   
conditions may be waived or modified by the party entitled to the benefit of    
the condition. In addition, the DEA Acquisition Agreement may be terminated at  
any time with the consent of both Brown & Sharpe and Finmeccanica.              

Effective Date. It is contemplated that the DEA Acquisition will take place 
as soon as practicable after the approval by the stockholders of Brown & Sharpe 
of the issuance of the shares of Class A Common Stock pursuant to the terms of  
the DEA Acquisition Agreement and the Shareholders Agreement and the            
satisfaction of the various conditions. It is presently contemplated that the   
effective date of the DEA Acquisition will be on or about August  , 1994.       

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Shareholders Agreement. In connection with the DEA Acquisition, Finmeccanica
will enter into a Shareholders Agreement which will provide Finmeccanica with   
certain preemptive rights with respect to subsequent issuances of equity        
securities by the Combined Company, and which will provide for limitations on   
Finmeccanica's percentage ownership of shares of the Combined Company's stock.  

NOTE OFFERING AND REVOLVING CREDIT FACILITY                                     

 The completion of the DEA Acquisition is a condition to the closing of a Note
Offering by Brown & Sharpe of $75,000,000 aggregate principal amount of Senior  
Notes due 2002 (the "Senior Notes"). The proceeds from the sale of Senior Notes 
will be used by the Combined Company principally to repay certain short- and    
long-term indebtedness of Brown & Sharpe and certain short- and long-term       
indebtedness retained by DEA following the DEA Acquisition.                     

Brown & Sharpe expects to enter into a revolving credit facility (the       
"Revolving Credit Facility") that will provide the Combined Company with a      
three-year revolving credit facility of cash borrowings and issuances or        
guarantees of letters of credit in an aggregate amount of up to $25 million,    
subject to a borrowing base based on domestic inventory and accounts            
receivable. Brown & Sharpe expects that the Combined Company's obligations      
under the Revolving Credit Facility will be secured by substantially all the    
Combined Company's domestic inventory and accounts receivable. The Revolving    
Credit Facility is a condition to the Note Offering.                            

RECOMMENDATION OF BROWN & SHARPE'S BOARD OF DIRECTORS                           

As part of its strategy to improve its competitiveness and profitability,   
Brown & Sharpe is seeking to expand and strengthen its market presence in the   
worldwide dimensional metrology market. DEA is a major competitor of Brown &    
Sharpe's CMM business in a number of countries and is a worldwide leader in the 
manufacturing and marketing of CMMs and related accessories, software and       
services. Brown & Sharpe believes that it will realize significant product and  
distribution synergies and cost savings by combining the DEA business with its  
existing CMM business. In addition to these operational benefits, Brown &       
Sharpe will improve its capital position by issuing the shares of Class A       
Common Stock in the DEA Acquisition.                                            

The Board of Directors has unanimously approved the DEA Acquisition and the 
DEA Acquisition Agreement as being fair to and in the best interests of the     
stockholders of Brown & Sharpe and recommends that the stockholders vote for    
the issuance of the shares of Class A Common Stock pursuant to the DEA          
Acquisition Agreement and the Shareholders Agreement. In evaluating the DEA     
Acquisition, the Board of Directors considered numerous factors, including the  
opinion of Wertheim Schroder described below. See "The DEA Acquisition--        
Recommendation of the Board of Directors."                                      

FAIRNESS OPINION                                                                

 Wertheim Schroder has delivered its written opinion to the Board of Directors
to the effect that from a financial point of the view the consideration to be   
paid by Brown & Sharpe in the DEA Acquisition is fair to the common             
stockholders of Brown & Sharpe. A copy of this opinion (as confirmed), which    
sets forth the assumptions made, matters considered and limits of this review,  
is attached to this Proxy Statement as Exhibit E, and should be read in its     
entirety.                                                                       

RISK FACTORS                                                                    

Brown & Sharpe faces a number of risks with regard to its business and      
financial condition whether or not the DEA Acquisition is completed.            
Stockholders should carefully consider the factors set forth under "Risk        
Factors" as well as the other information set forth in this Proxy Statement.    

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SUMMARY PRO FORMA COMBINED FINANCIAL DATA 

                                                                [Download Table]

                                                YEAR ENDED       QUARTER ENDED  
                                           DECEMBER 25, 1993(1) APRIL 2, 1994(1)
                                           -------------------- ----------------
                                             (DOLLARS IN THOUSANDS, EXCEPT PER  
                                                        SHARE DATA)             
                                                                                
INCOME STATEMENT DATA:                                                          
Net sales................................        $277,988           $ 60,844    
Gross profit.............................          92,672             20,201    
Operating profit.........................          19,848              1,023    
Net income (loss)........................           9,327             (1,150)   
Net income (loss) per share..............        $   1.08           $  (0.13)   
BALANCE SHEET DATA (AT PERIOD END):                                             
Working capital..........................                           $133,492    
Total assets.............................                            263,772    
Total debt...............................                             91,000    
Shareowners' equity......................                             81,296    
OTHER DATA:                                                                     
EBITDA(3)................................        $ 28,993           $  2,925    
Depreciation and amortization(4).........           8,499              1,902    
Pro forma interest expense...............          10,855              2,714    
Ratio of EBITDA to pro forma interest ex-                                       
 pense...................................             2.7x               1.1x   

BROWN & SHARPE SUMMARY CONSOLIDATED FINANCIAL DATA

                                                        [Enlarge/Download Table]

                                          YEAR ENDED                        QUARTER ENDED  
                         -----------------------------------------------  -----------------
                         DEC. 30, DEC. 29,  DEC. 28,  DEC. 26,  DEC. 25,  MAR. 27, APRIL 2,
                           1989     1990    1991(2)   1992(2)   1993(2)   1993(2)    1994  
                         -------- --------  --------  --------  --------  -------- --------
                                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)             
                                                                                           
INCOME STATEMENT DATA:                                                                     
Net sales............... $142,044 $176,703  $175,847  $160,695  $157,035  $39,758  $36,659 
Gross profit............   46,169   40,882    56,366    44,412    46,194   11,310   10,719 
Operating profit (loss).    8,271  (12,089)     (306)   (8,097)      720      566   (1,542)
Income (loss) from con-                                                                    
 tinuing operations.....    5,953  (12,237)   (2,901)   (7,984)   (2,416)   1,228   (2,874)
Net income (loss) per                                                                      
 share.................. $        $         $  (0.87) $  (1.63) $  (0.49) $  0.25  $ (0.57)
OTHER DATA:                                                                                
EBITDA(3)............... $ 15,386 $   (305) $ 10,194  $  4,336  $  7,210  $ 2,212  $  (235)
Number of employees(5)..    1,674    1,889     2,011     1,872     1,656    1,603    1,628 
Net sales per employee.. $   84.9 $   93.5  $   87.4  $   85.8  $   94.8      n/a      n/a 

DEA SUMMARY COMBINED FINANCIAL DATA 

                                                        [Enlarge/Download Table]

                                     YEAR ENDED                      QUARTER ENDED         
                         ------------------------------------- ----------------------------
                         DEC. 31,  DEC. 31,  DEC. 31, DEC. 31, MAR. 31,  MAR. 31,  MAR. 31,
                           1991      1992      1993     1993     1993      1994      1994  
                         --------  --------  -------- -------- --------  --------  --------
                                    (DOLLARS IN THOUSANDS; LIRE IN MILLIONS)               
                                                                                           
INCOME STATEMENT DATA:                                                                     
Net sales............... L117,662  L124,749  L178,297 $110,675 L29,137   L34,282   $21,280 
Gross profit............   24,101    28,429    63,934   39,686   8,307    12,085     7,502 
Operating profit (loss).  (16,928)   (7,713)    8,657    5,374  (4,379)   (1,347)     (835)
OTHER DATA:                                                                                
EBITDA(3)............... L(11,287) L  1,120  L 15,170 $  9,417 L(2,995)  L  (151)  $   (93)
Number of employees(5)..      982       802       690      690     720       697       697 
Net sales per employee.. L  119.8  L  155.5  L  258.4 $  160.4     n/a       n/a       n/a 

--------                                                                        
(1) The pro forma income statement data and other data assume that the Roch     
  Acquisition, the DEA Acquisition and the Note Offering and the application
of the net proceeds therefrom occurred on December 27, 1992, and the pro
forma balance sheet data assume that the DEA Acquisition and the Note   
Offering and the application of the net proceeds therefrom occurred on  
April 2, 1994. See "Pro Forma Combined Financial Statements."           
(2) Restated to reflect the change in accounting for large machinery            
  construction contracts for Brown & Sharpe's European operation. See Note 2
of Notes to Consolidated Financial Statements of Brown & Sharpe.        
(3) "EBITDA" consists of earnings before interest expense, other income         
  (expense), restructuring charges, provision for income taxes, depreciation
and amortization. EBITDA is included herein to provide additional       
   information, and should not be construed as a substitute for cash flow from
operating activities, which is determined in accordance with generally  
accepted accounting principles. Brown & Sharpe incurred restructuring   
   charges of $2,700, $1,800, $5,103 and $135 for the years ended December 29,
1990, December 28, 1991, December 26, 1992 and December 25, 1993,       
  respectively. DEA incurred restructuring charges of L2,949 and L823 ($511)
  for the years ended December 31, 1992 and December 31, 1993, respectively.
(4) Depreciation and amortization includes amortization of excess of fair value 
over cost of assets acquired.                                           

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RISK FACTORS

RISKS RELATED TO 1994 STRATEGIC ACQUISITIONS                                    

Brown & Sharpe expects that the Combined Company's profitability in the     
foreseeable future, and accordingly its ability to fund necessary capital       
expenditures and service its debt obligations, will depend in large part on its 
success in integrating the operations of DEA, Roch and Mauser with Brown &      
Sharpe's existing operations. The combined net sales of DEA, Roch and Mauser in 
1993 were approximately 75% of Brown & Sharpe's net sales in that year.         

 Brown & Sharpe's plan for integrating the operations of DEA into the MS Group
and Roch and Mauser into the PMI Division anticipates cost savings (before one- 
time implementation cash costs) of nearly $8 million to be realized within the  
first twelve months of combined operations. Brown & Sharpe expects the Combined 
Company to achieve these savings primarily by eliminating duplicative           
administrative and sales personnel and facilities, duplicative marketing        
expenses such as advertising and trade shows and some redundant design          
engineering activities, including personnel. Brown & Sharpe expects the         
Combined Company to realize total annualized savings of nearly $14 million      
after 24 months of combined operations through these actions, further           
reductions in selling and administrative expenses, rationalization of European  
manufacturing facilities and reductions in associated manufacturing overhead    
costs. Brown & Sharpe expects the Combined Company to spend approximately $12.3 
million for severance and other one-time cash costs in eliminating duplicative  
operations and taking other planned measures intended to produce these savings. 

Each of Brown & Sharpe's three operating units has worldwide management and 
operating responsibility for certain product and market groups. The daily       
operating functions and decisions, including matters such as budgeting,         
accounting and cash management, are managed by the general managers of Brown &  
Sharpe's MS Group, PMI Division and CM Division, subject to oversight by Fred   
M. Stuber, President and Chief Executive Officer, and Charles A. Junkunc, Vice  
President and Chief Financial Officer. Upon consummation of the DEA Acquisition 
the Combined Company will have significant manufacturing, engineering, sales    
and administrative facilities at 20 locations in seven countries, and will      
continue to operate with a decentralized and geographically dispersed           
management structure.                                                           

Due to the inherent risks in integrating separate operations, in particular 
operations located in different countries and that in the aggregate are large   
in relation to Brown & Sharpe, there can be no assurance that the Combined      
Company will realize anticipated cost savings or realize the savings in the     
contemplated timetable, or that as a result of its decentralized management     
structure or other factors the Combined Company will not experience             
unanticipated one-time or ongoing costs or difficulties in implementing the     
integration of DEA, Roch and Mauser into Brown & Sharpe. In addition, there can 
be no assurance that following these acquisitions the Combined Company's net    
sales will not be adversely affected by planned cost cutting measures, possible 
discontinuance of certain similar products, customers' desires to maintain      
alternative sources of supply or for other reasons. Further, there can be no    
assurance that following these acquisitions the Combined Company's management   
and organizational structure will be adequate to manage a business that is      
substantially larger than Brown & Sharpe now is. See "The DEA Acquisition,"     
"Pro Forma Consolidated Financial Statements," and "Management's Discussion and 
Analysis of Financial Condition and Results of Operations of Brown & Sharpe--   
Effects of Roch Acquisition and DEA Acquisition."                               

LACK OF LIQUIDITY                                                               

 At April 2, 1994, Brown & Sharpe had unrestricted cash (and cash equivalents)
of $3.8 million, and unused availability under its borrowing arrangements of    
$9.2 million. Brown & Sharpe expects shortly to enter into an $8.0 million      
mortgage financing, and Brown & Sharpe expects that this mortgage financing,    
combined with available cash and borrowings, will be adequate to meet Brown &   
Sharpe's anticipated cash needs through the end of 1994. However, Brown &       
Sharpe will require a return to profitability and positive cash generated by    
operations, or additional sources of financing, in order to meet its            
anticipated cash needs                                                          

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in 1995 and thereafter. The Note Offering and the DEA Acquisition will provide  
Brown & Sharpe with additional equity and debt financing which will immediately 
improve its liquidity position, and Brown & Sharpe expects that the DEA         
Acquisition should improve Brown & Sharpe's profitability. If, however, Brown & 
Sharpe does not complete the Note Offering and the DEA Acquisition, it will     
have to seek alternative forms of financing, which financing may or may not be  
available to it on terms deemed acceptable to Brown & Sharpe. See "Management's 
Discussion and Analysis of Financial Conditions and Results of Operations of    
Brown & Sharpe--Liquidity and Capital Resources."                               

SUBSTANTIAL INDEBTEDNESS                                                        

The Combined Company will have significant debt service obligations after   
completion of the Note Offering and the DEA Acquisition. At April 2, 1994,      
Brown & Sharpe had total outstanding long-term indebtedness (including the      
current portion thereof) and total shareowner's equity of $33.2 million and     
$61.4 million, respectively. On a pro forma basis, assuming that the DEA        
Acquisition and the Note Offering and the application of net proceeds therefrom 
had occurred on April 2, 1994, the Combined Company would have had total        
outstanding long-term indebtedness (including the current portion thereof) and  
total shareowners' equity of approximately $91.0 million and $81.3 million,     
respectively.                                                                   

The Combined Company's indebtedness could have important consequences to    
stockholders, including the following: (i) the Combined Company's ability to    
obtain additional financing in the future for working capital, capital          
expenditures, acquisitions or other corporate purposes may be impaired, (ii) a  
substantial portion of the Combined Company's cash flow from operations will be 
used to pay principal and interest on its indebtedness, thereby reducing the    
funds available to the Company for its operations, future business              
opportunities and payment of dividends, (iii) the Combined Company's borrowings 
under the Revolving Credit Facility will be at floating rates of interest,      
which could result in higher interest expense in the event of an increase in    
interest rates, (iv) the Revolving Credit Facility will contain financial and   
other restrictive covenants which could limit the Combined Company's operating  
and financial flexibility and, if violated, would result in an event of default 
which, if not cured or waived, could preclude the Combined Company's access to  
credit under such facility or otherwise have a material adverse effect on the   
Combined Company and (v) the Combined Company may be more vulnerable to general 
economic and industry downturns. See "Description of Senior Notes" and          
"Description of Revolving Credit Facility."                                     

RISKS RELATING TO THE NOTE OFFERING                                             

 Because of the current volatility of the high yield debt market, there can be
no assurance that Brown & Sharpe will be able to complete the Note Offering. If 
Brown & Sharpe is unable to complete the Note Offering on terms deemed          
acceptable to Brown & Sharpe, it will seek alternative sources of refinancing   
of the Combined Company's indebtedness, which financing may or may not be       
available to it. A refinancing satisfactory to Brown & Sharpe or the completion 
of the Note Offering is a condition to the closing to the DEA Acquisition. See  
"Management's Discussion and Analysis of Financial Conditions and Results of    
Operations of Brown & Sharpe--Liquidity and Capital Resources."                 

HISTORICAL LOSSES                                                               

Brown & Sharpe had losses from continuing operations of approximately $2.9  
million, $8.0 million, $2.4 million and $2.9 million in fiscal 1991, 1992, 1993 
and the first quarter of 1994, respectively. Brown & Sharpe expects to report a 
net loss for the second quarter of 1994. See "Management's Discussion and       
Analysis of Financial Condition and Results of Operations of Brown & Sharpe--   
Results of Operations." In addition, DEA had operating losses of L16.9 billion, 
L7.5 billion and L1.3 billion ($0.8 million) in 1991, 1992 and the first        
quarter of 1994, respectively, and operating profit of L8.7 billion ($5.4       
million) in 1993.                                                               

 In 1990, Brown & Sharpe acquired Leitz. In the year prior to the acquisition,
Leitz's net sales were approximately 21% of Brown & Sharpe's net sales in that  
year. While Leitz has strategic value to Brown &                                

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Sharpe, Leitz has produced operating losses in each year since its acquisition. 
Brown & Sharpe believes that these losses have resulted from the severe,        
prolonged recession in Europe that began a year after the acquisition and that  
has resulted in price erosion for Leitz's products and revenues below expected  
levels, and from unexpected difficulties and additional expenses in integrating 
Leitz with Brown & Sharpe's other CMM operations. These difficulties were       
heightened by the fact that the Leitz business acquired by Brown & Sharpe did   
not have a complete freestanding agreement structure or its own complete        
facilities.                                                                     

FOREIGN OPERATIONS                                                              

As of April 2, 1994, approximately 71.7% of Brown & Sharpe's assets were    
located outside the United States (based on book values). For fiscal 1993,      
approximately 54.0% of Brown & Sharpe's net sales were to customers located     
outside the United States. As of April 2, 1994, after giving effect to the DEA  
Acquisition, approximately 75% of the Combined Company's assets were located    
outside the United States (based on historical book values). For fiscal 1993,   
on a pro forma basis after giving effect to the DEA Acquisition and the Roch    
Acquisition, approximately 62% of the Combined Company's net sales were to      
customers located outside the United States. Foreign operations are subject to  
special risks that can materially affect the sales, profits, cash flows and     
financial position of the Combined Company, including taxes on distributions    
and payments, currency exchange rate fluctuations, inflation, minimum capital   
requirements and exchange controls. See "Management's Discussion and Analysis   
of Financial Condition and Results of Operations of Brown & Sharpe,"            
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations of DEA," "Brown & Sharpe--Foreign Operations," "Brown & Sharpe--     
Properties," "Brown & Sharpe--Litigation," "DEA S.p.A.--General," Note 14 to    
Consolidated Financial Statements of Brown & Sharpe and Note 2 to Combined      
Financial Statements of DEA.                                                    

CYCLICAL NATURE OF THE METROLOGY INDUSTRY                                       

As capital goods suppliers, the market for Brown & Sharpe's and DEA's       
products is generally subject to general economic conditions and, more          
specifically, to the level of capital spending by industrial companies,         
especially those in the primary end markets for Brown & Sharpe's and DEA's      
products. Management believes that in recent years, the total world market for  
dimensional metrology products declined significantly. Although the recession   
has subsided in the United States, Brown & Sharpe and DEA still face poor       
economic conditions in Europe and Japan. See "Management's Discussion and       
Analysis of Financial Condition and Results of Operations of Brown & Sharpe"    
and "Management's Discussion and Analysis of Financial Condition and Results of 
Operations of DEA."                                                             

COMPETITION                                                                     

Brown & Sharpe's and DEA's business is subject to direct and indirect       
competition from a considerable number of both domestic and foreign firms, a    
number of which are larger in overall size than Brown & Sharpe and DEA. In      
addition, the dimensional metrology market has suffered from overcapacity,      
which, together with reduced demand for capital goods, has resulted in intense  
price discounting and performance competition that have reduced margins         
throughout the industry. See "Brown & Sharpe Manufacturing Company--            
Competition" and "DEA S.p.A.--Competition."                                     

CONTROL OF THE COMBINED COMPANY                                                 

 Brown & Sharpe's common stock is divided into two classes, the Class A Common
Stock and the Class B Common Stock. Shares of Class A Common Stock are entitled 
to one vote per share. Shares of Class B Common Stock are entitled to ten votes 
per share, except as otherwise provided by law or in Brown & Sharpe's           
certificate of incorporation or by-laws. The Class A Common Stock and the Class 
B Common Stock vote together as a single class on all matters, except that the  
Class A Common Stock, voting alone, elects one director each year. No dividend  
may be declared on shares of Class B Common Stock unless a dividend at least    
equal in amount is declared on shares of Class A Common Stock. After giving     
effect to the DEA                                                               

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Acquisition (prior to any post-closing adjustment for the DEA Acquisition       
purchase price), various members of the Sharpe family, including Henry D.       
Sharpe, Jr. and Henry D. Sharpe, III (each of whom is a director of the         
Company), hold 483,966 shares of Class A Common Stock and 161,320 shares of     
Class B Common Stock, representing approximately 7.5% of the outstanding        
aggregate equity in the Combined Company and approximately 15.4% of the         
combined voting power of the Combined Company's outstanding common stock, and   
Finmeccanica holds 3,450,000 shares of Class A Common Stock, representing       
approximately 39.9% of the outstanding aggregate equity of the Combined Company 
and approximately 25.5% of the combined voting power of the Combined Company's  
outstanding common stock. In addition to the shares beneficially owned by the   
Sharpe family, 247,734 shares of Class A Common Stock and 166,063 shares of     
Class B Common Stock are held for the benefit of employees by Brown & Sharpe's  
Employee Stock Ownership Plan of which Henry D. Sharpe, Jr. is a Trustee. Upon  
consummation of the DEA Acquisition, Finmeccanica will have the right to        
designate three nominees for election to the Combined Company's Board of        
Directors (which will increase from seven to ten directors) and will have       
certain preemptive rights with respect to future issuances of equity securities 
of the Combined Company. See "The DEA Acquisition--Terms of the Shareholders    
Agreement" and "Principal Stockholders."                                        

PRO FORMA COMBINED FINANCIAL STATEMENTS 

The following Pro Forma Combined Financial Statements are unaudited and are 
based on the Consolidated Financial Statements of Brown & Sharpe, the Combined  
Financial Statements of DEA, the Financial Statements of Roch and the Financial 
Statements of Mauser, each included elsewhere in this Proxy Statement. The Pro  
Forma Combined Financial Statements should be read in conjunction with such     
historical financial statements and the related notes thereto, and the other    
information pertaining to Brown & Sharpe, DEA, Roch and Mauser included         
elsewhere in this Proxy Statement.                                              

The unaudited Pro Forma Combined Statements of Income (Loss) for the year   
ended December 25, 1993 and for the three months ended April 2, 1994 have been  
adjusted to give effect to the Roch Acquisition, the DEA Acquisition and the    
Note Offering (and the application of the proceeds therefrom) as if such        
transactions had occurred on December 27, 1992. The unaudited Pro Forma         
Combined Balance Sheet at April 2, 1994 has been adjusted to give effect to the 
DEA Acquisition and the Note Offering (and the application of the proceeds      
therefrom) as if such transactions had occurred on that date. The pro forma     
adjustments are based upon available information and certain assumptions that   
management of Brown & Sharpe believes are reasonable and that are described in  
the notes to the Pro Forma Combined Financial Statements. The Pro Forma         
Combined Financial Statements do not purport to represent what the Combined     
Company's financial position or results of operations would actually have been  
if the transactions had occurred on the dates specified or to project the       
Combined Company's financial position or results of operations for any future   
period.                                                                         

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PRO FORMA COMBINED STATEMENT OF INCOME (LOSS) 
FOR THE QUARTER ENDED APRIL 2, 1994 

                                                                [Download Table]

                                                                 PRO FORMA        
                                                            ----------------------
                          BROWN &                                                 
                          SHARPE     DEA     ROCH   MAUSER  ADJUSTMENTS   COMBINED
                          -------  -------  ------  ------  -----------   --------
                                (IN THOUSANDS, EXCEPT PER SHARE DATA)             
                                                                                  
OPERATING DATA:                                                                   
Net sales...............  $36,659  $21,280  $2,713  $  710    $  (518)(a) $60,844 
Cost of goods sold......   25,940   13,778   1,461     518     (1,054)(b)  40,643 
Selling, general and ad-                                                          
 ministrative expense...   12,261    7,595   1,411     370     (2,936)(c)  18,701 
Depreciation and amorti-                                                          
 zation(1)..............      --       742     145       1       (255)(d)     633 
Amortization of excess                                                            
 of fair value over cost                                                          
 of assets acquired.....      --       --      --      --        (156)(e)    (156)
                          -------  -------  ------  ------    -------     ------- 
 Operating profit                                                                 
  (loss)................   (1,542)    (835)   (304)   (179)     3,883       1,023 
Interest expense........   (1,280)  (1,798)   (108)    --         472 (f)  (2,714)
Other income, net.......       48      580       9   1,498     (1,494)(g)     641 
                          -------  -------  ------  ------    -------     ------- 
 Income (loss) before                                                             
  income taxes..........   (2,774)  (2,053)   (403)  1,319      2,861      (1,050)
Income tax provision....      100      --      --      --         --          100 
                          -------  -------  ------  ------    -------     ------- 
 Net income (loss)......  $(2,874) $(2,053) $ (403) $1,319    $ 2,861     $(1,150)
                          =======  =======  ======  ======    =======     ======= 
 Net income (loss) per                                                            
  share.................  $ (0.57)                            $  0.44 (h) $ (0.13)
                          =======  =======  ======  ======    =======     ======= 
OTHER DATA:                                                                       
EBITDA (2)..............  $  (235) $   (93) $  (44) $ (175)   $ 3,472     $ 2,925 
Depreciation and amorti-                                                          
 zation(3)..............    1,307      742     260       4       (411)      1,902 
Capital expenditures....      814      120     --      --         --          934 

--------                                                                        
(1) Brown & Sharpe includes depreciation and amortization in cost of sales or   
selling, general and administrative expense, depending on the nature of 
the use of the asset involved. Mauser includes depreciation in selling, 
general and administrative expense.                                     
(2) "EBITDA" consists of earnings before interest expense, other income         
(expense), restructuring charges, provision for income taxes, and       
depreciation and amortization. EBITDA is included herein to provide     
additional information, and should not be construed as a substitute for 
cash flow from operating activities, which is determined in accordance  
with generally accepted accounting principles.                          
(3) Pro forma depreciaiton and amortization includes amortization of excess of  
fair value over cost of assets required.                                

See Accompanying Notes to Pro Forma Combined Financial Statements.  

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PRO FORMA COMBINED STATEMENT OF INCOME (LOSS) 
FOR THE YEAR ENDED DECEMBER 25, 1993  

                                                        [Enlarge/Download Table]

                                                                     PRO FORMA         
                                                                ---------------------- 
                          BROWN &                                                      
                           SHARPE     DEA      ROCH    MAUSER   ADJUSTMENTS   COMBINED 
                          --------  --------  -------  -------  -----------   -------- 
                                  (IN THOUSANDS, EXCEPT PER SHARE DATA)                
                                                                                       
OPERATING DATA:                                                                        
Net sales...............  $157,035  $110,675  $ 9,868  $ 2,634    $(2,214)(a) $277,998 
Cost of goods sold......   110,841    70,989    5,639    2,214     (4,357)(b)  185,326 
Selling, general and ad-                                                               
 ministrative expense...    45,474    30,269    5,233    1,157    (11,742)(c)   70,391 
Depreciation and amorti-                                                               
 zation(1) .............       --      3,532       34      605     (1,623)(d)    2,548 
Restructuring costs.....       --        511      --       --         --           511 
Amortization of excess                                                                 
 of fair value over cost                                                               
 of assets acquired.....       --        --       --       --        (626)(e)     (626)
                          --------  --------  -------  -------    -------     -------- 
 Operating profit                                                                      
  (loss)................       720     5,374   (1,038)  (1,342)    16,134       19,848 
Interest expense........    (5,100)   (6,157)    (447)     (55)       904 (f)  (10,855)
Other income, net.......     2,764    (1,613)     (27)      10        --         1,134 
                          --------  --------  -------  -------    -------     -------- 
 Income (loss) before                                                                  
  income taxes..........    (1,616)   (2,396)  (1,512)  (1,387)    17,038       10,127 
Income tax provision....       800       --       --       --         --           800 
                          --------  --------  -------  -------    -------     -------- 
 Net income (loss) .....  $ (2,416) $ (2,396) $(1,512) $(1,387)   $17,038     $  9,327 
                          ========  ========  =======  =======    =======     ======== 
 Net income (loss) per                                                                 
  share.................  $  (0.49)                               $  1.57(h)  $   1.08 
                          ========                                =======     ======== 
OTHER DATA:                                                                            
EBITDA (2)..............  $  7,210  $  9,417  $  (800) $  (719)   $13,885     $ 28,993 
Depreciation and amorti-                                                               
 zation(3)..............     6,355     3,532      238      623     (2,249)       8,499 
Capital expenditures....     4,399     1,965      287       28        160        6,839 

--------                                                                        
(1) Brown & Sharpe includes depreciation and amortization in cost of sales or   
selling, general and administrative expense, depending on the nature of 
the use of the asset involved. Mauser includes depreciation in selling, 
general and administrative expense.                                     
(2) "EBITDA" consists of earnings before interest expense, other income         
(expense), restructuring charges, provision for income taxes, and       
depreciation and amortization. EBITDA is included herein to provide     
additional information, and should not be construed as a substitute for 
cash flow from operating activities, which is determined in accordance  
with generally accepted accounting principles.                          
(3) Pro forma depreciation and amortization includes amortization of excess of  
fair value over cost of assets required.                                

See Accompanying Notes to Pro Forma Combined Financial Statements.  

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PRO FORMA COMBINED BALANCE SHEET
AT APRIL 2, 1994

                                                                [Download Table]

                                                            PRO FORMA          
                                                       ----------------------- 
                                   BROWN &                                     
                                    SHARPE     DEA     ADJUSTMENTS    COMBINED 
                                   --------  --------  -----------    -------- 
                                               (IN THOUSANDS)                  
                                                                               
ASSETS                                                                         
CURRENT ASSETS:                                                                
 Cash and cash equivalents........ $  3,818  $  5,565   $   7,490 (i) $ 16,873 
 Restricted cash..................    6,113       --       (6,113)(i)      --  
 Accounts receivable, net of al-                                               
  lowances for doubtful accounts..   42,284    45,158      (1,500)(j)   85,942 
 Inventories......................   57,550    40,271      (5,068)(k)   92,753 
 Prepaid expenses and other cur-                                               
  rent assets.....................    3,387     6,439       3,000 (l)   12,826 
                                   --------  --------   ---------     -------- 
   Total current assets...........  113,152    97,433      (2,191)     208,394 
PROPERTY, PLANT AND EQUIPMENT:                                                 
 Land.............................    6,358        49         (49)(m)    6,358 
 Buildings and improvements.......   32,572     1,752      (1,752)(m)   32,572 
 Machinery and equipment..........   78,615    24,814     (24,814)(m)   78,615 
                                   --------  --------   ---------     -------- 
                                    117,545    26,615     (26,615)     117,545 
 Less-accumulated depreciation....   73,775    21,281     (21,281)(m)   73,775 
                                   --------  --------   ---------     -------- 
                                     43,770     5,334      (5,334)      43,770 
OTHER ASSETS......................   12,760     3,079      (3,079)(n)   12,760 
                                   --------  --------   ---------     -------- 
                                   $169,682  $105,846   $(10,604)     $264,924 
                                   ========  ========   =========     ======== 
LIABILITIES AND SHAREOWNERS' EQ-                                               
 UITY                                                                          
CURRENT LIABILITIES:                                                           
 Notes payable and current in-                                                 
  stallments of long-term debt.... $ 33,742  $ 26,127    $(58,869)(o) $  1,000 
 Accounts payable.................   12,549    13,392         --        25,941 
 DEA debt.........................      --     45,971     (45,971)(p)      --  
 Accrued expenses and income tax-                                              
  es..............................   22,665    11,885      12,258 (q)   46,808 
                                   --------  --------   ---------     -------- 
   Total current liabilities......   68,956    97,375     (92,582)      73,749 
Long-term debt....................   33,224     7,759      49,017 (r)   90,000 
Deferred income taxes.............    1,781       --          --         1,781 
Termination indemnities...........      --      7,489         --         7,489 
Unfunded accrued pension cost.....    4,345       --          --         4,345 
Excess of fair value over cost of                                              
 assets acquired..................      --        --        6,264 (s)    6,264 
SHAREOWNERS' EQUITY:                                                           
    Preferred stock, $1 par value;                                             
     authorized 1,000,000 shares,                                              
     none issued..................      --        --          --           --  
    Common stock:                                                              
       Class A, $1 par value;                                                  
        authorized 15,000,000                                                  
        shares, issued 4,651,368                                               
        and pro forma 8,101,368...    4,651       --        3,450 (t)    8,101 
       Class B, $1 par value;                                                  
        authorized 2,000,000                                                   
        shares, issued 545,539....      546       --          --           546 
    Additional paid in capital....   47,013       --       17,250 (t)   64,263 
    Earnings employed in the busi-                                             
     ness.........................    1,503       --         (780)(u)      723 
    Cumulative foreign currency                                                
     translation adjustment.......    8,547       --          --         8,547 
    Treasury stock; 8,076 shares                                               
     at cost......................     (163)      --          --          (163)
    Unearned compensation.........     (721)      --          --          (721)
    DEA equity (deficit)..........      --     (6,777)      6,777 (v)      --  
                                   --------  --------   ---------     -------- 
       Total shareowners' equity..   61,376    (6,777)     26,697       81,296 
                                   --------  --------   ---------     -------- 
                                   $169,682  $105,846   $ (10,604)    $264,924 
                                   ========  ========   =========     ======== 

See Accompanying Notes to Pro Forma Combined Financial Statements 

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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

1. BASIS OF PRESENTATION                                                        

The pro forma combined financial statements have been prepared assuming that
the purchase price for the DEA Acquisition will consist of 3,450,000 shares of  
Class A Common Stock, having an aggregate value of $20,700 based on the June    
20, 1994 closing price of $6.00 per share. The DEA Acquisition Agreement        
provides that this purchase price will be subject to a post-closing adjustment  
based on the balance sheet of DEA as of July 31, 1994. See "The DEA             
Acquisition."                                                                   

The assumed purchase price has been allocated as follows:                   

                                                                [Download Table]
                                                                             
Cash............................................................... $    497 
Accounts receivable, net of allowances for doubtful accounts.......   43,658 
Inventories........................................................   35,203 
Prepaid expenses and other current assets..........................    6,439 
Notes payable and current installments of long-term debt...........   (8,843)
Accounts payable...................................................  (13,392)
Accrued expenses and income taxes..................................  (24,143)
Long-term debt.....................................................   (4,966)
Termination indemnities............................................   (7,489)
Excess of fair value over cost of assets acquired..................   (6,264)
                                                                    -------- 
  TOTAL............................................................ $ 20,700 
                                                                    ======== 

The allocation of purchase price to cash reflects DEA's expected cash level 
as of the closing under the DEA Acquisition Agreement. The pro forma combined   
income statements are unaudited and present a combination of the historical net 
sales of Brown & Sharpe, DEA, Roch and Mauser (after elimination of             
intercompany sales), and do not reflect possible increases in net sales that    
may arise from synergies related to the combination, or possible decreases in   
net sales as a result of planned cost cutting measures, possible discontinuance 
of certain similar products, customers' desires to maintain alternative sources 
of supply or for other reasons.                                                 

The pro forma combined financial statements reflect the effects of planned  
cost savings measures assuming that such cost savings measures are implemented  
and are effective on December 27, 1992 in the case of the pro forma combined    
income statements and on April 2, 1994 in the case of the pro forma combined    
balance sheet. Brown & Sharpe expects that substantially all these cost savings 
measures will be implemented within twelve months of the consummation of the    
applicable acquisitions, and the balance will be implemented within 24 months   
of the consummation of the applicable acquisitions. See "Management's           
Discussion and Analysis of Financial Condition and Results of Operations of     
Brown & Sharpe--Effects of Roch Acquisition and DEA Acquisition."               

The pro forma combined income statements do not include severance and other 
costs to be incurred in connection with anticipated elimination of personnel,   
closure of facilities and other cost savings measures following the Roch        
Acquisition and the DEA Acquisition. Brown & Sharpe estimates that these costs  
will approximate $12,329, of which approximately $1,839 will be reflected as    
restructuring expense in 1994, $10,330 will be charged against reserves         
established in the allocations of purchase price associated with these          
acquisitions and $160 will be incurred with respect to capital spending         
associated with facilities consolidation.                                       

2. PRO FORMA ADJUSTMENTS                                                        

The pro forma financial statements reflect the following:                   

a) Adjustment to eliminate intercompany sales made by Roch to Mauser.       

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b) Adjustment to reflect decreased design engineering and manufacturing     
expenses as a result of expected reductions in personnel, decreased purchasing  
costs of the combined operations, and the elimination of intercompany purchases 
of Mauser from Roch. See "Management's Discussion and Analysis of Financial     
Condition and Results of Operations of Brown & Sharpe--Effects of Roch          
Acquisition and DEA Acquisition."                                               

c) Adjustment to reflect expected decreased administrative, sales and       
distribution expenses resulting from reductions in North American and European  
administrative, sales and distribution personnel and closing of overlapping     
facilities. See "Management's Discussion and Analysis of Financial Condition    
and Results of Operations of Brown & Sharpe--Effects of Roch Acquisition and    
DEA Acquisition."                                                               

d) Adjustment to reflect an elimination of depreciation of fixed assets and 
goodwill related to the write-down of DEA assets in accordance with the         
purchase method of accounting, and the amortization over the eight-year life of 
the Senior Notes of the estimated expenses of the Note Offering. The adjustment 
for the year ended December 25, 1993 is as follows:                             

                                                                [Download Table]
                                                                             
Depreciation of assets............................................... $  790 
Amortization of goodwill.............................................  1,193 
Amortization of estimated expenses of Note Offering..................   (360)
                                                                      ------ 
                                                                      $1,623 
                                                                      ====== 

This adjustment approximated $255 for the quarter ended April 2, 1994.      

e) Adjustment to reflect the amortization of the excess of fair value of    
DEA's assets over Brown & Sharpe's cost to acquire such assets. The excess of   
fair value will be amortized over a ten-year period.                            

f) Adjustment to reflect the decrease in interest expense resulting from the
issuance of the Senior Notes, the assumption, discharge or waiver by            
Finmeccanica of DEA debt in connection with the DEA Acquisition, and the        
repayment of Brown & Sharpe and DEA debt with the proceeds of the Note          
Offering, calculated as follows:                                                

                                                                [Download Table]
                                                                            
Interest on $75,000 Senior Notes at 12.5%.......................... $ 9,375 
Interest on $16,000 debentures at 9.25%............................   1,480 
                                                                    ------- 
                                                                     10,855 
Actual expense recorded............................................  11,759 
                                                                    ------- 
                                                                    $  (904)
                                                                    ======= 

This adjustment approximated $472 for the quarter ended April 2, 1994.      

g) Adjustment to eliminate nonrecurring income from debt forgiveness by     
Diehl, the former owner of Mauser.                                              

h) Adjusted to reflect the pro forma adjustments to income discussed above  
and the issuance of 175,000 shares of Class A Common Stock in the Roch          
Acquisition and the issuance of 3,450,000 shares of Class A Common Stock in the 
DEA Acquisition.                                                                

i) Adjustment to eliminate DEA cash retained by Finmeccanica and to reflect 
the receipt of the gross proceeds of the Note Offering and the application      
thereof as follows:                                                             

                                                                [Download Table]
                                                                             
Gross proceeds from Note Offering.................................. $ 75,000 
Repayment of existing Brown & Sharpe debt as of April 2, 1994......  (50,966)
Repayment of existing DEA debt as of April 2, 1994.................  (13,809)
Prepayment penalties...............................................     (780)
Estimated Note Offering expenses...................................   (3,000)
Reclassification of restricted cash................................    6,113 
                                                                    -------- 
Cash withdrawal by Finmeccanica....................................   (5,068)
                                                                    -------- 
Total cash adjustment.............................................. $  7,490 
                                                                    ======== 

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Brown & Sharpe has been required to maintain restricted cash balances to    
support certain of its foreign lines of credit. At April 2, 1994, the required  
restricted cash balances totaled $6,133. These amounts will cease to be         
restricted upon repayment of the lines of credit. See "Management's Discussion  
and Analysis of Financial Condition and Results of Operations of Brown &        
Sharpe--Liquidity and Capital Resources."                                       

 j) Adjustment to record DEA receivables at estimated fair value in accordance
with the purchase method of accounting.                                         

 k) Adjustment to record DEA inventories at estimated fair value in accordance
with the purchase method of accounting.                                         

l) Adjustment to record estimated expenses of the Note Offering. Note       
Offering expenses will be amortized over the eight-year life of the Senior      
Notes.                                                                          

m) Adjustment to property, plant and equipment of DEA to reflect the        
allocation of the excess of fair value over the cost of the assets acquired in  
accordance with the purchase method of accounting.                              

n) Adjustment to eliminate intercompany goodwill of DEA and allocate the    
excess of the fair value over the cost of DEA assets acquired in accordance     
with the purchase method of accounting.                                         

o) Adjustment to eliminate the third party short-term debt of DEA assumed or
discharged by Finmeccanica in connection with the DEA Acquisition, and          
repayment with the proceeds of the Note Offering of the short-term debt of      
Brown & Sharpe and the remaining third party short-term debt of DEA, as         
follows:                                                                        

                                                                [Download Table]
                                                                            
Short-term debt of DEA assumed or discharged by Finmeccanica........ $17,284
Repayment of short-term debt of Brown & Sharpe with Note Offering           
 proceeds...........................................................  32,742
Repayment of short-term debt of DEA with Note Offering proceeds.....   8,843
                                                                     -------
                                                                     $58,869
                                                                     =======

p) Adjustment to eliminate DEA borrowings from Finmeccanica cancelled or    
waived by Finmeccanica in connection with the DEA Acquisition.                  

q) Adjustment of DEA's reserve for warranty expense to estimated fair value 
in accordance with the purchase method of accounting and the accrual of         
restructuring costs related to the DEA Acquisition.                             

 r) Adjustment to reflect issuance of the Senior Notes, to eliminate the long-
term debt of DEA assumed or discharged by Finmeccanica in connection with the   
DEA Acquisition, and to reflect the repayment with the proceeds of the Note     
Offering of the Foothill Facility, mortgage debt of Brown & Sharpe and the      
remaining long-term debt of DEA as follows:                                     

                                                                [Download Table]
                                                                           
Gross proceeds from Note Offering................................. $75,000 
Long-term debt assumed or discharged by Finmeccanica.............. ( 2,793)
Repayment of Foothill Facility, mortgage and other long-term debt          
 of Brown &                                                                
Sharpe with Note Offering proceeds................................ (18,224)
Repayment of existing long-term debt of DEA with Note Offering             
 proceeds......................................................... ( 4,966)
                                                                   ------- 
                                                                   $49,017 
                                                                   ======= 

 s) Adjustment to record the excess of the fair value over the cost of the DEA
assets acquired in accordance with the purchase method of accounting.           

t) Adjustment to reflect the issuance of 3,450,000 shares of Brown & Sharpe 
Class A Common Stock as part of the purchase price of the DEA Acquisition.      

 u) Adjustment to reflect prepayment penalties incurred by Brown & Sharpe as a
result of the repayment of the Foothill Facility and certain other mortgage     
loans of Brown & Sharpe with the proceeds of the Note Offering.                 

 v) Adjustment to eliminate the shareowners' equity (or divisional deficit) of
DEA in connection with the DEA Acquisition in accordance with the purchase      
method of accounting.                                                           

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THE SPECIAL MEETING 

This Proxy Statement is furnished in connection with the solicitation of    
proxies on behalf of the Board of Directors of Brown & Sharpe for use at the    
Special Meeting of Stockholders to be held on August  , 1994. The purpose of    
the Special Meeting is to consider and vote on a proposal to approve the        
issuance of shares of Class A Common Stock of Brown & Sharpe pursuant to the    
terms of (i) the DEA Acquisition Agreement and (ii) the Shareholders Agreement. 
The DEA Acquisition Agreement provides that Brown & Sharpe will acquire all of  
the issued and outstanding capital stock of DEA from Finmeccanica in exchange   
for the issuance to Finmeccanica of 3,450,000 shares of Class A Common Stock    
plus such additional number of shares of Class A Common Stock, if any, as may   
be required pursuant to a post-closing purchase price adjustment provided for   
in the DEA Acquisition Agreement. See "The DEA Acquisition Agreement." The      
Shareholders Agreement provides Finmeccanica with certain preemptive rights     
with respect to subsequent issuances of equity securities by the Combined       
Company, and provides for limitations on Finmeccanica's percentage ownership of 
shares of the Combined Company's stock. See "The DEA Acquisition--Terms of the  
Shareholders Agreement." Pursuant to Delaware law and the by-laws of Brown &    
Sharpe, no business other than the approval of the issuance of the shares of    
Class A Common Stock pursuant to the DEA Acquisition Agreement and the          
Shareholders Agreement may be brought before the Special Meeting.               

RECORD DATE; QUORUM; VOTE REQUIRED                                              

Only holders of record of Brown & Sharpe's Class A Common Stock and Class B 
Common Stock as of the close of business on July  , 1994 will be entitled to    
vote at the Special Meeting. At such date, there were   shares of Class A       
Common Stock and   shares of Class B Common Stock outstanding, held by          
approximately   and    holders of record, respectively. Holders of record of    
Class A Common Stock on the record date are entitled to one vote per share and  
holders of record of Class B Common Stock on the record date are entitled to    
ten votes per share on any matter which may properly come before the Special    
Meeting. The affirmative vote of the holders of shares of Class A Common Stock  
and Class B Common Stock representing a majority of the votes cast on the       
proposal, provided that the total vote cast on the proposal represents over 50% 
in interest of all shares of Class A Common Stock and Class B Stock entitled to 
vote on the proposal, is necessary to approve the issuance of the shares of     
Class A Common Stock pursuant to terms of the DEA Acquisition Agreement and the 
Shareholders Agreement.                                                         

PROXY CARD                                                                      

Accompanying this Proxy Statement is a proxy card which should be completed,
dated, signed and returned by each stockholder before the Special Meeting to    
ensure that the stockholder's shares will be voted at the Special Meeting.      
Shares represented by a properly executed proxy will be voted in accordance     
with the instructions indicated on such proxy. IF NO INSTRUCTIONS ARE INDICATED 
ON A PROXY, SHARES REPRESENTED BY SUCH PROXY WILL BE VOTED IN FAVOR OF THE      
PROPOSAL TO APPROVE THE ISSUANCE OF THE SHARES OF CLASS A COMMON STOCK PURSUANT 
TO THE TERMS OF THE DEA ACQUISITION AGREEMENT AND THE SHAREHOLDERS AGREEMENT. A 
stockholder giving Brown & Sharpe a proxy has the power to revoke the proxy at  
any time prior to its use by filing with the Secretary of Brown & Sharpe a      
written revocation of the proxy or a duly executed proxy bearing a later date   
or by personally attending and voting at the Special Meeting.                   

Votes cast by proxy or in person at the Special Meeting will be counted by  
persons appointed by Brown & Sharpe to act as Inspectors of Election for the    
meeting. The Inspectors of Election will count the total number of votes cast   
"for" approval of the proposal to issue shares of Class A Common Stock for      
purposes of determining whether sufficient affirmative votes have been cast.    
The Inspectors of Election will count shares represented by proxies that        
reflect abstentions and "broker non-votes" (i.e. shares represented at the      
Special Meeting held by brokers or nominees as to which (i) instructions have   
not been received from the beneficial owners or persons entitled to vote and    
(ii) the broker or nominee does not have discretionary voting power) only as    
shares that are present and entitled to vote on the matter for purposes of      
determining the presence of                                                     

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a quorum, but neither abstentions nor broker non-votes will have any effect on  
the outcome of voting on the matter.                                            

EXPENSES                                                                        

Brown & Sharpe will bear the expense of the proxy solicitation. Brown &     
Sharpe has retained D.F. King & Co, Inc., 77 Water Street, New York, New York   
10005 to aid in the solicitation of proxies for a fee not to exceed $5,000 plus 
reasonable out-of-pocket expenses. The Board of Directors may ask some of the   
directors, officers and regular employees of Brown & Sharpe to solicit proxies  
by telephone or otherwise for no compensation therefor other than their regular 
compensation. Brown & Sharpe has asked brokers and other custodians, nominees   
and fiduciaries to forward proxy solicitation material to the beneficial owners 
of shares held of record by such persons and will reimburse out-of-pocket       
expenses incurred in forwarding such material.                                  

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THE DEA ACQUISITION 

BACKGROUND AND REASONS FOR THE DEA ACQUISITION                                  

As part of Brown & Sharpe's strategy to improve its financial strength,     
competitiveness and profitability, it is seeking to expand and strengthen its   
market presence in the worldwide dimensional metrology market. DEA is a major   
competitor of Brown & Sharpe's CMM business in a number of countries and is a   
worldwide leader in the manufacturing and marketing of CMMs and related         
accessories, software and services. Brown & Sharpe believes that DEA's large    
vertical and horizontal CMM products, as well as DEA's complementary            
distribution capabilities in certain areas, including certain countries in      
Europe, South America and the Middle East, and in India and China, complements  
and strengthens Brown & Sharpe's CMM product line and distribution network. In  
addition, Brown & Sharpe expects that its plan to integrate DEA, Roch and       
Mauser will result in the realization of significant cost savings from the      
elimination of duplicative marketing and design engineering expenses. Brown &   
Sharpe intends to manufacture and market CMM products under the Brown &         
Sharpe (R), Leitz (R) and DEA (R) brand names, and Brown & Sharpe intends to    
continue to provide support, including technical assistance and upgrades, to    
DEA customers.                                                                  

In addition to the strategic operational benefits that Brown & Sharpe seeks 
to gain from the DEA Acquisition, and the cost savings which Brown & Sharpe     
believes that the Combined Company will realize, Brown & Sharpe also will       
improve its capital position by issuing shares of Brown & Sharpe stock in the   
DEA Acquisition.                                                                

Serious discussions between Brown & Sharpe, Wertheim Schroder & Co.         
Incorporated ("Wertheim Schroder"), Brown & Sharpe's investment banker for the  
DEA Acquisition, and Finmeccanica regarding the DEA Acquisition began in the    
summer of 1992 at numerous meetings held over several months in Paris, New      
York, Rhode Island and Turin, Italy. Brown & Sharpe, Wertheim Schroder and      
Finmeccanica negotiated the broad outline of the DEA Acquisition, conducted     
preliminary due diligence reviews, and discussed legal and regulatory matters   
from the fall of 1992 to May 1993. On May 3, 1993, Brown & Sharpe and           
Finmeccanica executed and delivered a non-binding Letter of Intent which        
contained a broad summary of certain terms of the DEA Acquisition, including    
the purchase price. The parties then made required filings under the Hart-      
Scott-Rodino Antitrust Improvements Act (the "H-S-R Act"), and the statutory    
waiting period expired on August 13, 1993. However, if the closing of the DEA   
Acquisition does not occur by August 12, 1994, the parties must re-file under   
the H-S-R Act and will be subject to another statutory waiting period.          

Brown & Sharpe prepared a draft of the DEA Acquisition Agreement in October 
1993 and the parties, with their respective counsel and with Wertheim Schroder, 
began negotiations regarding the terms of the definitive DEA Acquisition        
Agreement with Finmeccanica. However, negotiations and due diligence activities 
regarding the DEA Acquisition were largely suspended in late 1993 due to lack   
of significant progress. Brown & Sharpe and Finmeccanica resumed negotiations   
and due diligence activities in February 1994. Representatives of Brown &       
Sharpe and Finmeccanica, along with their respective counsel and Wertheim       
Schroder, negotiated the final terms of the DEA Acquisition Agreement and the   
Shareholders Agreement at various meetings and by numerous telephone and        
telecopy discussions from February 1994 until the DEA Acquisition Agreement was 
signed. A negotiating session was held in New York on June 6, 1994 and June 7,  
1994 and the DEA Acquisition Agreement dated as of June 10, 1994 was executed   
and delivered on June 24, 1994.                                                 

The total number of shares of Brown & Sharpe stock to be issued to          
Finmeccanica and the amount of debt permitted to be retained by DEA on the      
closing date of the DEA Acquisition remained substantially the same as provided 
for in the Letter of Intent. Certain other terms of the DEA Acquisition         
Agreement are less favorable to Brown & Sharpe and certain terms are more       
favorable to Brown & Sharpe than the terms originally proposed in the Letter of 
Intent.                                                                         

From the summer of 1992 through June 1994, the Brown & Sharpe Board of      
Directors held more than 13 regular and special meetings (including special     
conference telephone meetings) to discuss the DEA                               

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Acquisition, the Letter of Intent, and subsequently the terms of the DEA        
Acquisition Agreement and the Shareholders Agreement, and to explore the        
advantages and disadvantages of the DEA Acquisition in light of various         
relevant factors, including Brown & Sharpe's 1993 and first quarter 1994        
operating performance, financial condition, cash requirements, financing        
options, business prospects and alternatives.                                   

Extensive presentations by Wertheim Schroder regarding the DEA Acquisition  
were made to the Board on March 12, 1993 and April 29, 1993. The DEA            
Acquisition was discussed at Board meetings held throughout 1993. Meetings to   
discuss the DEA Acquisition in 1994 were held at Brown & Sharpe on February     
22, 1994, April 22, 1994 and April 29, 1994 and by conference telephone on      
April 11 and 12, 1994 and May 20 and 25, 1994. Representatives of Wertheim      
Schroder, Coopers & Lybrand, counsel to Brown & Sharpe (Howard K. Fuguet of     
Ropes & Gray, counsel to Brown & Sharpe, is also a Director of Brown & Sharpe)  
and invited officers of Brown & Sharpe, including the President (also a         
Director), the Chief Financial Officer, the Vice President and General Manager  
of the MS Division, the Controller, the Treasurer, Secretary and Corporate      
Counsel were present for portions of certain Board meetings.                    

On June 2, 1994, the Board discussed the negotiations of the terms of the   
proposed DEA Acquisition Agreement and the Shareholders Agreement, the status   
of the Note Offering, Brown & Sharpe's 1994 operations and the business plan    
for integrating the DEA CMM business with the Brown & Sharpe MS Division,       
Brown & Sharpe's financial position and other related matters. In addition, at  
this meeting Wertheim Schroder made a further presentation to the Board         
regarding the proposed Note Offering, for which Wertheim Schroder will act as   
underwriter, and the fairness to the stockholders of Brown & Sharpe from a      
financial point of view of the consideration to be paid by Brown & Sharpe in    
the DEA Acquisition. The Board then voted, by unanimous vote of all the         
Directors, including three who were present by telephone conference call, to    
approve the DEA Acquisition and the terms of the DEA Acquisition Agreement (a   
copy of a draft of which had been sent to the Directors) as outlined to the     
Board and authorized the execution and delivery on behalf of Brown & Sharpe of  
the DEA Acquisition Agreement and the Shareholders Agreement in or              
substantially in the forms so presented and outlined, with such changes as may  
be approved by the Chairman of the Board, President or the Vice President and   
Chief Financial Officer, with the advice of counsel, and with the assistance    
of Wertheim Schroder.                                                           

RECOMMENDATION OF THE BOARD OF DIRECTORS                                        

By the unanimous vote at a meeting of the Board of Directors on June 2,     
1994, the Board of Directors approved the DEA Acquisition and approved the DEA  
Acquisition Agreement and the Shareholders Agreement, with such changes as      
approved by the President or Vice President and Chief Financial Officer, as     
being in the best interests of Brown & Sharpe and Brown & Sharpe's              
stockholders.                                                                   

In reaching its conclusions, the Board of Directors considered a number of  
factors, including the following: (i) the strategic and operational advantages  
to be gained by Brown & Sharpe by entering into the DEA Acquisition, including  
DEA's complementary CMM product line strengths and distribution strengths in    
various geographic areas; (ii) the current liquidity position of Brown &        
Sharpe; (iii) the current capital position of Brown & Sharpe related to the     
need for additional equity to improve its capital position; (iv) the            
desirability of refinancing certain Brown & Sharpe long-term and short-term     
indebtedness through the proposed Note Offering, for which the consummation of  
the DEA Acquisition is an important condition; (v) the audited 1993 results     
and unaudited first quarter 1994 results of DEA and an update on the results    
of management's due diligence on the DEA business; (vi) the recent operating    
results of Brown & Sharpe and internal operating forecasts for Brown & Sharpe;  
(vii) other information as to the substantially greater profitability of the    
Brown & Sharpe business in the United States in recent years as compared with   
Europe and the rest of the world where losses have been recorded for several    
years,; (viii) the willingness of Henry D. Sharpe, Jr. to enter into a voting   
agreement with respect to the election of Finmeccanica representatives as       
directors of Brown & Sharpe; (ix) the recommendation of management,             
specifically the recommendation of the President, Vice President and Chief      
Financial Officer and Vice President and General Manager of the MS Division,    
that Brown & Sharpe enter into the DEA Acquisition Agreement and Shareholders   
Agreement                                                                       

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and execute management's plan to implement the integration of the DEA CMM       
business with that of the MS Division, including the plan to achieve cost       
savings through such integration; (x) the history of the negotiations with      
Finmeccanica since the Letter of Intent in 1993 and the competitive             
implications of alternative strategies to the DEA Acquisition; (xi) legal       
advice and accounting advice as to certain aspects of the DEA Acquisition       
Agreement, including the conditions to the closing of the DEA Acquisition;      
(xii) the protections afforded by the Shareholders Agreement; (xiii) the        
opportunity to acquire DEA, a significant worldwide CMM company, during a       
period of recession for most European countries in what has been a cyclical     
industry; and (xiv) the advice of Wertheim Schroder as to the financial,        
valuation and currency exchange aspects of the DEA Acquisition, and the opinion 
of Wertheim Schroder that, based upon the considerations and subject to the     
assumptions and limitations set forth in such opinion, from a financial point   
of view, the consideration to be paid by Brown & Sharpe in the DEA Acquisition  
is fair to the shareholders of Brown & Sharpe. See "--Fairness Opinion." In     
addition, the board of directors considered the cost savings that Brown &       
Sharpe management expects to receive from the integration of DEA into Brown &   
Sharpe.                                                                         

As of the record date for the Special Meeting, the officers and directors of
Brown & Sharpe (as a group) were entitled to vote 678,219 shares of Class A     
Common Stock and 165,657 shares of Class B Common Stock, constituting           
approximately 17.2% of the votes entitled to be cast on the proposal to approve 
the issuance the shares of Class A Common Stock pursuant to the terms of the    
DEA Acquisition Agreement and the Shareholders Agreement. See "Principal        
Stockholders." All of such persons have indicated that they intend to vote      
their shares in favor of the proposal to issue the shares of Class A Common     
Stock pursuant to the terms of the DEA Acquisition Agreement and the            
Shareholders Agreement.                                                         

FAIRNESS OPINION                                                                

Wertheim Schroder has delivered its written opinion to the Brown & Sharpe   
Board of Directors to the effect that the consideration to be paid by Brown &   
Sharpe in the DEA Acquisition is fair to the common stockholders of Brown &     
Sharpe from a financial point of view as of June 2, 1994, and Wertheim Schroder 
has confirmed such opinion as of June 15, 1994. A copy of the opinion of        
Wertheim Schroder as confirmed as of June 15, 1994 is attached hereto as        
Exhibit E. Brown & Sharpe stockholders should read this opinion in its entirety 
for the assumptions made, matters considered and procedures followed by         
Wertheim Schroder. In rendering its opinion, Wertheim Schroder relied upon the  
accuracy and completeness of all information supplied or otherwise made         
available to it by Finmeccanica and DEA, and Wertheim Schroder did not          
independently verify such information, undertake an independent appraisal of    
the assets or liabilities (contingent or otherwise) of DEA and was not          
furnished with any such appraisals. No limitations were imposed by Brown &      
Sharpe's Board of Directors upon Wertheim Schroder with respect to the          
investigations made or procedures followed by Wertheim Schroder in rendering    
its opinion.                                                                    

In connection with its opinion, Wertheim Schroder, among other things:      

(i) reviewed the Letter of Intent dated May 3, 1993 between Brown &     
Sharpe and Finmeccanica;                                                    

(ii) reviewed the Acquisition Agreement and the Shareholders Agreement; 

 (iii) reviewed DEA's Audited Combined Financial Statements for the fiscal
years ended December 31, 1990 through December 31, 1993; the Unaudited      
Combined Financial Statements for the quarters ended March 31, 1993 and     
March 31, 1994; and the Audited Combined Financial Statements for the six   
months ended June 30, 1993;                                                 

 (iv) reviewed and discussed with the management of DEA, certain financial
information prepared by the management of DEA, including the internally     
prepared 1994 budget;                                                       

(v) compared the results of operations of DEA with those of certain     
companies which it deemed to be reasonably comparable to DEA;               

(vi) reviewed the financial terms, to the extent publicly available, of 
certain comparable acquisition transactions;                                

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(vii) participated in discussions and due diligence sessions with       
representatives of Brown & Sharpe, Finmeccanica and DEA;                    

(viii) reviewed DEA's financial statements, financial controls and      
financial reporting systems with DEA's auditors;                            

(ix) discussed the market position of DEA and its major competitors with
some customers of DEA and Brown & Sharpe; and                               

(x) performed such other analysis and reviewed and analyzed such other  
information as it deemed appropriate.                                       

The Board of Directors of Brown & Sharpe selected Wertheim Schroder as its  
financial advisor because Wertheim Schroder is a nationally recognized          
investment banking firm with substantial experience with companies engaged in   
the general manufacturing business sector in which Brown & Sharpe operates and  
with substantial experience in international transactions similar to the DEA    
Acquisition. As part of its investment banking business, Wertheim Schroder is   
regularly engaged in the valuation of businesses and their securities in        
connection with mergers and acquisitions. Pursuant to a retainer agreement      
between Brown & Sharpe and Wertheim Schroder, Wertheim Schroder receives an     
annual retainer of $100,000 plus expenses, payable quarterly. In 1992 and 1993  
Brown & Sharpe paid $26,263 and $70,375, respectively, to Wertheim Schroder     
pursuant to this retainer agreement. Wertheim Schroder will be paid a fee of    
$300,000 plus expenses as compensation for the fairness opinion and a fee of    
$550,000 (less previously paid retainer fees of up to $100,000) for financial   
advisory services relating to the DEA transaction. In addition, Brown & Sharpe  
has agreed to reimburse Wertheim Schroder for its reasonable out-of-pocket      
expenses (including reasonable counsel fees) and to indemnify Wertheim Schroder 
against certain liabilities and expenses in connection with its engagement.     

It is contemplated that Brown & Sharpe and Wertheim Schroder will enter into
an underwriting agreement with respect to the proposed Note Offering whereby,   
subject to certain conditions, Wertheim Schroder will agree to purchase from    
Brown & Sharpe all of the Senior Notes and to sell the Senior Notes to the      
public simultaneously with the effectiveness of the DEA Acquisition. As part of 
the proposed underwriting agreement, Wertheim Schroder will receive a customary 
underwriter's fee (calculated as the difference between the public offering     
price and the price at which the Senior Notes are purchased by Wertheim         
Schroder) estimated to be approximately $   . In addition, Wertheim Schroder    
will be reimbursed for certain out-of-pocket expenses estimated to be           
approximately $   . Brown & Sharpe will also agree, pursuant to the             
underwriting agreement, to indemnify Wertheim Schroder against certain          
liabilities in connection with the offering of the Senior Notes, including      
liabilities under the Securities Act of 1933. It is possible, however, that     
alternative financing may be used instead of the proposed Note Offering, in     
which case the parties will not enter into the above-described underwriting     
agreement.                                                                      

TERMS OF THE DEA ACQUISITION AGREEMENT                                          

The following description of the DEA Acquisition Agreement is only a summary
and does not purport to be complete and is qualified in its entirety by         
reference to the full text of the DEA Acquisition Agreement, a copy of which is 
included as Exhibit F to this Proxy Statement and hereby incorporated by        
reference herein.                                                               

The DEA Acquisition Agreement provides that the purchase price for the DEA  
Acquisition consists of 3,450,000 shares of Brown & Sharpe's Class A Common     
Stock. Prior to the closing, Finmeccanica will assume or discharge all          
indebtedness for borrowed money of DEA net of cash in excess of L0.8 billion,   
other than an amount of indebtedness to remain outstanding on the closing,      
which amount is determined as of July 31, 1994 (the "Pricing Date") pursuant to 
a formula in the DEA Acquisition Agreement. Brown & Sharpe estimates that       
approximately $13.8 million aggregate principal amount of DEA indebtedness will 
remain outstanding at the closing. The purchase price is subject to a post-     
closing adjustment based on a comparison of adjusted net asset value (as        
defined in the DEA Acquisition Agreement) of DEA as of June 30, 1994 and        
adjusted net asset value of DEA as of the Pricing Date (as defined and          
calculated in accordance with a                                                 

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formula in the DEA Acquisition Agreement) and after taking into account the     
withdrawal by Finmeccanica of cash generated from the non-recourse factoring of 
a mutually agreed amount of receivables of DEA prior to the Pricing Date (and   
after reflecting an additional adjustment relating to any difference between    
the estimated July 31, 1994 amount of indebtedness of DEA to be discharged by   
Finmeccanica and the actual amount, as finally determined, of such indebtedness 
as of July 31, 1994). If the post-closing adjustment indicates an increase or a 
decrease in the purchase price, then either the Combined Company will issue to  
Finmeccanica an additional number of shares of Class A Common Stock with a      
value equal to such positive difference or Finmeccanica will make a cash        
payment to the Combined Company, equal to such negative difference. However, if 
such positive or negative difference is less than $500,000, no adjustment will  
be made. The amount of any purchase price adjustment will be conclusively       
determined, subsequent to the closing date of the DEA Acquisition, based upon   
the specified calculations and the audited combined balance sheet as of July    
31, 1994 of DEA and its subsidiaries as agreed between the parties under the    
procedures set forth in the DEA Acquisition Agreement.                          

Noncompetition. The DEA Acquisition Agreement provides that for a period of 
five years after the closing date of the DEA Acquisition, neither Finmeccanica  
nor any of its affiliates will directly or indirectly acquire more than a 20%   
ownership interest in any business, venture or activity which competes with the 
metrology business relating to CMMs (including parts and accessories) being     
conducted or proposed to be conducted by DEA at the closing date of the DEA     
Acquisition or relating to metrology products performing functions similar to   
those of the products manufactured and sold by DEA. These noncompetition        
provisions will terminate if Brown & Sharpe no longer owns a greater than 50%   
ownership interest in DEA. Finmeccanica will not be in breach of the            
noncompetition provision of the DEA Acquisition Agreement if it or any of its   
affiliates acquires or invests in any company which includes among its business 
operations the manufacture and sale of metrology products performing functions  
similar to those of the products manufactured and sold by DEA to the extent     
that sales of such products constitute only an immaterial portion of the total  
revenues of the acquired business. In the DEA Acquisition Agreement,            
Finmeccanica represents to Brown & Sharpe that it has no present intention of   
acquiring any such company.                                                     

The DEA Acquisition Agreement also provides that for a period of three years
after the closing date of the DEA Acquisition Finmeccanica will not, without    
the prior written consent of Brown & Sharpe, employ any person who is an        
employee of the Combined Company unless such person has been terminated by the  
Combined Company.                                                               

 The Effective Date. It is currently anticipated that the DEA Acquisition will
be effected as soon as possible after the Special Meeting.                      

Conditions to the Closing of the DEA Acquisition; Termination. The          
obligations of Brown & Sharpe and Finmeccanica to effect the DEA Acquisition    
are subject to various conditions (each of which can be waived by the party     
affected by such waiver), including: (1) the approval by Brown & Sharpe's       
stockholders of the issuance of the shares of Class A Common Stock required     
pursuant to the terms of the DEA Acquisition Agreement; (2) that Brown & Sharpe 
complete the Note Offering on terms deemed acceptable to Brown & Sharpe or      
enter into a refinancing of the Combined Company's indebtedness; and (3) the    
approval of all federal, national, state, local and foreign governmental        
agencies or authorities that are necessary in connection with the consummation  
of the DEA Acquisition. All federal and state approvals that are necessary in   
connection with the DEA Acquisition have been obtained as of the date of this   
Proxy Statement, although if the DEA Acquisition is not consummated on or prior 
to August 12, 1994, Brown & Sharpe and Finmeccanica will be required to file an 
additional notification under the Hart-Scott-Rodino Antitrust Improvements Act  
and will be subject to another statutory waiting period of 30 days, which may   
be extended at the discretion of the Department of Justice or the Federal Trade 
Commission.                                                                     

 The DEA Acquisition Agreement may be terminated at any time by mutual consent
of Brown & Sharpe and Finmeccanica and by either Brown & Sharpe or Finmeccanica 
at any time after October 31, 1994 if the consummation of the DEA Acquisition   
has not yet occurred, provided that the DEA Acquisition Agreement               

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may not be terminated by a party which at such time is in material breach of a  
provision in the DEA Acquisition Agreement.                                     

Indemnification. The DEA Acquisition Agreement provides that Brown & Sharpe 
and Finmeccanica will, for the periods specified in the DEA Acquisition         
Agreement, none of which are longer than 21 months after the closing of the DEA 
Acquisition, indemnify each other against up to $10.0 million (less the first   
$500,000) resulting from the inaccuracy of representations and warranties in    
the DEA Acquisition Agreement, breach or nonfulfillment of any agreement or     
covenant contained in or required to be entered into in connection with the DEA 
Acquisition Agreement, and certain environmental and tax claims, if any.        
Finmeccanica will also indemnify Brown & Sharpe for the amount by which certain 
of its liabilities exceed limits provided for in the purchase price provisions  
of the DEA Acquisition Agreement.                                               

TERMS OF THE SHAREHOLDERS AGREEMENT                                             

In connection with the DEA Acquisition, Brown & Sharpe and Finmeccanica will
enter into a Shareholders Agreements providing Finmeccanica with certain rights 
and obligations with respect to its ownership of shares in the Combined         
Company. Finmeccanica will be prohibited from acquiring any shares of the       
Combined Company's stock if such acquisition would increase Finmeccanica's      
ownership above approximately 40% on a fully-diluted basis (as defined in the   
Shareholders Agreement) until December 31, 1998, or earlier upon the happening  
of certain specified events. The Shareholders Agreement will provide that so    
long as Finmeccanica owns at least 862,500 shares of the Combined Company's     
Class A Common Stock, the Combined Company may not issue any shares of its      
Class A Common Stock or equity securities exercisable, exchangeable or          
convertible into shares of Class A Common Stock ("Derivative Securities") to    
any third party, other than certain specified exclusions (including shares      
issued on conversion of the Combined Company's 9 1/4% Convertible Subordinated  
Debentures due 2005 and up to 400,000 shares issuable upon the exercise of      
stock options granted to employees under the Combined Company's benefit plans), 
without first offering to Finmeccanica the right to purchase that percentage of 
the Combined Company's equity securities such that Finmeccanica's percentage    
ownership of the Combined Company's common stock on a fully diluted basis (as   
defined in the Shareholders Agreement) does not decrease. In addition,          
Finmeccanica will not sell any of the Combined Company's equity securities to   
any third party until the expiration of two years after the closing of the DEA  
Acquisition, and upon the expiration of such two-year period, may sell          
securities to a third party only after offering the Combined Company the        
opportunity to purchase such shares (other than sales pursuant to a registered  
public offering pursuant to Finmeccanica's registration rights and sales        
pursuant to Rule 144 under the Securities Act of 1933).                         

The Shareholders Agreement also provides that the Combined Company will     
increase the number of its directors from seven to ten and will use reasonable  
best efforts to cause to be elected to the board of directors three nominees    
designated by Finmeccanica for respective terms expiring at the 1995, 1996 and  
1997 annual meetings of stockholders. At such time as Henry D. Sharpe, Jr.      
ceases to be a director of the Combined Company, Finmeccanica will thereafter   
be entitled to only a total of two nominees on the board plus a third nominee,  
who may not be an employee of Finmeccanica but shall be an experienced          
executive or advisor to industrial businesses, selected by Finmeccanica subject 
to approval by the board of directors of the Combined Company, that may not be  
unreasonably withheld. In any event, Finmeccanica shall be entitled to two      
nominees on the board of directors while it owns at least 1,250,000 shares of   
the Combined Company's Class A Common Stock and one nominee on the board of     
directors while it owns at least 375,000 shares of the Combined Company's Class 
A Common Stock. Under the terms of a letter agreement between Henry D. Sharpe,  
Jr. and Finmeccanica, Henry D. Sharpe, Jr. will agree to vote all shares of the 
Combined Company's stock as to which he has sole voting power in favor of the   
Finmeccanica nominees on the Combined Company's board of directors. The         
Shareholders Agreement provides that Finmeccanica will vote its shares of Class 
A Common Stock in favor of the election as directors of the Combined Company    
all the nominees selected by the Combined Company's board of directors.         

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DEA rents certain buildings in Italy and Spain from Elsag Bailey, S.p.A., a 
subsidiary of Finmeccanica. The lease with respect to the Italian property      
provides for minimum annual rent of L1.3 billion, subject to adjustment for     
inflation, and expires on December 31, 1997. DEA paid L1.3 billion ($0.8        
million) in rent under the lease in the year ended December 31, 1993. The lease 
with respect to the Spanish property provides for an annual rent of Pesetas     
30,600,000 ($0.2 million based on the March 31, 1994 exchange rate) and expires 
on January 4, 1998. DEA paid L0.1 billion ($0.1 million) in rent under this     
lease in the year ended December 31, 1993.                                      

Since the transfer of the assets of the assembly divisions of DEA to Sistemi
di Assemblaggio Robotizzato, a subsidiary of Finmeccanica ("SAR"), on January   
19, 1993, DEA has provided administrative services to SAR. In the year ended    
December 25, 1993, SAR paid DEA L0.7 billion ($0.4 million) for these services. 
In addition, Franco De Gennaro, Managing Director of DEA, is employed and paid  
by Finmeccanica, and DEA reimburses Finmeccanica for the cost of his services.  

NO APPRAISAL RIGHTS                                                             

Under Delaware law, shareholders of Brown & Sharpe will not be entitled to  
appraisal rights in connection with the DEA Acquisition.                        

ACCOUNTING TREATMENT                                                            

The Combined Company will account for the DEA Acquisition as a purchase     
transaction. In a purchase transaction the purchase price, including assumed    
liabilities and appropriate reserves, is allocated among the acquired assets    
based on estimated fair market values for purposes of recording such assets on  
the purchaser's balance sheet. See "Management's Discussion and Analysis of     
Financial Condition and Results of Operations of Brown & Sharpe--Effects of     
Roch and DEA Acquisition."                                                      

FEDERAL TAX CONSEQUENCES                                                        

 The DEA Acquisition will not result in any federal income tax consequences to
Brown & Sharpe or its stockholders.                                             

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STOCK INFORMATION 

 The following table presents historical per share data for Brown & Sharpe and
pro forma per share data for the Combined Company giving effect to both the DEA 
Acquisition and the Note Offering. The pro forma per share data for the         
Combined Company are not necessarily indicative of what actual results of       
operations would have been had the DEA Acquisition and the Note Offering        
occurred at the beginning of the year, nor do they purport to indicate the      
results of future operations of the Combined Company.                           

                                                        [Enlarge/Download Table]

                                      AT OR FOR                                     AT OR FOR           
                         FISCAL YEAR ENDED DECEMBER 25, 1993               QUARTER ENDED APRIL 2,1994   
                         ------------------------------------------      -------------------------------
                                 (PER COMMON SHARE)                            (PER COMMON SHARE)       
                                                  COMBINED COMPANY                      COMBINED COMPANY
                          BROWN & SHARPE             PRO FORMA           BROWN & SHARPE    PRO FORMA    
                         ------------------      ------------------      -------------- ----------------
                                                                                                        
Net income (loss) per                                                                                   
 share..................     $            (0.49)      $            1.08      $(0.57)         $(0.13)    
Dividends...............                    --                      --          --              --      
Shareowners' equity per                                                                                 
 share (at end of peri-                                                                                 
 od)....................     $            12.78                     --       $11.83          $ 9.22     

The following table presents historical per share data for DEA, historical  
per share data for DEA adjusted to eliminate DEA borrowings assumed,            
discharged, cancelled or waived by Finmeccanica in connection with the DEA      
Acquisition Agreement and the equivalent pro forma data for the Combined        
Company per DEA share acquired by Brown & Sharpe in the DEA Acquisition.        

                                                                [Download Table]

                                 AT OR FOR                   AT OR FOR          
                             FISCAL YEAR ENDED             QUARTER ENDED        
                             DECEMBER 31, 1993             MARCH 31, 1994       
                         --------------------------- ---------------------------
                             (PER COMMON SHARE)          (PER COMMON SHARE)     
                                          PRO FORMA                   PRO FORMA 
                                   DEA    EQUIVALENT           DEA    EQUIVALENT
                          DEA    ADJUSTED   DEA(1)    DEA    ADJUSTED   DEA(1)  
                         ------  -------- ---------- ------  -------- ----------
                                                                                
Net income (loss) per                                                           
 share.................. $(0.15)            $0.23    $(0.13)            $(0.03) 
Dividends...............    --                --        --                 --   
Shareowners' equity per                                                         
 share (at end of peri-                                                         
 od).................... $ 1.39               --     $ 1.20             $ 1.94  

--------                                                                        
(1) Calculated by multiplying Brown & Sharpe pro forma amounts by the ratio of  
the number of Brown & Sharpe shares received to number of DEA shares    
exchanged.                                                              

The Class A Common Stock of Brown & Sharpe is listed on the New York Stock  
Exchange under the symbol "BNS". At July  , 1994, Brown & Sharpe had            
stockholders of record of its Class A Common Stock and    stockholders of       
record of its Class B Common Stock. The quarterly high and low closing sale     
prices of the Class A Common Stock on the New York Stock Exchange (the Class B  
Common Stock is not traded, is convertible into Class A Common Stock on a one-  
for-one basis, and can be transferred in Class B form only to specified         
transferees) during fiscal 1992, 1993 and through June  , 1994 as presented     
below.                                                                          

                                                                [Download Table]

                                          FISCAL YEAR ENDING                   
                        -------------------------------------------------------
                        DECEMBER 26, 1992 DECEMBER 25, 1993 DECEMBER 23, 1994* 
                        ----------------- ----------------- -------------------
                          HIGH     LOW      HIGH     LOW      HIGH       LOW   
                        ----------------- ----------------- --------- ---------
QUARTER                                                                        
-------                                                                        
                                                                               
First.................. $  10.50 $   8.50 $   9.38 $   6.38 $    8.00 $    6.25
Second.................     9.50     5.00     9.00     7.63                    
Third..................     6.38     5.00     8.63     7.38                    
Fourth.................     7.25     5.25     8.63     6.75                    

--------                                                                        
* Through June 24, 1994                                                         

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DIVIDENDS                                                                       

No dividends have been paid by Brown & Sharpe since 1990. Dividend payments 
have been suspended in order to conserve cash. Also, payment of dividends is    
currently not permitted under an existing loan facility, is not expected to be  
permitted under the Revolving Credit Facility and is subject to limitation      
under the indenture for the Senior Notes.                                       

DEA                                                                             

 All shares of DEA are owned by Finmeccanica, with the result that there is no
market in which any class of DEA's common equity is traded.                     

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BROWN & SHARPE MANUFACTURING COMPANY

GENERAL                                                                         

Brown & Sharpe is a leader in the design, manufacture and marketing of      
dimensional metrology products worldwide under several internationally          
recognized brand names. Brown & Sharpe's products measure the physical          
dimensions of objects and are used by a wide variety of industrial companies to 
monitor product conformance to specifications. Manufacturers use Brown &        
Sharpe's products to improve product quality and are increasingly integrating   
quality control functions, and therefore Brown & Sharpe's products, directly    
into the manufacturing process. Brown & Sharpe markets its dimensional          
metrology products and services in North America, Europe, Asia, South America   
and the Middle East. Primary end markets for Brown & Sharpe's products are the  
automotive, aerospace, and industrial machinery industries.                     

Brown & Sharpe's operations are conducted through three units: Measuring    
Systems, Precision Measuring Instruments and Custom Metrology.                  

.  THE MEASURING SYSTEMS DIVISION (the "MS Division"), Brown & Sharpe's largest 
unit, manufactures and markets a wide range of manual and computer-       
controlled, high-precision CMMs. CMMs measure manufactured products and   
their components within exacting dimensional tolerances, thereby enabling 
manufacturers to minimize scrap and rework costs, reduce warranty expense 
and improve product quality. The MS Division also sells a wide variety of 
  attachments, accessories and related software and provides aftermarket parts
and services. Its products are sold under the Brown & Sharpe (R) and      
 Leitz (R) brand names. Brown & Sharpe believes that it is the leader in the
 U.S. market for CMM products as measured by net sales. The MS Division will
be renamed the "Measuring Systems Group" after the DEA Acquisition.       

.  THE PRECISION MEASURING INSTRUMENTS DIVISION (the "PMI Division")            
  manufactures and markets a wide range of mechanical and electronic measuring
  and inspection tools including micrometers, dial indicators, calipers, gauge
blocks and height gauges. PMI Division products are sold under the Brown &
Sharpe (R), Tesa (R), Etalon (R), Interapid (R), Standard Gage (R),       
Mauser (R), Mercer (R) and Roch (R) brand names.                          

.  THE CUSTOM METROLOGY DIVISION (the "CM Division") designs and engineers      
specialty products and systems to provide customized solutions for unique 
measurement or inspection problems, such as applications requiring several
  simultaneous measurements or inspection of an entire object in a high volume
production line. The CM Division also manufactures and markets probes,    
 interfaces and statistical network software and tooling which are purchased
 by OEMs for use on their inspection stations. CM Division products are sold
under the Tesa (R) and Mercer (R) brand names.                            

DIMENSIONAL METROLOGY INDUSTRY                                                  

Dimensional metrology products measure and inspect manufactured parts and   
components for conformance to specifications. These products include a wide     
range of measuring devices such as calipers, micrometers, dial indicators,      
fixed gauges, height gauges, measuring microscopes, electronic probes,          
customized semiautomatic and automatic measuring devices, optical and laser     
measuring devices, robots, coordinate measuring machines and related software.  
Prices range from $20 for a caliper to over $3 million for a large gantry CMM.  
A customer generally will choose between different dimensional metrology        
technologies or products based upon the features, complexity, variety and       
throughput of the items to be measured, the degree of accuracy required, and    
cost differences between the available metrology products. For example, fixed   
gauges are more likely to meet a customer's metrology needs if the items that a 
customer must measure are all uniform in size and shape, such as automobile     
connecting rods, and results are needed instantly. If, however, a customer      
needs to measure a large number of items all having different features from one 
another, such as the parts of a prototype automobile engine, a more flexible    
measuring device such as a CMM would more likely meet the customer's metrology  
needs. As manufactured products and components become more precise and complex, 
the flexibility of CMMs should give them an advantage in certain applications   
over less flexible dimensional metrology products such as manual, semi-         
automatic and fixed gauges.                                                     

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Although the metrology industry is fragmented for lower-priced products,    
Brown & Sharpe is one of only six major worldwide competitors that manufacture  
high precision CMMs. CMM products can be grouped into three categories: small   
(which can be used to measure a product such as an automobile carburetor),      
medium (which can be used to measure an item such as an engine block) and large 
(which can be used to measure an item such as the body of a truck or bus).CMMs  
were first introduced in the 1950s, but early models were only capable of two-  
axis measurement. Over time, CMMs have evolved into complex, computer assisted  
or computer driven, multi-axis systems, often with attachments such as two-axis 
articulated probe holders, contact and non-contact sensors of various types,    
electronic touch trigger probes, continuous scanning analog probes, marking     
systems, laser probes and rotary tables. Today, CMMs are utilized to measure    
and inspect finished products, mechanical components and families of parts in   
many basic industries, including the automotive, aerospace, construction and    
farm equipment, industrial machinery, defense, appliance, computer and          
electronics, medical equipment and semiconductor industries. CMM prices range   
from approximately $12,000 to over $3 million depending upon accuracy,          
attachments and size.                                                           

The increasing use of more sophisticated software has played an important   
role in the evolution of the CMM. Improved software, CAD/CAM and network        
technologies enable CMMs to automatically compensate for the position of the    
piece to be measured relative to the measuring axes of the machine, eliminating 
the need for the time-consuming manual positioning necessary with other         
dimensional metrology products. Although CMM-type software can be added to on-  
machine gauging, vision systems of various types and a small percentage of      
fixed gauges, CMMs are easier to use, more flexible and generally provide more  
analytical information than most products using competing technologies.         

Manufacturers of component parts, as well as manufacturers of finished      
products, are purchasers of CMMs and other dimensional metrology products.      
Manufacturers depend upon dimensional metrology products to improve the         
reliability, fit and finish of their products and to improve efficiency by      
reducing errors, scrap, throughput time and work-in-progress inventories.       
Traditionally, customers used either fixed gauges, optical comparators or       
calipers, or other hand or bench tools to inspect product conformance to        
specifications on the factory floor, while CMMs were used in factory quality    
control departments due to the necessity for a controlled environment for       
optimum CMM operation. Improved hardware and software technologies have allowed 
customers to move CMMs onto the factory floor to facilitate direct integration  
of CMM measurement capabilities into the manufacturing process. Because CMMs,   
fixed gauges and certain other types of dimensional metrology products can be   
configured to accommodate a wide variety of customer specifications for         
accuracy, speed, set-up time and physical characteristics of the objects to be  
measured, Brown & Sharpe believes these products can effectively meet the       
evolving quality control needs of manufacturers.                                

Management believes that the total size of the dimensional metrology market 
worldwide is approximately $1 billion for product categories in which Brown &   
Sharpe's products generally compete. Despite growth in the dimensional          
metrology markets in China, India and the Pacific Rim countries, management     
believes that in recent years the total world market for dimensional metrology  
products has declined significantly in terms of dollar denominated sales. In    
the three major world markets, the decline has been more significant in Europe  
and Japan than in the United States. Brown & Sharpe believes that this overall  
market decline is primarily related to global economic conditions which have    
resulted in reduced levels of capital expenditures by manufacturers in many     
market segments. In addition, during this period, revenues from sales of CMMs   
and other dimensional metrology products were impacted by vigorous price and    
performance competition due to overcapacity in the dimensional metrology        
industry and reduced demand by the capital goods sector for dimensional         
metrology products. However, because of the steady economic recovery in the     
United States and the expectation that the European economies will begin to     
emerge from recession, Brown & Sharpe believes that the world market for        
metrology products should improve during the next few years.                    

METROLOGY BUSINESS STRATEGY                                                     

Brown & Sharpe is implementing a strategy designed to improve its           
competitiveness and position itself for improvement in its markets, including   
the currently depressed European market. Key elements of this                   

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strategy are (i) expanding its market presence in the metrology industry,       
including through acquisition and consolidation opportunities, (ii) reducing    
product costs through more cost-effective product design, selective outsourcing 
and consolidation of manufacturing processes, (iii) providing "best in class"   
customer service and strengthening its worldwide distribution network and (iv)  
focusing on technological innovations designed to improve product performance   
and the development of new products.                                            

Expanded Market Presence. Through the acquisition of Roch and Mauser,   
Brown & Sharpe has expanded, and through the acquisition of DEA Brown &     
Sharpe will further expand, its product lines and its marketing and         
distribution capabilities in Europe, South America, the Middle East, India  
and China. Brown & Sharpe intends to continue to expand and strengthen its  
market presence and broaden its product lines by pursuing selected small    
acquisition and consolidation opportunities within the dimensional          
metrology industry. Brown & Sharpe believes that the dimensional metrology  
industry has continuing overcapacity, and that competitors having           
complementary product lines and geographic market coverage may continue to  
become available for acquisition.                                           

Competitive Costs. Brown & Sharpe intends to continue to increase       
production efficiency through more cost-effective product designs and       
through other cost reductions. Brown & Sharpe intends to reduce costs by    
using the "Design for Manufacturability and Assembly" (DFMA) engineering    
principle, which strives to use the fewest parts and the lowest cost        
assembly process by examining the production processes at each facility in  
order to maximize efficiency, and by outsourcing components and complete    
products in cases where it can achieve its high quality standards at        
reduced costs. During the last five years, annual net sales per employee    
for Brown & Sharpe have increased from approximately $84,900 to             
approximately $94,800.                                                      

"Best in Class" Customer Service and Worldwide Distribution             
Capability. Brown & Sharpe provides post-sale service and support to its    
customers through its customer service departments and its regional and     
international demonstration centers. Brown & Sharpe is committed to         
providing "best in class" customer service, and believes that the level of  
customer service provided by Brown & Sharpe has improved in recent years    
and is superior to the service provided by its principal competitors. In    
order to continue to improve its customer service, Brown & Sharpe plans to  
increase its emphasis on customer training by improving user manuals and    
documentation relating to Brown & Sharpe's products, and to directly        
support a greater number of its customers by adding new demonstration and   
service centers in previously unserved geographic areas. In addition, Brown 
& Sharpe plans to strengthen its worldwide distribution capability,         
principally by continuing to rationalize its existing distribution network  
and by opening new demonstration centers and adding new direct sales        
capacity or distributors where increased volume makes such distribution     
methods cost effective.                                                     

Technological Innovation. Brown & Sharpe intends to continue to enhance 
and expand its offering of systems and products through sustained design    
and manufacturing engineering. In 1993, Brown & Sharpe invested, exclusive  
of customer-sponsored activities and government grants, $8.7 million,       
comprising 5.5% of sales, and directly involved 120 employees in product    
design, development, refinement and manufacturing engineering. After the    
DEA Acquisition, Brown & Sharpe intends to continue such design and         
manufacturing engineering at similar levels. Brown & Sharpe performs some   
additional engineering development activities through government grants in  
some countries and engages in special projects that utilize customer        
funding.                                                                    

MS DIVISION                                                                     

The MS Division, the largest of Brown & Sharpe's three units, accounted for 
approximately 55% of Brown & Sharpe's revenues in 1993. The MS Division is      
headquartered in North Kingstown, Rhode Island. Products sold under the Brown & 
Sharpe (R) name are manufactured at the North Kingstown facility and products   
sold under the Leitz (R) name are manufactured in Wetzler, Germany. Brown &     
Sharpe also manufactures some CMM products in the United Kingdom. The primary   
end markets for the CMM products of the MS Division are the automotive,         
aerospace and industrial machinery industries.                                  

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MS Division products range from small, manually operated CMMs to large, high
speed, high precision automatic CMMs. In addition to these standard and custom- 
configured CMMs, Brown & Sharpe also produces and sells high-speed process      
control robots. The smallest machines can measure in a volume up to 16x14x12    
inches and are priced at approximately $12,000, and the larger, high speed,     
high accuracy CMMs with integrated software systems can cost over $3 million.   
In addition, the MS Division provides accessories, parts, after-sales service,  
rebuilds and computer hardware and software upgrades for Brown & Sharpe's CMMs  
and competing machines.                                                         

The MS Division's "user-friendly" CMM application software is an important  
component of its marketing strategy for its CMM products. Management believes   
that the MS Division's uniquely functional CMM software packages give it a      
competitive advantage in the marketplace for CMMs. These proprietary software   
products provide the MS Division's customers with an easily understood, icon-   
based inspection analysis capability, graphical user interfaces and outputs,    
and networking capability with manufacturing systems. The MS Division also      
provides its customers with special software and systems integration of the MS  
Division's products with the customer's host computer.                          

The MS Division distributes the majority of its products directly to        
customers through its worldwide direct sales force. The typical sales process   
involves lengthy, technical, one-on-one discussions between the salesperson or  
the distributor/sales agent and the customer. As an important part of its       
marketing and distribution strategy, Brown & Sharpe provides in-depth training  
to the customer through demonstration, installation and application support     
both prior to and after the sale. This direct sales and customer support        
strategy is primarily implemented through Brown & Sharpe's customer support and 
demonstration centers. Brown & Sharpe currently operates demonstration centers  
in seven cities throughout the United States, eight centers throughout Europe   
and one in Asia, including four located at Brown & Sharpe's CMM manufacturing   
facilities. Brown & Sharpe also operates contract inspection and measuring      
services from these demonstration centers. Service revenue generated by the     
demonstration centers offsets a portion of the cost of operating the centers.   
In 1994, assuming the completion of the DEA Acquisition, Brown & Sharpe plans   
to close five demonstration centers (with seven centers still remaining in the  
United States) in cities where existing Brown & Sharpe and DEA demonstration    
centers overlap, and to open new demonstration centers in three additional U.S. 
cities and one in Asia.                                                         

PMI DIVISION                                                                    

The principal products of Brown & Sharpe's PMI Division are precision       
measuring tools and related instruments such as micrometers, rulers, dial       
indicators, calipers, electronic height gauges and gauge blocks. These tools    
and instruments have a broad application and lower unit list prices (with a     
range of approximately $20 to approximately $13,000) than the prices of the MS  
Division's products (which range from approximately $12,000 to over $3          
million). PMI products typically measure in one or two dimensions, and are      
often used in comparative measuring where an unknown part or dimension is       
compared to a previously measured part or dimension. PMI products also include  
systems and application software for measuring and statistical process control. 
The primary end markets for the products of Brown & Sharpe's PMI Division are   
the automotive, aerospace, metal processing and defense industries, although    
Brown & Sharpe's PMI products are used in virtually all types of industrial     
settings. Brown & Sharpe's PMI Division is headquartered in Renens,             
Switzerland, and its products are manufactured at its plants in Rolle and       
Renens, Switzerland; Poughkeepsie, New York; Leicester, St. Albans and          
Plymouth, England; and in Luneville, France.                                    

The PMI Division generally distributes its products through international   
import companies, regional distributors and catalog houses throughout the       
world. Brown & Sharpe sales offices located in key markets provide support to   
the distributors and catalog houses. As of May 27, 1994, the PMI Division       
operates four sales offices in the United States and eight in other countries,  
which are staffed by a total of 74 PMI Division employees.                      

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CM DIVISION                                                                     

 Headquartered in Telford, England, the CM Division is an engineering division
which designs and engineers specialty products and systems to provide           
customized solutions for unique measurement or inspection problems. For         
example, the CM Division recently designed and implemented a system for         
measuring the thickness of the metal top of a soda can and the thickness of the 
groove scored around the can's pop-up tab, so that the manufacturer could       
determine the ease with which the can could be opened by the end user while     
insuring that the can would not rupture. The CM Division's products include     
factory networks, contact and optical measuring machines and fixtures aimed at  
specific niche markets. CM Division products also include components such as    
measuring sensors used in its custom gauges and fixtures as well as those       
manufactured by other companies. Prices for CM Division products range from     
approximately $20,000 to $1 million for systems and from approximately $150 to  
$5,000 for probes, sensors and other components.                                

 Often, the CM Division is able to produce a superior customized product while
at the same time gaining the expertise necessary to convert such customer-      
funded research into new, standard Company products. For example, the CM        
Division has recently developed a family of optical measuring systems, with     
list prices of approximately $50,000 to $500,000.                               

The primary end markets for the custom-designed products of the CM Division 
currently are automotive, aerospace, defense, package and can manufacturing,    
oil drilling and standards laboratories. Sales of these products typically      
involve a close, highly technical relationship with the customer. This direct   
relationship with the customer is reinforced by strong and continuing efforts   
to provide superior customer service through ongoing customer training and      
technical support. Sales of measuring sensors and other components to OEM       
customers are generally conducted by regional distributors. In 1993,            
approximately 48% of the CM Division's net sales were derived from custom-      
engineered metrology solutions including made-to-order products, and the        
balance of the CM Division's net sales were derived from sales of probes,       
sensors and other components.                                                   

FOREIGN OPERATIONS                                                              

Brown & Sharpe manufactures and sells substantial amounts of its dimensional
metrology products in foreign countries. For fiscal 1993, approximately 71.7%   
of Brown & Sharpe's net sales were to customers located outside the United      
States. Manufacturing operations take place in Switzerland, Germany, England    
and France, as well as in the United States, and Brown & Sharpe's products are  
sold in over 60 countries worldwide. As of April 2, 1994, approximately 54.0%   
of Brown & Sharpe's assets were located outside the United States (based on     
book values). Accordingly, margins and the ability to export competitively from 
these manufacturing locations are affected by fluctuations in foreign currency  
exchange rates. See "Management's Discussion and Analysis of Financial          
Condition and Results of Operations of Brown & Sharpe." For financial           
information concerning the foreign operations of Brown & Sharpe for 1991, 1992  
and 1993, see Note 14 to the Consolidated Financial Statements of Brown &       
Sharpe.                                                                         

ENGINEERING AND PRODUCT DEVELOPMENT                                             

Brown & Sharpe's commercial success is dependent upon its ability to develop
products, enhancements and applications that meet changing customer metrology   
needs and anticipate and respond to technological changes. Brown & Sharpe       
designs, develops and refines its products internally through engineering       
departments within its product groups and divisions. Brown & Sharpe employs     
approximately 120 engineers and technicians, the majority of whom hold          
engineering or other university degrees. When it is more cost-effective to do   
so, Brown & Sharpe purchases product designs or portions of product designs     
from engineering subcontractors or acquires such designs through licensing      
arrangements. Brown & Sharpe also benefits from research and development        
efforts which are subsidized by customer funds and, in certain countries, by    
government research grants. Brown & Sharpe's research, development and          
manufacturing engineering activities are conducted in the United States,        
France, Switzerland, Germany, the United Kingdom and Lithuania.                 

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Brown & Sharpe derived over 45% of its net sales in 1993 from the sale of   
products that were introduced into the market after 1987. Brown & Sharpe has    
been successful in bringing to market new, high-quality products and has        
introduced at least one major new product every year since 1987. The current    
objectives of Brown & Sharpe's design and manufacturing engineering activities  
are the integration of the Roch technologies with Brown & Sharpe's existing     
technologies and the introduction of new CMM and PMI products. In 1993, Brown & 
Sharpe invested $8.7 million in product design and manufacturing engineering,   
or about 5.5% of its 1993 net sales. In 1991 and 1992, Brown & Sharpe expended  
$11.4 million and $10.9 million respectively, for product design, development,  
refinement and manufacturing engineering. In addition, Brown & Sharpe performs  
engineering development activities funded by government grants in some          
countries and engages in special projects that utilize customer funding.        

RAW MATERIALS AND SOURCES OF SUPPLY                                             

Brown & Sharpe purchases certain products, raw materials, supplies and other
components from a variety of suppliers, and considers its source of supply to   
be adequate. Brown & Sharpe does, at times, depend upon a sole source of supply 
for various procurement requirements, but has not experienced any significant   
difficulty in meeting delivery obligations because of its reliance on such a    
supplier. Brown & Sharpe continues to explore means of lowering production      
through selective outsourcing in situations where Brown & Sharpe can achieve    
its high quality standards at reduced costs.                                    

PATENTS, LICENSES, TRADEMARKS AND PROPRIETARY INFORMATION                       

Brown & Sharpe's business is not significantly affected by or dependent upon
the procurement or maintenance of patents covering Brown & Sharpe's products.   
Nevertheless, Brown & Sharpe pursues, where appropriate, patent protection for  
inventions, developments and improvements relating to its products both in the  
United States and abroad. Brown & Sharpe owns or has the right to use a number  
of trademarks which it believes are valuable in promoting the sale of certain   
of its principal products, and it has registered the trademarks that it owns in 
the United States and in some foreign countries. The internationally recognized 
brand names under which Brown & Sharpe sells its products are the subject of    
trademarks owned or licensed by Brown & Sharpe and are important to Brown &     
Sharpe's marketing strategy, as brand name recognition is a significant factor  
in the dimensional metrology market.                                            

One of Brown & Sharpe's CMM products, a horizontal arm-type CMM, has been   
manufactured and sold in North America under an exclusive license from an       
independent German company which has recently been modified to a non-exclusive  
license agreement. Brown & Sharpe has entered into an exclusive arrangement in  
1994 with another German CMM manufacturer to market and sell its horizontal CMM 
on an exclusive basis in North America and on a non-exclusive basis in the rest 
of the world. In addition, Brown & Sharpe uses the Leitz (R) and Mauser (R)     
brand names under royalty-free license agreements entered into in connection    
with Brown & Sharpe's acquisition of these product lines. These licenses expire 
in 1997 and 1999, respectively. Brown & Sharpe believes it will be able to      
negotiate satisfactory extensions prior to expiration and that the failure to   
renew these licenses would not have a material adverse effect on Brown &        
Sharpe.                                                                         

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PROPERTIES                                                                      

The following table sets forth certain information concerning Brown &       
Sharpe's major operating facilities:                                            

                                                                [Download Table]

                          OWNED/                                  APPROXIMATE  
        LOCATION          LEASED          PRINCIPAL USE          SQUARE FOOTAGE
        --------          ------          -------------          --------------
                                                                               
UNITED STATES                                                                  
  N. Kingstown, Rhode Is-  Owned Manufacturing, Engineering,        359,000(1) 
   land..................         Sales and Administration                     
  Poughkeepsie, New York.  Owned Manufacturing                       58,000    
  Farmington Hills, Mich- Leased                                     24,000    
   igan..................        Sales                                         
SWITZERLAND                                                                    
  Renens.................  Owned Manufacturing, Engineering,        139,000    
                                  Sales and Administration                     
  Rolle..................  Owned Manufacturing                       51,000    
GERMANY                                                                        
  Wetzler................  Owned Manufacturing, Engineering,        101,000    
                                  Sales and Administration                     
  Ludwigsburg............ Leased Sales                               15,000    
UNITED KINGDOM                                                                 
  St. Albans.............  Owned Manufacturing and Sales             36,000    
  Telford................ Leased Manufacturing, Engineering,         32,000    
                                  Sales and Administration                     
  Bedford................ Leased Manufacturing, Sales and            14,000    
                                  Administration                               
  Leicester..............  Owned Manufacturing                       14,000    
  Plymouth............... Leased Manufacturing, Sales and             5,000    
                                  Administration                               
FRANCE                                                                         
  Luneville(2)........... Leased Manufacturing, Engineering and      77,100    
                                  Sales                                        

--------                                                                        
(1)Excludes approximately 401,000 square feet leased to unrelated parties.      
(2)Acquired in the Roch Acquisition.                                            

In addition, Brown & Sharpe leases smaller sales offices located in the United  
States, Europe and Asia. In the opinion of management, Brown & Sharpe's         
properties are in good condition and adequate for Brown & Sharpe's business as  
presently conducted.                                                            

EMPLOYEES                                                                       

At December 25, 1993, Brown & Sharpe had 1,543 employees, (as compared with 
1,768 at December 27, 1992), including approximately 1,000 employees located    
outside the United States. The reduction from the end of 1992 was due to the    
sale of the machine tool spare parts and rebuild operations and other employee  
reductions implemented as a result of Brown & Sharpe's cost-cutting efforts,    
especially in Europe. Brown & Sharpe considers its relations with its employees 
to be good, although there can be no assurance that Brown & Sharpe's cost-      
cutting efforts or other factors will not cause a deterioration in these        
relations.                                                                      

Approximately 900 of Brown & Sharpe's employees located at sites in the     
United States, Switzerland, England, Germany and France are covered by          
collective bargaining agreements which expire at various times between December 
4, 1994 and June 30, 1998. Brown & Sharpe expects that these collective         
bargaining agreements will be renegotiated successfully prior to their          
expiration. However, there can be no assurance that successor collective        
bargaining agreements will be successfully negotiated, that negotiations will   
not                                                                             

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result in work stoppages or that a work stoppage would not materially interfere 
with Brown & Sharpe's ability to produce the products manufactured at the       
affected location.                                                              

In addition to the collective bargaining agreements that cover workers at   
certain of Brown & Sharpe's foreign subsidiaries, it is customary for these     
employees to be represented by various works or shop councils. These councils   
are governed by applicable labor laws and are comprised of members who are      
elected or appointed by the work force. Except for the top level of management, 
these councils represent the entire work force at their location in its         
dealings with senior management on matters affecting the work force or arising  
under the relevant labor contracts in effect at the location.                   

A collective bargaining agreement with the International Association of     
Machinists and Aerospace Workers (the "IAM") relating to certain manufacturing  
employees in North Kingstown, Rhode Island expired in October 1981. Brown &     
Sharpe and the IAM failed to reach agreement on the terms of a successor        
collective bargaining agreement, resulting in a strike by the IAM. See "--      
Litigation." No successor collective bargaining agreement was entered into,     
although the IAM remains the representative of the bargaining unit. Brown &     
Sharpe continues to satisfy its obligation to bargain with the IAM with respect 
to the terms and conditions of employment by providing notice of, and offering  
to bargain with respect to, proposed changes to the terms and conditions of     
employment, although no collective bargaining has resulted in recent years.     

At certain of Brown & Sharpe's European locations, Brown & Sharpe has       
utilized a staffing procedure called "short work" to reduce the hours that an   
employee works during periods of decreased demand for Brown & Sharpe's          
products. This staffing procedure is similar to furloughs utilized by U.S.      
employers, although the specifics differ in each country. Generally, payment is 
made to the employee and the employer is eligible for government reimbursement  
for a portion of the amount paid to the employee working reduced hours. Each    
country generally requires that applications be made for reimbursement the      
approval of which may be delayed for significant periods. Each country may also 
impose time limits and other material conditions as to how often an employer    
may use this mechanism. Brown & Sharpe has utilized "short work" in Switzerland 
and Germany. This staffing procedure is not available in France or the United   
Kingdom. Approximately 150 employees were on "short work" as of May 27, 1994.   

The following table sets forth the location of Brown & Sharpe's employees as
of May 20, 1994:                                                                

                                                                [Download Table]

COUNTRY                                                          EMPLOYEES(1)
-------                                                          ------------
                                                                             
France..........................................................      166    
Germany.........................................................      258    
Italy...........................................................        7    
Japan...........................................................       10    
Spain...........................................................        0    
Switzerland.....................................................      351    
United Kingdom..................................................      351    
United States...................................................      485    
                                                                    -----    
TOTAL...........................................................    1,628    
                                                                    =====    

--------                                                                        
(1) Includes full-time employees on "short-work." Other part-time employees are 
included on a full-time equivalent basis.                               

COMPETITION                                                                     

Brown & Sharpe's business is subject to intense direct and indirect         
competition from a considerable number of domestic and foreign firms, a number  
of which are larger in overall size than Brown & Sharpe. Most of these firms,   
however, do not compete with Brown & Sharpe in all product lines. The principal 
factors affecting competition include reliability and quality of product,       
technological proficiency, price, ease of system configuration and use,         
application expertise, engineering support, local presence, distribution        
networks and                                                                    

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delivery times. Price competition has been intense for dimensional metrology    
products, due to the recent period of decreased demand for these products that  
has resulted in overcapacity within the industry. Brown & Sharpe believes that  
competition in the dimensional metrology field will continue to be intense in   
the future as a result of advances in technology, continuing overcapacity in    
the dimensional metrology industry and consolidations and/or strategic          
alliances among competitors. In addition to direct competition from companies   
that market similar types of products, Brown & Sharpe is also subject to        
indirect but effective competition from firms that market other dimensional     
metrology products, such as fixed gauging and vision-based systems, which       
utilize alternative technology or methodologies to perform functions similar to 
those of the CMMs and other products manufactured or sold by Brown & Sharpe.    

Brown & Sharpe's single largest global competitor is Mitutoyo/MTI Corp., a  
subsidiary of Mitutoyo Solsakusho Co. Ltd., a Japan-based company, which is the 
largest supplier of metrology equipment and products worldwide. In addition to  
Mitutoyo, the MS Division's main competitors are DEA, Carl Zeiss, Inc., a       
subsidiary of Carl-Zeiss-Stiftung AG, the Sheffield Measurement Division of     
Giddings & Lewis, Inc., and LK Tool Co. Ltd., a subsidiary of TransTech Ltd.    
The primary competitors faced by the PMI Division are Mitutoyo, L.S. Starrett   
Co. and Federal Products Co. (Inc.), a subsidiary of Esterline Technologies     
Corporation. Marposs S.p.A. is a major competitor of the CM Division for custom 
metrology sales. Marposs, which is based in Italy, competes with the CM         
Division through its sales subsidiaries in all major markets.                   

LITIGATION                                                                      

 Brown & Sharpe is involved in litigation stemming from an October 1981 strike
at Brown & Sharpe's Rhode Island operations. In connection with this strike,    
the IAM filed charges with the National Labor Relations Board ("NLRB") alleging 
that Brown & Sharpe engaged in unfair labor practices. On August 28, 1990, the  
NLRB dismissed the IAM's charges. The IAM appealed this decision to the U.S.    
Court of Appeals for the District of Columbia Circuit. On November 29, 1991 the 
Court accepted the legal reasoning advanced by the NLRB and Brown & Sharpe in   
support of the NLRB's 1990 decision, but ordered the NLRB to further clarify    
and support its decision. The NLRB reaffirmed its original dismissal of the IAM 
charges. The IAM has filed notice of an appeal of the NLRB's decision. Brown &  
Sharpe is continuing to defend this case vigorously and, in the opinion of      
management, the possibility of an ultimate finding of monetary liability in     
this matter is remote. See Note 8 to the Consolidated Financial Statements of   
Brown & Sharpe.                                                                 

Brown & Sharpe is involved in two proceedings under the Comprehensive       
Environmental Response Compensation and Liability Act, 42 U.S.C. (S) 9601 et    
seq., with the federal Environmental Protection Agency and one private          
contribution claim lawsuit brought by a subsequent landowner in which Brown &   
Sharpe has been identified as one of many potentially responsible parties who   
may have liability for industrial waste disposed of at two off-site sites       
designated for clean-up by the government. Brown & Sharpe believes that its     
ultimate liability with respect to these sites will not be material. In         
addition, Brown & Sharpe was involved in an administrative proceeding with the  
Department of Environmental Management of the State of Rhode Island relating to 
the issuance of a Notice of Violation and Order in July 1991 alleging that      
Brown & Sharpe contaminated the groundwater at its North Kingstown facility     
prior to removal of several underground storage tanks used to store hazardous   
liquids used in its manufacturing process. Tests conducted after removal of the 
tanks indicated levels of contamination of groundwater in the tank area in      
amounts above acceptable limits. Brown & Sharpe has settled the proceeding by   
entry of a Consent Order pursuant to which it agreed to pay a fine of $10,000   
and conduct additional groundwater testing. Test results to date indicate there 
are no additional sources of contamination, and that previously detected        
contamination appears to be dissipating. Brown & Sharpe believes that it is     
unlikely to have any additional liability with respect to this matter and that  
any such liability would not be material. See Note 8 to the Consolidated        
Financial Statements of Brown & Sharpe.                                         

 Environmental testing at the Leitz facility in Wetzler, Germany, conducted at
the time of its acquisition in June, 1990, and at Roch's Luneville facility, at 
the time of its recent acquisition, has indicated that the soil and groundwater 
at both factory sites are contaminated with certain toxic waters and chemicals  
used in their                                                                   

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manufacturing processes. Although neither company is involved in any            
governmental claims or proceeding relating to this contamination, the levels of 
contamination are such that clean-up and future remediation of these sites      
could be required. In addition, the contamination of the Leitz property stems   
from a waste disposal site adjacent to the Leitz property previously operated   
and owned by the seller of the Leitz businesses. The owner of that site is      
conducting soil remediation activity on that parcel of land at the request of   
government authorities. Recent tests have indicated that such existing          
remediation efforts may be inadequate and could result in further contamination 
of the Leitz property. Until September 30, 1995, Brown & Sharpe has certain     
rights to be indemnified by the seller of the Roch and Mauser businesses        
against liability at the Roch and Mauser sites and such seller is also          
obligated to clean up the contamination. The seller of the Leitz business has   
agreed to indemnify Brown & Sharpe against any liability incurred because of    
governmental action imposed on Brown & Sharpe before June 29, 1997. Brown &     
Sharpe believes that these indemnification rights are enforceable against the   
sellers of the Leitz and the Roch and Mauser businesses. There can be no        
assurance, however, that Brown & Sharpe will in fact be able to collect any     
indemnification amounts to which it is entitled or that any amounts received by 
Brown & Sharpe in satisfaction of its indemnification rights will be adequate   
to cover Brown & Sharpe's potential liabilities.                                

In addition, Brown & Sharpe and its subsidiaries and predecessors have      
conducted heavy manufacturing operations for many years, often in locations at  
which, or adjacent to which, other industrial operations were or are conducted. 
As with any such operations that involve the use, generation, and management of 
hazardous materials, there is a risk that practices deemed acceptable by        
regulatory authorities in the past may have created conditions which could give 
rise to liability under current environmental laws. Because the law in this     
area is developing rapidly, particularly in many European countries, and all    
such laws are subject to amendment and widely varying enforcement, Brown &      
Sharpe cannot predict with any certainty the nature and amount of any potential 
environmental liability related to these operations or locations that it may    
face in the future.                                                             

Brown & Sharpe is also involved in several product liability claims and     
lawsuits which arose out of and were incidental to the conduct of its           
discontinued metal cutting machine tool business, the potential liability for   
which Brown & Sharpe believes is adequately covered by insurance or reserves    
established for such contingencies. Brown & Sharpe is contesting or defending   
these claims and suits and management believes that the ultimate liability, if  
any, resulting from these matters will not have a material effect on Brown &    
Sharpe's financial position.                                                    

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BROWN & SHARPE SELECTED CONSOLIDATED FINANCIAL DATA 

The following selected consolidated financial information of Brown & Sharpe 
for each of the last five fiscal years is derived from Brown & Sharpe's audited 
consolidated financial statements, including the notes thereto. The information 
for the quarters ended March 27, 1993, and April 2, 1994, are unaudited but, in 
the opinion of management, reflect all adjustments (consisting only of normal   
recurring items) necessary for a fair presentation of the results for such      
interim periods. The results for the quarter ended April 2, 1994 are not        
necessarily indicative of the results that may be expected for the full year.   
This selected financial information should be read in conjunction with the      
Consolidated Financial Statements of Brown & Sharpe, related notes and other    
financial information included elsewhere in this Proxy Statement.               

                                                        [Enlarge/Download Table]

                                           YEAR ENDED                          QUARTER ENDED      
                          ------------------------------------------------  -------------------   
                          DEC. 30,  DEC. 29,  DEC. 28,  DEC. 26,  DEC. 25,   MAR. 27,  APRIL 2,   
                            1989      1990    1991(1)   1992(1)   1993(1)   1993(1)(2) 1994(2)    
                          --------  --------  --------  --------  --------  ---------- --------   
                                  (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)                
                                                                                                  
OPERATING DATA:                                                                                   
Net sales:                                                                                        
 Metrology..............  $130,933  $165,865  $166,819  $152,201  $155,133   $ 38,207  $ 36,659   
 General products.......    11,111    10,838     9,028     8,494     1,902      1,551       -- (3)
                          --------  --------  --------  --------  --------   --------  --------   
   Total................   142,044   176,703   175,847   160,695   157,035     39,758    36,659   
Cost of goods sold......    95,875   135,821   119,481   116,283   110,841     28,448    25,940   
Selling, general and ad-                                                                          
 ministrative expense...    37,898    52,971    56,672    52,509    45,474     10,744    12,261   
                          --------  --------  --------  --------  --------   --------  --------   
Operating profit (loss):                                                                          
 Metrology..............     6,816   (13,005)   (1,281)   (8,857)    1,652        431    (1,542)  
 General products.......     1,455       916       975       760      (932)       135       -- (3)
                          --------  --------  --------  --------  --------   --------  --------   
   Total................     8,271   (12,089)     (306)   (8,097)      720        566    (1,542)  
Interest expense........    (2,340)   (3,811)   (4,219)   (5,272)   (5,100)    (1,132)   (1,280)  
Other income (expense),                                                                           
 net....................       983       (74)      824     2,135     2,764      1,794        48   
                          --------  --------  --------  --------  --------   --------  --------   
Income (loss) before in-                                                                          
 come taxes.............     6,914   (15,974)   (3,701)  (11,234)   (1,616)     1,228    (2,774)  
Income tax provision                                                                              
 (benefit)..............       961    (3,737)     (800)   (3,250)      800        --        100   
                          --------  --------  --------  --------  --------   --------  --------   
Income (loss) from con-                                                                           
 tinuing operations.....     5,953   (12,237)   (2,901)   (7,984)   (2,416)     1,228    (2,874)  
(Loss) from discontinued                                                                          
 operations.............    (1,138)   (2,329)   (1,180)      --        --         --        --    
                          --------  --------  --------  --------  --------   --------  --------   
Net income (loss).......  $  4,815  $(14,566) $ (4,081) $ (7,984) $ (2,416)  $  1,228  $ (2,874)  
                          ========  ========  ========  ========  ========   ========  ========   
Primary and fully di-                                                                             
 luted loss per common                                                                            
 share:                                                                                           
Income (loss) from con-                                                                           
 tinuing operations.....  $    --   $    --   $  (0.62) $  (1.63) $  (0.49)  $   0.25  $  (0.57)  
(Loss) from discontinued                                                                          
 operations.............       --        --      (0.25)      --        --         --        --    
                          --------  --------  --------  --------  --------   --------  --------   
Net income (loss).......  $    --   $    --   $  (0.87) $  (1.63) $  (0.49)  $   0.25  $  (0.57)  
                          ========  ========  ========  ========  ========   ========  ========   
OTHER DATA:                                                                                       
EBITDA(4)...............  $ 15,386  $   (305) $ 10,194  $  4,336  $  7,210   $  2,212  $   (235)  
Depreciation and amorti-                                                                          
 zation.................     7,115     9,084     8,700     7,330     6,355      1,646     1,307   
Capital expenditures....     6,262     9,277     9,864    12,474     4,399        975       814   
Ratio of earnings to                                                                              
 fixed charges(5).......       3.3x      --        0.3x      --        0.8x       1.9x      --    
BALANCE SHEET DATA (END                                                                           
 OF PERIOD):                                                                                      
Working capital.........  $ 74,719  $ 59,006  $ 68,587  $ 48,036  $ 46,025   $ 49,224  $ 44,196   
Property, plant and                                                                               
 equipment, net.........    33,105    42,609    44,602    46,402    43,554     44,552    43,770   
Total assets............   167,733   205,912   183,748   166,086   165,871    163,733   169,682   
Total debt..............    34,650    58,053    61,369    60,700    64,500     57,041    66,966   
Shareowners' equity.....    87,403    82,893    80,268    66,674    63,520     66,330    61,376   

--------                                                                        
(1) Restated to reflect the change in accounting for large machinery            
  construction contracts for its European operations. See Note 2 of Notes to
Consolidated Financial Statements of Brown & Sharpe.                    
(2) The quarter ended April 2, 1994 includes fourteen weeks, while the quarter  
ended March 27, 1993 includes thirteen weeks.                           
(3) The machine tool spare parts and rebuild operations, the last remaining     
operations in the general products segment, were sold in 1993.          
(4) "EBITDA" consists of earnings before interest expense, other income         
 (expense), restructuring and special charges, provision for income taxes,
and depreciation and amortization. EBITDA is included herein to provide 
additional information, and should not be construed as a substitute for 
   cash flow from operating activities, which is determined in accordance with
generally accepted accounting principles. Brown & Sharpe incurred       
restructuring charges of $2,700, $1,800, $5,103 and $135 for the years  
  ended December 29, 1990, December 28, 1991, December 26, 1992 and December
25, 1993, respectively.                                                 
(5) The ratio of earnings to fixed charges is calculated by dividing (i)        
 earnings from continuing operations before income taxes and fixed charges
 by (ii) fixed charges, which consist of interest expense and one-third of
rental expense, which is deemed to be representative of the interest    
factor. Earnings were insufficient to cover fixed charges by $20,785,   
  $9,267, $18,067, $7,998, and $4,287 for the years ended December 29, 1990,
 December 28, 1991, December 26, 1992, and December 25, 1993 and the first
quarter of 1994, respectively.                                          

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BROWN & SHARPE

 In completing its transformation from a machine tool company to a dimensional
metrology company, Brown & Sharpe has made a number of acquisitions and         
divestitures that have impacted, and will continue to impact, its results of    
operations and liquidity. At the end of the first quarter of 1994, Brown &      
Sharpe acquired Roch and Mauser. During the first and second quarters of 1993,  
Brown & Sharpe sold its machine tool spare parts and rebuild operations. During 
the first quarter of 1992, Brown & Sharpe sold its pump operation and its 80%   
ownership interest in GageTalker Corporation, a provider of data collection and 
statistical process control systems ("GageTalker"). In late 1991, Brown &       
Sharpe purchased Thomas Mercer Limited, a manufacturer of metrology devices     
that is now included in the PMI Division ("Mercer"). At the end of the second   
quarter of 1990, Brown & Sharpe acquired Leitz, a manufacturer of high accuracy 
CMMs. The DEA Acquisition will also have a significant impact on Brown &        
Sharpe's results of operations and liquidity. See "--Effects of Roch            
Acquisition and DEA Acquisition." The following discussion of Brown & Sharpe's  
historical financial condition and results of operations should be read in      
conjunction with the Consolidated Financial Statements of Brown & Sharpe and    
the notes thereto included elsewhere in this Proxy Statement.                   

RESULTS OF OPERATIONS                                                           

The following table sets forth the percentage of net sales of Brown & Sharpe
represented by the components of income and expense for the years ended         
December 28, 1991, December 26, 1992 and December 25, 1993 and the quarters     
ended March 27, 1993 and April 2, 1994:                                         

                                                                [Download Table]

                                             YEAR ENDED          QUARTER ENDED  
                                      ------------------------- ----------------
                                      DEC. 28, DEC 26, DEC. 25, MAR. 27, APR. 2,
                                        1991    1992     1993     1993    1994  
                                      -------- ------- -------- -------- -------
                                                                                
Net sales...........................   100.0%   100.0%  100.0%   100.0%   100.0%
Cost of goods sold..................    67.9     72.4    70.6     71.6     70.8 
Selling, general and administrative                                             
 expense............................    32.2     32.7    29.0     27.0     33.4 
                                       -----    -----   -----    -----    ----- 
 Operating profit (loss)............    (0.2)    (5.0)    0.5      1.4     (4.2)
Interest expense....................     2.4      3.3     3.2      2.8      3.5 
Other income, net...................     0.5      1.3     1.8      4.5      0.1 
                                       -----    -----   -----    -----    ----- 
Income (loss) before income taxes...    (2.1)    (7.0)   (1.0)     3.1     (7.6)
Income tax provision (benefit)......    (0.5)    (2.0)    0.5      --       0.3 
Income (loss) from continuing opera-                                            
 tions..............................    (1.7)    (5.0)   (1.5)     3.1     (7.8)
Loss from discontinued operations...    (0.7)     --      --       --       --  
                                       -----    -----   -----    -----    ----- 
Net income (loss)...................   (2.3)%   (5.0)%  (1.5)%     3.1%   (7.8)%
                                       =====    =====   =====    =====    ===== 

Quarter Ended April 2, 1994 compared to Quarter Ended March 27, 1993        

Orders. Orders during the first quarter of 1994 totaled $37.9 million,      
compared to $36.9 million during the first quarter of 1993. The machine tool    
spare parts and rebuild operations, sold at the end of the first quarter of     
1993, represented $1.6 million in orders during the first quarter of 1993, and  
foreign currency exchange rate fluctuations, principally the strengthening of   
the Swiss franc against the U.S. dollar, caused a $0.9 million increase in      
first quarter 1994 orders compared to the first quarter of 1993. Excluding the  
effect of these items, orders increased to $37.0 million in the first quarter   
of 1994 from $35.3 million in the first quarter of 1993, an increase of 4.8%.   
Backlog as of April 2, 1994 was $27.5 million, compared to $26.1 million at     
year end 1993 and $25.4 million at the end of the first quarter of 1993.        

Net Sales. Net sales in the first quarter of 1994 were $36.7 million,       
compared to $39.8 million for the first quarter of 1993. Approximately $1.6     
million of first quarter 1993 net sales were attributable to machine tool spare 
parts and rebuild operations which were sold during the first and second        
quarters of 1993, and foreign currency exchange rate fluctuations, principally  
the strengthening of the Swiss franc against the U.S.                           

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dollar, caused an increase in net sales in first quarter of 1994 of $1.2        
million as compared to the first quarter of 1993. Excluding the effect of these 
items, first quarter 1994 net sales declined approximately $2.6 million from    
first quarter 1993 sales. The decline in net sales occurred primarily in the MS 
Division (referred to after consummation of the DEA Acquisition as the MS       
Group). MS Division net sales in the quarter were 14.4% below the first quarter 
of 1993, in part as a result of entering the 1993 first quarter with a larger   
backlog that could be shipped than at the beginning of 1994 and the continued   
effect of competitive discounting. Net sales of PMI products increased from the 
prior year primarily due to the resolution of the financial difficulties of a   
German distributor, which had depressed net sales in the prior period.          

Gross Profit. Gross profit margin increased to 29.2% in the first quarter of
1994 from 28.4% in the first quarter of 1993. The improvement resulted in part  
from a reduction in design manufacturing expenses in Brown & Sharpe's PMI       
Division.                                                                       

Selling, General and Administrative Expense. Selling, general and           
administrative ("SG&A") expense in the first quarter of 1994, at $12.3 million  
or 33.4% of net sales, increased from the $10.7 million, or 27.0% of net sales, 
incurred in the comparable period in 1993. The increase was primarily due to    
the extra week in the first quarter of 1994 as compared to the first quarter of 
1993 and the receipt of litigation settlement proceeds in the first quarter of  
1993.                                                                           

Operating Profit (Loss). Brown & Sharpe generated an operating loss of $1.5 
million in the first quarter of 1994. This compared to an operating profit of   
$0.6 million in the first quarter of 1993. In the United States, operating loss 
for the first quarter of 1994 totaled $0.2 million as compared to an operating  
profit of $0.8 million in the first quarter of 1993. Foreign operations         
generated an operating loss of $1.3 million in the first quarter of 1994 as     
compared to an operating loss of $0.2 million in the first quarter of 1993. The 
deterioration of Brown & Sharpe's performance in the United States in the 1994  
period as compared to the 1993 period was due primarily to the receipt of       
litigation settlement proceeds in the 1993 period, as well as an extra week of  
selling, general and administrative expense in the 1994 period. Brown & Sharpe  
believes that its sales pattern would not generally result in proportionate     
increases in net sales in a fourteen week quarter as compared to a thirteen     
week quarter. The greater operating loss in foreign operations reflected the    
worsening performance at Brown & Sharpe's German CMM operations due to the      
continued effect of competitive discounting, which was partially offset by      
improvement at Brown & Sharpe's PMI Division.                                   

Interest Expense. Interest expense totaled $1.3 million in the first quarter
of 1994 compared to $1.1 million in the first quarter of 1993. This increase    
reflects an increase in the average balance of borrowings in the United States, 
which was partially offset by lower interest rates in Europe.                   

 Other Income, Net. Other income, net was $48,000 in the first quarter of 1994
and $1.8 million in the first quarter of 1993. The 1993 first quarter included  
a gain of approximately $2.0 million on the sale of certain small business      
operations, partially offset by foreign exchange losses.                        

Income Tax Provision. The provision for income taxes was $0.1 million in the
first quarter of 1994 compared to $0.5 million in the first quarter of 1993.    
The 1993 provision was offset by deferred tax benefits of $0.5 million due to   
reductions in deferred tax liabilities as a result of losses in certain of      
Brown & Sharpe's European subsidiaries.                                         

Net Income (Loss). As a result of the foregoing, Brown & Sharpe had a net   
loss of $2.9 million ($0.57 per share) in the first quarter of 1994, compared   
to net income of $1.2 million ($0.25 per share) in the first quarter of 1993.   
See "--Effects of Roch Acquisition and DEA Acquisition." Brown & Sharpe expects 
to report a net loss for the second quarter of 1994 primarily resulting from    
the continuing effect of competitive discounting. In addition, Brown & Sharpe   
expects to record a provision increasing the allowance for uncollectible        
accounts receivable by approximately $0.6 million for collection uncertainties  
arising from one sale to a single customer.                                     

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Year Ended December 25, 1993 Compared to Year Ended December 26, 1992         

 Orders. Orders totaled $155.9 million in 1993, a decline of $12.9 million, or
7.6%, from the prior year. The decrease resulted principally from the sale of   
the machine tool spare parts and rebuild operations in the first quarter of     
1993, which represented $8.6 million of incoming orders in 1992 compared to     
$1.9 million of incoming orders in 1993. In addition, weakening of certain      
European currencies against the U.S. dollar resulted in a decrease in reported  
1993 orders of approximately $4.8 million compared to 1992. Excluding the       
effect of these items, 1993 orders increased $1.0 million from 1992. Backlog    
was $26.1 million at year-end 1993, compared with $30.2 million at year-end     
1992, which was a particularly high level for Brown & Sharpe's metrology        
business. The decrease in backlog resulted principally from a decrease in       
orders in 1993 as compared to 1992.                                             

 Net Sales. Net sales in 1993 were $157.0 million, a decrease of $3.7 million,
or 2.3%, as compared to $160.7 million in 1992. The weakening of certain        
European currencies against the U.S. dollar caused a decrease of $5.0 million   
in net sales in 1993 as compared to 1992. In addition, in the first and second  
quarters of 1993, Brown & Sharpe disposed of its machine tool spare parts and   
rebuild operations, which accounted for $1.9 million and $8.5 million of net    
sales in 1993 and 1992, respectively. Excluding the effect of these items, net  
sales in 1993 increased $7.9 million from the prior year. Net sales in the      
United States increased to $72.3 million in 1993 from $69.8 million in 1992, an 
increase of 3.5%. The increase was primarily due to improvements in the U.S.    
economy and in the automotive industry in particular and was reflected in       
increased sales of both CMMs and PMI division products. The increase in U.S.    
net sales was offset by a $6.7 million reduction resulting from the sale of the 
machine tool parts and rebuild operations. In Europe, net sales declined to     
$62.2 million in 1993 from $70.7 million in 1992, or 11.9%, as a result of the  
continuing recession in Europe and the weakening of certain European currencies 
against the U.S. dollar. Net sales in the rest of the world totaled $22.5       
million in 1993, up 11.6% from sales of $20.2 million in 1992. This increase    
was principally due to increased sales in Asia.                                 

Gross Profit. Gross profit margin increased to 29.4% in 1993 from 27.6% in  
1992. In 1992, cost of goods sold included inventory write-offs of $2.0 million 
resulting from the introduction of new products that replaced certain of Brown  
& Sharpe's existing products and $2.5 million of restructuring costs, primarily 
employee severance expenses resulting from downsizing at Brown & Sharpe's       
German and Swiss manufacturing facilities in response to declining sales. Brown 
& Sharpe's gross profit for these years also reflects benefits from the         
liquidation of LIFO inventories of $9.8 million in 1992 and $0.7 million in     
1993 resulting from successful efforts to reduce inventory in the United        
States. Gross profit in 1993 was also reduced as a result of the weakening of   
certain European currencies against the U.S. dollar. Excluding the effect of    
these items, gross profit was $46.7 million in 1993, or a margin of 29.7%,      
compared to $39.1 million in 1992, or a margin of 24.3%. This improvement       
reflects the benefits of Brown & Sharpe's cost control and restructuring        
efforts described above.                                                        

Selling, General and Administrative Expense. SG&A expense was $45.5 million 
in 1993 and $52.5 million in 1992. As a percentage of net sales, SG&A expense   
decreased to 29.0% in 1993 from 32.7% in 1992. SG&A expense in 1992 includes    
approximately $2.6 million of restructuring costs, primarily for employee       
severance at European facilities, and $1.5 million of incentive compensation    
related to the acquisition of the remaining minority interest in Technicomp,    
Brown & Sharpe's education quality training products subsidiary.                

Operating Profit (Loss). Operating profit was $0.7 million in 1993 compared 
to an operating loss of $8.1 million in the prior year. Excluding an operating  
loss of $0.9 million attributable to the divested machine tool operations,      
operating profit in 1993 totaled $1.7 million. In the United States, operating  
profit increased substantially in 1993 to $5.2 million from $1.3 million in     
1992 for the reasons discussed earlier. Although the European recession         
continued, Brown & Sharpe's European operations generated improved results,     
posting an operating loss of $4.4 million in 1993 compared to an operating loss 
of $9.4 million in 1992.                                                        

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 Interest Expense. Interest expense declined to $5.1 million in 1993 from $5.3
million in 1992 principally due to a reduction in interest rates on Brown &     
Sharpe's borrowings.                                                            

Other Income, Net. Other income, net increased to $2.8 million in 1993 from 
$2.1 million in 1992. Other income in 1993 included a $2.0 million net gain on  
the sale of the machine tool parts and rebuild operations, and other income in  
1992 included a net gain of $0.6 million on the sale of an office building and  
an aggregate of $0.6 million on the sale of the pump operation and Brown &      
Sharpe's interest in GageTalker.                                                

Income Tax Provision (Benefit). The provisions for income taxes for 1993 and
1992 include foreign, federal and state income taxes. Income tax expense        
totaled $0.8 million in 1993 based on a consolidated pretax loss of $1.6        
million. The income tax expense in 1993 resulted largely from profits in the    
United States. Brown & Sharpe has substantial loss carryforwards in European    
countries and tax credit carryforwards in the United States. In 1992, Brown &   
Sharpe recorded a tax benefit of $3.3 million in 1992 on a pretax loss of $11.2 
million, an effective rate of 28.9%.                                            

Year Ended December 26, 1992 Compared to Year Ended December 28, 1991           

Orders. Orders increased 4.2% to $168.8 million in 1992 from $162.0 in 1991.
Orders in 1992 included an increase of $4.1 million resulting from the          
inclusion of Mercer which was acquired on November 1, 1991, and a decrease of   
$5.9 million in orders from Brown & Sharpe's pump operation and interest in     
GageTalker, which were sold during the first quarter of 1992. Excluding the     
effect of these items, orders in 1992 increased $8.6 million from 1991. The     
increase in orders was due primarily to increased orders for Brown & Sharpe and 
Leitz CMM products in the United States and Europe. This improvement resulted   
from new product introductions, improved European distribution, certain product 
promotions and selective competitive discounting. Backlog increased to $29.4    
million at the end of 1992 from $23.2 million at the end of 1991, principally   
resulting from increased orders for the CMM products described above.           

Net Sales. Net sales in 1992 decreased to $160.7 million from $175.8 million
in 1991. Net sales in 1992 reflected the disposition of the pump operation and  
Brown & Sharpe's interest in GageTalker in the first quarter of 1992. These     
operations, and the machine tool spare parts and rebuild operation which was    
sold in 1993, accounted for net sales of $9.4 million in 1992 and $16.6 million 
in 1991. Excluding these businesses, 1992 net sales totaled $151.2 million      
compared to $159.2 million in 1991. This decrease resulted from declining       
orders from distributors of PMI products related to the global recession,       
particularly in Europe. Net sales in the United States fell to $69.8 million in 
1992 from $76.8 million in 1991 due in large part to the sale of the pump       
operations and the interest in GageTalker. In Europe, net sales declined to     
$70.7 million in 1992 from $82.7 million in 1991, resulting primarily from the  
European recession. Net sales in the rest of the world increased to $20.2       
million in 1992 from $16.4 million in 1991. This increase primarily resulted    
from an increase in net sales in Asia due largely to sales efforts of Leitz.    

Gross Profit. Gross profit margin decreased to 27.6% in 1992 from 32.1% in  
1991. Gross profit in 1992 was affected by (i) the recognition of $9.8 million  
of LIFO liquidation benefits due to reductions in inventory levels, (ii) the    
extension of the estimated lives of machinery and equipment at a Swiss          
subsidiary based on low utilization, which resulted in a reduction in           
depreciation expense of approximately $0.9 million annually, (iii) inventory    
write-offs of $2.0 million that resulted from a combination of reduced sales,   
new product introductions that replaced certain existing products and           
restructuring decisions that resulted in removal of some products from Brown &  
Sharpe's product lines and (iv) $2.5 million of restructuring costs primarily   
related to employee severance at European facilities. Gross profit in 1991 was  
affected by restructuring costs of $1.8 million primarily attributable to       
employee severance at European facilities. Adjusted for these items, gross      
profit margin was 24.9% in 1992 compared to 33.1% in 1991. This significant     
decline was a result of increased pricing pressure in the metrology market in   
both the United States and Europe as well as the effect of the reduced sales    
volume in relation to fixed costs.                                              

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Selling, General and Administrative Expense. SG&A expense was $52.5 million 
in 1992, compared to $56.7 million in 1991. As a percentage of net sales, SG&A  
expense increased to 32.7% in 1992 from 32.2% in 1991. In 1992, this amount     
included $2.6 million in restructuring charges primarily for employee severance 
at European facilities as well as $1.5 million of incentive compensation paid   
in connection with the acquisition of the remaining minority interest in        
Technicomp. Excluding these items, SG&A expense declined to $48.4 million in    
1992 from $56.7 million in 1991 (30.1% of net sales in 1992 compared to 32.2%   
in 1991). The reduction in the amount of SG&A expense in 1992 reflected the     
effect of personnel reductions.                                                 

Operating Profit (Loss). Operating losses totaled $8.1 million in 1992      
compared to an operating loss of $0.3 million in the prior year. In the United  
States, operating profit declined to $1.3 million in 1992 from a profit of $4.8 
million in 1991 on reduced sales as discussed earlier. In Europe, losses        
deepened as a result of continued competitive pressure and recessionary         
conditions, with a resultant operating loss of $9.4 million in 1992 compared to 
$5.1 million in 1991.                                                           

Interest Expense. Interest expense increased to $5.3 million in 1992 from   
$4.2 million in 1991. The increase resulted from increased borrowing in Europe  
to support operations of Mercer acquired at the end of 1991, financing of a new 
building for the Leitz operation in Germany and European operating losses.      

Other Income, Net. Other income, net, which includes interest income,       
increased to $2.1 million in 1992 from $0.8 million in 1991, principally as a   
result of an aggregate of $1.2 million in gains recognized on the sale of an    
office building, the pump operation and Brown & Sharpe's interest in            
GageTalker.                                                                     

 Income Tax Provision. Brown & Sharpe recognized an income tax benefit of $3.3
million in 1992 based on consolidated pretax losses of $11.2 million,           
reflecting an effective rate of 28.9%. This compares to a benefit of $0.8       
million in 1991 on a pretax loss of $3.7 million, reflecting an effective rate  
of 21.6%. The increased tax benefit in 1992 reflects $4.6 million of deferred   
tax reductions resulting from losses, compared to 1991 deferred tax reductions  
of $1.0 million.                                                                

LIQUIDITY AND CAPITAL RESOURCES                                                 

In recent years, Brown & Sharpe has met its liquidity needs, including      
capital expenditures and the funding of operating losses, through cash          
generated from operations, sale proceeds of discontinued businesses, secured    
and unsecured lines of credit and a secured $15 million two-year revolving      
credit facility entered into in June 1993 (the "Foothill Facility"). Amounts    
outstanding under the lines of credit are payable on demand, and certain of the 
lines extended to Brown & Sharpe's foreign subsidiaries are secured by          
restricted cash balances and other assets. The Foothill Facility provides for   
borrowings based on a percentage of eligible domestic accounts receivable and   
finished inventory, is secured by substantially all domestic assets (including  
the stock of domestic subsidiaries and 65% of the stock of certain foreign      
subsidiaries), and requires maintenance of a minimum current ratio, a maximum   
ratio of debt to adjusted net worth, minimum adjusted net worth and minimum     
working capital. At April 2, 1994, Brown & Sharpe had borrowings of $22.9       
million under the lines of credit and $7.6 million under the Foothill Facility, 
compared to total availability at that date of $27.2 million under the lines of 
credit and $12.5 million under the Foothill Facility. As of May 27, 1994, Brown 
& Sharpe had borrowings of $23.0 million under the lines of credit and $10.3    
million under the Foothill Facility, compared to total availability at that     
date of $28.8 million under the lines of credit and $12.9 million under the     
Foothill Facility. At May 27, 1994, Brown & Sharpe was required to maintain an  
aggregate of $6.1 million in restricted cash balances to support certain of the 
foreign lines of credit.                                                        

Brown & Sharpe expects shortly to enter into a commitment letter for an $8.5
million, five-year mortgage financing (the "North Kingstown Mortgage") secured  
by Brown & Sharpe's North Kingstown, Rhode Island facility, principally in      
order to provide a liquidity cushion in the event the Note Offering is not      
consummated. Brown & Sharpe expects that the North Kingstown Mortgage would     
bear interest at approximately 8 3/4% with annual amortization based on a ten-  
year schedule and the remaining balance due at maturity.                        

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To provide cash needed to fund operations, including capital expenditures,  
Brown & Sharpe expects, on or prior to the closing date of the Note Offering,   
to enter into the Revolving Credit Facility, which will replace the Foothill    
Facility and provide borrowings of up to $25 million subject to borrowing base  
limitations. Brown & Sharpe expects that the Revolving Credit Facility will be  
secured by a first priority lien, subject to certain permitted encumbrances, on 
domestic accounts receivable and inventory, will have a term of three years and 
will bear interest at a floating rate. See "Description of Revolving Credit     
Facility."                                                                      

The net proceeds available to the Combined Company from the sale of the     
Senior Notes are estimated to be approximately $72 million, based on the        
anticipated underwriting discount, commissions and other expenses of the Note   
Offering of approximately $3.0 million. Based on amounts outstanding as of May  
27, 1994, Brown & Sharpe expects that the Combined Company will use $10.3       
million of such proceeds to repay in full all amounts outstanding under the     
Foothill Facility, $16.9 million to repay in full all amounts outstanding under 
the Combined Company's foreign lines of credit (net of $6.1 million in          
restricted cash balances to support certain of the lines of credit), $18.5      
million to repay in full mortgage loans of certain of Brown & Sharpe's          
subsidiaries, $5.0 million to repay in full certain long-term bank debt to be   
retained by DEA following the DEA Acquisition, $8.8 million in revolving credit 
debt to be retained by DEA following the DEA Acquisition, and $0.8 million in   
prepayment premiums in connection with the prepayment of the Foothill Facility  
and the mortgage loans. The balance of the net proceeds will be used for        
general corporate purposes, including to fund a portion of the Combined         
Company's expected expenses in integrating DEA, Roch and Mauser.                

The Foothill Facility bears interest at a rate equal to the higher of (i)   
1.75% above the highest of the variable interest rates most recently announced  
by certain financial institutions or (ii) 7% per annum, and matures on June 30, 
1995. The proceeds of the Foothill Facility are used to provide working         
capital. The foreign lines of credit bear interest at rates ranging from 5.0%   
to 9.25% and a weighted average interest rate of approximately 7.6%, and are    
used to provide working capital. The mortgage loans to be repaid are secured by 
certain of the Combined Company's European properties, and bear interest at     
fixed rates ranging from 7.75% to 8.50% and a weighted average rate of          
approximately 8.13%. The DEA long-term bank loans to be repaid have a principal 
amount of approximately $4.8 million outstanding, bear interest at fixed rates  
ranging from 2.75% to 12.39% and a weighted average rate of approximately 8.8%, 
and mature at various times from 1996 through 2004. The DEA revolving credit    
debt to be repaid bears interest at 0.5% over the applicable bank's borrowing   
rate.                                                                           

Following the completion of the Note Offering, management believes that the 
availability of borrowings from the Revolving Credit Facility, together with    
cash flow from current levels of operations and anticipated cost savings from   
the integration of DEA, Roch and Mauser, will be sufficient to meet operational 
cash requirements (including one-time costs in integrating Roch, Mauser and     
DEA), working capital requirements and planned capital expenditures through     
1995. However, failure to achieve anticipated cost savings, or unexpected       
delays in or costs related to the integration, could have a material adverse    
affect on Brown & Sharpe's liquidity. See "--Effects of Roch Acquisition and    
DEA Acquisition."                                                               

 Cash Flow. The operations of Brown & Sharpe used cash of $6.0 million in 1993
in large part because of an increase in accounts receivable of $8.2 million due 
to a high sales volume in the fourth quarter of the year. In 1992, operations   
generated cash of $6.1 million despite a net loss of $8.0 million in part       
because of a decrease in accounts receivable of $6.9 million during the year.   
In the first quarter of 1994, operations generated cash of $3.5 million; the    
net loss of $2.9 million was offset by accounts receivable collections from     
typically higher sales near the end of the preceding fourth quarter.            

Investment transactions used $2.2 million in 1993 despite proceeds from the 
sale of operations of $8.7 million because cash of $6.1 million was pledged in  
connection with foreign lines of credit. In 1992, investing activities used     
cash of $12.7 million as a result of unusually high capital expenditures, of    
which $7.0 million were used for the construction of a new facility in Germany. 
In the first quarter of 1994, investment transactions used cash of $1.0         
million, reflecting a normal level of capital expenditures.                     

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Cash provided from financing transactions was $4.8 million in 1993 and $2.5 
million in 1992, reflecting the net increase in borrowings. Cash used in        
financing transactions was $0.1 million in the first quarter of 1994.           

Working Capital. Working capital was $44.2 million at the end of the first  
quarter of 1994 compared to $46.0 million at the end of 1993 and $48.0 million  
at the end of 1992. Accounts receivable decreased $5.8 million in the first     
quarter of 1994 after an increase of $8.2 million during 1993 and a decrease of 
$6.9 million during 1992. These changes resulted largely from the timing of     
sales during the respective fourth quarters with higher sales in December of    
1993. Inventories decreased to $54.0 million at the end of 1993 from $62.0      
million at the end of 1992. This decrease was primarily due to the sale of      
operations during the respective years as well as fluctuations in foreign       
currency exchange rates. Inventories increased to $57.6 million at April 2,     
1994, an increase of $3.6 million from $54.0 million at the end of 1993.        
However, this increase did not require the use of cash because it resulted from 
Brown & Sharpe's purchase of Roch and Mauser in the first quarter of 1994.      

Capital Expenditures. Brown & Sharpe's capital expenditures to support the  
ongoing business were approximately $4.1 million, $5.5 million, and $8.0        
million in 1993, 1992 and 1991, respectively. In addition, capital spending to  
construct a new building at its German facility, substantially completed in     
1992, amounted to approximately $0.3 million, $7.0 million and $1.9 million, in 
1993, 1992 and 1991, respectively.                                              

With the consummation of the DEA Acquisition, total capital expenditures for
the Combined Company are expected to increase. DEA capital expenditures totaled 
L0.2 billion ($0.1 million) in the first quarter of 1994, L3.2 billion ($2.0    
million) in 1993, L5.1 billion in 1992, and L3.1 billion in 1991. Management    
expects to continue to incur incremental capital expenditures to develop new    
products, improve product and service quality, and expand its distribution      
network. Management estimates that annual capital expenditures of approximately 
$8 million are required to maintain the operations of the Combined Company.     
Planned capital expenditures in 1994 and 1995 will include an aggregate of      
approximately $2.1 million for the construction of a new facility in Telford,   
England to replace an existing facility upon the expiration its lease.          

Acquisitions and Divestitures. Proceeds from the sale of the machine tool   
spare parts and rebuild operations during 1993 provided $8.7 million of cash.   
During 1992, $3.6 million was generated from the sale of Brown & Sharpe's pump  
operations and statistical process control subsidiary. Payments in connection   
with the acquisition of the remaining minority interest in Technicomp amounted  
to approximately $3.9 million in 1992. See "Effects of Roch Acquisition and DEA 
Acquisition."                                                                   

After the completion of the DEA Acquisition, management does not anticipate 
making any large acquisitions or divestitures. Management will continue to      
evaluate smaller acquisitions that have the potential to expand Brown &         
Sharpe's geographic market presence or product lines.                           

EFFECTS OF ROCH ACQUISITION AND DEA ACQUISITION                                 

The Combined Company's plan for integrating DEA, Roch and Mauser anticipates
cost savings (before one-time implementation cash costs) of nearly $8 million   
to be realized within the first twelve months of combined operations. Brown &   
Sharpe expects that the Combined Company will achieve these savings primarily   
by eliminating duplicative administrative and sales personnel and facilities,   
duplicative marketing expenses such as advertising and trade shows and certain  
redundant design engineering activities, including personnel. Brown & Sharpe    
expects the Combined Company to realize total annual savings of nearly $14      
million after 24 months of combined operations through these actions, further   
reductions in selling and administrative expenses, rationalization of European  
manufacturing facilities and reductions in associated manufacturing overhead    
costs. Brown & Sharpe estimates that implementation of these cost savings       
measures will require one-time costs of approximately $12.3 million for         
severance, lease terminations and other actions. Of this $12.3 million in       
expected cash costs, $1.8 million is expected to be reflected in restructuring  
expense in 1994, $10.3 million is expected to be charged against reserves       
established in the allocations of purchase                                      

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price associated with the Roch Acquisition and the DEA Acquisition, and $0.2    
million is expected to be incurred with respect to capital spending associated  
with facilities construction. Due to the inherent risks in integrating separate 
operations, in particular operations located in different countries and that in 
the aggregate are large in relation to Brown & Sharpe, there can be no          
assurance that the Combined Company will realize anticipated cost savings or    
realize the savings in the contemplated timetable, or that as a result of its   
decentralized management structure or other factors Brown & Sharpe will not     
experience unanticipated one-time or ongoing costs or difficulties in           
implementing the integration of DEA, Roch and Mauser into Brown & Sharpe. In    
addition, there can be no assurance that following these acquisitions Brown &   
Sharpe's net sales will not be adversely affected by planned cost cutting       
measures, possible discontinuance of certain similar products, customers'       
desires to maintain alternative sources of supply or for other reasons.         
Further, there can be no assurance that following these acquisitions the        
Combined Company's management and organizational structure will be adequate to  
manage a business that is substantially larger than Brown & Sharpe now is.      

The following table shows the estimated cost savings (before one-time       
implementation cash costs) that Brown & Sharpe expects to realize through       
planned cost-cutting measures in the integration of DEA, Roch and Mauser, as    
compared to the aggregate current cost structures of Brown & Sharpe and these   
companies as stand-alone entities.                                              

                                                                [Download Table]

                              EXPECTED ANNUAL 
                               COST SAVINGS   
                             -----------------
                             FIRST 12 AFTER 24
                              MONTHS   MONTHS 
                             -------- --------
                                (MILLIONS)    
                                              
Roch and Mauser                               
  Closing of Tesa office,                     
   Paris, France............   $0.8    $  0.8 
  Closing of Mauser office,                   
   Nuremberg, Germany.......    0.7       0.7 
  Staff reduction, Lune-                      
   ville, France............    0.4       0.4 
  Reduction of design engi-                   
   neering expense..........    0.3       0.3 
  Negotiated purchase dis-                    
   counts...................    0.1       0.1 
                               ----    ------ 
                               $2.3    $  2.3 
DEA                                           
  North American sales and                    
   distribution.............   $2.0       4.5 
  European sales and distri-                  
   bution...................    2.8       3.2 
  Excess production facility                  
   space....................    --        1.2 
  Reduction of manufacturing                  
   overhead in European op-                   
   erations.................    --        1.6 
  Design engineering........    0.6       1.0 
                               ----    ------ 
                               $5.4    $ 11.5 
                               ----    ------ 
    Total Savings (before                     
     one-time costs)........   $7.7    $ 13.8 
                               ====    ====== 

Savings From Roch Acquisition                                                 

 Since consummation of the Roch Acquisition at the end of the first quarter of
1994, Brown & Sharpe has closed the Tesa PMI office in France and a Mauser      
office in Germany, reduced staffing at a remaining office in France, terminated 
a Brown & Sharpe design engineering project relating to technology acquired in  
the Roch Acquisition, reduced design engineering staffing and used the larger   
volume of the combined operations to negotiate reduced prices from certain      
suppliers on certain purchasing arrangements. Brown & Sharpe anticipates that   
these actions will result in approximately $2.3 million in annual cost savings  
within the first twelve months following the Roch Acquisition (before one-time  
implementation cash costs). Brown & Sharpe believes that these center closings  
and personnel reductions will result in one-time severance, relocation and      
other cash costs of approximately $0.9 million, substantially all of which will 
be expended by the end of 1994.                                                 

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Savings From DEA Acquisition                                                  

 Brown & Sharpe has prepared a plan to eliminate duplicate operations and take
other actions to achieve cost savings in integrating the operations of DEA with 
those of its existing CMM operations. This plan was developed in part based on  
information provided by DEA personnel and, in certain areas, on discussions     
with DEA personnel concerning appropriate staffing, facility and activity       
levels of the combined operations. In certain instances where specific DEA      
information has not been made available to Brown & Sharpe, such as compensation 
levels of DEA personnel, Brown & Sharpe has made assumptions based on its       
experience. In general, Brown & Sharpe has assumed that personnel reductions    
will be effective within six months of the DEA Acquisition, and that personnel  
will be entitled to severance or redundancy of six months' salary. To date, the 
integration plan has been limited to functions where Brown & Sharpe management  
believes that sufficient information concerning DEA's operations is available   
to Brown & Sharpe to allow it to forecast cost savings with reasonable          
confidence. These functions include North American sales and distribution,      
European sales and distribution, certain excess production facility space,      
reduction of certain manufacturing overhead in European operations and design   
engineering activities.                                                         

 Consolidation of North American Sales and Distribution. Following the DEA
Acquisition, Brown & Sharpe plans to consolidate North American sales and   
distribution activities by reducing the number of sales and related support 
employees by approximately 13%, closing five demonstration centers (net of  
one replacement center) in cities where both Brown & Sharpe and DEA now     
have centers, and opening three new demonstration centers where the         
combined volume of the two operations will make direct sales more cost      
effective than using sales agents or distributors. Brown & Sharpe believes  
that these measures can all be implemented within twelve months of the DEA  
Acquisition, and will result in savings within the twelve months of         
approximately $2.0 million (before one-time implementation cash costs) and  
total annual cost savings after 24 months of approximately $4.5 million.    
Brown & Sharpe believes that these personnel reductions and center closings 
and openings would result in one-time severance, relocation and other cash  
costs of approximately $1.5 million, substantially all of which would be    
expended in the first twelve months.                                        

Consolidation of European Sales and Distribution. Brown & Sharpe also   
plans to consolidate European sales and distribution activities by reducing 
sales and related support employees by approximately 25% in Germany, Italy, 
France and England, and by closing six demonstration centers (net of one    
replacement center). Brown & Sharpe believes that these measures can all be 
implemented within twelve months of the acquisition, and will result in     
savings within the twelve months of approximately $2.8 million (before one- 
time implementation cash costs) and total annual cost savings by the third  
year of approximately $3.2 million. Brown & Sharpe believes that these      
personnel reductions and center closings would result in one-time           
severance, relocation and other cash costs of approximately $2.4 million,   
substantially all of which would be expended in the first twelve months.    

Elimination of Excess Facility Space. Brown & Sharpe believes that      
consolidation of certain European manufacturing operations would both       
reduce facility rental expense and streamline the manufacturing process,    
resulting in production savings. Brown & Sharpe believes that this          
manufacturing consolidation will require up to twenty-four months to        
implement, and will result in total annual cost savings of approximately    
$1.2 million (before one-time implementation cash costs). Brown & Sharpe    
believes that these consolidation efforts will result in one-time           
relocation and other cash costs of approximately $4.9 million,              
substantially all of which will be expended in the second through fourth    
years following the DEA Acquisition.                                        

Reduction of Manufacturing Overhead in European Operations. Brown &     
Sharpe believes that the integration of DEA into the MS Group will permit   
the reduction of supervisory and other staffing at the Combined Company's   
manufacturing facilities in Europe. Brown & Sharpe believes that it will be 
able to identify and provide the required statutory notice to the affected  
employees within twelve months following the DEA Acquisition, and that      
these reductions will result in total annual cost savings after 24 months   
of approximately $1.6 million (before one-time implementation cash costs).  
Brown & Sharpe believes that these staffing reductions will result in one-  
time severance and other cash costs of                                      

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approximately $1.6 million, substantially all of which will be expended in  
the second year following the DEA Acquisition.                              

 Consolidation of Design Engineering. Brown & Sharpe believes that overlap
in design engineering activities of the two operations will permit          
reduction of at least 9% in the total number of employees dedicated to      
these activities without reducing the effective level of design engineering 
activity. A portion of this reduction has already been made in Brown &      
Sharpe's design engineering operations in anticipation of the acquisition,  
and Brown & Sharpe expects that the balance would be made within twelve     
months after the acquisition. Brown & Sharpe believes that these personnel  
reductions would result in approximately $0.6 million in savings in the     
first twelve months (before one-time implementation cash costs), and total  
annual cost savings of approximately $1.0 million by the third year. Brown  
& Sharpe believes that these reductions would result in approximately $1.0  
million in one-time severance and relocation costs, substantially all of    
which would be incurred in the first twelve months.                         

In addition to the specific cost savings plans described above, Brown &     
Sharpe also believes that additional cost savings may be realized through       
consolidation of certain manufacturing operations and discontinuance of certain 
similar products. As of the date hereof, Brown & Sharpe does not have           
sufficient specific cost and other information concerning DEA's operations to   
allow Brown & Sharpe to quantify with confidence the potential additional       
savings or to determine that additional savings are in fact attainable. In      
addition, Brown & Sharpe is unable to predict whether and to what extent the    
elimination of similar products, expected to produce further manufacturing      
savings, will result in incremental decreases in revenue.                       

Accounting for Roch Acquisition and DEA Acquisition                           

Brown & Sharpe accounted for the Roch Acquisition as a purchase transaction 
and will apply the same accounting method to the DEA Acquisition. In a purchase 
transaction the purchase price, including assumed liabilities and the costs of  
the acquisition, is allocated among the acquired assets based on estimated fair 
values for purposes of recording such assets on the purchaser's balance sheet.  
Brown & Sharpe expects that the purchase price for the DEA Acquisition,         
including an estimated $9.7 million in reserves for anticipated costs           
associated with consolidation and related cost savings measures, will be less   
than Brown & Sharpe's estimate of the fair value of the assets acquired by      
approximately $6.3 million. This excess of fair value over cost of assets       
acquired will be recorded as a long-term liability that will be amortized over  
the expected ten-year period during which Brown & Sharpe believes it will       
benefit from this excess. In addition to the $9.7 million in reserves           
established with respect to DEA personnel, assets and liabilities, Brown &      
Sharpe plans to record a one-time charge of an estimated $1.6 million in        
connection with the DEA Acquisition to establish additional reserves relating   
to anticipated consolidation and related cost savings measures to be taken with 
respect to Brown & Sharpe's existing personnel, assets and liabilities. Brown & 
Sharpe believes that these reserves, when combined with reserves established in 
connection with the Roch Acquisition, will be adequate for all currently        
anticipated costs associated with the consolidation of DEA, Roch and Mauser.    

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DEA S.p.A.

GENERAL                                                                         

DEA S.p.A., an Italian corporation, is a wholly owned subsidiary of         
Finmeccanica S.p.A., an Italian corporation, and is a major competitor of Brown 
& Sharpe's MS Division. DEA is a worldwide leader in the manufacturing and      
marketing of CMMs and related accessories, software and services under the      
internationally recognized DEA (R) brand name, with 1993 net sales and          
operating profit of approximately $110.7 million and $5.4 million,              
respectively. DEA's products measure the physical dimensions of objects and are 
used by a wide variety of industrial companies to monitor product conformance   
to specifications. Manufacturers use DEA's products to improve product quality  
and are increasingly integrating quality control functions, and therefore DEA's 
products, directly into the manufacturing process. DEA's products are sold in   
the dimensional metrology market, where DEA is one of only six major worldwide  
competitors that manufacture high-precision CMMs. See "Brown & Sharpe           
Manufacturing Company--Dimensional Metrology Industry."                         

DEA derives over half of its revenues from medium-to-large vertical and     
horizontal-arm CMMs used principally in the automotive and aerospace industries 
and also derives a significant portion of its revenues through the sale of      
upgrades, enhancements, replacement parts and services. The other major end-use 
markets served by DEA are the machine tool and general machinery industries.    
The DEA product line ranges from small, manually operated CMMs to large, high   
speed, automatic horizontal CMMs used in sheet metal gauging systems primarily  
in the automotive industry, and very large, automatic vertical gantry CMMs used 
primarily in the automotive and aerospace industries. In addition, DEA provides 
accessories, parts, after-sales service, rebuilds and computer hardware and     
software upgrades for DEA's CMMs. DEA's CMM application software is an          
important component of its marketing strategy for its CMM products. DEA also    
provides its customers with software and systems integration of DEA's products  
with the customer's host computer. Products sold under the DEA (R) name are     
manufactured in Turin, Italy.                                                   

DEA sells the majority of its products through its distribution network of  
independent agents and distributors, supported by its worldwide direct sales    
force. The typical sales process involves lengthy, technical, one-on-one        
discussions between the salesperson or the distributor/sales agent and the      
customer. As an important part of its marketing and distribution strategy, DEA  
provides in-depth training to the customer through demonstration, installation  
and application support both prior to and after the sale. This direct sales and 
customer support strategy is primarily implemented through its sales and        
marketing organization, technical sales support and metrology system            
departments. DEA has distribution capabilities in Europe, the United States,    
South America, the Middle East, India, China and the Pacific Rim countries and  
maintains major sales offices in the United States, Germany, the United         
Kingdom, France, Spain and Japan.                                               

For fiscal 1993, approximately 23% of DEA's net sales were to customers     
located in Italy, approximately 31% were to customers in the United States and  
approximately 47% were to customers in the rest of the world. As of March 31,   
1994, approximately 64% of DEA's assets were located in Italy, approximately    
19% were located in the United States and approximately 17% were located in the 
rest of the world (based on book values). Accordingly, DEA's margins and its    
ability to export competitively from its Italian manufacturing locations are    
affected by fluctuations in foreign currency exchange rates. See "Management's  
Discussion and Analysis of Financial Condition and Results of Operations of     
DEA." For financial information concerning the foreign operations of DEA for    
1991, 1992 and 1993, and the first quarter of 1994, see Note 2 to DEA's         
Combined Financial Statements.                                                  

ENGINEERING AND PRODUCT DEVELOPMENT                                             

DEA's commercial success is dependent upon its ability to develop products, 
enhancements and applications that meet changing customer metrology needs and   
anticipate and respond to technological                                         

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changes. DEA designs, develops and refines its products internally through its  
engineering program headquartered in Turin, Italy.                              

DEA employs approximately 70 engineers and technicians in its design        
engineering activities, the majority of whom hold engineering or other          
university degrees. In 1991, 1992 and 1993, DEA expended L10.3 billion, L8.2    
billion and L8.3 billion ($5.1 million), respectively, for product design and   
manufacturing engineering. DEA also benefits from research and development      
efforts which are subsidized by customer funds and by government research       
grants.                                                                         

PROPERTIES                                                                      

The following table sets forth certain information concerning DEA's major   
operating facilities:                                                           

                                                                [Download Table]

                                  OWNED/                           APPROXIMATE  
            LOCATION              LEASED      PRINCIPAL USE       SQUARE FOOTAGE
            --------              ------      -------------       --------------
                                                                                
ITALY                                                                           
  Moncalieri..................... Leased Engineering, Sales and      260,000    
                                          Administration                        
  Moncalieri..................... Leased Manufacturing                70,000    
  Grugliasco..................... Leased Assembly                    105,000    
UNITED STATES                                                                   
  Livonia, Michigan.............. Leased Sales and Administration     57,000    
FRANCE                                                                          
  Villeban....................... Leased Sales                        18,000    
SPAIN                                                                           
  Barcelona...................... Leased Sales                        16,000    
GERMANY                                                                         
  Frankfurt...................... Leased Sales                        11,000    
UNITED KINGDOM                                                                  
  Swindon........................ Leased Sales                         7,500    

In addition, DEA leases smaller sales offices located in the United States,     
Europe and Asia. In the opinion of management, DEA's properties are in good     
condition and adequate for DEA's business as presently conducted.               

EMPLOYEES                                                                       

At December 31, 1993, DEA had 671 employees, (as compared with 704 at       
December 31, 1992), of which 455 were located in Italy and 216 were located at  
sales and service facilities in other countries. During the last three years,   
net sales per employee for DEA have increased from approximately L119.8 million 
to approximately L258.4 million.                                                

An agreement covering approximately 22 management employees expired on June 
30, 1993 and an agreement covering approximately 438 clerical and production    
employees at DEA's manufacturing facility in Italy expired on June 30, 1994.    
DEA expects that these agreements will be renewed by the end of 1995. However,  
there can be no assurance that this renewal and successor collective bargaining 
agreements will be successfully negotiated, that negotiations will not result   
in work stoppages or that a work stoppage would not materially interfere with   
DEA's ability to produce the products manufactured at the affected location.    

In Italy, at May 31, 1994 there were approximately 80 employees in "cassa   
integrazione guadagni straordinaria," a mechanism designed to temporarily       
reduce DEA's work force through furlough of employees with substantially all    
the employment expense reimbursed by the government. Under current law, DEA's   
qualifying period for governmental reimbursement expires in September 1994.     

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The following table sets forth the location of DEA's employees as of April  
30, 1994:                                                                       

                                                                [Download Table]

COUNTRY                                                          EMPLOYEES
-------                                                          ---------
                                                                          
France..........................................................     52   
Germany.........................................................     28   
Italy...........................................................    460   
Japan...........................................................     18   
Spain...........................................................     14   
United Kingdom..................................................     21   
United States...................................................     80   
                                                                    ---   
    Total.......................................................    673   
                                                                    ===   

COMPETITION                                                                     

DEA's business is subject to intense direct and indirect competition from a 
considerable number of domestic and foreign firms, a number of which are larger 
in overall size than DEA. The principal factors affecting competition include   
reliability and quality of product, technological proficiency, price, ease of   
system configuration and use, application expertise, engineering support, local 
presence, distribution networks and delivery times. Price competition has been  
intense for dimensional metrology products, due to the recent period of         
decreased demand for these products, which has resulted in overcapacity within  
the industry. In addition to direct competition from companies that market      
similar types of products, DEA is also subject to indirect but effective        
competition from firms that market other dimensional metrology products, such   
as fixed gauging and vision-based systems, which utilize alternative technology 
or methodologies to perform functions similar to those of the CMMs sold by DEA. 

DEA's largest global competitors are Mitutoyo/MTI Corp., a subsidiary of    
Mitutoyo Solsakusho Co. Ltd., a Japan-based company, Carl Zeiss, Inc., a        
subsidiary of Carl-Zeiss-Stiftung AG, LK Tool Co. Ltd., a subsidiary of         
TransTech Ltd, Brown & Sharpe and the Sheffield Measurement Division of         
Giddings & Lewis, Inc.                                                          

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DEA SELECTED COMBINED FINANCIAL DATA

The following selected combined financial information of DEA for each of the
last three fiscal years is derived from the audited Combined Financial          
Statements of DEA, including the notes thereto. The data for the quarters ended 
March 31, 1993 and March 31, 1994, are unaudited but, in the opinion of         
management, reflect all adjustments (consisting only of normal recurring items) 
necessary for a fair presentation of the results for such interim periods. The  
results of the quarter ended March 31, 1994 are not necessarily indicative of   
the results that may be expected for the full year. The following selected      
financial information should be read in conjunction with the Combined Financial 
Statements of DEA, related notes and other financial information included       
elsewhere in this Proxy Statement.                                              

                                                        [Enlarge/Download Table]

                                     YEAR ENDED                        QUARTER ENDED         
                         --------------------------------------  ----------------------------
                         DEC. 31,  DEC. 31,  DEC. 31,  DEC. 31,  MAR. 31,  MAR. 31,  MAR. 31,
                           1991      1992      1993      1993      1993      1994      1994  
                         --------  --------  --------  --------  --------  --------  --------
                                    (LIRE IN MILLIONS; DOLLARS IN THOUSANDS)                 
                                                                                             
OPERATING DATA:                                                                              
Net sales............... L117,662  L124,749  L178,297  $110,675  L29,137   L34,282   $21,280 
Cost of goods sold......   93,561    83,922   114,363    70,989   20,830    22,197    13,778 
Selling, general and                                                                         
 administrative expense.   35,388    39,873    48,764    30,269   11,302    12,236     7,595 
Restructuring costs.....      --      2,949       823       511      --        --        --  
Depreciation and                                                                             
 amortization...........    5,641     5,718     5,690     3,532    1,384     1,196       742 
                         --------  --------  --------  --------  -------   -------   ------- 
Operating profit (loss).  (16,928)   (7,713)    8,657     5,374   (4,379)   (1,347)     (836)
Interest expense, net...  (12,086)  (11,731)   (9,918)   (6,157)  (2,981)   (2,895)   (1,798)
Other income (expense),                                                                      
 net....................   10,688    (4,789)   (2,599)   (1,613)     227       935       580 
                         --------  --------  --------  --------  -------   -------   ------- 
Net income (loss)....... L 18,326  L(24,233) L (3,860) $ (2,396) L(7,133)  L(3,307)  $(2,053)
                         ========  ========  ========  ========  =======   =======   ======= 
OTHER DATA:                                                                                  
EBITDA(1)............... L(11,287) L  1,120  L 15,170  $  9,417  L(2,995)  L  (151)  $   (93)
Capital expenditures....    3,107     3,080     3,165     1,965      780       193       120 
BALANCE SHEET DATA (END                                                                      
 OF PERIOD):                                                                                 
Working capital.........     (135)    4,561     1,930     1,198   (1,598)       95        58 
Property, plant and                                                                          
 equipment, net.........   12,979     9,558     9,341     5,798    9,700     8,593     5,334 
Total assets............  142,239   184,455   186,658   115,864  183,879   170,519   105,846 
Total debt including                                                                         
 indebtedness to                                                                             
 affiliates.............  106,466   120,047   130,755    81,163  132,416   128,649    79,857 

--------                                                                        
(1) "EBITDA" consists of earnings before interest expense, other income         
  (expense), restructuring charges, provision for income taxes, depreciation
and amortization. EBITDA is included herein to provide additional       
   information, and should not be construed as a substitute for cash flow from
operating activities, which is determined in accordance with generally  
accepted accounting principles. DEA incurred restructuring charges of   
 L2,949 and L823 ($511) for the years ended December 31, 1992 and December
31, 1993, respectively.                                                 

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

The Combined Financial Statements of DEA have been prepared in accordance   
with accounting principles generally accepted in the United States and include  
the financial position and results of operations of the companies and divisions 
described in Note 1 of the Combined Financial Statements of DEA. This           
discussion supplements the detailed information in the Combined Financial       
Statements of DEA and notes thereto included elsewhere in this Proxy Statement  
and should be read in conjunction therewith.                                    

RESULTS OF OPERATIONS                                                           

 The following table sets forth the percentage of net sales of DEA represented
by the components of income and expense for the years ended December 31, 1992   
and 1993 and the three months ended March 31, 1993 and 1994:                    

                                                                [Download Table]

                                               YEAR ENDED       QUARTER ENDED   
                                             ----------------  ---------------- 
                                             DEC. 31  DEC. 31  MAR. 31  MAR. 31 
                                              1992     1993     1993     1994   
                                             -------  -------  -------  ------- 
                                                                                
Net sales...................................  100.0%   100.0%   100.0%   100.0% 
Cost of products sold.......................  (77.2)   (64.1)   (71.5)   (64.7) 
                                              -----    -----    -----    -----  
  Gross profit..............................   22.8     35.9     28.5     35.3  
Selling, general and administration.........  (21.9)   (27.3)   (38.8)   (35.7) 
Restructuring costs.........................   (2.4)    (0.5)     --       --   
Depreciation and amortization...............   (4.6)    (3.2)    (4.7)    (3.5) 
                                              -----    -----    -----    -----  
  Operating income (loss)...................   (6.0)     4.9    (15.0)    (3.9) 
Interest expense, net.......................   (9.4)    (5.6)   (10.2)    (8.4) 
Other income (expense), net.................   (4.0)    (1.5)     0.8      2.7  
                                              -----    -----    -----    -----  
  Net income (loss).........................  (19.4)%   (2.2)%  (24.5)%   (9.6)%
                                              =====    =====    =====    =====  

Quarter Ended March 31, 1994 compared to Quarter Ended March 31, 1993         

Net Sales. Net sales in the first quarter of 1994 rose to L34.3 billion from
L29.1 billion in the first quarter of 1993, an increase of 17.7%. This increase 
was due to improvements in the performance in the U.S. and European markets,    
which offset a decline in net sales in Italy. Net sales in Italy for the first  
quarter of 1994 were L5.6 billion, a decrease of 47.4% as compared to net sales 
of L10.6 billion in the first quarter of 1993. The decrease was primarily due   
to an unusually large sale in the 1993 period. Net sales in the United States   
in the first quarter of 1994 increased 30.2% to L9.3 billion from L7.2 billion  
in the prior year due in part to generally improved economic conditions in the  
United States and in the automotive industry in particular. In addition, a      
general reorganization of the U.S. operations contributed to the increase in    
net sales. In Europe (excluding Italy), net sales for the first quarter of 1994 
totaled L10.5 billion, an increase of 19.4% compared to net sales of L8.8       
billion in the first quarter of 1993. This increase was principally due to      
modest improvement in the major European economies. Net sales in the rest of    
the world were L8.9 billion in the first quarter of 1994, an increase of 242.5% 
as compared to net sales of L2.6 billion in the prior year's quarter. This      
growth reflects increased sales in South America resulting from the             
reorganization of sales operations and increased marketing as well as increased 
net sales in China.                                                             

Gross Profit. Gross profit margin increased to 35.3% in the first quarter of
1994 from 28.5% in the first quarter of the previous year. This improvement     
resulted primarily from a cost reduction program as well as the introduction of 
a new line of CMM products with higher average profit margins than DEA's        
previous product mix.                                                           

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Selling, General and Administrative Expense. SG&A expense in the first      
quarter of 1994 totaled L12.2 billion, an increase of L0.9 billion, or 8.3%,    
from the total in the first quarter of 1993. As a percentage of net sales,      
these expenses decreased to 35.7% from 38.8% in the first quarter of 1993. The  
decrease reflects the results of DEA's cost control program.                    

Operating Profit (Loss). DEA recorded an operating loss of L3.3 billion     
during the first quarter of 1994 compared to a loss of L7.1 billion in the      
first quarter of 1993. The improvement was primarily due to increased net       
sales, increased sales of products with higher average profit margins and the   
cost reduction program discussed above.                                         

Interest Expense. Net interest expense for the first quarter of 1994 and the
first quarter of 1993 totaled L2.9 billion and L3.0 billion, respectively. The  
reduction of L0.1 billion reflects lower average interest rates and a reduction 
in long-term borrowing. At March 31, 1994, DEA's borrowings, including          
interest-bearing payables to affiliates, totalled L128.6 billion ($79.9         
million). In the DEA Acquisition, Finmeccanica will assume, discharge or waive  
all but approximately L22.2 billion ($13.8 million) of these borrowings. See    
"The DEA Acquisition" and "Pro Forma Combined Financial Statements."            

Other Income, Net. Other income, net of L0.9 billion in the first quarter of
1994 and L0.2 billion in the first quarter of 1993 is comprised primarily of    
foreign exchange gains.                                                         

 Net Income (Loss). As a result of the factors discussed above, DEA recorded a
net loss of L3.3 billion in first quarter of 1994 compared to a net loss of     
L7.1 billion in the first quarter of 1993.                                      

Year Ended December 31, 1993 Compared to Year Ended December 31, 1992         

Net Sales. Net sales in the year ended December 31, 1993 totaled L178.3     
billion, an increase of 42.9% as compared to net sales of L124.7 billion in the 
year ended December 31, 1992. Net sales in Italy were L40.8 billion in 1993, a  
45.4% increase as compared to L28.1 billion in 1992. The increase was           
principally due to a general restructuring of the sales network, an unusually   
large contract from a major Italian industrial group, and the launch of a new   
line of CMM products. Net sales in 1993 in the United States increased 75.2% to 
L54.3 billion from L31.0 billion in 1992. This increase resulted from a         
devaluation of the Lire in the fourth quarter of 1992, as well as from general  
reorganization of DEA's U.S. operations and improved economic conditions in the 
United States. In Europe, other than Italy, net sales in 1993 totaled L55.1     
billion, an increase of 22.4% as compared to net sales of L44.0 billion in      
1992, reflecting an increase in market share resulting in part from the         
devaluation of the Lire. Net sales in the rest of the world were L28.0 billion  
in 1993, an increase of 29.0% as compared to net sales of L21.7 billion in      
1992, in part as a result of increased net sales in China.                      

Gross Profit. Gross profit margin increased to 35.9% in 1993 from 32.7% in  
1992. This improvement was principally due to devaluation of the Lire in the    
fourth quarter of 1992, as well as cost reductions achieved as a result of a    
reorganization of DEA's sales and distribution organization, as well as         
increased efficiency in research and development and manufacturing operations.  

Selling, General and Administrative Expense. SG&A expense increased 22.3% to
L48.8 billion in 1993 compared to L39.9 billion in 1992. SG&A expense in 1993   
was offset by the recognition of L2.4 billion of government grants receivable   
in connection with research and development activities. Excluding this item,    
SG&A expense totaled L51.2 billion in 1993 (28.7% of net sales) compared to     
L39.9 billion (32.0% of net sales) in 1992. This percentage decrease reflects   
the cost reductions achieved following the reorganization in 1992 and           
management's cost control program.                                              

Operating Profit (Loss). DEA recorded an operating profit of L8.7 billion in
1993, as compared to a loss of L7.7 billion in 1992. Included in these figures  
are restructuring costs of L0.8 billion in 1993 and L2.9 billion in 1992. The   
restructuring costs in 1993 related to the dismissal of employees in France.    
The restructuring costs in 1992 related to staff reductions in France and the   
early retirement of certain employees. The operating profit was primarily the   
result of devaluation of the Lire in the fourth quarter of 1992, as well as     
cost savings arising from the restructuring of DEA's operations in 1992,        
increased sales volume and improvements in manufacturing efficiency.            

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 Interest Expense. Net interest expense for 1993 and 1992 totaled L9.9 billion
and L11.7 billion, respectively. This reduction was principally attributable to 
the general decrease in interest rates throughout the countries in which DEA    
holds borrowings and a decline in DEA's long-term borrowings.                   

Other Income, Net. Other expense, net of L2.6 billion in 1993 and L4.8      
billion in 1992 were primarily comprised of foreign exchange losses. The large  
foreign exchange loss in 1992 principally arose due to the devaluation of the   
Lire in the final quarter of 1992 against DEA's principal foreign trading       
currencies, the U.S. dollar, German mark and the Japanese yen. DEA is not a     
party to any forward exchange contracts or similar investments as a hedge       
against transactions denominated in foreign currency.                           

 Net Income (Loss). As a result of the factors discussed above, DEA recorded a
net loss of L3.9 billion in 1993 compared to a net loss of L24.2 billion in     
1992.                                                                           

LIQUIDITY AND CAPITAL RESOURCES                                                 

DEA has historically financed its operations with short-term borrowings     
provided from affiliated companies and banks. In addition, long-term financing  
for capital expenditures and research and development has been provided by a    
mix of long-term loans (from both lending institutions and government agencies) 
and government grants. Under the terms of the DEA Acquisition Agreement,        
Finmeccanica has agreed to assume, discharge or waive all but approximately     
L22.2 billion ($13.8 million) of DEA's existing borrowings. See "The DEA        
Acquisition."                                                                   

 Cash Flow. The operating activities of DEA used cash of L9.3 billion in 1993,
primarily as a result of an increase in accounts receivable as a result of      
higher sales, as well as a decrease in accounts payable from an unusually high  
amount at the end of 1992. In 1992, total cash used by operating activities was 
L44.7 billion, primarily due to the conversion of Digital Electronic Automation 
Company (USA) from a division of Elsag Bailey Inc. to a subsidiary of DEA. On   
the date of the conversion, Elsag Bailey Inc. eliminated the net asset          
deficiency of the division by waiving a portion of a working capital advance    
granted to it. In the first quarter of 1994, operating activities provided cash 
of L4.0 billion, primarily as a result of a decrease in accounts receivable due 
to the normal pattern of higher sales volume at the end of the year.            

 In 1993, investing activities used cash of L3.6 billion, consisting primarily
of capital expenditures. Investment transactions used cash of L3.3 billion in   
1992, as the proceeds of sales of fixed assets, primarily the sale of property  
in Spain, were offset in part by the purchase of assets from Renault Automation 
and capital expenditures. In the first quarter of 1994, investing activities    
provided cash of L0.5 billion, as a decrease in deferred charges more than      
offset small amounts of capital expenditures.                                   

Increases in borrowings resulted in net cash from financing activities of   
L16.1 billion in 1993. Borrowings and current maturities of debt increased to   
L47.1 billion at the end of 1993 from L21.2 billion at year end 1992. This      
increase of L25.8 billion, principally arising in short term borrowings,        
resulted from the acquisition of DEA USA from Elsag Bailey Inc. In 1992, cash   
flow from financing activities showed a net inflow of L46.4 billion as a result 
of the waiving of borrowings from Elsag Bailey Inc. in connection with the      
acquisition of DEA USA. In the first quarter of 1994, financing activities used 
cash of L2.9 billion because of a decrease in borrowings.                       

 Working Capital. Working capital decreased to L1.9 billion at the end of 1993
from L4.6 billion at the end of 1992. Accounts receivable increased to L83.7    
billion at the end of 1993 from L74.8 billion at the end of 1992 as a result of 
the increase in net sales offset by a reduction in the average collection       
period. Inventories decreased slightly in 1993, to L67.1 billion at the end of  
1993 from L68.7 billion at the end of 1992, as a result of normal fluctuations  
in the purchasing, manufacturing and selling cycle. Accounts payable decreased  
to L25.9 billion at the end of 1993 from L33.7 billion at the end of 1992,      
reflecting the different purchasing trends and patterns in the final four       
months of 1993 compared to 1992.                                                

Capital Expenditures. Capital expenditures totaled L3.2 billion in 1993     
compared to L3.1 billion in 1992, a level sufficient to maintain the operations 
of the businesses. In the first quarter of 1994, capital expenditures totaled   
L0.2 billion.                                                                   

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PRINCIPAL STOCKHOLDERS

The following table sets forth, as of March 4, 1994 (unless otherwise       
indicated), certain information with respect to the beneficial ownership of     
shares of each class of Brown & Sharpe's voting securities by (i) each person   
known by Brown & Sharpe to be the beneficial owner of more than 5% of Brown &   
Sharpe's outstanding voting securities, (ii) each director and executive        
officer of Brown & Sharpe individually, and (iii) all directors and executive   
officers of Brown & Sharpe as a group. The information set forth below assumes  
the consummation of the DEA Acquisition. Except as otherwise noted, the persons 
marked in the table have sole voting and investment power with respect to all   
shares shown as beneficially owned by them.                                     

                                                                [Download Table]

                                    CLASS A           CLASS B                  
                               ------------------ ----------------  PERCENTAGE 
       NAME AND ADDRESS                  PERCENT          PERCENT  OF COMBINED 
     OF BENEFICIAL OWNER        NUMBER   OF CLASS NUMBER  OF CLASS VOTING POWER
     -------------------       --------- -------- ------- -------- ------------
                                                                               
Finmeccanica S.p.A............ 3,450,000  42.5%       --     --       25.5%    
 Elsag Bailey                                                                  
 via G. Puccine, 2                                                             
 16154 Genova, Italy                                                           
Fiduciary Trust Company          476,646   5.9%   158,920  29.2%      15.2%    
 International(1) Two World                                                    
 Trade Center                                                                  
 New York, NY 10048-0774                                                       
Dimensional Fund Advisors(2)..   351,766   4.3%       --     --        2.6%    
 1299 Ocean Avenue                                                             
 Santa Monica, CA 90401                                                        
The Killen Group, Inc.(3).....   288,058   3.6%       --     --        2.1%    
 1189 Lancaster Avenue                                                         
 Berwyn, PA 19312                                                              
Fleet National Bank(4)........   165,795   2.0%    52,744   9.7%       5.1%    
 100 Westminster Street                                                        
 Providence, RI 02903                                                          
Henry D. Sharpe, Jr.(5).......   563,504   6.9%   271,319  49.9%      24.2%    
Fred M. Stuber(6).............   319,734   3.9%   166,063  30.5%      14.6%    
Charles A. Junkunc(7).........   324,872   4.0%   194,489  35.8%      16.7%    
Henry D. Sharpe, III..........    55,145    *      18,381   3.3%       1.8%    
John M. Nelson................     1,453    *         151    *          *      
Howard K. Fuguet..............     1,000    *         --     --         *      
Russell A. Boss...............     1,000    *         --     --         *      
Paul. R. Tregurtha............       705    *          13    *          *      
Richard F. Paolino............    47,938    *       2,235    *          *      
Antonio Aparicio..............    20,000    *         --     --         *      
Karl J. Lenz..................     8,000    *         --     *          *      
All Directors and Executive                                                    
 Officers as a Group (13 per-                                                  
 sons)(8).....................   980,953  12.1%   360,053  66.2%      33.8%    

--------                                                                        
* Less than one percent (1%).                                                 
(1) Fiduciary Trust Company International, a bank, by virtue of various         
investment management contracts and trust agreements with members of the
Sharpe family, shares voting and dispositive power with respect to the  
   aforementioned shares of Class A Common Stock and Class B Common Stock. See
Footnote 5 below.                                                       

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(2) Dimensional Fund Advisors, Inc. ("Dimensional") a registered investment     
  advisor, is deemed to have beneficial ownership of 351,766 shares of Class
   A Common Stock of the Combined Company, 220,066 of which shares are held in
   portfolios of DFA Investment Dimensions Group Inc. and The Investment Trust
Company, management investment companies for which Dimensional serves as
investment manager. Dimensional disclaims beneficial ownership of such  
shares.                                                                 
(3) The Killen Group, Inc. a registered investment adviser, is the beneficial   
owner of 288,058 shares of Class A Common Stock, of which it has sole   
dispositive power with respect to 284,892 shares and as to which it has 
  sole voting power with respect to 96,813 of such shares. Robert E. Killen,
  the President and sole shareholder of The Killen Group, Inc. directly owns
3,166 shares as to which he has sole voting and dispositive power.      
(4) Fleet National Bank acts as Trustee of the Brown and Sharpe Savings and     
  Retirement Plan (the "SARP") and in that capacity shares voting power with
respect to the shares of Class A Common Stock and Class B Common Stock, 
subject to direction from participants in such SARP Plan.               
(5) Various members of the Sharpe family, including Henry D. Sharpe, Jr. and    
  Henry D. Sharpe, III, beneficially owned an aggregate of 731,700 shares of
Class A Common Stock and 327,383 shares of Class B Common Stock of the  
  Combined Company, amounting to 9.0% and 60.2%, respectively, of each class
   of stock and representing 29.6% of the combined voting power of the Class A
Common Stock and Class B Common Stock. The table excludes (a) 168,076   
shares of Class A Common Stock and 56,024 shares of Class B Common Stock
held by Henry D. Sharpe, Jr.'s wife and children and by trusts, of which
   they are beneficiaries and of which beneficial ownership is disclaimed; and
(b) 120 shares of Class A Common Stock and 40 shares of Class B Common  
Stock held by the Sharpe Family Foundation, a charitable foundation, of 
which beneficial ownership is disclaimed. The table includes (i) 7,200  
  shares of Class A Common Stock and 2,400 shares of Class B Common Stock as
  to which Henry D. Sharpe, Jr. has neither voting nor dispositive power but
   as to which he is a beneficiary under a trust established under the will of
Henry D. Sharpe, Sr.; (ii) 247,734 shares of Class A Common Stock and   
   166,063 shares of Class B Common Stock as to which Henry D. Sharpe, Jr., by
 virtue of being one of the three Trustees under Brown & Sharpe's Employee
Stock Ownership and Profit Participation Plan (the "ESOP"), has shared  
voting power (subject to direction from plan participants) and limited  
residual investment power as a Trustee under the terms of the Trust     
   Agreement for the ESOP and of which beneficial ownership is disclaimed; and
  (iii) 308,570 shares of Class A Common Stock and 102,856 shares of Class B
Common Stock as to which Henry D. Sharpe, Jr. has shared voting and     
dispositive power with Fiduciary Trust Company International.           
(6) Includes 247,734 shares of Class A Common Stock and 166,063 shares of Class 
 B Common Stock, which, by virtue of Mr. Stuber's role as a Trustee of the
ESOP, are deemed to be beneficially owned but as to all of which ESOP   
shares he disclaims beneficial ownership.                               
(7) Includes (a) 55,000 shares of Class A Common Stock and 28,333 shares of     
 Class B Common Stock held by Brown & Sharpe's United Kingdom Pension Plan
as to which Mr. Junkunc has shared voting and investment power; and (b) 
   247,734 shares of Class A Common Stock and 166,063 shares of Class B Common
   Stock, which, by virtue of Mr. Junkunc's role as a Trustee of the ESOP, are
deemed to be owned beneficially by him but as to which all of such ESOP 
 (except for his vested shares of Class A and Class B Common Stock in such
plan) and U.K. Pension Plan shares he disclaims beneficial ownership.   
(8) With respect to Executive Officers who are not Directors, includes 101,332  
shares of Class A Common Stock as to which certain of the Executive     
Officers have sole voting and investment power; 55,000 shares of Class A
Common Stock and 28,333 shares of Class B Common Stock held in Brown &  
  Sharpe's pension plan covering its United Kingdom employees as to which an
  Executive Officer has shared voting and investment power; and 7,268 shares
of Class A Common Stock and 4,186 shares of Class B Common Stock as to  
which the Executive Officers have shared voting power. Includes 65,132  
   shares of Class A Common Stock subject to exercisable stock options granted
   pursuant to Brown & Sharpe's Amended 1973 Stock Option Plan (under which no
further awards can be made) and 1989 Equity Incentive Plan.             

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DESCRIPTION OF SENIOR NOTES 

GENERAL                                                                         

The completion of the DEA Acquisition is a condition to the closing of the  
Note Offering. The net proceeds available to Brown & Sharpe from the sale of    
Senior Notes are estimated to be approximately $72 million, based on the        
anticipated underwriting discount, commissions and other expenses of the Note   
Offering of approximately $3 million. The proceeds of the Note Offering will be 
used by the Combined Company principally to repay certain short- and long-term  
indebtedness of Brown & Sharpe and certain short- and long-term indebtedness    
retained by DEA following the DEA Acquisition. The balance of the proceeds will 
be used for general corporate purposes, including the funding of a portion of   
the Combined Company's expected expenses in integrating DEA, Roch and Mauser.   

The Senior Notes will be issued under an Indenture dated as of        , 1994
(the "Indenture") between the Combined Company, as issuer, and Morgan Guaranty  
Trust Company of New York, as trustee (the "Trustee"). The terms and conditions 
of the Senior Notes include those stated in the Indenture and those made part   
of the Indenture by reference to the Trust Indenture Act of 1939 (the "Trust    
Indenture Act") as in effect on the date of the Indenture. The Senior Notes are 
subject to all such terms and conditions, and reference is made to the          
Indenture and the Trust Indenture Act for a statement thereof. The following    
statements are summaries of the provisions of the Senior Notes and the          
Indenture and do not purport to be complete. Such summaries make use of certain 
terms defined in the Indenture, which is filed as an exhibit to the             
Registration Statement for the Senior Notes.                                    

The Senior Notes will be limited to $75,000,000 aggregate principal amount  
and will be issued in fully registered form without coupons in denominations of 
$1,000 and any integral multiple of $1,000. Principal of, premium, if any, and  
interest on the Senior Notes will be payable, and the Senior Notes will be      
transferable, at the corporate trust office of the Trustee in the City of New   
York. Initially, the Trustee will act as paying agent and registrar under the   
Indenture. The Combined Company and its Subsidiaries may act as paying agent    
and registrar under the Indenture, and the Combined Company may change any      
paying agent and registrar without notice to the persons who are registered     
holders ("Holders") of the Senior Notes. The Combined Company may pay           
principal, premium and interest by check and may mail an interest check to a    
Holder's registered address. Holders must surrender the Senior Notes to the     
paying agent to collect principal and premium payments. No service charge will  
be made for any registration of transfer or exchange of the Senior Notes,       
except for any tax or other governmental charge that may be imposed in          
connection therewith.                                                           

Interest on the Senior Notes will initially accrue from    , 1994, and      
thereafter from the most recent date to which interest has been paid. Interest  
will be payable semi-annually on February 1 and August 1 of each year,          
commencing February 1, 1995, at the rate of    % to Holders of the Senior Notes 
as of the close of business on January 15 and July 15 next preceding the        
interest payment date. Interest will be computed on the basis of a 360-day year 
comprised of twelve 30-day months. The Senior Notes mature on August 1, 2002.   

The Senior Notes will be senior obligations of the Combined Company, ranking
senior in right of payment to any subordinated indebtedness of the Combined     
Company, and pari passu with the existing and future unsecured senior           
indebtedness of the Combined Company. All secured senior obligations of the     
Combined Company, including obligations under the Revolving Credit Facility,    
will effectively be senior in right of payment to the Senior Notes with respect 
to the assets securing such senior obligations. In addition, the Senior Notes   
will be effectively subordinated to all liabilities of the Combined Company's   
subsidiaries. As of April 2, 1994, assuming that the DEA Acquisition, the       
Offering and the application of the proceeds therefrom had occurred on such     
date, the Combined Company's subsidiaries had approximately $145 million of     
liabilities outstanding on a pro forma basis.                                   

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OPTIONAL REDEMPTION                                                             

The Senior Notes will not be redeemable prior to August 1, 1998, except that
prior to August 1, 1997 the Combined Company may redeem, in part, Senior Notes  
at  % of the principal amount thereof, plus accrued interest, if any, to the    
date fixed for redemption, with the net proceeds of any public offering of      
Common Stock of the Combined Company; provided that at least $56,250,000        
aggregate principal amount of the Senior Notes must remain outstanding after    
each such redemption. All such redemptions will be required to occur within 90  
days of the receipt of the proceeds of such public offering. The Senior Notes   
will be redeemable at the option of the Combined Company, in whole or from time 
to time in part, at any time on or after August 1, 1998, on not less than 30    
nor more than 60 days' prior notice, at the following redemption prices         
(expressed as percentages of the principal amount), if redeemed in the 12-month 
period indicated below, in each case plus accrued and unpaid interest to the    
date fixed for redemption:                                                      

                                                                [Download Table]

TWELVE-MONTH PERIOD                                                          
  COMMENCING                                                 REDEMPTION PRICE
-------------------                                          ----------------
                                                                             
August 1, 1998..............................................          %      
August 1, 1999..............................................          %      
August 1, 2000..............................................          %      
August 1, 2001..............................................       100%      

The Senior Notes will not be subject to, or entitled to the benefits of, any    
sinking fund.                                                                   

Senior Notes may be redeemed or repurchased as set forth below under "Change
of Control" and "Certain Covenants--Limitations on Asset Sales" in part in      
multiples of $1,000. If less than all the Senior Notes issued under the         
Indenture are to be redeemed, the Trustee will select the Senior Notes to be    
redeemed pro rata, by lot or by any other method which the Trustee shall deem   
fair and appropriate. The Indenture provides that if any Senior Note is to be   
redeemed or repurchased in part only, the notice which relates to the           
redemption or repurchase of such Senior Note shall state the portion of the     
principal amount of such Senior Note to be redeemed or repurchased and shall    
state that on or after the date fixed for redemption or repurchase a new Senior 
Note equal to the unredeemed portion thereof will be issued.                    

 On and after the date fixed for redemption or repurchase, interest will cease
to accrue on the Senior Notes or portions thereof called for redemption or      
tendered for repurchase.                                                        

CHANGE OF CONTROL                                                               

In the event of a Change of Control (the date of such occurrence being the  
"Change of Control Date"), the Combined Company shall notify the Holders in     
writing of such occurrence and shall make an offer to purchase (the "Change of  
Control Offer"), on a business day (the "Change of Control Payment Date") not   
later than 60 days following the Change of Control Date, all Senior Notes then  
outstanding at a purchase price equal to 101% of the principal amount thereof   
plus accrued and unpaid interest, if any, to the Change of Control Payment      
Date. Notice of a Change of Control Offer shall be mailed by the Combined       
Company to the Holders not less than 30 days nor more than 45 days before the   
Change of Control Payment Date. The Change of Control Offer is required to      
remain open for at least 20 business days and until the close of business on    
the Change of Control Payment Date. A "Change of Control" means the occurrence  
of any of the following: (i) any "person" or "group" (as such terms are used in 
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial     
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or           
indirectly, of more than 50% of the combined voting power of the securities of  
the Combined Company, (ii) the merger or consolidation of the Combined Company  
with or into another corporation with the effect that the stockholders of the   
Combined Company immediately prior to such merger or consolidation cease to be  
the "beneficial owners" (as defined in Rule 13d-3 under the Exchange Act) of    
50% or more of the combined voting power of the securities of the surviving     
corporation of such merger or the corporation resulting from such merger or     
consolidation ordinarily (and apart from rights arising under special           
circumstances) having the right to vote in the election of directors            
outstanding immediately after such merger or consolidation, (iii)               

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the sale, conveyance, transfer or lease by the Combined Company of all or       
substantially all of its assets to any person in one transaction or a series of 
related transactions or (iv) within any period of twenty-four consecutive       
months, a majority of the Board of Directors of the Combined Company is not     
composed of Continuing Directors.                                               

The Combined Company will comply, to the extent applicable, with the        
requirements of Rule 14e-1 under the Exchange Act and other securities laws or  
regulations in connection with the offer to repurchase and the repurchase of    
the Senior Notes as described above.                                            

The Combined Company's ability to repurchase the Senior Notes pursuant to a 
Change of Control Offer will be limited by, among other things, the Combined    
Company's financial resources at the time of repurchase.                        

The existence of the right of Holders to require the Combined Company to    
repurchase their Senior Notes upon the occurrence of a Change of Control may    
deter a third party from acquiring the Combined Company in a transaction which  
would constitute a Change of Control. The Change of Control provisions will not 
prevent a change in a majority of the members of the Board of Directors which   
is approved by the then-present Board of Directors. See "Principal              
Stockholders."                                                                  

The use of the term "all or substantially all" in Indenture provisions such 
as clause (iii) of the definition of Change of Control and under "--Limitations 
on Mergers; Sales of Assets" has no clearly established meaning under New York  
law (which governs the Indenture) and has been the subject of limited judicial  
interpretation in few jurisdictions. Accordingly, there may be a degree of      
uncertainty in ascertaining whether a particular transaction would involve a    
disposition of "all or substantially all" of the assets of a person, which      
uncertainty should be considered by prospective purchasers of the Senior Notes. 

CERTAIN COVENANTS                                                               

The Indenture contains, among others, the following covenants:              

Limitations on Indebtedness. The Indenture will provide that the Combined   
Company will not, and will not permit its Restricted Subsidiaries to, directly  
or indirectly, create, incur, issue, assume or in any other manner become       
liable with respect to or become responsible for the payment of, contingently   
or otherwise, (individually or collectively, to "incur" or an "incurrence") any 
Indebtedness; provided, however, that the Combined Company, but not a           
Restricted Subsidiary of the Combined Company, may incur Indebtedness if at the 
time of such incurrence and after giving pro forma effect thereto, the Combined 
Company's Fixed Charge Coverage Ratio (as defined) for the most recently ended  
four full fiscal quarters for which internal financial statements are available 
immediately preceding the date on which such Indebtedness is incurred,          
calculated on a pro forma basis as if such Indebtedness was incurred on the     
first day of such four-quarter period, would be greater than or equal to 2.0 to 
1.                                                                              

The Indenture will further provide that notwithstanding the foregoing       
limitations, the incurrence of the following will not be prohibited:            

(a) Indebtedness of the Combined Company evidenced by the Senior Notes; 

(b) Indebtedness of the Combined Company constituting Existing          
Indebtedness;                                                               

(c) Indebtedness of the Combined Company and its Restricted Subsidiaries
constituting Revolving Credit Indebtedness;                                 

(d) Acquired Indebtedness, Capitalized Lease Obligations of the Combined
Company and its Restricted Subsidiaries and Indebtedness of the Combined    
Company and its Restricted Subsidiaries secured by Liens that secure the    
payment of all or part of the purchase price of assets or property acquired 
or constructed in the ordinary course of business after the date of the     
Indenture; provided,                                                        

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however, that the aggregate principal amount of such Indebtedness permitted 
by this clause (d) shall not exceed $10.0 million outstanding at any time;  

(e) Indebtedness of the Combined Company and its Restricted Subsidiaries
incurred in connection with any sale and leaseback arrangement permitted    
under "Limitations on Sale and Leaseback Transactions";                     

(f) Indebtedness of any Restricted Subsidiary issued to or held by the  
Combined Company or another Restricted Subsidiary;                          

(g) Indebtedness of the Combined Company and its Restricted Subsidiaries
in an aggregate amount not to exceed $5.0 million outstanding at any time;  

(h) Indebtedness under Currency Agreements related to payment obligation
in respect of Indebtedness of the Combined Company or of its Restricted     
Subsidiaries incurred in accordance with the Indenture and Indebtedness in  
respect of Currency Agreements entered into with respect to payables and    
receivables of the Combined Company and its Restricted Subsidiaries,        
provided that in the case of Currency Agreements that relate to             
Indebtedness, such Currency Agreements do not increase the Indebtedness of  
the Combined Company or of its Restricted Subsidiaries outstanding at any   
time other than as a result of fluctuations in foreign currency or exchange 
rates;                                                                      

(i) Indebtedness incurred in respect of performance bonds, bankers'     
acceptances or letters of credit of the Combined Company and of any         
Restricted Subsidiary of the Combined Company and surety bonds provided by  
the Combined Company or any Subsidiary of the Combined Company in the       
ordinary course of business, the Indebtedness incurred under this clause    
(i) not to exceed $5 million in the aggregate;                              

(j) Indebtedness of the Combined Company under Interest Rate Protection 
Agreements covering Indebtedness which bears interest at fluctuating        
interest rates to the extent the notional principal amount of such Interest 
Rate Protection Agreements does not exceed the principal amount of the      
Indebtedness to which such Interest Rate Protection Agreements relate; and  

(k) Any refinancing, refunding, deferral, renewal or extension (each, a 
"Refinancing") of any Indebtedness of the Combined Company permitted by the 
preceding paragraph or by clause (a) or (c) of this paragraph (the          
"Refinancing Indebtedness"); provided, however, that (i) such Refinancing   
does not increase the total consolidated Indebtedness of the Combined       
Company and its Restricted Subsidiaries outstanding at the time of such     
Refinancing, (ii) the Refinancing Indebtedness shall not provide for any    
mandatory redemption, amortization or sinking fund requirement in an amount 
greater than or at a time prior to the amounts and times specified in the   
Indebtedness being refinanced, refunded, deferred, renewed or extended and  
(iii) if the Indebtedness being refinanced, refunded, deferred, renewed or  
extended is subordinated to the Senior Notes, the Refinancing Indebtedness  
incurred to refinance, refund, defer, renew or extend such Indebtedness     
shall be subordinated in right of payment to the Senior Notes on terms at   
least as favorable to the Holders as those contained in the documentation   
governing the Indebtedness being so refinanced, refunded, deferred, renewed 
or extended.                                                                

Limitations on Restricted Payments. The Indenture will provide that the     
Combined Company will not, nor will it cause, permit or suffer any Restricted   
Subsidiary to, (i) declare or pay any dividends on any class of Equity          
Interests of the Combined Company or such Restricted Subsidiary (other than     
dividends payable by a Restricted Subsidiary on account of its Equity           
Interests), (ii) make any payment on account of, or set apart money for a       
sinking or other analogous fund for, the purchase, redemption or other          
retirement of such Equity Interests (other than the purchase, redemption or     
other retirement by a Restricted Subsidiary of its Equity Interests held by the 
Combined Company or a wholly-owned Restricted Subsidiary), (iii) make any       
distribution in respect of such Equity Interests (including through mergers,    
liquidations or other transactions commonly known as leveraged buyouts (other   
than distributions by a Restricted Subsidiary on account of its Equity          
Interests held by the Combined Company or a wholly-owned Restricted             
Subsidiary), (iv) purchase, defease, redeem or otherwise retire any             
Indebtedness issued by the Combined Company or any Restricted Subsidiary that   
is subordinated to the Senior Notes (other than Sinking Fund Payments on the    
Existing                                                                        

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Debentures) or (v) make any Investment (other than a Permitted Investment),     
either directly or indirectly, whether in cash or property or in obligations of 
the Combined Company (all of the foregoing being called "Restricted Payments"), 
unless, (I) in the case of a dividend, such dividend is payable not more than   
60 days after the date of declaration and (II) after giving effect to such      
proposed Restricted Payment, all the conditions set forth in clauses (1)        
through (3) below shall be satisfied (A) at the date of declaration (in the     
case of any dividend), (B) at the date of such setting apart (in the case of    
any such fund), or (C) on the date of such other payment or distribution (in    
the case of any other Restricted Payment) (each such date being referred to as  
a "Computation Date"):                                                          

(1) no Default has occurred and is continuing or would result from the  
making of such Restricted Payment;                                          

(2) the Combined Company's Fixed Charge Coverage Ratio for the most     
recently ended four full fiscal quarters for which internal financial       
statements are available immediately preceding the Computation Date,        
calculated on a pro forma basis as if such Restricted Payment had been made 
at the beginning of such four-quarter period, would have been more than 2.0 
to 1; and                                                                   

(3) the aggregate amount of Restricted Payments declared, paid or       
distributed subsequent to the date of the Indenture (including the proposed 
Restricted Payment) shall not exceed the sum of (i) 50% of the cumulative   
Consolidated Net Income (as defined) of the Combined Company for the period 
beginning with the first fiscal quarter commencing after the issuance of    
the Senior Notes to and including the Computation Date (each such period to 
constitute a "Computation Period") (or if such cumulative Consolidated Net  
Income shall be a loss, 100% of such loss), (ii) the aggregate net cash     
proceeds of the issue or sale of the Combined Company's Equity Interests or 
cash contributions to the Combined Company's capital subsequent to the date 
of the Indenture, and (iii) the aggregate net cash proceeds of any          
Indebtedness of the Combined Company issued or sold subsequent to the date  
of the Indenture which has been converted into the Combined Company's       
Equity Interests.                                                           

For purposes of this covenant, (a) the amount of any Restricted Payment     
declared, paid or distributed in property of the Combined Company or any        
Restricted Subsidiary shall be deemed to be the net book value of any such      
property that is intangible property and the Fair Market Value (as determined   
by and set forth in a resolution of the Combined Company's board of directors)  
of any such property that is tangible property at the Computation Date, in each 
case, after deducting related reserves for depreciation, depletion and          
amortization; (b) the amount of any Restricted Payment declared, paid or        
distributed in obligations of the Combined Company or any Restricted Subsidiary 
shall be deemed to be the principal amount of such obligations as of the date   
of the adoption of a resolution by the board of directors of the Combined       
Company or such Restricted Subsidiary authorizing such Restricted Payment and   
(c) a distribution to holders of the Combined Company's Equity Interests of (i) 
shares of Capital Stock or other Equity Interests of any Restricted Subsidiary  
of the Combined Company or (ii) other assets of the Combined Company, without,  
in either case, the receipt of equivalent consideration therefor shall be       
regarded as the equivalent of a cash dividend equal to the excess of the Fair   
Market Value of the Equity Interests or other assets being so distributed at    
the time of such distribution over the consideration, if any, received          
therefor.                                                                       

Limitations on Creation of Liens. The Indenture will provide that the       
Combined Company will not, and will not permit any Restricted Subsidiary to,    
create, incur, assume or suffer to exist any Lien (as defined) upon any of      
their respective assets or properties now owned or hereafter acquired, or any   
income or profits therefrom, except for the following:                          

(a) Existing Liens;                                                     

(b) Liens on accounts receivable, inventory, general intangibles and    
proceeds therefrom granted in connection with Revolving Credit              
Indebtedness;                                                               

(c) Permitted Liens;                                                    

(d) Liens on assets or properties of the Combined Company or of         
Restricted Subsidiaries of the Combined Company to secure the payment of    
all or a part of the purchase price of assets or property                   

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acquired or constructed in the ordinary course of business after the date   
of the Indenture; provided, however, that (i) the aggregate principal       
amount of Indebtedness secured by such Liens shall not exceed the lesser of 
cost or Fair Market Value of the assets or property so acquired or          
constructed, (ii) the Indebtedness secured by such Liens shall have         
otherwise been permitted to be incurred under the Indenture and (iii) such  
Liens shall not encumber any other assets or property of the Combined       
Company or any of its Restricted Subsidiaries and shall attach to such      
assets or property within 90 days of the completion of construction or      
acquisition of such assets or property;                                     

(e) Any Lien on assets or properties of the Combined Company or of      
Restricted Subsidiaries of the Combined Company securing any Capitalized    
Lease Obligation that is permitted to be incurred by the Combined Company   
under "Limitations on Indebtedness"; provided, however, that such Liens do  
not extend to or cover any property or assets of the Combined Company or    
any of its Restricted Subsidiaries other than the property or assets        
subject to such Capitalized Lease Obligations;                              

(f) Liens securing Acquired Indebtedness permitted to be incurred under 
"Limitations on Indebtedness"; provided, however, that (i) such Liens       
existed on the date such asset or property was acquired and was not         
incurred as a result of or in anticipation of such acquisition and (ii)     
such Liens do not extend to or cover any property or assets of the Combined 
Company or any of its Restricted Subsidiaries other than the property or    
assets so acquired;                                                         

(g) Any Lien on assets or properties of the Combined Company or of      
Restricted Subsidiaries of the Combined Company granted in connection with  
a sale and leaseback transaction permitted under "Limitations on Sale and   
Leaseback Transactions," below; provided, however, that such Liens do not   
extend to or cover any property or assets not the subject of such sale and  
leaseback transaction;                                                      

(h) Liens securing Refinancing Indebtedness which is incurred to        
refinance Indebtedness which has been secured by a Lien permitted under the 
Indenture and which is permitted to be refinanced under the Indenture;      
provided, however, that such Liens do not extend to or cover any property   
or assets of the Combined Company or any of its Restricted Subsidiaries not 
securing the Indebtedness so refinanced; and                                

(i) Liens on assets which are created to secure Senior Indebtedness, so 
long as the Senior Notes are equally and ratably secured thereby.           

Limitations on Payment Restrictions Affecting Restricted Subsidiaries. The  
Indenture will provide that the Combined Company will not, and will not permit  
any Restricted Subsidiary to, directly or indirectly, create or otherwise cause 
or suffer to exist or become effective any consensual encumbrance or            
restriction of any kind on the ability of any Restricted Subsidiary to (i) pay  
dividends or make any other distribution to the Combined Company or its         
Restricted Subsidiaries on its Capital Stock, (ii) pay any Indebtedness owed to 
the Combined Company or any other Restricted Subsidiary, (iii) make loans or    
advances to the Combined Company or any other Restricted Subsidiary or (iv)     
transfer any of its property or assets to the Combined Company or any other     
Restricted Subsidiary, except (A) consensual encumbrances or restrictions in    
financing or credit agreements in effect as of the date of the Indenture, (B)   
consensual encumbrances or restrictions in the Senior Notes and the Indenture,  
(C) any restriction, with respect to a Subsidiary of the Combined Company that  
is not a Subsidiary of the Combined Company on the date of the Indenture, in    
existence at the time such entity becomes a Subsidiary of the Combined Company  
and not created as a result of or in anticipation of such entity becoming a     
Subsidiary of the Combined Company; provided that such encumbrance or           
restriction is not applicable to any person or the properties or assets of any  
person other than a person that becomes a Subsidiary, (D) customary provisions  
restricting subletting or assignment of any lease, (E) with respect to clause   
(iv) above, in connection with purchase money obligations for property acquired 
in the ordinary course of business or (F) consensual encumbrances and           
restrictions of the type described in clauses (A) or (B) hereof that are not    
materially less favorable to the Holders than those contained in or pursuant to 
the agreements being replaced or the agreements evidencing the Indebtedness     
being refinanced.                                                               

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Limitations on Asset Sales. The Indenture will provide that the Combined    
Company will not, and will not permit any Restricted Subsidiary to, make any    
Asset Sale unless (i) the Combined Company or such Restricted Subsidiary        
receives consideration at the time of such Asset Sale at least equal to the     
Fair Market Value of the assets sold or otherwise disposed of, and at least 75% 
of the consideration received by the Combined Company or such Restricted        
Subsidiary from such Asset Sale is in the form of cash; provided, however, that 
the amount of (A) any liability of the Combined Company or such Restricted      
Subsidiary (as shown on the most recent balance sheet of the Combined Company   
or such Restricted Subsidiary or in the notes thereto) that is assumed by the   
transferee in any such transaction (other than securities which are             
subordinated in right of payment to the Senior Notes) and (B) any cash          
equivalent or note or other obligation received by the Combined Company or such 
Restricted Subsidiary from such transferee that is converted by the Combined    
Company or such Restricted Subsidiary into cash within 30 days of the receipt   
thereof shall be deemed to be cash for purposes of this provision; and (ii) the 
Net Proceeds received by the Combined Company or such Restricted Subsidiary     
from such Asset Sale are applied in accordance with the following paragraphs.   

Within 270 days after consummation of such Asset Sale, the Combined Company 
shall apply 100% of such Net Proceeds to either (i) an investment in a Related  
Business or (ii) an Asset Sale Offer with respect to the Senior Notes.          

 The Combined Company will cause a notice of any Asset Sale Offer to be mailed
to the Holders not less than 20 business days prior to the purchase date. Such  
notice will contain all instructions and materials necessary to enable Holders  
to tender their Senior Notes to the Combined Company. Upon receiving notice of  
an Asset Sale Offer, Holders may elect to tender their Senior Notes in whole or 
in part in integral multiples of $1,000 in exchange for cash. To the extent     
that Holders properly tender Senior Notes in an amount exceeding the Asset Sale 
Offer, Senior Notes of tendering holders will be repurchased on a pro rata      
basis (based on amounts tendered).                                              

The Combined Company will comply, to the extent applicable, with the        
requirements of Rule 14e-1 under the Exchange Act and other securities laws or  
regulations in connection with any offer to repurchase and the repurchase of    
the Senior Notes as described above.                                            

Limitations on Sale and Leaseback Transactions. The Indenture will provide  
that the Combined Company will not, and will not permit any Restricted          
Subsidiary to, enter into any arrangement with any person providing for the     
leasing by the Combined Company or any such Restricted Subsidiary of any real   
property or tangible personal property, which property has been or is to be     
sold or transferred by the Combined Company or such Restricted Subsidiary to    
such person in contemplation of such leasing, provided, however, that the       
Combined Company or a Restricted Subsidiary of the Combined Company may enter   
into any such sale and leaseback arrangement if (i) the Combined Company or     
such Restricted Subsidiary is permitted to dispose of such asset under the      
"Limitation on Asset Sales" covenant, and (ii) (a) the Combined Company would   
be entitled, under the covenant described in the initial paragraph of           
"Limitations on Indebtedness," to incur Indebtedness in an amount equal to the  
Attributable Indebtedness with respect to such arrangement or (b) the net       
proceeds of such sale are at least equal to the Fair Market Value of such       
property and the Combined Company applies the Net Proceeds of such sale as      
provided under "Limitations on Asset Sales."                                    

Limitations on Mergers; Sales of Assets. The Indenture will provide that the
Combined Company shall not consolidate with or merge with or into, or sell,     
assign, convey, lease or transfer all or substantially all of its assets and    
those of its Subsidiaries taken as a whole to, any person, unless (i) the       
resulting, surviving or transferee person (if other than the Combined Company)  
expressly assumes all the obligations of the Combined Company under the Senior  
Notes and the Indenture; (ii) such person is organized and existing under the   
laws of the United States, a state thereof or the District of Columbia; (iii)   
except in the case of a merger or consolidation involving only the Combined     
Company and one or more Restricted Subsidiaries, after giving effect to such    
transaction, such person could incur $1.00 of additional Indebtedness pursuant  
to                                                                              

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the initial paragraph of "Limitations on Indebtedness" (assuming a market rate  
of interest with respect to such additional Indebtedness); (iv) the             
Consolidated Net Worth of such person shall, immediately after giving effect to 
such transaction, be not less than the Consolidated Net Worth of the Combined   
Company prior to such transaction; and (v) immediately before and after giving  
effect to such transaction and treating any Indebtedness which becomes an       
obligation of the Combined Company or any of its Subsidiaries or of such person 
as a result of such transaction as having been incurred by the Combined Company 
or such Subsidiary or such person, as the case may be, at the time of such      
transaction, no Default or Event of Default shall have occurred and be          
continuing.                                                                     

Liquidation. The Indenture will provide that neither the Board of Directors 
nor the stockholders of the Combined Company shall adopt a plan of liquidation  
which provides for, contemplates or the effectuation of which is preceded by    
(i) the sale, lease, conveyance or other disposition of all or substantially    
all of the assets of the Combined Company and its Restricted Subsidiaries taken 
as a whole otherwise than substantially as an entirety and (ii) the             
distribution of all or substantially all of the proceeds of such sale, lease,   
conveyance or other disposition and of the remaining assets of the Combined     
Company and its Restricted Subsidiaries taken as a whole to the holders of      
Capital Stock of the Combined Company, unless the Combined Company shall in     
connection with the adoption of such plan make provision for, or agree that     
prior to making any liquidating distribution it will make provision for, the    
satisfaction of the Combined Company's obligations under the Indenture and the  
Senior Notes as to the payment of principal, premium, if any, and interest.     
Provision for such payments shall be deemed to have been made only if (A) the   
Combined Company has deposited or caused to be deposited with the Trustee       
irrevocably as trust funds in trust for the purpose, (x) money in an amount,    
(y) U.S. Government Obligations which through the payment of interest and       
principal in respect thereof in accordance with their terms will provide not    
later than one day before the due date of the payment (referred to below) money 
in an amount, or (z) a combination thereof, sufficient, in the opinion of a     
nationally recognized firm of independent public accountants expressed in a     
written certification thereof delivered to the Trustee, to pay and discharge    
the principal of, premium, if any, and interest on the outstanding Senior Notes 
on the stated maturity date of such principal or interest; or (B) the           
liquidation is in compliance with clauses (i) through (v) referred to under the 
caption "Limitations on Mergers; Sales of Assets"; provided, however, that the  
Combined Company shall not make any liquidating distribution until after it     
shall have certified to the Trustee with an Officers' Certificate at least five 
days prior to the making of any liquidating distribution that it has complied   
with the foregoing provisions.                                                  

Transactions with Affiliates. The Indenture will provide that the Combined  
Company and its Subsidiaries will not, directly or indirectly, enter into any   
transaction or series of related transactions with or for the benefit of any of 
their respective Affiliates (other than transactions among two or more of the   
Combined Company and its Subsidiaries in the ordinary course of business),      
except if (a) (i) in the case of any such transaction in which the aggregate    
rental value, remuneration or other consideration (including the value of a     
loan), together with the aggregate rental value, remuneration or other          
consideration (including the value of a loan) of all such other transactions    
consummated in the year during which such transaction is proposed to be         
consummated, exceeds $500,000, the board of directors and the Independent       
Directors of the Combined Company that are disinterested, each have (by a       
majority vote) determined in good faith that the aggregate rental price,        
remuneration or other consideration (including the value of any loan) inuring   
to the benefit of such Affiliate from any such transaction is not greater than  
that which would be charged to or extended by the Combined Company or its       
Subsidiaries, as the case may be, on an arm's-length basis for similar          
properties, assets, rights, goods or services by or to a person not affiliated  
with the Combined Company or its Subsidiaries, as the case may be, and (ii) in  
the case of any such transaction in which the aggregate rental value,           
remuneration or other consideration (including the value of any loan), together 
with the aggregate rental value, remuneration or other consideration (including 
the value of any loan) of all such other transactions consummated in the year   
during which such transactions proposed to be consummated, exceeds $5.0         
million, the board of directors of the Combined Company and the Independent     
Directors of the Combined Company that are disinterested (each by a majority    
vote), and a nationally recognized investment banking firm, unaffiliated with   
the Combined Company and the Affiliate which is party to such transaction,      

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each has determined that the aggregate rental price, remuneration or other      
consideration (including the value of a loan) inuring to the benefit of such    
Affiliate from any such transaction is not greater than that which would be     
charged to or extended by the Combined Company or its Subsidiaries, as the case 
may be, on an arm's-length basis for similar properties, assets, rights, goods  
or services by or to a person not affiliated with the Combined Company or its   
Subsidiaries, as the case may be, and (b) such transaction is entered into in   
good faith and on an arm's length basis. Any transaction required to be         
approved by Independent Directors pursuant to the preceding paragraph shall be  
approved by at least one such Independent Director.                             

 Reports to Noteholders. The Indenture will provide that so long as the Senior
Notes remain outstanding, the Combined Company will provide to the Trustee and  
the Holders thereof and file with the Commission all unaudited quarterly and    
audited annual reports that would be required to be filed under the Exchange    
Act, regardless of whether it is subject to the provisions of the Exchange Act. 

DEFAULTS AND REMEDIES                                                           

An Event of Default is default for 30 days in payment of interest on the    
Senior Notes; default in payment of principal of, or premium with respect to,   
the Senior Notes; failure by the Combined Company to comply with the covenants  
entitled "Limitations on Restricted Payments," "Limitations on Indebtedness,"   
"Limitations on Asset Sales," "Limitations on Sale and Leaseback Transactions," 
"Liquidation," "Change of Control" and "Limitation on Mergers; Asset Sales";    
failure by the Combined Company to comply with any of its other agreements in   
the Indenture or the Senior Notes for a period that continues for 60 days after 
receipt of written notice from the Trustee or from the holders of at least 25%  
of the aggregate principal amount of the Senior Notes then outstanding,         
specifying such default; a default under any indebtedness of the Combined       
Company or any of its subsidiaries, the principal amount of such indebtedness,  
together with the principal amount of any other such indebtedness under which   
there has been a default, aggregates $3.0 million or more; certain final        
judgments which remain undischarged or unstayed for a period of sixty (60)      
days; and certain events of bankruptcy or insolvency of the Combined Company or 
its Subsidiaries.                                                               

If an Event of Default occurs and is continuing, the Trustee or the Holders 
of at least 25% in principal amount of the Senior Notes may declare the Senior  
Notes due and payable immediately. However, if an Event of Default resulting    
from bankruptcy or insolvency occurs, such amount shall be due and payable      
without any declaration or any act on the part of the Trustee or the Holders.   
Such declaration or acceleration may be rescinded and past defaults may be      
waived by the Holders of a majority in principal amount of the Senior Notes     
upon conditions provided in the Indenture.                                      

 Holders may not enforce the Indenture or the Senior Notes, except as provided
therein. The Trustee may require an indemnity satisfactory to it before         
enforcing the Indenture or the Senior Notes. Subject to certain limitations,    
Holders of a majority in principal amount of the Senior Notes will have the     
right to direct the time, method and place of conducting any proceeding for any 
remedy available to the Trustee or exercising any trust or power conferred on   
the Trustee. The Trustee, however, may refuse to follow any direction that      
conflicts with law or such Indenture, that is unduly prejudicial to the rights  
of any Holder or that would subject the Trustee to personal liability. The      
Trustee may withhold from the Holders of the Senior Notes notice of any         
continuing default (except a default in payment of principal, premium, if any,  
or interest) if it determines that withholding notice is in their interest. The 
Combined Company is required to file periodic reports with the Trustee as to    
the absence of Default. If a Default exists, the Combined Company is required   
to describe the Default and efforts undertaken to remedy the default.           

Directors, officers, employees or stockholders, as such, of the Combined    
Company and its Subsidiaries will not have any liability for any obligations of 
the Combined Company under the Senior Notes or the Indenture or for any claim   
based on, in respect of, or by reason of, such obligations. Each Holder of a    
Senior Note by accepting a Senior Note waives and releases all such liability.  
The waiver and release are part of the consideration for the issue of the       
Senior Notes.                                                                   

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TRANSFER AND EXCHANGE                                                           

A Holder may transfer or exchange Senior Notes in accordance with the       
Indenture. The Registrar may require a Holder, among other things, to furnish   
appropriate endorsements and transfer documents and to pay any taxes and fees   
required by law. The Registrar need not transfer or exchange any Senior Note    
previously selected for redemption. A registered Holder of a Senior Note may be 
treated as the owner thereof for all purposes. No Senior Note shall be valid    
until the Trustee or an authenticating agent manually signs the certificate of  
authentication on the Senior Note. Each Senior Note shall become effective on   
the date upon which it is so signed.                                            

AMENDMENT, SUPPLEMENT AND WAIVER                                                

Subject to certain exceptions, the Indenture or the Senior Notes may be     
amended or supplemented, and any past default or compliance with any provision  
may be waived, with the consent of the Holders of a majority in principal       
amount of the Senior Notes then outstanding. Without the consent of any Holder, 
the Combined Company may amend or supplement the Indenture or the Senior Notes  
to comply with the provisions of the Indenture in the case of a consolidation,  
merger or sale of all or substantially all of the assets of the Combined        
Company and its Subsidiaries taken as a whole, to provide for uncertificated    
Senior Notes in addition to or in place of certificated Senior Notes, to cure   
any ambiguity, defect or inconsistency or to make any other change that does    
not adversely affect the rights of any Holder.                                  

Without the consent of each holder affected, an amendment or waiver may not 
(with respect to any Securities held by a non-consenting Holder) (i) reduce the 
principal amount of Senior Notes whose holders must consent to an amendment or  
waiver; (ii) reduce the rate of, or change the time for payment of, interest,   
including default interest, on any Senior Notes; (iii) reduce the principal of  
or change the fixed maturity of any Senior Note(s), or alter the optional       
redemption provisions, or alter the price at which the Combined Company shall   
offer to purchase such Senior Notes pursuant to an Asset Sale Offer or a Change 
of Control Offer; (iv) make any Senior Note payable in money other than that    
stated in such Senior Note; (v) make any change in the provisions of the        
Indenture relating to waivers of past Defaults or the rights of holders of the  
Senior Notes to receive payments of principal of or interest on the Senior      
Notes; (vi) waive a Default or Event of Default in the payment of principal of, 
premium, if any, or interest on the Senior Notes, including any such obligation 
arising pursuant to an Asset Sale Offer or a Change of Control Offer (except a  
rescission of acceleration of the Senior Notes by the holders of at least a     
majority (or, in the case of the failure to make a Change of Control Offer,     
two-thirds) in principal amount of the Senior Notes and a waiver of the payment 
default that resulted from such acceleration); (vii) waive the obligation to    
make an Asset Sale Offer or any payment required to be made pursuant to an      
Asset Sale Offer or a Change of Control Offer; or (viii) make any change in the 
foregoing amendment and waiver provisions. Without the consent of the Holders   
of at least two-thirds in principal amount of the Senior Notes, an amendment or 
waiver may not waive the obligation to make a Change of Control Offer.          

LEGAL DEFEASANCE AND COVENANT DEFEASANCE                                        

 The Combined Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Senior Notes ("Legal 
Defeasance") except for (i) the rights of holders of outstanding Senior Notes   
to receive payments in respect of the principal of, premium, if any, and        
interest on such Senior Notes when such payments are due, (ii) the Combined     
Company's obligations with respect to the Senior Notes concerning issuing       
temporary Senior Notes, registration or transfer of Senior Notes, mutilated,    
destroyed, lost or stolen Senior Notes and the maintenance of an office or      
agency for payment and money for security payments held in trust, (iii) the     
rights, powers, trusts, duties and immunities of the Trustee, and the Combined  
Company's obligations in connection therewith and (iv) the Legal Defeasance     
provisions of the Indenture. In addition, the Combined Company may, at its      
option and at any time, elect to have the obligations of the Combined Company   
released with respect to certain covenants that are described in the Indenture  
("Covenant Defeasance") and thereafter any omission to comply with such         
obligations shall not                                                           

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constitute a Default or Event of Default with respect to the Senior Notes. In   
the event Covenant Defeasance occurs, certain events (not including non-        
payment, bankruptcy, receivership, rehabilitation and insolvency events)        
described under "Events of Default" will no longer constitute an Event of       
Default with respect to the Senior Notes.                                       

In order to effect either a Legal Defeasance or a Covenant Defeasance, (i)  
the Combined Company must irrevocably deposit with the Trustee, in trust, for   
the benefit of the holders of the Senior Notes, cash in U.S. dollars, non-      
callable Government Securities, or a combination thereof, in such amounts as    
will be sufficient, in the opinion of a nationally recognized firm of           
independent public accountants, to pay the principal of, premium, if any, and   
interest on the outstanding Senior Notes on the stated maturity or on the       
applicable redemption date, as the case may be, of such principal or            
installment of principal of, premium, if any, or interest on the outstanding    
Senior Notes; (ii) in the case of Legal Defeasance, the Combined Company shall  
have delivered to the Trustee an opinion of counsel reasonably acceptable to    
the Trustee confirming that (A) the Combined Company has received from, or      
there has been published by, the Internal Revenue Service a ruling or (B) since 
the date of the Indenture, there has been a change in the applicable federal    
income tax law, in either case to the effect that, and based thereon such       
opinion of counsel shall confirm that, the holders of the outstanding Senior    
Notes will not recognize income, gain or loss for federal income tax purposes   
as a result of such Legal Defeasance and will be subject to federal income tax  
on the same amounts, in the same manner and at the same times as would have     
been the case if such Legal Defeasance had not occurred; (iii) in the case of   
Covenant Defeasance, the Combined Company shall have delivered to the Trustee   
an opinion of counsel reasonably acceptable to the Trustee confirming that the  
holders of the outstanding Senior Notes will not recognize income, gain or loss 
for federal income tax purposes as a result of such Covenant Defeasance and     
will be subject to federal income tax on the same amounts, in the same manner   
and at the same times as would have been the case if such Covenant Defeasance   
had not occurred; (iv) no Default or Event of Default shall have occurred and   
be continuing on the date of such deposit or insofar as Events of Default from  
bankruptcy or insolvency events are concerned, at any time in the period ending 
on the 91st day after the date of deposit; (v) such Legal Defeasance or         
Covenant Defeasance shall not result in a breach or violation of, or constitute 
a default under any material agreement or instrument (other than the Indenture) 
to which the Combined Company is a party or by which the Combined Company is    
bound; (vi) the Combined Company shall have delivered to the Trustee an opinion 
of counsel to the effect that after the 91st day following the deposit, the     
trust funds will not be subject to the effect of any applicable bankruptcy,     
insolvency, reorganization or similar laws affecting creditors' rights          
generally; (vii) the Combined Company shall have delivered to the Trustee an    
Officers' Certificate stating that the deposit was not made by the Combined     
Company with the intent of preferring the holders of Senior Notes over the      
other creditors of the Combined Company or with the intent of defeating,        
hindering, delaying or defrauding creditors of the Combined Company or others;  
and (viii) the Combined Company shall have delivered to the Trustee an          
Officers' Certificate and an opinion of counsel, each stating that all          
conditions precedent provided for relating to the Legal Defeasance or the       
Covenant Defeasance have been complied with.                                    

THE TRUSTEE                                                                     

The Indenture provides that, except during the continuance of an Event of   
Default, the Trustee will perform only such duties as are specifically set      
forth in the Indenture. During the existence of an Event of Default, the        
Trustee will exercise such rights and powers vested in it under the Indenture   
and use the same degree of care and skill in their exercise as a prudent person 
would exercise under the circumstances in the conduct of such person's own      
affairs.                                                                        

The Indenture and provisions of the Trust Indenture Act incorporated by     
reference therein contain limitations on the rights of the Trustee, should it   
become a creditor of the Combined Company, to obtain payment of claims in       
certain cases or to realize on certain property received by it in respect of    
any such claim as security or otherwise. The Trustee will be permitted to       
engage in other transactions; however, if it acquires any conflicting interest, 
it must eliminate such conflict or resign.                                      

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The Trustee is the trustee under the indenture governing the Combined       
Company's 9 1/4% Convertible Subordinated Debenture due 2005. In addition, the  
Combined Company may have customary banking relationships with the Trustee in   
the ordinary course of business.                                                

CERTAIN DEFINITIONS                                                             

"Acquired Indebtedness" of any specified Person means Indebtedness of any   
other Person and its Subsidiaries existing at the time such other Person merged 
with or into or became a Subsidiary of such specified Person or assumed by the  
specified Person in connection with the acquisition of assets from such other   
Person, including, without limitation, Indebtedness of such other Person and    
its Subsidiaries incurred by the specified Person in connection with or in      
anticipation of (a) such other Person and its Subsidiaries being merged with or 
into or becoming a Subsidiary of such specified Person or (b) such Acquisition  
by the specified Person.                                                        

"Affiliate" means, with respect to any party, any person directly or        
indirectly controlling or controlled by or under direct or indirect common      
control with such party. For purposes of this definition, "control" (including, 
with correlative meanings, the terms "controlling," "controlled by" and "under  
common control with"), as used with respect to any Person, shall mean the       
possession, directly or indirectly, of the power to direct or cause the         
direction of the management or policies of such Person, whether through the     
ownership of voting securities, by agreement or otherwise; provided, however,   
that beneficial ownership of 10% or more of the voting securities of a Person   
shall be deemed to be control.                                                  

"Asset Sale" means, with respect to the Combined Company or any Restricted  
Subsidiary, the sale, lease, conveyance or other disposition (including,        
without limitation, by way of merger or consolidation, and whether by operation 
of law or otherwise) of any of the Combined Company's or such Restricted        
Subsidiary's assets (including, without limitation, (x) any sale or other       
disposition of Equity Interests of any Restricted Subsidiary and (y) any sale   
or other disposition of any non-cash consideration received by the Combined     
Company or such Restricted Subsidiary from any prior transaction or series of   
related transactions that constituted an Asset Sale under the Indenture),       
whether owned on the date of the Indenture or subsequently acquired, in one     
transaction or a series of related transactions; provided, however, that the    
following shall not constitute an Asset Sale: (i) a transaction or series of    
related transactions (other than transactions described in clause (y) above) in 
which the Fair Market Value of the cash and/or other consideration received     
(including, without limitation, the unconditional assumption of Indebtedness)   
is less than $500,000; (ii) a transaction or series of related transactions     
that results in a Change in Control; and (iii) sales of inventory, spare parts  
and related items, in the ordinary course of business of the Combined Company   
and its Restricted Subsidiaries, consistent with past practices.                

"Attributable Indebtedness" means, with respect to any sale and leaseback   
arrangement, as at the time of determination, the greater of (i) the Fair       
Market Value of the property subject to such arrangement and (ii) the present   
value (discounted at a rate equivalent to the Combined Company's then current   
weighted average cost of funds for borrowed money, compounded on a semi-annual  
basis) of the total obligations of the lessee for rental payments during the    
remaining term of the lease included in such arrangement (including any period  
for which such lease has been extended).                                        

"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of corporate stock.                            

"Capitalized Lease Obligation" means Indebtedness represented by obligations
under a lease that is required to be capitalized for financial reporting        
purposes in accordance with GAAP and the amount of such Indebtedness shall be   
the capitalized amount of such obligations determined in accordance with GAAP.  

"Consolidated Cash Flow" of any person for any period means the sum (without
duplication) of (i) the Consolidated Net Income of such person for such period  
plus (ii) the sum of (A) provision for income taxes                             

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based on income or profits for such period, (B) Total Interest Expense for such 
period, (C) depreciation expense for such period, (D) amortization expense for  
such period and (E) other non-cash charges for such period, in each case, to    
the extent such expense reduced Consolidated Net Income for such period, minus  
(iii) non-cash items increasing Consolidated Net Income for such period, in     
each case determined on a consolidated basis for such person and its            
consolidated Restricted Subsidiaries in accordance with GAAP.                   

"Consolidated Indebtedness" means the Indebtedness of the Combined Company  
and its consolidated Restricted Subsidiaries determined on a consolidated basis 
in conformity with GAAP.                                                        

"Consolidated Net Income" of any person for any period means the aggregate  
Net Income of such person and its Subsidiaries (other than, in the case of the  
Combined Company, an Unrestricted Subsidiary of the Combined Company) for such  
period, provided that (i) the Net Income of any person which is not a wholly-   
owned Subsidiary of such person but which is consolidated with such person or   
is accounted for by such person by the equity method of accounting shall be     
included for the purpose of determining Net Income only to the extent of the    
amount of cash dividends or cash distributions paid to such person or a         
Subsidiary of such person (other than, in the case of the Combined Company, an  
Unrestricted Subsidiary of the Combined Company), (ii) the Net Income of any    
person acquired by such person or a Subsidiary of such person in a pooling of   
interests transaction for any period prior to the date of such acquisition      
shall be excluded, (iii) the Net Income of any Subsidiary of such person that   
is subject to restrictions, direct or indirect, on the payment of dividends or  
the making of distributions to such person shall be excluded to the extent of   
such restrictions, (iv) the Net Income of (A) any Unrestricted Subsidiary and   
(B) any Subsidiary less than 80% of whose securities having the right (apart    
from the right under special circumstances) to vote in the election of          
directors are owned by the Combined Company or its wholly-owned Restricted      
Subsidiaries shall be included only to the extent of the amount of cash         
dividends or cash distributions actually paid by such Subsidiary to the         
Combined Company or a wholly-owned Restricted Subsidiary of the Combined        
Company, (v) in the case of the Combined Company, the Net Income attributable   
to any business, properties or assets acquired (by way of merger,               
consolidation, purchase or otherwise) by the Combined Company or any Restricted 
Subsidiary of the Combined Company for any period prior to the date of such     
acquisition shall be excluded and (vi) all extraordinary gains and losses, and  
any gain or loss realized upon the termination of any employee pension benefit  
plan, in respect of dispositions of assets other than in the ordinary course of 
business and any one-time increase or decrease to Net Income which is required  
to be recorded because of the adoption of new accounting policies, practices or 
standards required by GAAP, shall be excluded.                                  

 "Consolidated Net Worth" means consolidated shareowners' equity as determined
in accordance with GAAP.                                                        

"Continuing Directors" means any member of the Board of Directors who (i) is
a member of the Board of Directors on the date of the Indenture or (ii) was     
nominated for election or elected to the Board of Directors with the            
affirmative vote of two-thirds of the Continuing Directors who were members of  
the Board of Directors at the time of such nomination or election.              

"Eligible Investments" means, as to any person, (i) securities issued or    
directly and fully guaranteed or insured by the United States of America (and,  
in the case of Eligible Investments of a Foreign Subsidiary, the jurisdiction   
in which it operates) or any agency or instrumentally thereof (provided that    
the full faith and credit of the United States of America (or, in the case of   
Eligible Investments of a Foreign Subsidiary, the principal jurisdiction in     
which it operates) is pledged in support thereof) having maturities of not more 
than one year from the date of acquisition by such person, (ii) time deposits   
and certificates of deposits of any commercial bank incorporated in the United  
States of America (or, in the case of Eligible Investments of a Foreign         
Subsidiary, the principal jurisdiction in which it operates) of recognized      
standing having capital and surplus in excess of $100.0 million, (iii)          
repurchase obligations with a term of not more than seven days for underlying   
securities of the types described in clause (i) above (except that there shall  
be no restrictions on the maturities of such underlying securities pursuant to  
this clause (iii) entered into with any bank meeting the qualifications         
specified in clause (ii)), (iv) commercial paper issued by the parent           
corporation of any                                                              

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commercial bank (provided that the parent corporation and the bank are both     
incorporated in the United States of America (or, in the case of Eligible       
Investments of a Foreign Subsidiary, the principal jurisdiction in which it     
operates)) of recognized standing having capital and surplus in excess of       
$100.0 million, and commercial paper rated at least A-1 or the equivalent       
thereof by Standard & Poor's Corporation or at least P-1 or the equivalent      
thereof by Moody's Investors Service, Inc. and in each case maturing within 365 
days from the date of acquisition thereof, (v) securities, bonds, notes,        
debentures, investments or other forms of Indebtedness of any person rated at   
least A-2 or the equivalent thereof by Standard & Poor's Corporation or P-2 or  
the equivalent thereof by Moody's Investors Service, Inc., and in each case     
maturing within 365 days from the date of acquisition thereof, and (vi)         
investments in money market or mutual funds registered under the Investment     
Company Act of 1940, as amended, whose sole investments are comprised of        
securities of the types described in clauses (i) through (v) above.             

 "Equity Interests" means shares, interest, participation or other equivalents
(however designated) of Capital Stock and all warrants, options or other rights 
to acquire Capital Stock (but excluding any debt security which is convertible  
into, or exchangeable for, Capital Stock).                                      

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

"Existing Debentures" means the Combined Company's 9 1/4% Convertible       
Subordinated Debentures due 2005 issued under the Indenture dated as of October 
1, 1980 between the Combined Company and Morgan Guaranty Trust Company of New   
York, as Trustee.                                                               

"Existing Indebtedness" means all indebtedness of the Combined Company and  
its Subsidiaries (including DEA and its Subsidiaries) existing on the date of   
the Indenture, after giving effect to the DEA Acquisition, the Note Offering    
and the application of the proceeds therefrom.                                  

"Existing Liens" means Liens existing on the date of the Indenture.         

"Fair Market Value" means, with respect to any asset or property, the price 
which could be negotiated in an arm's length free market transaction, for cash, 
between a willing seller and a willing buyer, neither of whom is under undue    
pressure or compulsion to complete the transaction. Fair Market Value shall be  
determined by a majority of the members of the Board of Directors of the        
Combined Company, and a majority of the disinterested members of such Board of  
Directors, if any, acting in good faith and shall be evidenced by a duly and    
properly adopted resolution of the Board of Directors except any determination  
of Fair Market Value made with respect to any real property or personal         
property which is customarily appraised shall be made by an independent         
qualified appraiser.                                                            

"Fixed Charges" means for any person for any period the sum of (i) Total    
Interest Expense and (ii) dividends or other distributions paid on Preferred    
Stock of such person and its Restricted Subsidiaries for such period.           

"Fixed Charge Coverage Ratio" means for any person for any period the ratio 
of its (a) Consolidated Cash Flow to (b) Fixed Charges for such period. If, at  
any time during the period for which Consolidated Cash Flow or Fixed Charges of 
any person is required to be determined, or concurrently with or immediately    
after the incurrence of any Indebtedness giving rise to any such determination, 
any of the following events shall occur: (i) such person acquires a Subsidiary; 
(ii) such person or any of its Restricted Subsidiaries acquires directly or     
indirectly a business; (iii) such person or any of its Subsidiaries sells or    
otherwise disposes of any of their respective Subsidiaries (a "Stock            
Disposition") or any properties or assets (including on liquidation,            
dissolution or winding up) outside the ordinary course of business (an "Asset   
Disposition") and such Stock Disposition or Asset Disposition, together with    
all other Stock Dispositions and Asset Dispositions during the immediately      
preceding 12-month period, accounts for more than 5% of such person's           
Consolidated Cash Flow for the four consecutive fiscal quarters of such person  
immediately preceding the date of such determination; or (iv) such person or    
any of its Subsidiaries incurs any Indebtedness, then Consolidated Cash         

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Flow and Fixed Charges shall each be computed giving pro forma effect to such   
event and the application of the proceeds, if any, therefrom, as if such event  
(and the application of such proceeds) had occurred at the beginning of such    
period. Pro forma adjustments made pursuant to the preceding sentence shall     
reflect only actual transactions and shall not reflect any assumed increases in 
income or reductions of expenses. For purposes of this definition, if the date  
of determination occurs prior to the date on which the Combined Company's       
consolidated financial statements for the four full fiscal quarters subsequent  
to the date on which the Senior Notes are originally issued are first           
available, Consolidated Cash Flow and Fixed Charges shall be calculated giving  
pro forma effect to (i) the issuance of any Securities outstanding on the date  
of determination and (ii) any merger of the Combined Company that occurred at   
any time during the period (A) commencing on the first day of the four full     
fiscal quarter period for which financial statements are available that         
precedes the date of determination and (B) ending on and including the date of  
determination as, in the case of clauses (i) and (ii), if they had occurred on  
the first day of such period.                                                   

"Foreign Subsidiary" means any Subsidiary of the Combined Company, more than
80% of the sales, earnings or assets (determined on a consolidated basis) of    
which are located or derived from operations outside the United States.         

"GAAP" means generally accepted accounting principles set forth in the      
opinions and pronouncements of the Accounting Principles Board of the American  
Institute of Certified Public Accountants and statements and pronouncements of  
the Financial Accounting Standards Board or in such other statements by such    
other entity as approved by a significant segment of the accounting profession, 
which are in effect from time to time; provided, however, that for purposes of  
determining compliance with the covenants contained in Articles 4 and 5 of the  
Indenture, GAAP shall mean such generally accepted accounting principles, as in 
effect on the date of the Indenture.                                            

"Indebtedness" of any person means the principal of and interest on (i) all 
indebtedness for money borrowed or which is evidenced by a bond, debenture,     
note or other similar instrument or agreement, whether or not for money         
borrowed, but excluding trade credit evidenced by any such instrument or        
agreement; (ii) Capitalized Lease Obligations; (iii) indebtedness, secured or   
unsecured, created or arising in connection with the acquisition or improvement 
of any property or asset or the acquisition of any business; (iv) all           
indebtedness secured by any Lien upon property owned by such person and all     
indebtedness secured in the matter specified in this clause even if such person 
has not assumed or become liable for the payment thereof; (v) all indebtedness  
of such person created or arising under any conditional sale or other title     
retention agreement with respect to property acquired by such person or         
otherwise representing the deferred and unpaid balance of the purchase price of 
any such property, including all indebtedness created or arising in the manner  
specified in this clause even though the rights and remedies of the seller or   
lender under such agreement in the event of default are limited to repossession 
or sale of such property; (vi) guarantees, direct or indirect, of any           
indebtedness of other persons referred to in clauses (i) through (v) above, or  
of dividends or leases, taxes or other obligations of other persons, excluding  
any guarantee arising out of the endorsement of negotiable instruments for      
collection in the ordinary course of business; (vii) contingent obligations in  
respect of, or to purchase or otherwise acquire or be responsible or liable     
for, through the purchase of products or services, irrespective of whether such 
products are delivered or such services are rendered, or otherwise, any such    
indebtedness referred to in clauses (i) through (v) above; and (viii) any       
obligation, contingent or otherwise, arising under any surety, performance or   
maintenance bond; which indebtedness, Capitalized Lease Obligation, guarantee   
or contingent obligation such person has directly or indirectly created,        
incurred, assumed, guaranteed or otherwise become liable or responsible for,    
whether then outstanding or thereafter created. For purposes of the foregoing   
definition, the liquidation preference of any Preferred Stock issued by a       
Subsidiary of the Combined Company to persons other than the Combined Company   
or a wholly-owned Restricted Subsidiary of the Combined Company shall be deemed 
to represent an equal principal amount of Indebtedness and dividends thereon    
shall be deemed to represent an equal amount of interest. Any reference in this 
definition to indebtedness shall be deemed to include any renewals,             

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extensions, refundings, amendments and modifications of any such indebtedness   
or any indebtedness issued in exchange for such indebtedness.                   

"Independent Director" of any person means any director who is not an       
employee or an officer of such person and who is not otherwise an Affiliate     
(other than by virtue of his or her position as a director) of such person.     

"Interest Rate Protection Agreement" means any interest rate protection     
agreement, interest rate future agreement, interest rate option agreement,      
interest rate swap agreement, interest rate cap agreement, interest rate collar 
agreement, interest rate hedge agreement or other similar agreement or          
arrangement designed to protect a Person or any of its Subsidiaries against     
fluctuations in interest rates to or under which such Person or any of its      
Subsidiaries is or becomes a party or a beneficiary.                            

"Investment" means any direct or indirect advance, loan, other extension of 
credit or capital contribution to, purchase or acquisition of Equity Interests, 
bonds, notes, debentures or other securities of, or purchase or other           
acquisition of all or a substantial part of the business, assets, Equity        
Interests or other evidence of beneficial ownership of, or any other investment 
in or Guarantee of any Indebtedness of, any person.                             

"Lien" means any mortgage, lien, pledge, security interest, charge or       
encumbrance of any kind (including any conditional sale or other title          
retention agreement, any lease in the nature thereof and any agreement to give  
any security interest).                                                         

"Net Income" means for any person for any period the net income (loss) of   
such person and its Subsidiaries (other than, in the case of the Combined       
Company, Unrestricted Subsidiaries) determined in accordance with GAAP.         

"Net Proceeds" means the aggregate cash proceeds received by the Combined   
Company or any of its Restricted Subsidiaries in respect of any Asset Sale      
(including, without limitation, the proceeds of insurance paid on account of    
the loss of or damage to any property, or compensation or other proceeds for    
any property taken by condemnation, eminent domain or similar proceedings, and  
any non-cash consideration received by the Combined Company or any Restricted   
Subsidiary from any Asset Sale that is converted into or sold or otherwise      
disposed of for cash within ninety (90) days after the relevant Asset Sale),    
net of (i) the direct costs relating to such Asset Sale (including, without     
limitation, legal, accounting and investment banking fees and sales             
commissions), (ii) any taxes paid or payable as a result thereof (after taking  
into account any available tax credits or deductions arising from such Asset    
Sale), (iii) all amounts required to be applied to the repayment of, or         
representing the amount of permanent reductions in the commitments relating to, 
Indebtedness secured by a Lien on the asset or assets the subject of such Asset 
Sale (other than Indebtedness relating to the Securities) which Lien is and is  
permitted to be prior to the Lien on such assets in favor of the Trustee, if    
any, and (iv) any reserve for adjustment in respect of the sale price of such   
asset or assets required by GAAP.                                               

"Permitted Investments" means (a) investments in cash and Eligible          
Investments; (b) Investments in any wholly owned Subsidiary of the Combined     
Company by the Combined Company, or by any other wholly owned Subsidiary of the 
Combined Company, provided that such Investment shall only be a Permitted       
Investment so long as any such wholly owned Subsidiary in which the Investment  
has been made or which has made such Investment remains a wholly owned          
Subsidiary of the Combined Company; (c) Investments, not exceeding $2 million   
at any one time in the aggregate, in joint ventures, partnerships or Persons    
that are not wholly owned Subsidiaries of the Combined Company that are made    
solely for the purpose of acquiring or developing a Related Business; and (d)   
Investments of the Combined Company and its Subsidiaries arising as a result of 
any Asset Sale otherwise complying with the terms of the Indenture, provided    
that for each Asset Sale the maximum aggregate amount of Investments permitted  
under this clause (d) shall not exceed 25% of the total consideration received  
for such Asset Sale by the Combined Company, or any Subsidiary of the Combined  
Company.                                                                        

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"Permitted Liens" means, as of any particular time, any one or more of the  
following:                                                                      

(a) Liens for taxes, rates and assessments not yet due or, if due, the  
validity of which is being contested diligently and in good faith by the    
Combined Company or any Restricted Subsidiary and against which the         
Combined Company has established appropriate reserves in accordance with    
GAAP;                                                                       

 (b) the Lien of any judgment rendered which is being contested diligently
and in good faith by the Combined Company or any of its Restricted          
Subsidiaries and against which the Combined Company has established         
appropriate reserves and which does not have a material adverse effect on   
the ability of the Combined Company and its Restricted Subsidiaries to      
operate their business or operations;                                       

(c) other than in connection with Indebtedness, any Lien arising in the 
ordinary course of business (i) to secure payments of workers'              
compensation, unemployment insurance, pension or other social security or   
retirement benefits, or to secure the performance of bids, tenders, leases, 
progress payments, contracts (other than for the payment of money) or to    
secure public or statutory Obligations of the Combined Company or any       
Restricted Subsidiary, or to secure surety or appeal bonds to which the     
Combined Company or any Restricted Subsidiary is a party, (ii) imposed by   
law dealing with materialmen's, mechanics', workmen's, repairmen's,         
warehousemen's, landlords', vendors' or carriers' Liens created by law, or  
deposits or pledges which are not yet due or, if due, the validity of which 
is being contested diligently and in good faith by the Combined Company or  
any Restricted Subsidiary and against which the Combined Company has        
established appropriate reserves and (iii) like Liens;                      

(d) servitude, licenses, easements, encumbrances, restrictions, rights- 
of-way and rights in the nature of easements or similar charges which will  
not in the aggregate materially adversely impair the use of the subject     
property by the Combined Company or a Restricted Subsidiary;                

(e) zoning and building by-laws and ordinances, municipal by-laws and   
regulations, and restrictive covenants, which do not materially interfere   
with the use of the subject property by the Combined Company or a           
Restricted Subsidiary as such property is used as of the date of the        
Indenture;                                                                  

(f) any extension, renewal, substitution or replacement (or successive  
extension, renewals, substitutions or replacements), as a whole or in part, 
of any of the Liens referred to in clauses (a) through (e) of this          
definition or the Indebtedness secured thereby; provided that (1) such      
extension, renewal, substitution or replacement Lien shall be limited to    
that portion of the property or assets, now owned or hereafter acquired,    
that was subject to the Lien prior to such extension, renewal, substitution 
or replacement Lien and (2) the principal amount of Indebtedness secured by 
such Lien (assuming all available amounts were borrowed) at such time is    
not increased.                                                              

"Person" means any individual, corporation, partnership, joint venture,     
trust, estate, unincorporated organization or government or any agency or       
political subdivision thereof.                                                  

"Preferred Stock," as applied to the Equity Interest of any corporation,    
means stock of any class or classes (however designated) which is preferred     
over shares of stock of any other class of such corporation as to the           
distribution of assets on any voluntary or involuntary liquidation or           
dissolution of such corporation or as to dividends.                             

"Related Business" means any corporation or other entity engaged in, and any
asset utilized in, the manufacture of metrology products or any product         
reasonably related to metrology products.                                       

"Restricted Subsidiary" means (i) any Subsidiary of the Combined Company in 
existence on the date of the Indenture, (ii) any Subsidiary of the Combined     
Company organized or acquired after the date of the Indenture, unless such      
Subsidiary shall have been designated as an Unrestricted Subsidiary by a        
resolution of the Board of Directors as provided in the definition of           
"Unrestricted Subsidiary" and (iii) any Unrestricted Subsidiary which is        
designated as a Restricted Subsidiary by the Board of Directors; provided, that 
immediately after giving effect to any such designation (A) no Default or Event 
of Default shall have occurred and be continuing and (B) in the case of any     
designation referred to in clause (ii) or (iii) hereof, the Combined Company    
could incur at least $1.00 of Indebtedness pursuant to the initial paragraph of 
"Certain Covenants                                                              

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--Limitations on Indebtedness," on a pro forma basis taking into account such   
designation. The Combined Company will evidence any such designation to the     
Trustee by promptly filing with the Trustee an Officers' Certificate certifying 
that such designation has been made and complies with the requirements of the   
immediately preceding sentence. Notwithstanding the foregoing, Restricted       
Subsidiaries shall include the corporate and other entities, referred to in the 
Indenture as the DEA Group, acquired by the Combined Company in the DEA         
Acquisition.                                                                    

"Revolving Credit Indebtedness" means, without duplication, Indebtedness of 
the Combined Company incurred pursuant to or in connection with one or more     
revolving credit, letter of credit or other working capital facilities          
(including without limitation the Revolving Credit Facility), in an aggregate   
principal amount not to exceed, at any one time outstanding, the lesser of (i)  
$35,000,000 and (ii) the sum of (A) 85% of the gross book value of accounts     
receivable of the Combined Company and its Restricted Subsidiaries and (B) 50%  
of the gross book value of the inventory of the Combined Company and its        
Restricted Subsidiaries.                                                        

"Senior Indebtedness" means (i) the Senior Notes, (ii) all additional       
Indebtedness incurred by the Combined Company or its Restricted Subsidiaries    
that is permitted to be incurred under the Indenture that is not by its terms   
subordinated to the Senior Notes and (iii) all renewals, extensions,            
amendments, refinancings, repurchases or redemptions, modifications,            
replacements or refundings thereof, in whole or in part, that are permitted     
pursuant to the Indenture. Senior Indebtedness shall not include the 9 1/4%     
Convertible Subordinated Debentures.                                            

"Sinking Fund Payments on the Existing Debentures" means scheduled sinking  
fund payments under the Existing Debentures, and purchases by the Combined      
Company of Existing Debentures to be used by the Combined Company to make       
scheduled sinking fund payments under the Existing Debentures due within one    
year from the date of purchase.                                                 

 "Subsidiary" means, with respect to the Combined Company, (i) any corporation
of which the outstanding Equity Interests having at least a majority of the     
votes entitled to be cast in the election of directors, under ordinary          
circumstances, shall at the time be owned, directly or indirectly, by the       
Combined Company and one or more of its Subsidiaries or by one or more of the   
Combined Company's Subsidiaries or (ii) any other person or entity of which at  
least a majority of voting interest, under ordinary circumstances, shall at the 
time be owned, directly or indirectly, by the Combined Company, by the Combined 
Company and one or more of its Subsidiaries or by one or more of the Combined   
Company's Subsidiaries.                                                         

"Total Interest Expense" means for any person for any period the aggregate  
amount of interest in respect of Indebtedness (including amortization of        
original issue discount on any Indebtedness and amortization of deferred        
financing costs, in each case calculated in accordance with GAAP) and all but   
the principal component of rentals in respect of Capitalized Lease Obligations, 
paid or accrued by such person and its Restricted Subsidiaries during such      
period, determined on a consolidated basis in accordance with GAAP. For         
purposes of this definition, (i) interest on Indebtedness determined on a       
fluctuating basis for periods succeeding the date of determination shall be     
deemed to accrue at a rate equal to the rate of interest on such Indebtedness   
as in effect on the date of determination and (ii) interest on a Capitalized    
Lease Obligation shall be deemed to accrue at an interest rate reasonably       
determined by the Chief Financial Officer of such person to be the rate of      
interest implicit in such Capitalized Lease Obligation in accordance with GAAP. 

 "Unrestricted Subsidiary" means, until such time at it may be designated as a
Restricted Subsidiary by the Board of Directors of the Combined Company as      
provided in and in compliance with the definition of "Restricted Subsidiary,"   
(i) any Subsidiary of the Combined Company organized or acquired after the date 
of the Indenture in which all investments, loans, advances or capital           
contributions by the Combined Company or any Restricted Subsidiary are made     
only from funds available for the making of Restricted Payments as described    
under "Certain Covenants--Limitations on Restricted Payments" and (ii) any      
Subsidiary of an Unrestricted Subsidiary. The Board of Directors of the         
Combined Company may designate any Subsidiary of the Combined Company           
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted 

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Subsidiary unless such Subsidiary owns any Equity Interests of, or owns, or     
holds any Lien upon, any property of, any Subsidiary of the Combined Company    
which is not a Subsidiary of such Subsidiary to be so designated; provided that 
each Subsidiary to be so designated and each of its Subsidiaries has not, at    
the time of designation, and does not thereafter, create, incur, issue, assume, 
guarantee or otherwise become directly or indirectly liable with respect to any 
Indebtedness pursuant to which the lender has recourse to any of the assets of  
the Combined Company or any of its Restricted Subsidiaries. The Combined        
Company will evidence any such designation by promptly filing with the Trustee  
an Officers' Certificate certifying that such designation has been made and     
complies with the requirements of the immediately preceding sentence.           

DESCRIPTION OF REVOLVING CREDIT FACILITY

Set forth below are certain terms that Brown & Sharpe expects will be       
included in the Revolving Credit Facility. Brown & Sharpe has not yet entered   
into the Revolving Credit Facility. There can be no assurance that the          
Revolving Credit Facility will become effective, or that it will contain the    
terms described herein if it becomes effective. The Revolving Credit Facility   
is a condition to the Note Offering.                                            

Brown & Sharpe expects that the Revolving Credit Facility will provide the  
Combined Company with a three year revolving credit facility of cash borrowings 
and issuances or guarantees of letter of credit in an aggregate amount of up to 
$25 million, subject to a borrowing base based on domestic inventory and        
accounts receivable. Brown & Sharpe expects that the Combined Company's         
obligations under the Revolving Credit Facility will be secured by              
substantially all the Combined Company's domestic current and after-acquired    
inventory and accounts receivable.                                              

AVAILABLE INFORMATION 

Brown & Sharpe is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in        
accordance therewith files reports, information statements and other            
information with the Securities and Exchange Commission (the "Commission").     
Such reports, information statements and other information can be inspected and 
copied at the Public Reference Room of the Commission at Room 1024, Judiciary   
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the following      
regional offices of the Commission: Seven World Trade Center, 13th Floor, New   
York, New York 10048, and Suite 1400, Northwestern Atrium Center, 500 West      
Madison Street, Chicago, Illinois 60661. Copies of such material can be         
obtained from the Public Reference Section of the Commission at the Washington  
address at prescribed rates. Brown & Sharpe's Class A Common Stock, Preferred   
Stock Purchase Rights and 9 1/4% Convertible Subordinated Debentures due 2005   
are registered pursuant to Section 12(b) of the Exchange Act and are listed on  
the New York Stock Exchange, and Brown & Sharpe's Class B Common Stock is       
registered pursuant to Section 12(g) of the Exchange Act. Reports, proxy        
statements and other information concerning Brown & Sharpe may be inspected and 
copied at the offices of the New York Stock Exchange, 20 Broad Street, New      
York, New York 10005.                                                           

SHAREHOLDER PROPOSALS 

Any proposals of shareholders to be presented at the 1995 Annual Meeting of 
Shareholders must be received by the Secretary of Brown & Sharpe on or before   
November 30, 1994 in order to be considered for inclusion in Brown & Sharpe's   
1995 proxy materials.                                                           

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                                                                       EXHIBIT A

CONSOLIDATED FINANCIAL STATEMENTS OF BROWN & SHARPE 
MANUFACTURING COMPANY 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
Report of Independent Accountants--Coopers & Lybrand...................... A-2 

Consolidated Balance Sheet as of December 26, 1992, December 25, 1993 and      
 April 2, 1994 (Unaudited)................................................ A-3 

Consolidated Statement of Income (Loss) for the Years Ended December 28,       
 1991, December 26, 1992, and December 25, 1993, and for the Quarters          
 Ended March 27, 1993 (Unaudited) and April 2, 1994 (Unaudited)........... A-4 

Consolidated Statement of Cash flows for the Years Ended December 28,          
 1991, December 26, 1992, and December 25, 1993, and for the Quarters          
 ended March 27, 1993 (Unaudited) and April 2, 1994 (Unaudited)........... A-5 

Notes to Consolidated Financial Statements................................ A-7 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Shareowners and Directors                                                
of Brown & Sharpe Manufacturing Company:                                      

We have audited the consolidated balance sheet of Brown & Sharpe            
Manufacturing Company as of December 26, 1992 and December 25, 1993, and the    
consolidated statements of income (loss), cash flows, and shareowners' equity   
for each of the three years in the period ended December 25, 1993. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brown & Sharpe    
Manufacturing Company as of December 25, 1993 and December 26, 1992, and the    
consolidated results of its operations and its cash flows for each of the three 
years in the period ended December 25, 1993, in conformity with generally       
accepted accounting principles.                                                 

Boston, Massachusetts                     Coopers & Lybrand                     
February 14, 1994, except as to                                                 
the information presented in                                                    
Note 2, for which the date                                                      
is June 7, 1994                                                                 

A-2 

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BROWN & SHARPE MANUFACTURING COMPANY

CONSOLIDATED BALANCE SHEET

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                                [Download Table]

                                                DEC. 26,  DEC. 25,   APRIL 2,  
                                                  1992      1993       1994    
                                                --------  --------  -----------
                                                 (AS ADJUSTED--                
                                                     NOTE 2)        (UNAUDITED)
                                                                               
                    ASSETS                                                     

CURRENT ASSETS:                                                                
  Cash and cash equivalents.................... $  4,640  $  2,094   $  3,818  
  Restricted cash..............................      --      6,078      6,113  
  Accounts receivable, net of allowances for                                   
   doubtful accounts of $1,452, $1,320 and                                     
   $1,635......................................   37,150    44,525     42,284  
  Inventories..................................   62,008    53,963     57,550  
  Prepaid expenses and other current assets....    3,281     3,031      3,387  
                                                --------  --------   --------  
    Total current assets.......................  107,079   109,691    113,152  
Property, plant and equipment:                                                 
  Land.........................................    6,509     6,398      6,358  
  Buildings and improvements...................   32,043    32,315     32,572  
  Machinery and equipment......................   83,120    77,053     78,615  
                                                --------  --------   --------  
                                                 121,672   115,766    117,545  
  Less accumulated depreciation................   75,270    72,212     73,775  
                                                --------  --------   --------  
    Total property, plant and equipment........   46,402    43,554     43,770  
Other assets...................................   12,605    12,626     12,760  
                                                --------  --------   --------  
                                                $166,086  $165,871   $169,682  
                                                ========  ========   ========  
      LIABILITIES AND SHAREOWNERS' EQUITY                                      

CURRENT LIABILITIES:                                                           
  Notes payable and current installments of                                    
   long-term debt.............................. $ 26,074  $ 31,804   $ 33,742  
  Accounts payable.............................   11,818    12,716     12,549  
  Accrued expenses and income taxes............   21,151    19,146     22,665  
                                                --------  --------   --------  
    Total current liabilities..................   59,043    63,666     68,956  
Long-term debt.................................   34,626    32,696     33,224  
Deferred income taxes..........................    1,660     1,763      1,781  
Unfunded accrued pension cost..................    4,083     4,226      4,345  
SHAREOWNERS' EQUITY:                                                           
  Preferred stock, $1 par value; authorized                                    
   1,000,000 shares; none issued...............      --        --         --   
  Common stock:                                                                
  Class A, par value $1; authorized 15,000,000                                 
   shares; issued 4,358,261 shares in 1992,                                    
   4,431,890 in 1993, and 4,651,368 in 1994....    4,358     4,432      4,651  
  Class B, par value $1; authorized 2,000,000                                  
   shares; issued 621,201 shares in 1992,                                      
   547,604 in 1993, and 545,539 in 1994........      621       548        546  
  Additional paid in capital...................   45,710    45,710     47,013  
  Earnings employed in the business............    6,894     4,377      1,503  
  Cumulative foreign currency translation                                      
   adjustment..................................   10,260     9,394      8,547  
  Treasury stock; 16,662 shares in 1992, 8,076                                 
   in 1993 and in 1994, at cost................     (336)     (163)      (163) 
  Unearned compensation........................     (833)     (778)      (721) 
                                                --------  --------   --------  
    Total shareowners' equity..................   66,674    63,520     61,376  
                                                --------  --------   --------  
                                                $166,086  $165,871   $169,682  
                                                ========  ========   ========  

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

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BROWN & SHARPE MANUFACTURING COMPANY

CONSOLIDATED STATEMENT OF INCOME (LOSS) 

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 

                                                                [Download Table]

                                      YEAR ENDED              QUARTER ENDED   
                              ----------------------------  ------------------
                              DEC. 28,  DEC. 26,  DEC. 25,  MAR. 27,  APRIL 2,
                                1991      1992      1993      1993      1994  
                              --------  --------  --------  --------  --------
                                (AS ADJUSTED--NOTE 2)          (UNAUDITED)    
                                                                              
Net sales.................... $175,847  $160,695  $157,035  $39,758   $36,659 
Cost of goods sold...........  119,481   116,283   110,841   28,448    25,940 
Selling, general and                                                          
 administrative expense......   56,672    52,509    45,474   10,744    12,261 
                              --------  --------  --------  -------   ------- 
  Operating profit (loss)....     (306)   (8,097)      720      566    (1,542)
Interest expense.............   (4,219)   (5,272)   (5,100)  (1,132)   (1,280)
Other income, net............      824     2,135     2,764    1,794        48 
                              --------  --------  --------  -------   ------- 
  Income (loss) before income                                                 
   taxes.....................   (3,701)  (11,234)   (1,616)   1,228    (2,774)
Income tax provision                                                          
 (benefit)...................     (800)   (3,250)      800      --        100 
                              --------  --------  --------  -------   ------- 
  Income (loss) from                                                          
   continuing operations.....   (2,901)   (7,984)   (2,416)   1,228    (2,874)
  (Loss) from discontinued                                                    
   operations................   (1,180)      --        --       --        --  
                              --------  --------  --------  -------   ------- 
Net income (loss)............ $ (4,081) $ (7,984) $ (2,416) $ 1,228   $(2,874)
                              ========  ========  ========  =======   ======= 
Primary and fully diluted                                                     
 loss per common share:                                                       
  Income (loss) from                                                          
   continuing operations..... $  (0.62) $  (1.63) $  (0.49) $  0.25   $ (0.57)
  (Loss) from discontinued                                                    
   operations................    (0.25)      --        --       --        --  
                              --------  --------  --------  -------   ------- 
  Net income (loss).......... $  (0.87) $  (1.63) $  (0.49) $  0.25   $ (0.57)
                              ========  ========  ========  =======   ======= 

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

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BROWN & SHARPE MANUFACTURING COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)

                                                                [Download Table]

                                       YEAR ENDED              QUARTER ENDED    
                               ----------------------------  ------------------ 
                               DEC. 28   DEC. 26,  DEC. 25,  MAR. 27,  APRIL 2, 
                                 1991      1992      1993      1993      1994   
                               --------  --------  --------  --------  -------- 
                                 (AS ADJUSTED--NOTE 2)          (UNAUDITED)     
                                                                                
CASH PROVIDED BY (USED IN)                                                      
 OPERATIONS:                                                                    
  Net loss.................... $ (4,081) $ (7,984) $ (2,416) $ 1,228   $ (2,874)
  Adjustment for noncash                                                        
   Items:                                                                       
    Depreciation and                                                            
     amortization.............    8,700     7,330     6,355    1,646      1,307 
    Pension credits and                                                         
     charges..................      831       762       138       75        112 
    Deferred income taxes.....   (1,000)   (3,600)      500     (500)       --  
    Gain on sale of                                                             
     operations...............      --       (628)   (2,182)  (2,000)       --  
  Changes in working capital:                                                   
    Accounts receivable.......      822     6,925    (8,204)  (3,251)     5,762 
    Inventories...............     (282)     (577)      957    1,757        495 
    Prepaid expenses and other                                                  
     current assets...........     (842)     (859)      323      727       (477)
    Accounts payable and                                                        
     accrued expenses.........   (5,363)    2,826    (1,455)   1,549       (798)
    Net assets of discontinued                                                  
     operations...............   12,645     1,912       --       --         --  
                               --------  --------  --------  -------   -------- 
  Net Cash Provided by (Used                                                    
   in) Operations.............   11,430     6,107    (5,984)   1,231      3,527 
                               --------  --------  --------  -------   -------- 
INVESTMENT TRANSACTIONS:                                                        
  Acquisitions................     (232)   (1,604)      --       --         --  
  Capital expenditures........   (9,864)  (12,474)   (4,399)    (975)      (814)
  Proceeds from sale of                                                         
   operations.................      216     3,615     8,700    3,200        --  
  Cash equivalents pledged....      --        --     (6,078)     --         (35)
  Other investing activities..      263    (2,270)     (377)     101       (194)
                               --------  --------  --------  -------   -------- 
    Net Cash (Used in)                                                          
     Investment Transactions..   (9,617)  (12,733)   (2,154)   2,326     (1,043)
                               --------  --------  --------  -------   -------- 
FINANCING TRANSACTIONS:                                                         
  Increase in long-term and                                                     
   short-term debt............   16,296     4,877     5,778      272      1,912 
  Payment of long-term and                                                      
   short-term debt............  (16,417)   (2,414)     (968)  (2,652)    (2,488)
  Other financing activities..      --        --        --       --         498 
                               --------  --------  --------  -------   -------- 
  Net Cash Provided by (Used                                                    
   in) Financing Transactions.     (121)    2,463     4,810   (2,380)       (78)
                               --------  --------  --------  -------   -------- 
EFFECT OF EXCHANGE RATE                                                         
 CHANGES ON CASH..............     (651)      456       782      390       (682)
                               --------  --------  --------  -------   -------- 
CASH AND CASH EQUIVALENTS:                                                      
  Increase (decrease) during                                                    
   the period.................    1,041    (3,707)   (2,546)   1,567      1,724 
  Beginning balance...........    7,306     8,347     4,640    4,640      2,094 
                               --------  --------  --------  -------   -------- 
  Ending balance.............. $  8,347  $  4,640  $  2,094  $ 6,207   $  3,818 
                               ========  ========  ========  =======   ======== 
SUPPLEMENTARY CASH FLOW                                                         
 INFORMATION:                                                                   
  Interest paid............... $  5,117  $  4,500  $  4,942  $   434   $    532 
                               ========  ========  ========  =======   ======== 
  Taxes paid.................. $    215  $    552  $  1,158  $   581   $    694 
                               ========  ========  ========  =======   ======== 

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

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BROWN & SHARPE MANUFACTURING COMPANY

CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY 
(DOLLARS IN THOUSANDS)

                                                        [Enlarge/Download Table]

                                                     CUMULATIVE                        
                         COMMON            EARNINGS    FOREIGN                         
                         STOCK  ADDITIONAL EMPLOYED   CURRENCY                         
                         $1 PAR  PAID IN    IN THE   TRANSLATION TREASURY    UNEARNED  
                         VALUE   CAPITAL   BUSINESS  ADJUSTMENT   STOCK    COMPENSATION
                         ------ ---------- --------  ----------- --------  ------------
                                                                                       
Balance--December 29,                                                                  
 1990................... $4,979  $47,756   $20,876     $16,710   $(7,428)     $ --     
Net loss................    --       --     (4,081)        --        --         --     
Treasury stock                                                                         
 transactions...........    --    (2,046)      --          --      3,932        --     
Foreign currency                                                                       
 translation adjustment.    --       --        --         (430)      --         --     
                         ------  -------   -------     -------   -------      -----    
Balance--December 28,                                                                  
 1991...................  4,979   45,710    16,795      16,280    (3,496)       --     
                         ------  -------   -------     -------   -------      -----    
Net loss................    --       --     (7,984)        --        --         --     
Treasury stock                                                                         
 transactions...........    --       --       (691)        --      1,008        --     
Restricted stock awards.    --       --     (1,226)        --      2,152       (833)   
Foreign currency                                                                       
 translation adjustment.    --       --        --       (6,020)      --         --     
                         ------  -------   -------     -------   -------      -----    
Balance--December 26,                                                                  
 1992...................  4,979   45,710     6,894      10,260      (336)      (833)   
                         ------  -------   -------     -------   -------      -----    
Net loss................    --       --     (2,416)        --        --         --     
Treasury stock                                                                         
 transactions...........    --       --       (101)        --         12        --     
Restricted stock awards.      1      --        --          --        161         55    
Foreign currency                                                                       
 translation adjustment.    --       --        --         (866)      --         --     
                         ------  -------   -------     -------   -------      -----    
Balance--December 25,                                                                  
 1993...................  4,980   45,710     4,377       9,394      (163)      (778)   
                         ------  -------   -------     -------   -------      -----    
Net loss................    --       --     (2,874)        --        --         --     
Issuance of stock.......    217    1,303       --          --        --         --     
Restricted stock awards.             --        --          --        --          57    
Foreign currency                                                                       
 translation adjustment.    --       --        --         (847)      --         --     
                         ------  -------   -------     -------   -------      -----    
Balance--April 2, 1994                                                                 
 (unaudited)............ $5,197  $47,013   $ 1,503     $ 8,547   $  (163)     $(721)   
                         ======  =======   =======     =======   =======      =====    

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

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BROWN & SHARPE MANUFACTURING COMPANY

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

1. SIGNIFICANT ACCOUNTING POLICIES                                              

PRINCIPLES OF CONSOLIDATION                                                     

 The consolidated financial statements include the accounts of the Company and
all subsidiaries. The Company's fiscal year ends on the last Saturday in        
December. Results for 1991, 1992 and 1993 include 52 weeks. Results for the     
quarters ended March 27, 1993 and April 2, 1994 include 13 and 14 weeks,        
respectively. Intercompany transactions have been eliminated from the           
consolidated financial statements. Investments in 20% to 50% part-owned         
affiliates are accounted for on the equity method.                              

INTERIM CONSOLIDATED FINANCIAL STATEMENTS                                       

The consolidated financial statements for the quarters ended March 27, 1993 
and April 2, 1994 and the related notes are unaudited and in the opinion of     
management, include all adjustments (consisting of only normal recurring        
adjustments) necessary for a fair presentation of the results of these periods. 
The results for the quarter ended April 2, 1994 are not necessarily indicative  
of the results to be expected for the entire year.                              

INVENTORY VALUATION                                                             

Inventories are stated at the lower of cost or market. Cost is determined   
principally on a last-in, first-out (LIFO) basis for domestic inventories and   
principally on a first-in, first-out (FIFO) basis for inventories outside the   
United States. LIFO inventories at December 26, 1992, $9,000, December 25,      
1993, $8,500, and April 2, 1994, $8,500, were approximately $13,800, $13,500,   
and $13,400, respectively, less than the amounts of such inventories valued on  
a FIFO basis, which approximates current cost. Provision is made to reduce      
slow-moving and obsolete inventories to net realizable values. Inventory        
reductions in 1992 and 1993 resulted in the liquidation of LIFO inventory       
quantities carried at lower costs which prevailed in prior years as compared    
with the current cost of inventory purchases. The effect of this LIFO           
liquidation was to decrease 1992 and 1993 loss from continuing operations by    
$9,822 ($2.00 per share) and $749 ($.15 per share), respectively.               

The composition of inventory at the year-end 1992 and 1993 and the quarter  
ended April 2, 1994 was as follows:                                             

                                                                [Download Table]

                                                      DEC. 26, DEC. 25, APRIL 2,
                                                        1992     1993     1994  
                                                      -------- -------- --------
                                                                                
Parts, raw materials and supplies.................... $20,076  $14,492  $22,922 
Work in progress.....................................  11,353    8,490   11,380 
Finished goods.......................................  30,579   30,981   23,248 
                                                      -------  -------  ------- 
                                                      $62,008  $53,963  $57,550 
                                                      =======  =======  ======= 

PROPERTY, PLANT AND EQUIPMENT                                                   

Property, plant, and equipment are carried at cost and are being depreciated
principally on a straight-line basis over the estimated useful lives of the     
assets which generally range from 20 to 40 years for buildings and improvements 
and from 3 to 12 years for machinery and equipment. In 1992, the Company        
extended the estimated useful lives of machinery and equipment at its Swiss     
subsidiary, based upon the current low rate of utilization. The effect of this  
change was to reduce 1992 depreciation expense and net loss by $921 or $0.19    
per share. Depreciation expense was $8,054, $6,836, $5,862, $1,546, and $1,207  
in the years 1991, 1992, 1993, and first quarters of 1993 and 1994,             
respectively. Repair and maintenance costs are charged against income           

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
while renewals and betterments are capitalized as additions to the related      
assets. Retirements, sales, and disposals of assets are recorded by removing    
the cost and accumulated depreciation from the asset and accumulated            
depreciation accounts with any resulting gain or loss reflected in income. At   
December 25, 1993, land and buildings with a book value of $16,124 were pledged 
as collateral for mortgage loans of $18,225.                                    

OTHER ASSETS                                                                    

Other assets consisted of the following:                                    

                                                                [Download Table]

                                                             YEARS      QUARTER
                                                        --------------- -------
                                                         1992    1993    1994  
                                                        ------- ------- -------
                                                                               
Goodwill............................................... $ 1,704 $ 1,654 $ 1,654
Training tape masters..................................   5,570   5,870   5,870
Prepaid pension........................................   4,767   4,905   5,017
Equity investments.....................................     567   1,551   1,573
Other..................................................   5,131   4,273   4,373
                                                        ------- ------- -------
                                                         17,739  18,253  18,487
Less accumulated amortization..........................   5,134   5,627   5,727
                                                        ------- ------- -------
                                                        $12,605 $12,626 $12,760
                                                        ======= ======= =======

Goodwill is being amortized on a straight-line basis over periods ranging   
from 7 to 20 years. Training tape masters are amortized on a straight-line      
basis over 3 years.                                                             

CONTRACTS IN PROCESS                                                            

Sales under large machinery construction contracts are recorded under the   
percentage of completion method, wherein sales and estimated gross margin are   
recorded as the work is performed. Estimated gross margin is based on the total 
contract sales value and the most recent estimate of total costs. When the      
current contract estimate indicates a loss, provision is made for the total     
anticipated loss.                                                               

FOREIGN CURRENCY                                                                

Assets and liabilities of those subsidiaries located outside the United     
States whose cash flows are primarily in local currencies are translated at     
year-end exchange rates and income and expense items are translated at average  
monthly rates. Translation gains and losses are accounted for in a separate     
shareowners' equity account "Cumulative foreign currency translation            
adjustment." The Company enters into forward exchange contracts in anticipation 
of future movements in certain foreign exchange rates and to hedge against      
foreign currency fluctuations on certain intercompany transactions and other    
foreign currency denominated balance sheet positions. Realized and unrealized   
gains and losses on these contracts are included in net income except that      
gains and losses on contracts to hedge specific foreign currency commitments    
are deferred and accounted for as part of the transaction.                      

Outstanding forward exchange contracts at December 28, 1991 had unrealized  
gains of $120. There were no forward exchange contracts outstanding at December 
25, 1993 and December 26, 1992. Other income and expense for the years 1991,    
1992, 1993, and for the quarters ended March 27, 1993 and April 2, 1994         
included $264, $484, $88, $(215), and $4, respectively, relating to transaction 
gains and losses.                                                               

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BROWN & SHARPE MANUFACTURING COMPANY

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

CREDIT RISK                                                                     

 Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of temporary cash investments and trade      
receivables. The Company places its temporary cash investments with high credit 
quality financial institutions and, by policy, limits the amount of credit      
exposure to any one financial institution. Concentrations of credit risk with   
respect to trade receivables are limited due to the Company's large number of   
customers and their dispersion across many different industries and countries   
worldwide. At December 25, 1993 and April 2, 1994, the Company had no           
significant concentrations of credit risk.                                      

POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS                                      

The Company does not provide postretirement or postemployment benefits as   
contemplated by SFAS 112, and accordingly these statements have no impact upon  
the Company's financial position or results of operations.                      

INCOME TAXES                                                                    

The Company provides for income taxes under the provisions of SFAS No. 109  
"Accounting for Income Taxes", which was adopted at the beginning of 1993,      
which requires a liability based approach in accounting for income taxes.       

Deferred income tax assets and liabilities are recorded to reflect the tax  
consequences on future years of timing differences of revenue and expense items 
for financial statement and income tax purposes. Valuation allowances are       
provided against assets which are not likely to be realized. Federal income     
taxes are not provided on the unremitted earnings of foreign subsidiaries since 
it has been the practice and is the intention of the Company to continue to     
reinvest these earnings in the business outside the United States.              

EARNINGS (LOSS) PER SHARE                                                       

 Earnings (loss) per share is based upon the weighted average number of common
shares outstanding (4,639,594, 4,898,536, 4,969,543, 4,964,368, and 5,037,507   
shares) for the years 1993, 1992, 1991, and quarters ended March 27, 1993 and   
April 2, 1994, respectively, since inclusion of common stock equivalents would  
have been anti-dilutive.                                                        

CASH AND CASH EQUIVALENTS                                                       

Cash and cash equivalents are comprised of cash on hand, deposits in banks, 
and short-term marketable securities with a maturity at acquisition of three    
months or less.                                                                 

2. ACCOUNTING CHANGE                                                            

During the first quarter of 1994, the Company changed its method of         
accounting from the completed contract method to the percentage-of-completion   
method for its large machinery construction contracts for its European          
operations. This conforms the worldwide accounting to the U.S. reporting        
percentage-of-completion basis. Management believes that this method more       
appropriately reports revenue and costs in related accounting periods rather    
than recognizing substantially all revenue and cost at the time of shipment.    
The Company has retroactively restated prior years' financial statements, as    
required by generally accepted                                                  

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BROWN & SHARPE MANUFACTURING COMPANY

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

accounting principles. The first quarter of 1994 net income was increased by    
$164 or $0.03 per share. The effect of this restatement on net income of        
periods previously reported is as follows:                                      

                                                                [Download Table]

                                                      YEARS             QUARTER
                                             -------------------------  -------
                                              1991     1992     1993     1993  
                                             -------  -------  -------  -------
                                                                               
Net income (loss) as previously reported.... $(4,024) $(8,507) $(2,244) $1,527 
Adjustment for effect of the change in                                         
 accounting for long-term contracts.........     (57)     523     (172)   (299)
                                             -------  -------  -------  ------ 
Net income (loss) adjusted.................. $(4,081) $(7,984) $(2,416) $1,228 
                                             =======  =======  =======  ====== 
Per share amounts:                                                             
  Earnings (loss) per common share as                                          
   previously reported...................... $ (0.86) $ (1.74) $ (0.45) $  .31 
  Adjustment for effect of the change in                                       
   accounting for long-term contracts.......   (0.01)    0.11    (0.04)  (0.06)
                                             -------  -------  -------  ------ 
Net income (loss) adjusted.................. $ (0.87) $ (1.63) $  (.49) $  .25 
                                             =======  =======  =======  ====== 

                                                                [Download Table]

                                                                 YEARS         
                                                         ----------------------
                                                          1992     1993   1994 
                                                         -------  ------ ------
                                                                               
Earnings Employed in the Business--                                            
Balance at beginning of year, as previously reported.... $16,852  $6,428 $4,083
Adjustment for the cumulative effect on prior years of                         
 applying, retroactively, the new method of accounting                         
 for long-term contracts................................     (57)    466    294
                                                         -------  ------ ------
Balance at beginning of year, as adjusted............... $16,795  $6,894 $4,377
                                                         =======  ====== ======

3. DISCONTINUED OPERATIONS                                                      

On March 27, 1991, Brown & Sharpe Manufacturing Company announced its       
decision to withdraw from the business of manufacturing and distributing        
machine tools, but to continue to provide repair parts, tools, service, and     
reconditioning for its machine tool products.                                   

The financial statements reflect the operating results and balance sheet    
accounts of the discontinued operations separately from continuing operations.  
In segregating the income statement components, interest expense of $600 for    
1991 has been allocated to discontinued operations based upon a proportionate   
share of assets employed. Results for the discontinued operations were:         

                                                                [Download Table]

                                                                    1991   
                                                                  -------- 
                                                                           
Revenues......................................................... $ 22,005 
                                                                  ======== 
Loss from operations before income taxes......................... $   (530)
Income tax provision.............................................      650 
                                                                  -------- 
Loss from discontinued operations................................ $ (1,180)
                                                                  ======== 

4. INCOME TAXES                                                                 

 Effective the beginning of 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method as required   
by SFAS 109. As permitted under the new rules,                                  

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

prior years' financial statements have not been restated. The adoption of the   
provisions of SFAS 109 in 1993 had no impact on the Company's reported results  
of operations or financial position.                                            

Income (loss) before income taxes consisted of the following:               

                                                                [Download Table]

                                         YEARS                   QUARTERS      
                              -----------------------------  ----------------- 
                                1991      1992       1993     1993      1994   
                              --------  ---------  --------  -------  -------- 
                                                                               
Domestic..................... $  3,276  $  (2,376) $  1,394  $ 2,779  $   (542)
Foreign......................   (6,920)    (8,858)   (3,010)  (1,551)   (2,232)
                              --------  ---------  --------  -------  -------- 
Income (loss) before income                                                    
 taxes....................... $ (3,644) $ (11,234) $ (1,616) $ 1,228  $ (2,774)
                              ========  =========  ========  =======  ======== 

 The following table reconciles the income tax provision (benefit) at the U.S.
statutory rate to that in the financial statements:                             

                                                                [Download Table]

                                               YEARS                QUARTERS    
                                      --------------------------  ------------- 
                                        1991      1992     1993   1993    1994  
                                      --------  --------  ------  -----  ------ 
                                                                                
Taxes computed at 34%...............  $ (1,239) $ (3,997) $ (491) $ 418  $ (943)
Alternative minimum and state taxes.       200       350     200     50     100 
Reduction of deferred tax liability.                               (468)    --  
Other losses not utilizeable........       239       397   1,091    --      943 
                                      --------  --------  ------  -----  ------ 
Income tax provision (benefit)......  $   (800) $ (3,250) $  800  $ --   $  100 
                                      ========  ========  ======  =====  ====== 

The income tax provision (benefit) consisted of the following:              

                                                                [Download Table]

                                                 YEARS              QUARTERS   
                                         ------------------------  ------------
                                          1991      1992    1993   1993   1994 
                                         -------  --------  -----  -----  -----
                                                                               
Current:                                                                       
Federal................................. $ 1,300  $  1,150  $ 500  $ 400  $ -- 
Utilization of net operating loss and                                          
 credit carryforwards...................  (1,198)      --     --     --     -- 
                                         -------  --------  -----  -----  -----
                                             102     1,150    500    400    -- 
State...................................      98       200    300    100    -- 
Foreign.................................     --        --     500    --     100
                                         -------  --------  -----  -----  -----
                                             200     1,350  1,300    500    100
                                         -------  --------  -----  -----  -----
Deferred:                                                                      
Federal.................................     --     (1,000)   --     --     -- 
Foreign.................................  (1,000)   (3,600)  (500)  (500)   -- 
                                         -------  --------  -----  -----  -----
                                          (1,000)   (4,600)  (500)  (500)   -- 
                                         -------  --------  -----  -----  -----
Income tax provision (benefit).......... $  (800) $ (3,250) $ 800  $ --   $ 100
                                         =======  ========  =====  =====  =====

The deferred tax benefits reflect deferred tax reductions resulting from    
operating losses. Provision has not been made for U.S. taxes on $32,000 of      
undistributed earnings of foreign subsidiaries as those earnings are intended   
to be permanently reinvested.                                                   

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

The components of the Company's deferred tax asset and liability as of      
December 25, 1993 and April 2, 1994 are as follows:                             

                                                                [Download Table]

                                                                 DEC.    APRIL 
                                                                  25,     2,   
                                                                 1993    1994  
                                                                ------- -------
                                                                               
Deferred tax assets:                                                           
Inventory reserves............................................. $   800 $   800
Warranty expense...............................................     400     400
Provision for doubtful accounts................................     100     100
Depreciation...................................................     700     700
Tax credit and loss carryforwards..............................  12,300  15,000
Other..........................................................     400     400
                                                                ------- -------
  Gross deferred assets........................................  14,700  17,400
Less valuation allowance.......................................  13,700  16,400
                                                                ------- -------
  Deferred tax asset........................................... $ 1,000 $ 1,000
                                                                ======= =======
Deferred tax liabilities:                                                      
Pension expense................................................ $ 1,300 $ 1,300
Inventory reserves.............................................     700     700
Other..........................................................     600     600
                                                                ------- -------
  Deferred tax liability....................................... $ 2,600 $ 2,600
                                                                ======= =======

 A valuation allowance has been recognized due to the uncertainty of realizing
tax credit and loss carryforwards and some portion or all of the other deferred 
tax assets.                                                                     

The deferred tax asset of $1,000 is included in Other Assets in the         
accompanying consolidated balance sheets. The current portion of the deferred   
tax liability, $837, is included in accrued expenses and income taxes in the    
accompanying consolidated balance sheets. For income tax purposes, at year-end  
1993 the Company has operating loss and capital loss carryforwards of $2,400    
and $700, respectively, in the U.K. and net operating loss carryforwards of     
$28,000 and $15,000, respectively in Switzerland and Germany. The Company has   
tax credit carryforwards of $700 in the U.S. The U.S. tax credit carryforwards  
expire from 1994 to 2004. The Swiss carryforwards expire between 1995 and 1998. 
There is no time limit for the U.K. and German carryforwards.                   

5. SHORT-TERM BORROWINGS                                                        

Bank and other financial institution lines of credit in effect at December  
26, 1992, December 25, 1993, and April 2, 1994 were $28,872, $39,731, and       
28,906, respectively. The 1993 year end balance includes $15,000 eligible       
borrowing under a financing agreement the Company entered into on June 30, 1993 
with a commercial lender for a revolving credit facility of up to a maximum of  
$15,000 for an initial period of two years with successive one year renewals,   
subject to termination provisions in the agreement. The borrowing limit is      
determined periodically as a portion of the eligible accounts receivable and    
finished inventory of the parent company headquartered in North Kingstown,      
Rhode Island. Substantially all assets of the Company are pledged as            
collateral. The agreement contains covenants which, among other things, require 
the Company to maintain certain financial ratios and restricts the payment of   
dividends. The remaining lines of credit are due upon demand by the lenders.    
Borrowings under these lines were $21,502 at December 26, 1992, $30,143 at      
December 25, 1993, and $32,491 at April 2, 1994, respectively. Short-term debt  
represents amounts due in U.S. dollars and the U.S. dollar equivalent of        
amounts due in foreign currencies. Interest on these lines of credit is         
generally up to 2% above the prime or base rate of the country in which the     
amounts are borrowed.                                                           

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

Certain foreign lines of credit require the Company to maintain restricted  
cash deposit accounts which amounted to $6,078 and $6,113 at December 25, 1993  
and April 2, 1994, respectively. No compensating balances were required at      
December 25, 1993 or April 2, 1994. The Company has guaranteed the bank debt of 
its German subsidiary. In addition, a credit line of $3,385 ((Pounds)2,250) in  
the U.K. is collateralized by the assets in that country, and the Company has   
guaranteed up to $752 ((Pounds)500).                                            

6. LONG-TERM DEBT                                                               

Long-term debt consisted of the following:                                  

                                                                [Download Table]

                                                           YEARS       QUARTER 
                                                     ----------------- --------
                                                       1992     1993     1994  
                                                     -------- -------- --------
                                                                               
9 1/4% convertible subordinated debentures due                                 
 December, 2005..................................... $ 17,000 $ 16,000 $ 16,000
Mortgages at rates ranging from 7 3/4% to 8 1/2%....   18,599   18,225   18,355
Notes payable.......................................    3,599      132      120
                                                     -------- -------- --------
                                                       39,198   34,357   34,475
Less: current installments..........................    4,572    1,661    1,251
                                                     -------- -------- --------
Total long-term debt................................ $ 34,626 $ 32,696 $ 33,224
                                                     ======== ======== ========

The 9 1/4% subordinated debentures are convertible, at the option of the    
holders, into common shares at $26.25 per share subject to antidilution         
provisions. The Company, through a sinking fund, is required to provide for     
retirement of $1,000 in principal amount annually. This will result in          
retirement of all but $5,000 prior to maturity. The 1992 sinking fund           
requirement was met through a repurchase in 1992 and 1991.The 1993 sinking fund 
requirement was met by a call by the trustee for redemption of $1,000 principal 
amount at par to the debenture holders, using a random selection process. At    
December 25, 1993, 609,523 shares of Class A Common Stock were reserved for     
conversion of these debentures. At December 25, 1993, there were mortgage notes 
outstanding, in foreign currencies, equivalent to $18,225. Annual maturities of 
long-term debt are as follows: 1994--$1,661, 1995--$1,794; 1996--$11,360;       
1997--$3,694; 1998--$1,962; 1999 through 2004--$7,886, and $6,000 thereafter.   
Interest rates on long-term debt average about 9%.                              

7. FAIR VALUE OF FINANCIAL INSTRUMENTS                                          

The estimated fair value amounts of the Company's financial instruments are 
determined through relevant market information and valuation techniques. As     
estimates they represent the results of management's judgment. The following    
table summarizes such valuations at December 25, 1993 in accordance with        
Statement of Financial Accounting Standards No. 107, implemented in 1993:       

                                                                [Download Table]

                                                      CARRYING AMOUNT FAIR VALUE
                                                      --------------- ----------
                                                                                
Financial assets:                                                               
Cash and cash equivalents............................     $ 2,094      $ 2,094  
Restricted cash......................................       6,078        6,078  
Accounts receivable..................................      44,525       44,525  
Financial liabilities:                                                          
Accounts payable.....................................      12,716       12,716  
Short-term debt......................................      31,804       31,804  
Long-term debt.......................................      17,696       17,478  
Debentures...........................................      15,000       15,150  

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

Cash, receivables, payables, and short-term debt carrying amounts reasonably
represent their fair values. Long-term debt rates currently available for debt  
with similar terms and remaining maturities are used to estimate their fair     
value. The fair value of debentures is the year-end market trading price.       

8. CONTINGENCIES                                                                

On November 29, 1991, the U.S. Court of Appeals for the District of Columbia
Circuit rendered its decision on the appeal by the International Association of 
Machinists (the "IAM") of the National Labor Relations Board's ("NLRB") August  
28, 1990 decision dismissing unfair labor practice charges brought against the  
Company by the IAM arising out of a strike which began at the Company's Rhode   
Island operations in October 1981. The Court although accepting the legal       
reasoning advanced by the Board and the Company in support of the Board's 1990  
decision dismissing such charges ordered the NLRB to further clarify and        
support its decision. The NLRB has now issued its Supplemental Decision,        
favorable to the Company again reaffirming dismissal of the charges. The IAM    
has filed notice of another appeal of that decision. The Company is continuing  
to defend this case vigorously and management adheres to its earlier assessment 
that an ultimate finding of monetary liability in this matter is remote.        

 The Company is also involved in several product liability claims and lawsuits
which are incidental to the conduct of its business, the potential liability    
for which is adequately covered by insurance or reserves established for such   
contingencies. The Company is contesting or defending these claims and suits    
and management believes that the ultimate liability, if any, resulting from     
these matters will not have a material effect on the Company's financial        
position.                                                                       

The Company is involved in two environmental proceedings in which the United
States Environmental Protection Agency ("EPA") identified Brown & Sharpe as a   
potentially responsible party ("PRP") at waste disposal sites (the "Sites") in  
Rhode Island and Connecticut listed on the EPA's National Priority List for     
clean-up and future monitoring remedial action under the Superfund legislation. 
While the Company's proportionate share of the total waste contributed to both  
Sites was minimal in volume and toxicity, the EPA nevertheless with regard to   
the Rhode Island site issued an Administrative Order against the Company and    
other PRP's to clean up the Site. Subsequently, the Company was permitted by    
the EPA to settle its liability at such Site in exchange for releases from the  
EPA and contribution protection from claims of any third parties who may have   
liability at the Site. A group of non-settling major PRP's at the Rhode Island  
site has brought suit in the Federal District Court in Rhode Island against all 
of the settling parties to recover a portion of their costs of performing the   
clean-up remedy. The Court has granted a summary judgment in favor of the       
Company and other settling parties. The non-settling group of major PRP's       
appealed that ruling and have brought suit against the EPA to have the          
settlements of the de minimis settling parties set aside. The Company is        
vigorously defending this lawsuit and believes that the release and             
contribution protection obtained from the EPA in connection with settlement of  
its liability at the Site will ultimately bar the cost-recovery claim. The      
Company will likely be offered the opportunity to settle its de minimis         
liability as a PRP at the Connecticut site in an amount not deemed to be        
material.                                                                       

9. PREFERRED STOCK                                                              

 The Board of Directors is empowered to provide from time to time for issuance
of one or more series of preferred shares without further shareowner action and 
to fix various terms and provisions with respect to each such series,           
including, without limitation, the dividend rate, redemption prices, terms of   
any sinking fund, conversion rights, if any, voting rights, if any, and rights  
of the holders upon liquidation (See Note 16--Preferred Stock Purchase Rights). 

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

10. INCENTIVE AND RETIREMENT PLANS                                              

PROFIT INCENTIVE PLAN                                                           

 Under the provisions of the Company's Profit Incentive Plan, cash and Class A
common stock, valued at 100% of the market value on the date of award, may be   
awarded as bonuses to certain management employees. Provisions regarding        
forfeiture of rights to all or part of the stock awards and restrictions        
regarding sale or disposition of shares lapse in equal annual installments over 
a five-year period commencing one year after the date of award, and             
compensation expense is recognized ratably over the vesting period. The         
aggregate amount of additional shares which may be issued under the Plan may    
not exceed 116,200 shares, net of forfeitures, and is subject to adjustments in 
the event of stock splits and other changes. Plan awards amounted to $0, $53,   
and $601 in 1991, 1992, and 1993, respectively.                                 

STOCK INCENTIVE PLANS                                                           

Under the provisions of the Company's 1989 Equity Incentive Plan, a variety 
of cash, common stock, stock option, and other stock based incentive awards are 
available for grant. The Equity Incentive Plan permits the granting of both     
options which do, and options which do not, qualify as incentive stock options  
under the Internal Revenue Code. During 1992 and 1993, respectively, a total of 
100,400 and 8,000 shares of restricted Class A common stock, utilizing shares   
held in the Treasury were issued as restricted awards under the Plan. The       
shares are subject to forfeiture upon the recipients' termination of employment 
over a five year period, with the restriction lapsing in amounts of 25% at the  
end of the 2nd and 3rd years, and 50% at the end of the 5th year. Unearned      
compensation in the amount of $926 is being amortized to expense over the       
forfeiture lapsing period. In 1990 and 1991, options to purchase a total of     
80,000 shares of Class A common stock were granted for a ten year period at     
prices between $11 and $12.125 per share. The aggregate remaining amount of     
shares of Class A common stock that may be issued under the Equity Incentive    
Plan is 216,600. The price for shares covered by options is 100% of the market  
value on the dates such options are granted.                                    

 No further options or other awards may be granted under the Company's amended
1973 Stock Option Plan. The exercise price for shares covered by outstanding    
options under both the 1993 Stock Option Plan and the Equity Incentive Plan is  
100% of the market value on the dates such options were granted. Options        
granted under this plan are exerciseable one year after the date of grant and   
expire at the end of ten years. On December 25, 1993 all outstanding options    
were exerciseable. Option activity under the Plans during the past three years  
and the first quarter of 1994 is summarized as follows:                         

                                                                [Download Table]

                                                      SHARES     PRICE RANGE   
                                                      -------  ----------------
                                                                               
Outstanding December 29, 1990........................ 146,387  $11.50 to $20.81
  Granted............................................  55,000  $10.25 to $12.13
  Forfeited or canceled.............................. (29,930) $12.47 to $14.38
                                                      -------                  
Outstanding December 28, 1991........................ 171,457  $10.25 to $20.81
  Forfeited or canceled.............................. (26,265) $12.13 to $20.81
                                                      -------                  
Outstanding December 26, 1992........................ 145,192  $10.25 to $17.86
  Forfeited or canceled.............................. (21,666) $10.78 to $12.13
                                                      -------                  
Outstanding December 25, 1993........................ 123,526  $10.25 to $17.86
                                                      -------                  
  Granted............................................ 145,000  $6.50           
  Forfeited or canceled.............................. (29,332) $12.94 to $17.86
                                                      -------                  
Outstanding April 2, 1994............................ 239,194  $6.50 to $17.86 
                                                      =======                  

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

SAVINGS PLANS                                                                   

The Company has 401(k) stock bonus and thrift savings plans for U.S.        
employees, which include retirement income features consisting of employer      
contributions and employee tax deferred contributions. Contributions under all  
plans are invested in professionally managed portfolios and Company stock. The  
savings plans' expense for the years 1991, 1992, 1993 and for the quarters      
ended March 27, 1993 and April 2, 1994 was $824, $739, $705, $227, and $189,    
respectively.                                                                   

STOCK OWNERSHIP PLAN                                                            

Under the provisions of the Company's Employee Stock Ownership Plan (ESOP), 
the Company may make contributions of common stock or cash to purchase common   
stock from the Company or otherwise, to be held in trust for employees meeting  
certain eligibility requirements until the employees reach retirement age. The  
ESOP may also borrow funds to purchase common shares, for which the Company     
will contribute amounts as necessary to pay down the indebtedness. ESOP expense 
was $378 in 1991, $347 in 1992, $327 in 1993, and $93 and $112 for the quarters 
ended March 27, 1993 and April 2, 1994. At December 25, 1993, there were no     
unallocated shares of Class A and B stock held in the ESOP as all shares were   
allocated to participants' accounts.                                            

RETIREMENT PLANS                                                                

 The Company's subsidiaries have several defined contribution retirement plans
covering employees in the U.S. and Switzerland, and two defined benefit         
retirement plans covering employees in the U.K. and Germany, which includes     
substantially all employees. Retirement plan expense net of pension income for  
the years 1991, 1992, 1993, and for the quarters ended March 27, 1993 and April 
2, 1994 was $2,265, $2,488, $1,223, $355, and $269, respectively.               

The defined benefit plans which cover employees in the U.K. and Germany,    
respectively, provide benefits based on years of service and employee           
compensation. Retirement costs under both plans are compiled based on the       
projected unit credit actuarial method.                                         

The U.K. plan's actuarial assumptions used settlement rates of 8.5% at the  
end of 1992 and 7.5% at the end of 1993, a long-term return on assets of 10% at 
the end of 1992 and 8% at the end of 1993, and annual wage increases of 7.5% at 
the end of 1992 and 6.5% at the end of 1993. Retirement costs accrued are       
funded.                                                                         

 The German plan's actuarial assumptions used a settlement rate of 7.5% and an
annual wage increase of 4.5%. Retirement costs accrued are not funded.          

 The following items are the components of net periodic pension income for the
U.K. plan for the years ended December 28, 1991, December 26, 1992, and         
December 25, 1993:                                                              

                                                                [Download Table]

                                                         1991    1992    1993  
                                                        ------  ------  ------ 
                                                                               
Service cost-benefits earned........................... $  766  $  815  $  664 
Interest cost on projected benefit obligations.........    867   1,075     743 
Return on plan assets, net............................. (1,696) (1,952) (1,200)
Amortization of unrecognized assets....................   (361)   (465)   (345)
                                                        ------  ------  ------ 
Net periodic pension income............................ $ (424) $ (527) $ (138)
                                                        ======  ======  ====== 

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

The plan has assets in excess of the accumulated benefit obligations. Plan  
assets include investments in equity securities, corporate and government debt  
securities, and cash equivalents. The following table presents a reconciliation 
of the funded status of the plan at December 28, 1991, December 26, 1992, and   
December 25, 1993:                                                              

                                                                [Download Table]

                                                  1991       1992       1993    
                                                ---------  ---------  --------- 
                                                                                
Vested and accumulated benefit obligation...... $ (11,274) $ (13,164) $ (14,571)
Projected benefit obligation...................   (13,383)   (15,273)   (16,680)
Plan assets at fair value......................    21,629     24,511     26,401 
                                                ---------  ---------  --------- 
Funded status..................................     8,246      9,238      9,721 
Unrecognized portion of net assets.............    (4,006)    (4,471)    (4,816)
                                                ---------  ---------  --------- 
Prepaid pension................................ $   4,240  $   4,767  $   4,905 
                                                =========  =========  ========= 

The following items are the components of net periodic pension cost for the 
unfunded German plan for the years ended December 28, 1991, December 26, 1992,  
and December 25, 1993:                                                          

                                                                [Download Table]

                                                          1991    1992    1993  
                                                         ------- ------- -------
                                                                                
Service cost-benefits earned............................ $   376 $   818 $   112
Interest cost on projected benefit obligations..........     184     394     295
                                                         ------- ------- -------
Net periodic pension cost............................... $   560 $ 1,212 $   407
                                                         ======= ======= =======
Vested and accumulated benefit obligation............... $ 2,303 $ 3,121 $ 3,233
                                                         ======= ======= =======
Projected benefit obligation and accrued pension cost... $ 3,453 $ 4,083 $ 4,012
                                                         ======= ======= =======

11. RESEARCH AND DEVELOPMENT EXPENSE                                            

Research and development expense was $11,364, $10,903, $8,669, $2,411, and  
$1,892 in the years 1991, 1992, 1993, and the quarters ended March 27, 1993 and 
April 2, 1994, respectively.                                                    

12. OTHER INCOME AND EXPENSE                                                    

Other income (expense), net includes:                                           

                                                                [Download Table]

                                                   YEARS            QUARTERS    
                                           ---------------------- ------------- 
                                           1991   1992     1993    1993    1994 
                                           ----- -------  ------- -------  ---- 
                                                                                
Interest income........................... $ 380 $   457  $   266 $    41  $ 45 
Gain (loss) on sale of fixed assets.......    94     655       44      (6)  --  
Foreign currency gains (losses)...........   264     484      157    (215)    4 
Gain on sale of operations................   --      628    2,182   1,972   --  
Other income (expense)....................    86     (89)     115       2    (1)
                                           ----- -------  ------- -------  ---- 
                                           $ 824 $ 2,135  $ 2,764 $ 1,794  $ 48 
                                           ===== =======  ======= =======  ==== 

Operations sold in 1993 were spares and rebuild, and in 1992 were GageTalker
and pump.                                                                       

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

13. RENTAL EXPENSE AND LEASE COMMITMENTS                                        

At December 25, 1993, the Company was obligated under operating leases      
expiring on various dates. Rental expense was $4,040, $4,684 and $3,845 in      
1991, 1992, and 1993 and $961 and $700 in the quarters ended March 27, 1993 and 
April 2, 1994, respectively. Annual rental commitments under noncancelable      
leases pertaining principally to buildings and equipment at December 25, 1993   
are $2,800, $2,023, $901, $279, and $251 for the years 1994 through 1998, and   
aggregate to $1,036 for all years subsequent to 1998.                           

14. FINANCIAL INFORMATION BY BUSINESS SEGMENT AND GEOGRAPHIC AREA               

Following is financial information by business segment:                     

                                                                [Download Table]

                                                         YEAR ENDED             
                                                ------------------------------- 
                                                 DEC 28,   DEC. 26,   DEC. 25,  
                                                  1991       1992       1993    
                                                ---------  ---------  --------- 
                                                                                
Metrology                                                                       
  Net sales.................................... $ 166,819  $ 152,201  $ 155,133 
  Operating profit (loss)......................    (1,281)    (8,857)     1,652 
  Identifiable assets..........................   163,565    153,766    157,699 
  Capital expenditures.........................     9,761     12,424      4,356 
  Depreciation.................................     7,798      6,591      5,781 
General Products (through April 1993)                                           
  Net sales....................................     9,028      8,494      1,902 
  Operating profit (loss)......................       975        760       (932)
  Identifiable assets..........................     9,981      7,680        --  
  Capital expenditures.........................       103         50         43 
  Depreciation.................................       256        245         81 
Geographic Area:                                                                
Sales to Unaffiliated Customers:                                                
  United States................................ $  76,750  $  69,810  $  72,257 
  Europe.......................................    82,701     70,692     62,246 
  Other........................................    16,396     20,193     22,532 
                                                ---------  ---------  --------- 
                                                $ 175,847  $ 160,695  $ 157,035 
                                                =========  =========  ========= 
Transfers Between Geographic Areas:                                             
  United States................................ $   6,977  $   5,542  $   4,040 
  Europe.......................................    16,770     12,167     12,365 
                                                ---------  ---------  --------- 
                                                $  23,747  $  17,709  $  16,405 
                                                =========  =========  ========= 
Operating Profit (Loss):                                                        
  United States................................ $   4,830  $   1,283  $   5,151 
  Europe.......................................    (5,136)    (9,380)    (4,431)
                                                ---------  ---------  --------- 
                                                $    (306) $  (8,097) $     720 
                                                =========  =========  ========= 
Identifiable Assets:                                                            
  United States................................ $  35,496  $  34,537  $  39,521 
  Europe.......................................   138,050    126,909    118,178 
  Corporate....................................    10,259      4,640      8,172 
                                                ---------  ---------  --------- 
                                                $ 183,805  $ 166,086  $ 165,871 
                                                =========  =========  ========= 

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 
15. COMMON STOCK                                                                

Both classes of common stock have equal rights upon liquidation. Class A    
common stock may not receive less cash dividends per share than Class B common  
stock, nor may such dividends be less frequent. The Class A common stock has    
one vote per share. Except as otherwise provided by law, the Class B common     
stock has ten votes per share, and the Class B common stock is convertible into 
Class A common stock on a one-for-one basis, and can be transferred in Class B  
form only to specified transferees, generally members of a shareowner's family  
and certain others affiliated with a shareowner. During 1992 and 1993, 26,441   
shares and 73,597 shares, respectively, were converted from Class B to Class A  
common stock.                                                                   

During 1992 and 1993, respectively, 108,400 and 8,000 treasury shares were  
allocated for use as restricted stock awards, and 586 treasury shares were      
issued under a Directors' deferred compensation plan. The 8,000 treasury shares 
were allocated during the first quarter of 1993. During 1992, 939 shares were   
sold to employee benefit plans, 44,382 treasury shares were allocated to ESOP   
participants, and 1,702 treasury shares were issued under a Directors' deferred 
compensation plan.                                                              

16. PREFERRED STOCK PURCHASE RIGHTS                                             

On March 23, 1988, the Company distributed a dividend of one purchase right 
for each outstanding share of common stock. Until the occurrence of specified   
events, the rights are represented by the associated common stock certificates. 
Following the distribution of the Class B common stock on June 10, 1988, and    
until the occurrence of specified events, each certificate representing a share 
of Class A or Class B common stock also represents three-quarters of a right.   
Each right entitles the shareowner to buy from the Company one-hundredth of a   
share of Series A Participating Preferred Stock at an exercise price of $55 per 
right. The rights become exerciseable ten days after a party acquires 20% of    
the Company's common stock. The rights, which are subject to adjustment, may be 
redeemed by the Company at a price of $.03 per right at any time prior to the   
fifteenth day after a person acquires 20% of the Company's common stock. The    
rights expire on March 23, 1998.                                                

In the event the Company is involved in certain business combination        
transactions with a 20% shareowner, each right will entitle its holder (other   
than a 20% shareowner) to purchase, at the right's then exercise price, an      
equity interest in the acquiring person having a market value of two times the  
exercise price. In the event a 20% shareholder engages in certain other         
transactions with the Company or (pursuant to a February, 1989 amendment) any   
person becomes a 20% shareowner, each right will entitle its holder (other than 
a 20% shareowner) to purchase, at the right's then exercise price, shares of    
Class A common stock having a market value of two times the exercise price.     

17. ACQUISITION                                                                 

Brown & Sharpe Manufacturing Company through its subsidiary Brown & Sharpe  
International Capital Corporation purchased, on March 24, 1994, the stock of    
the French company Ets. Pierre Roch S.A. ("Roch") and its German affiliate,     
Mauser Prazisions--Messmittel GmbH ("Mauser"). Roch manufactures and, together  
with Mauser, markets micrometers, calipers, height gages, digital indicators,   
and other similar precision measuring instrument products. The business is      
headquartered in Luneville, France which is its sole manufacturing site. The    
German operation is a sales office. These operations were purchased from Diehl  
GmbH & Co. of Nurnberg, Germany ("Diehl").                                      

 The purchase price was 175,000 shares of Brown & Sharpe Class A Common Stock,
subject to certain post closing adjustments and the right to receive an         
additional 50,000 shares of such stock in the event the                         

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BROWN & SHARPE MANUFACTURING COMPANY

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

Company's Class A Common Stock attains a market price of $15 or more per share  
for a total of 30 days or more during any twelve month period within the five   
years following the purchase. The purchase price was determined through         
negotiation by the parties subject to adjustment based on specified closing     
balance sheet changes. Roch entered into a nine year lease agreement to lease   
the Luneville facility from Societe Immobiliere Lunevilloise S.A.R.L., a        
subsidiary of Diehl, for approximately $34 annually with options to purchase    
the facility during the lease term.                                             

The acquisition has been accounted for by the purchase method of accounting,
and accordingly, the purchase price has been allocated to assets acquired and   
liabilities assumed based on an estimate of their fair values at the date of    
acquisition. The estimated fair values of assets and liabilities after          
allocation are summarized as follows:                                           

                                                                [Download Table]
                                                                           
Cash................................................................ $1,380
Accounts receivable.................................................  2,700
Inventory...........................................................  3,250
Machinery and equipment.............................................    510
Accounts payable and accruals.......................................  3,880
Short-term debt.....................................................  2,350
Long-term debt......................................................    410
                                                                     ------
                                                                     $1,200
                                                                     ======

The Company's unaudited combined results of operations for the year ended   
December 25, 1993 and the quarter ended April 2, 1994 on a pro forma basis      
assuming the acquisition of Roch occurred at the beginning of 1993 are as       
follows:                                                                        

                                                                [Download Table]

                                                                         FIRST  
                                                                YEAR    QUARTER 
                                                              --------  ------- 
                                                                1993     1994   
                                                              --------  ------- 
                                                                                
Net sales.................................................... $169,542  $40,072 
Net (loss)...................................................   (2,004)  (2,714)
Primary and fully diluted (loss) per common share............     (.39)    (.52)

18. OTHER MATTERS                                                               

During the fourth quarter of 1991 and 1992, the Company recorded $1,800 and 
$5,100 of restructuring costs, primarily employee severance at European         
facilities. The third quarter of 1992 included about $1,500 of incentive        
compensation in conjunction with acquiring a subsidiary's minority interest     
whereas the fourth quarter included about $2,000 of inventory write-offs.       

As announced in 1993, the Company is continuing negotiations to purchase    
Finmeccanica's DEA Group of metrology companies and business units. The DEA     
Group, headquartered in Turin, Italy, manufactures and markets worldwide a      
variety of types of coordinate measuring machines and systems with 1993         
worldwide sales of about $110 million. Under the proposed transactions, the DEA 
Group would have approximately $15 million debt, and Brown & Sharpe would issue 
3,450,000 shares of Brown & Sharpe Class A Common Stock to Finmeccanica. The    
letter of intent would require Finmeccanica not to transfer the acquired Brown  
& Sharpe shares to any person other than Brown & Sharpe for a specified period  
and to afford Brown & Sharpe certain rights of first refusal with respect       
thereto for a further specified period. The letter of intent contemplates that  
Finmeccanica would have representatives on Brown & Sharpe's Board of            

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BROWN & SHARPE MANUFACTURING COMPANY

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

Directors. The proposed combination is subject to negotiation of a definitive   
acquisition agreement and to a number of other conditions, including            
satisfactory completion of due diligence, approval by the Board of Directors of 
each party, approval by Brown & Sharpe's stockholders, receipt of relevant      
governmental approvals in applicable countries and successful negotiation of    
financing arrangements with certain financial institutions to obtain consent of 
certain existing lenders and to obtain an additional line of credit based on    
DEA Group assets or upon other financing arrangements deemed satisfactory by    
the Company. The waiting period with respect to the proposed transaction under  
the Hart-Scott-Rodino Antitrust Improvements Act expired in August 1993. There  
can be no assurance that a definitive acquisition agreement can be negotiated   
and executed or that the financing arrangement conditions or all other closing  
conditions will be satisfied.                                                   

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                                                                       EXHIBIT B

COMBINED FINANCIAL STATEMENTS OF DEA S.P.A. 

                                                                [Download Table]

                                                                            PAGE
                                                                            ----
                                                                                
Report of Independent Accountants--1991--Coopers & Lybrand................  B-2 

Report of Independent Accountants--1992--Price Waterhouse.................  B-3 

Report of Independent Accountants--1992 and 1993--Reconta Ernst & Young...  B-4 

Combined Balance Sheet as of December 31, 1992, 1993 and March 31, 1994         
 (Unaudited)..............................................................  B-5 

Combined Statement of Income (Loss) for the Years Ended December 31, 1991,      
 1992, and 1993, and for the Quarters Ended March 31, 1993 (Unaudited) and      
 1994 (Unaudited).........................................................  B-6 

Combined Statement of Cash Flows for the Years Ended December 31, 1991,         
 1992, and 1993, and for the Quarters Ended March 31, 1993 (Unaudited) and      
 1994 (Unaudited).........................................................  B-7 

Combined Statement of Changes in Divisional Deficit for the Years Ended         
 December 31, 1991, 1992, and 1993, and for the Quarters Ended March 31,        
 1993 (Unaudited) and 1994 (Unaudited)....................................  B-8 

Notes to Combined Financial Statements....................................  B-9 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Shareholder and                                                          
Board of Directors of                                                           
DEA S.p.A.                                                                      

We have audited the accompanying combined statements of operations, cash    
flows and changes in divisional deficit of the DEA Metrology Activities of      
Finmeccanica, as described in Note 1, for the year ended December 31, 1991.     
These financial statements are the responsibility of the DEA S.p.A. management. 
Our responsibility is to express an opinion on these financial statements based 
on our audit.                                                                   

We conducted our audit in accordance with auditing standards generally      
accepted in the United States. 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 combined          
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    
audit provides a reasonable basis for our opinion.                              

In our opinion, the combined financial statements referred to above present 
fairly, in all material respects, the combined results of operations and cash   
flows of the DEA Metrology Activities of Finmeccanica for the year ended        
December 31, 1991 in conformity with accounting principles generally accepted   
in the United States.                                                           

                     Coopers & Lybrand

Turin, Italy                                                                    
October 22, 1993                                                                

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REPORT OF INDEPENDENT ACCOUNTANTS 

October 5, 1993                                                                 
Toledo, Ohio                                                                    

To the Board of Directors of                                                    
Elsag Bailey, Inc.                                                              

In our opinion, the accompanying statement of division assets, liabilities  
and equity (deficit) and the related statements of operations and accumulated   
deficit and of cash flows present fairly, in all material respects, the         
financial position of Digital Electronic Automation, a division of Elsag        
Bailey, Inc., at December 31, 1992, and the results of its operations and its   
cash flows for the year in conformity with generally accepted accounting        
principles. These financial statements are the responsibility of the management 
of Elsag Bailey, Inc. and Digital Electronic Automation; our responsibility is  
to express an opinion on these financial statements based on our audit. We      
conducted our audit of these statements in accordance with generally accepted   
auditing standards which require that we plan and perform the audit to obtain   
reasonable assurance about whether the financial statements are free of         
material misstatement. An audit includes examining, on a test basis, evidence   
supporting the amounts and disclosures in the financial statements, assessing   
the accounting principles used and significant estimates made be management,    
and evaluating the overall financial statement presentation. We believe that    
our audit provides a reasonable basis for the opinion expressed above.          

 Digital Electronic Automation is a division of Elsag Bailey, Inc., which is a
member of a group of affiliated companies and, as disclosed in the financial    
statements, has extensive transactions and relationships with members of the    
group. Because of these relationships, it is possible that the terms of these   
transactions are not the same as those that would result from transactions      
among wholly unrelated parties.                                                 

 As described in Note 7, Brown & Sharpe Manufacturing Company has entered into
a non-binding letter of intent to purchase certain net assets of Finmeccanica's 
DEA Group, of which Digital Electronic Automation is a part.                    

Price Waterhouse                                                                

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REPORT OF INDEPENDENT ACCOUNTANTS 

The Board of Directors and Shareholders                                         
DEA S.p.A.                                                                      

We have audited the combined balance sheets of the DEA Metrology Activities 
of Finmeccanica as described in Note 1, as of December 31, 1993 and 1992, and   
the related combined statements of operations, divisional deficit and cash      
flows for the years then ended. These combined financial statements are the     
responsibility of the management of DEA S.p.A. Our responsibility is to express 
an opinion on these combined financial statements based on our audit. We did    
not audit the financial statements of Digital Electronic Automation (U.S.A.), a 
division of Elsag Bailey Inc., for the year ended December 31, 1992 which       
statements reflect total assets of Lire 28,525 million and total revenues of    
Lire 30,990 million for the year then ended. Those statements were audited by   
other auditors, whose report has been furnished to us, and our opinion, insofar 
as it relates to the amounts included for Digital Electronic Automation         
(U.S.A.), a division of Elsag Bailey Inc., at December 31, 1992 is based solely 
on the report of the other auditors.                                            

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

As more fully described in Note 5, the DEA Metrology Activities is one of   
many divisions of Finmeccanica S.p.A. and its subsidiaries and has material     
transactions with the affiliated companies of IRI, an Italian State holding     
company which has a controlling interest in Finmeccanica S.p.A.                 

In our opinion, based on our audit and the report of the other auditors on  
the December 31, 1992 financial statements, the combined financial statements   
referred to above present fairly, in all material respects, the combined        
financial position of the DEA Metrology Activities of Finmeccanica, as          
described in Note 1, at December 31, 1993 and 1992 and the combined results of  
its operations and its cash flows for the years then ended in conformity with   
accounting principles generally accepted in the United States.                  

As discussed in Note 19 to the combined financial statements, the DEA       
Metrology Activities of Finmeccanica has a history of recurring losses from     
operations and a net asset deficiency which raise substantial doubt about its   
ability to continue as a going concern without the continued financial support  
of Finmeccanica S.p.A. Management's plans as to these matters are also          
described in Note 19. The combined financial statements do not include any      
adjustments that might result from the outcome of this uncertainty.             

                         Reconta Ernst & Young

Turin, Italy                                                                    

March 18, 1994, except for the                                                  
information expressed in U.S.                                                   
Dollars referred to in Note 1,                                                  
as to which the date is                                                         
March 31, 1994                                                                  

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DEA METROLOGY ACTIVITIES OF FINMECCANICA

COMBINED BALANCE SHEET

(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                         AT DECEMBER 31,            AT MARCH 31,     
                                    ----------------------------  ------------------ 
                                      1992      1993      1993      1994      1994   
                                    --------  --------  --------  --------  -------- 
                                                                     (UNAUDITED)     
                                                                                     
           ASSETS                                                                    
Current assets:                                                                      
Cash and cash equivalents....       L  4,304  L  7,236  $  4,492  L  8,966  $  5,565 
Accounts receivable, net of                                                          
 allowance for doubtful                                                              
 debts.......................         74,751    83,732    51,975    72,749    45,158 
Other receivables from                                                               
 affiliates..................         13,383     3,313     2,056       --        --  
Inventories..................         68,709    67,088    41,644    64,877    40,271 
Other current assets.........          6,411     9,852     6,115    10,374     6,439 
                                    --------  --------  --------  --------  -------- 
Total current assets.........        167,558   171,221   106,282   156,966    97,433 
                                    --------  --------  --------  --------  -------- 
Non-current assets:                                                                  
Property, plant and                                                                  
 equipment, net of                                                                   
 accumulated depreciation....          9,558     9,341     5,798     8,593     5,334 
Other assets and deferred                                                            
 charges.....................          7,339     6,096     3,784     4,960     3,079 
                                    --------  --------  --------  --------  -------- 
Total non-current assets.....         16,897    15,437     9,582    13,553     8,413 
                                    --------  --------  --------  --------  -------- 
Total assets.................       L184,455  L186,658  $115,864  L170,519  $105,846 
                                    ========  ========  ========  ========  ======== 
 LIABILITIES AND DIVISIONAL DEFICIT                                                  
Current liabilities:                                                                 
Borrowings and current                                                               
 maturities of debt..........       L 21,244  L 47,083  $ 29,226  L 42,090  $ 26,127 
Accounts payable.............         33,653    25,932    16,097    21,575    13,392 
Other payables to affiliates.         78,596    71,288    44,250    74,059    45,971 
Accrued expenses and other                                                           
 liabilities.................         29,504    24,988    15,511    19,147    11,885 
                                    --------  --------  --------  --------  -------- 
Total current liabilities....        162,997   169,291   105,084   156,871    97,375 
                                    --------  --------  --------  --------  -------- 
Non-current liabilities:                                                             
Long-term debt...............         20,207    12,384     7,687    12,500     7,759 
Termination indemnities......         11,346    11,968     7,429    12,064     7,489 
                                    --------  --------  --------  --------  -------- 
Total non-current                                                                    
 liabilities.................         31,553    24,352    15,116    24,564    15,248 
                                    --------  --------  --------  --------  -------- 
Total liabilities............        194,550   193,643   120,200   181,435   112,623 
                                    --------  --------  --------  --------  -------- 
Divisional deficit:                                                                  
Finmeccanica S.p.A.                                                                  
 investment in Division......         49,685    36,540    22,682    31,547    19,582 
Accumulated deficit..........        (56,514)  (40,632)  (25,222)  (39,828)  (24,723)
Foreign currency translation                                                         
 adjustment..................         (3,266)   (2,893)   (1,796)   (2,635)   (1,636)
                                    --------  --------  --------  --------  -------- 
Total divisional deficit.....        (10,095)   (6,985)   (4,336)  (10,916)   (6,777)
                                    --------  --------  --------  --------  -------- 
Total liabilities and                                                                
 divisional deficit..........       L184,455  L186,658  $115,864  L170,519  $105,846 
                                    ========  ========  ========  ========  ======== 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994. 

See notes to combined financial statements. 

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DEA METROLOGY ACTIVITIES OF FINMECCANICA

COMBINED STATEMENT OF OPERATIONS

(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                YEAR ENDED DECEMBER 31,           QUARTER ENDED MARCH 31,   
                          --------------------------------------  ------------------------- 
                            1991      1992      1993      1993     1993     1994     1994   
                          --------  --------  --------  --------  -------  -------  ------- 
                                                                        (UNAUDITED)         
                                                                                            
Net sales...............  L117,662  L124,749  L178,297  $110,675  L29,137  L34,282  $21,280 
Cost of products sold...    93,561    83,922   114,363    70,989   20,830   22,197   13,778 
Selling, general and                                                                        
 administration.........    35,388    39,873    48,764    30,269   11,302   12,236    7,595 
Restructuring costs.....       --      2,949       823       511      --       --       --  
Depreciation and                                                                            
 amortization...........     5,641     5,718     5,690     3,532    1,384    1,196      742 
                          --------  --------  --------  --------  -------  -------  ------- 
                           134,590   132,462   169,640   105,301   33,516   35,629   22,115 
Operating (loss) income.   (16,928)   (7,713)    8,657     5,374   (4,379)  (1,347)    (835)
Interest expense, net...   (12,086)  (11,731)   (9,918)   (6,157)  (2,981)  (2,895)  (1,798)
Other (expenses) income,                                                                    
 net....................    10,688    (4,789)   (2,599)   (1,613)     227      935      580 
                          --------  --------  --------  --------  -------  -------  ------- 
Net loss................  L(18,326) L(24,233) L (3,860) $ (2,396) L(7,133) L(3,307) $(2,053)
                          ========  ========  ========  ========  =======  =======  ======= 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994. 

See notes to combined financial statements. 

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DEA METROLOGY ACTIVITIES OF FINMECCANICA

COMBINED STATEMENT OF CASH FLOWS

(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                               YEAR ENDED DECEMBER 31,            QUARTER ENDED MARCH 31,     
                          ------------------------------------  ----------------------------- 
                            1991      1992     1993     1993      1993       1994      1994   
                          --------  --------  -------  -------  --------  ----------- ------- 
                                                                          (UNAUDITED)         
                                                                                              
Cash provided by (used                                                                        
 in) operations:                                                                              
 Net loss...............  L(18,326) L(24,233) L(3,860) $(2,396) L (7,133)   L(3,307)  $(2,053)
Adjustments to reconcile                                                                      
 net income to net cash                                                                       
 provided:                                                                                    
 Depreciation and                                                                             
  amortization..........     5,641     5,718    5,690    3,532     1,384      1,196       742 
 Provision for                                                                                
  termination                                                                                 
  indemnities...........     2,609     2,247    2,037    1,264       450        420       262 
 Gain on sale of fixed                                                                        
  assets................   (11,553)     (652)       2        1        34        --        --  
 Government grant                                                                             
  accrued...............       --       (500)  (2,410)  (1,496)      --         --        --  
Changes in operating                                                                          
 assets and liabilities:                                                                      
 (Increase) decrease in                                                                       
  accounts receivable...    24,309   (22,293)  (8,981)  (5,575)   (2,688)    10,983     6,818 
 (Increase) decrease in                                                                       
  other receivables from                                                                      
  affiliates............       --    (13,383)  10,070    6,251     2,283      3,313     2,056 
 (Increase) decrease in                                                                       
  inventories...........     7,009   (11,887)   1,621    1,006        86      2,211     1,372 
 Decrease in other                                                                            
  current assets,                                                                             
  excluding government                                                                        
  grants................     1,524     2,224   (1,264)    (785)   (2,561)      (621)     (385)
 Increase (decrease) in                                                                       
  accounts payable......   (16,275)    8,986   (7,721)  (4,792)   (4,031)    (4,357)   (2,705)
 Increase (decrease) in                                                                       
  accrued expenses and                                                                        
  other liabilities.....    (6,211)    9,123   (4,516)  (2,803)   (2,345)    (5,841)   (3,626)
                          --------  --------  -------  -------  --------    -------   ------- 
Net cash used in                                                                              
 operating activities...   (11,273)  (44,650)  (9,332)  (5,793)  (14,521)     3,997     2,481 
                          --------  --------  -------  -------  --------    -------   ------- 
Cash flows from                                                                               
 investing activities:                                                                        
 Fixed assets additions.    (3,107)   (3,080)  (3,165)  (1,965)     (780)      (193)     (120)
 Net assets acquired                                                                          
  from Renault                                                                                
  Automation business...       --     (2,989)     --       --        --         --        --  
 Proceeds from sale of                                                                        
  fixed assets..........    22,969     4,490      169      105       --          46        28 
 Intangible asset                                                                             
  additions.............    (2,981)     (948)    (361)    (224)      (23)       --        --  
 (Decrease) increase in                                                                       
  other non-current                                                                           
  assets and deferred                                                                         
  charges...............       530      (765)    (228)    (141)      490        668       415 
                          --------  --------  -------  -------  --------    -------   ------- 
Net cash provided from                                                                        
 (used in) investing                                                                          
 activities.............    17,411    (3,292)  (3,585)  (2,225)     (313)       521       323 
                          --------  --------  -------  -------  --------    -------   ------- 
Cash flows from                                                                               
 financing activities:                                                                        
 Increase (decrease) in                                                                       
  borrowings and current                                                                      
  maturities of long                                                                          
  term debt.............   (27,580)  (13,976)  25,839   16,039      (807)    (5,213)   (3,236)
 Payment of long term                                                                         
  debt..................    (8,066)   (7,707)  (7,823)  (4,856)     (237)       336       209 
 (Decrease) increase in                                                                       
  payables to                                                                                 
  affiliates............    35,780    35,264   (7,308)  (4,536)   13,413      2,771     1,720 
 Government grants                                                                            
  received..............       --        --       233      144       --          99        61 
 Additional Finmeccanica                                                                      
  S.p.A. investment in                                                                        
  divisions.............    19,189    30,047      --       --        --         --        --  
 Coverage of net asset                                                                        
  deficiency of Digital                                                                       
  Electronic Automation                                                                       
  Company by Elsag                                                                            
  Bailey Inc............       --        --     6,597    4,095       --         --        --  
 Payment of termination                                                                       
  indemnities...........    (2,449)   (2,206)  (1,415)    (878)      --        (324)     (201)
 Distribution to                                                                              
  shareholders..........   (19,556)      --       --       --        --         --        --  
 Increase in net equity                                                                       
  following combination                                                                       
  of Metrology Division                                                                       
  of DEA France S.A.....       --      4,994      --       --        --        (534)     (331)
                          --------  --------  -------  -------  --------    -------   ------- 
 Net cash provided from                                                                       
  (used in) financing                                                                         
  activities............    (2,682)   46,416   16,123   10,008    12,369     (2,865)   (1,778)
                          --------  --------  -------  -------  --------    -------   ------- 
 Effect of exchange rate                                                                      
  changes on cash.......      (171)   (1,133)    (274)    (170)     (344)        77        47 
                          --------  --------  -------  -------  --------    -------   ------- 
Cash and cash                                                                                 
 equivalents:                                                                                 
 Net increase (decrease)                                                                      
  in cash and cash                                                                            
  equivalents...........     3,285    (2,659)   2,932    1,820    (2,809)     1,730     1,073 
 Cash and cash                                                                                
  equivalents at                                                                              
  beginning of period...     3,678     6,963    4,304    2,672     4,304      7,236     4,492 
                          --------  --------  -------  -------  --------    -------   ------- 
 Cash and cash                                                                                
  equivalents at end of                                                                       
  period................  L  6,963  L  4,304  L 7,236  $ 4,492  L  1,495    L 8,966   $ 5,565 
                          --------  --------  -------  -------  --------    -------   ------- 
Supplementary cash flow                                                                       
 information:                                                                                 
Net interest paid.......  L 12,600  L 11,396  L11,531  $ 7,157  L  2,067    L 1,631   $ 1,012 
                          ========  ========  =======  =======  ========    =======   ======= 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994. 

See notes to combined financial statements. 

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COMBINED STATEMENTS OF CHANGES IN DIVISIONAL DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; AND DECEMBER 31,
1993; AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994 (UNAUDITED)
(ITALIAN LIRE IN MILLIONS, U.S. DOLLARS IN THOUSANDS) 

                                                                [Download Table]

                                                          FOREIGN CURRENCY          
                          FINMECCANICA S.P.A. ACCUMULATED   TRANSLATION             
                              INVESTMENT        DEFICIT      ADJUSTMENT     TOTAL   
                          ------------------- ----------- ---------------- -------- 
                                                                                    
Balance at December 31,                                                             
 1990...................       L 17,145        L(16,088)      L(2,773)     L (1,716)
Reduction of capital to                                                             
 cover losses...........         (4,000)          4,000           --            --  
Additional capital                                                                  
 arising on                                                                         
 transformation of U.S.                                                             
 activity from                                                                      
 subsidiary to affiliate                                                            
 branch.................          1,248             --            --          1,248 
Capital contribution in                                                             
 cash...................          1,500          16,441           --         17,941 
Asset distribution to                                                               
 shareholders arising                                                               
 from September 30, 1991                                                            
 reorganization.........            --          (19,556)          --        (19,556)
Net loss for 1991.......            --          (18,326)          --        (18,326)
Currency translation                                                                
 adjustments............            --              --           (171)         (171)
                               --------        --------       -------      -------- 
Balance at December 31,                                                             
 1991 as previously                                                                 
 stated.................         15,893         (33,529)       (2,944)      (20,580)
Reclassification of                                                                 
 divisional equity of                                                               
 Digital Electronic                                                                 
 Automation (USA).......         (1,248)          1,248           --            --  
                               --------        --------       -------      -------- 
Balance at December 31,                                                             
 1991 as restated.......         14,645         (32,281)       (2,944)      (20,580)
                               --------        --------       -------      -------- 
Increase in share                                                                   
 capital................         14,800             --            --         14,800 
Additional paid in                                                                  
 capital................         15,247             --            --         15,247 
Divisional equity of                                                                
 metrology division of                                                              
 DEA France S.A.........          4,993             --            --          4,993 
Net loss for 1992.......            --          (24,233)          --        (24,233)
Currency translation                                                                
 adjustments............            --              --           (322)         (322)
                               --------        --------       -------      -------- 
Balance at December 31,                                                             
 1992...................         49,685         (56,514)       (3,266)      (10,095)
                               --------        --------       -------      -------- 
Net loss for 1993.......            --           (3,860)          --         (3,860)
Net asset deficiency of                                                             
 Digital Electronic                                                                 
 Automation Company                                                                 
 eliminated on                                                                      
 conversion of DEA                                                                  
 Company from a division                                                            
 of Elsag Bailey Inc. to                                                            
 a subsidiary of DEA                                                                
 S.p.A..................        (13,145)         19,742           --          6,597 
Currency translation                                                                
 adjustments............            --              --            373           373 
                               --------        --------       -------      -------- 
Balance at December 31,                                                             
 1993...................       L 36,540        L(40,632)      L(2,893)     L (6,985)
                               ========        ========       =======      ======== 
U.S. Dollars December                                                               
 31, 1993...............       $ 22,682        $(25,222)      $(1,796)     $ (4,336)
                               ========        ========       =======      ======== 
Balance at December 31,                                                             
 1993...................       L 36,540        L(40,632)      L(2,893)     L (6,985)
Net divisional equity of                                                            
 Metrology Division of                                                              
 DEA France S.A. at                                                                 
 December 31, 1993                                                                  
 eliminated on                                                                      
 consolidation..........         (4,993)          4,111           348          (534)
Net loss for three                                                                  
 months ending March 31,                                                            
 1994...................            --           (3,307)          --         (3,307)
Currency translation                                                                
 adjustments............            --              --            (90)          (90)
                               --------        --------       -------      -------- 
Balance at March 31,                                                                
 1994 (Unaudited).......       L 31,547        L(39,828)      L(2,635)     L(10,916)
                               ========        ========       =======      ======== 
U.S. Dollars March 31,                                                              
 1994 (Unaudited).......       $ 19,582        $(24,723)      $(1,636)     $ (6,777)
                               ========        ========       =======      ======== 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 1,611 Italian Lire to U.S. $1 existing at March 31, 1994. 

See notes to combined financial statements. 

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NOTES TO COMBINED FINANCIAL STATEMENTS
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 1--ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES                        

Organization                                                                  

The DEA Metrology Activities of Finmeccanica (the"Division") design and     
manufacture at its Italian headquarters a diversified line of Metrology         
Products (precision dimensional measuring systems and instruments). The         
products are marketed worldwide direct from Italy and through its five overseas 
operations which also provide technical assistance, sales support and other     
related services.                                                               

 The Division is one of many divisions of Finmeccanica S.p.A., a company which
is incorporated in Italy and wholly owned by an Italian government entity. At   
March 31, 1994,the Division was comprised of DEA S.p.A. and its wholly owned    
subsidiaries which are as follows:                                              

                                                                [Download Table]
                                                                             
DEA Iberica S.A. ................................... Spain                   
DEA Digital Electronic Automation Vetriebs GmbH..... Germany                 
DEA Kabushiki Kaisha................................ Japan                   
Digital Electronic Automation Company............... United States of America
DEA France S.A...................................... France                  

The following re-organizations occurred in the structure of the Division    
during the three months ended March 31, 1994 and the years ended December 31,   
1993 and 1992.                                                                  

DIGITAL ELECTRONIC AUTOMATION COMPANY                                           

Digital Electronic Automation Company was originally incorporated in the    
United States as Digital Electronic Automation Inc., a fully owned subsidiary   
of the DEA Metrology Activities of Finmeccanica. On November 22, 1991,          
following a corporate reorganization, it was sold to an affiliated company,     
Bailey Controls Inc., which itself was merged into Elsag Bailey Inc.            
Subsequently, Digital Electronic Automation became a trading division of Elsag  
Bailey Inc. with its common stock, paid in and contribution capital being       
recharacterized as Divisional equity.                                           

On October 31, 1993 Elsag Bailey Inc. eliminated the net asset deficiency of
the division by waiving part of a working capital advance made to the division. 
The remaining outstanding balance on the advance was repaid. On the following   
day, the net assets of the Division were sold to Digital Electronic Automation  
Company, a fully owned subsidiary of DEA S.p.A. at their net book value of      
zero.                                                                           

The combined statement of operations for the year ended December 31, 1993   
incorporates the results of Digital Electronic Automation for the whole year as 
both the Division and the Company formed part of the DEA Metrology Activities   
of Finmeccanica during 1993.                                                    

DEA FRANCE S.A.                                                                 

The combined financial statements for the years ending December 31, 1993 and
1992 include the results and operations of the Metrology Division of DEA France 
S.A., a wholly owned subsidiary of Finmeccanica S.p.A., which was incorporated  
into the combined financial statements from January 1, 1992.                    

On January 1, 1994 the non-metrology activities of DEA France S.A. were     
transferred to another Finmeccanica group company. On the same day, the         
shareholders' capital of DEA France S.A. was acquired by DEA S.p.A. for a       
consideration representing the net asset value of the Company at December 31,   
1993.                                                                           

The net divisional equity of the Metrology Division of DEA France S.A.      
included in the combined financial statements at December 31, 1993 and 1992 has 
been eliminated from the combined financial statements at March 31, 1994 on     
consolidation.                                                                  

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

At December 31, 1992 DEA S.p.A. had two separate business divisions as      
follows:                                                                        

Metrology division--Design, manufacture and distribution of high precision  
measuring instruments                               

Assembly division--Design and manufacture of assembly machines and robots.  

On January 19, 1993 the net assets attributable to the assembly division of 
DEA S.p.A. at December 31, 1992 were transferred to "SAR--Sistemi di            
Assemblaggio Robotizzato" (a subsidiary of Finmeccanica S.p.A.). No             
consideration was paid by SAR for the net assets acquired as these had a net    
value of zero. The combined financial statements for the years ended December   
31, 1992 and prior thereto exclude the income, expenses, assets and liabilities 
of the Assembly division as these did not form part of the DEA Metrology        
Activities of Finmeccanica in those years.                                      

Principles of combination                                                     

The combined financial statements of the DEA Metrology Activities of        
Finmeccanica for the years ended December 31, 1993 and 1992, and the quarters   
ended March 31, 1993 and 1994, include the results and operations of the        
following:                                                                      

.  DEA S.p.A.                                                               
.  DEA Iberica S.A.                                                         
.  DEA Digital Electronic Automation Vetriebs GmbH                          
.  DEA Kabushiki Kaisha                                                     
.  Digital Electronic Automation Company (U.S.A.), a division of Elsag      
  Bailey Inc., for the years ended December 31, 1991 and 1992, and the ten
months ended October 31, 1993.                                        
.  Digital Electronic Automation Company, a subsidiary of DEA S.p.A., for   
 the two months ended December 31, 1993 and the three months ended March
31, 1994.                                                             
.  The metrology division of DEA France S.A. for the year ending December   
31, 1992 and 1993, and the three months ended March 31, 1993.         
.  DEA France S.A. for the three months ended March 31, 1994.               

The individual companies maintain their accounting records and prepare their
financial statements for local statutory purposes in accordance with the        
accounting practices and currencies of the respective countries in which they   
are located. The accompanying combined financial statements have been prepared  
in accordance with accounting principles generally accepted in the United       
States.                                                                         

The following is a reconciliation of the legal entity consolidated financial
statements of DEA S.p.A. at December 31, 1991, 1992, 1993, and March 31, 1993   
and 1994 with the combined financial statements of the DEA Metrology Activities 
of Finmeccanica presented in accordance with accounting principles generally    
accepted in the United States:                                                  

                                                        [Enlarge/Download Table]

                       12/31/91            12/31/92             12/31/93             03/31/93             03/31/94       
                  ------------------- -------------------- -------------------- -------------------- --------------------
                           DIVISIONAL           DIVISIONAL           DIVISIONAL           DIVISIONAL           DIVISIONAL
                  NET LOSS  DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT  
                  -------- ---------- --------  ---------- --------  ---------- --------  ---------- --------  ----------
                                                                                                                         
Legal entity                                                                                                             
 consolidated                                                                                                            
 financial                                                                                                               
 statements......   L(197)    L(869)  L(18,617)  L12,467   L(7,958)    L6,500   L(5,666)    L8,790   L(4,417)    L1,408  
Effect of                                                                                                                
 combination of                                                                                                          
 Digital                                                                                                                 
 Electronic                                                                                                              
 Automation                                                                                                              
 U.S.A...........    (922)   (1,656)    (2,436)   (4,184)      --         --     (1,532)    (4,077)      --         --   
Effect on the                                                                                                            
 combination of                                                                                                          
 nine months                                                                                                             
 operations of                                                                                                           
 DEA Digital                                                                                                             
 S.p.A...........  (8,337)      --         --        --        --         --        --         --        --         --   

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                       12/31/91             12/31/92             12/31/93             03/31/93             03/31/94       
                  -------------------- -------------------- -------------------- -------------------- --------------------
                            DIVISIONAL           DIVISIONAL           DIVISIONAL           DIVISIONAL           DIVISIONAL
                  NET LOSS   DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT   NET LOSS   DEFICIT  
                  --------  ---------- --------  ---------- --------  ---------- --------  ---------- --------  ----------
                                                                                                                          
Loss and                                                                                                                  
 divisional                                                                                                               
 equity of the                                                                                                            
 Metrology                                                                                                                
 Division of DEA                                                                                                          
 France S.A.....  L    --    L    --   L (3,808)  L   (598) L  (891)   L(1,382)  L(1,080)   L (1,080) L   --     L    --  
                  --------   --------  --------   --------  -------    -------   -------    --------  -------    -------- 
Loss and                                                                                                                  
 divisional                                                                                                               
 equity before                                                                                                            
 combination                                                                                                              
 adjustments....    (9,456)    (2,525)  (24,861)     7,685   (8,849)     5,118    (8,278)      3,633   (4,417)      1,408 
COMBINATION                                                                                                               
 ADJUSTMENTS                                                                                                              
Elimination of                                                                                                            
 loss                                                                                                                     
 attributable to                                                                                                          
 Assembly                                                                                                                 
 Division.......    (1,003)     4,000     1,453      4,000      --       4,000       --        4,000      --        4,000 
Restatement of                                                                                                            
 divisional                                                                                                               
 equity of DEA                                                                                                            
 France S.A.....       --         --        --       1,331      --       1,331       --        1,303      --          --  
Elimination of                                                                                                            
 research and                                                                                                             
 development                                                                                                              
 costs..........    (5,895)   (13,926)     (463)   (14,388)   2,935    (11,453)      679     (13,709)     577     (10,876)
Amortization of                                                                                                           
 deferred                                                                                                                 
 charges........      (616)      (616)      --         --       --         --        --          --       --          --  
Warranty                                                                                                                  
 installation                                                                                                             
 reserve                                                                                                                  
 provision......       --        (600)      --        (600)     --        (600)      --         (600)     --         (600)
Provision for                                                                                                             
 obsolete and                                                                                                             
 slow moving                                                                                                              
 inventory......      (500)    (5,000)      --      (5,000)   2,200     (2,800)      --       (5,000)     --       (2,800)
Other                                                                                                                     
 adjustments on                                                                                                           
 inventory and                                                                                                            
 fixed assets...    (1,828)    (1,273)     (495)    (2,673)    (259)    (2,244)      177      (2,503)     505      (1,739)
Other                                                                                                                     
 adjustments                                                                                                              
 arising on                                                                                                               
 combination....       972       (640)      133       (450)     113       (337)       28        (422)      28        (309)
Restatement of                                                                                                            
 opening                                                                                                                  
 divisional                                                                                                               
 equity of                                                                                                                
 Digital                                                                                                                  
 Electronic                                                                                                               
 Automation USA.       --         --        --         --       --         --        261      (2,422)     --          --  
Elimination of                                                                                                            
 unrealized                                                                                                               
 profit on                                                                                                                
 inter-company                                                                                                            
 inventory......       --         --        --         --       --         --        --       (1,394)     --          --  
                  --------   --------  --------   --------  -------    -------   -------    --------  -------    -------- 
Per accompanying                                                                                                          
 combined                                                                                                                 
 financial                                                                                                                
 statements.....  L(18,326)  L(20,580) L(24,233)  L(10,095) L(3,860)   L(6,985)  L(7,133)   L(17,114) L(3,307)   L(10,916)
                  ========   ========  ========   ========  =======    =======   =======    ========  =======    ======== 
U.S. Dollars....                                            $(2,396)   $(4,336)                       $(2,053)   $ (6,777)
                                                            =======    =======                        =======    ======== 

 The assets and liabilities of the subsidiaries are combined on a line-by-line
basis and the carrying value of investments is eliminated against the related   
divisional equity accounts.                                                     

All significant intercompany transactions and balances within the DEA       
Metrology Activities of Finmeccanica are eliminated. Unrealized intercompany    
profits and the gains and losses arising from transactions within the Division  
are also eliminated.                                                            

The financial statements of the foreign entities are translated into Italian
Lire using the year-end exchange rate for balance sheet items and the average   
exchange rate for the year for the income statement. Differences arising on     
translation are recorded in a component of divisional deficit.                  

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

Interim consolidated financial statements                                     

The consolidated financial statements for the quarters ended March 31, 1993 
and March 31, 1994 and the related notes are unaudited and in the opinion of    
management, include all adjustments (consisting of only normal recurring        
adjustments) necessary for a fair presentation of the results of these periods. 
The results for the quarter ended March 31, 1994 are not necessarily indicative 
of the results to be expected for the entire year.                              

Revenue recognition                                                           

Revenues and all costs (including costs of installation and training) of    
standardized machines are recognized upon shipment to the customer.             

In the exceptional case of large or long term projects, where machines may  
require integration into complex manufacturing operations over an extended      
period of time, revenue is recognized on the percentage of completion method.   
Under the percentage of completion method, revenue and gross profit are         
recognized as work is performed based on the relationship between actual costs  
incurred and the total estimated costs at completion. Revenues and gross        
profits are adjusted prospectively for revisions in estimated total contract    
costs and contract revenues. Estimated losses are recorded when identified.     

In addition, the Division earns revenue from the servicing of its equipment,
in certain instances under service contracts. Revenue under such contracts is   
recognized on a straight line basis over the life of the contract.              

Foreign currency transactions                                                 

Gains and losses resulting from foreign currency transactions and the       
remeasurement of foreign currency balances and accounts denominated in foreign  
currencies are included in the determination of net income in the period in     
which they occur.                                                               

Inventories                                                                   

Inventories are stated at the lower of cost or market value, with cost      
principally determined on an average basis. Cost is comprised of direct         
materials, labor and manufacturing overhead.                                    

An allowance is provided to account for slow moving and obsolete inventory. 

Government grants                                                             

Government grants in respect of research and development projects and other 
revenue items are recognized in the income statement when all the terms and     
conditions of the grant have been met.                                          

Property, plant, and equipment                                                

All property, plant, and equipment is recorded at historical cost.          

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

Depreciation is calculated so as to write off the cost of property, plant,  
and equipment on a straight line basis over the expected useful lives of the    
assets concerned. The principal rates used for this purpose are:                

                                                                [Download Table]
                                                                                   
Property................ 10%                                                       
Leasehold improvements.. shorter of, the life of the asset or the term of the lease
Machinery, equipment,                                                              
 and tools.............. 10%--25%                                                  
Office furniture and                                                               
 equipment.............. 12%--18%                                                  
Motor vehicles.......... 20%                                                       

Maintenance and repair expenses are charged to operations as incurred.      

Other non-current assets and deferred charges                                 

Intangibles, including goodwill, software, and deferred charges included    
within non-current assets and deferred charges are amortized primarily over     
five years, their expected economic life.                                       

Research and development                                                      

 The Division's research and development department is responsible for product
design, development, and refinement. All costs of the department are charged to 
operations as they are incurred.                                                

Income taxes                                                                  

Income taxes are provided in accordance with applicable local tax           
regulations. Deferred income taxes are provided in accordance with Financial    
Accounting Standards Board Statement No. 109 "Accounting for Income Taxes" for  
temporary differences between financial statements carrying amounts and the     
corresponding tax bases of assets and liabilities.                              

Warranty costs                                                                

Warranty costs are provided for at the time of product shipment.            

Termination indemnities                                                       

In accordance with Italian severance pay statutes, an employee benefit is   
accrued for service to date and is payable immediately upon separation. The     
cost of providing these benefits is accounted for in accordance with Financial  
Accounting Standards Board Statement No. 112 "Employers Accounting for          
Postemployment Benefits".                                                       

Information expressed in U.S. Dollars                                         

 The combined financial statements are stated in Italian Lire, the currency of
the country in which the divisions principal legal entity and market is         
located. The translation into U.S. Dollars amounts is included solely for the   
convenience of readers and has been made at the rate of Italian Lire 1,611 to   
U.S. 1, the approximate rate of exchange at March 31, 1994, for December 31,    
1993. Such translation should not be construed as representation that the       
Italian Lire amounts could be converted into U.S. Dollars at that or any other  
rate.                                                                           

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 2--OPERATIONS BY GEOGRAPHIC AREA                                           

 The divisions operations are conducted in various countries around the world.
The geographic analysis of the division's net sales, net loss, and identifiable 
assets is set out below:                                                        

                                                        [Enlarge/Download Table]

                         12/31/91  12/31/92  12/31/93  12/31/93  03/31/93  03/31/94  03/31/94 
                         --------  --------  --------  --------  --------  --------  -------- 
                                                                                              
NET SALES BY GEOGRAPHIC                                                                       
 MARKET:                                                                                      
 Italy.................. L 61,850  L 61,916  L 74,549  $ 46,275  L15,890   L 17,796  $ 11,047 
 United States..........   23,858    30,990    54,309    33,712    7,150      9,310     5,779 
 France, Germany, and                                                                         
  Spain.................   24,912    23,784    39,352    24,427    5,563      6,733     4,179 
 Japan..................    7,042     8,059    10,087     6,261      534        443       275 
 Other..................      --        --        --        --       --         --        --  
                         --------  --------  --------  --------  -------   --------  -------- 
                         L117,662  L124,749  L178,297  $110,675  L29,137    L34,282  $ 21,280 
                         ========  ========  ========  ========  =======   ========  ======== 
NET SALES FROM THE                                                                            
 ITALIAN OPERATIONS:                                                                          
 Domestic............... L 34,781  L 28,070  L 40,815  $ 25,335  L10,622   L  5,586  $  3,467 
 Other European.........   20,825    20,182    15,797     9,806    3,196      3,728     2,314 
 Rest of the world......    6,244    13,664    17,937    11,134    2,072      8,482     5,266 
                         --------  --------  --------  --------  -------   --------  -------- 
                         L 61,850  L 61,916  L 74,549  $ 46,275  L15,890   L 17,796  $ 11,047 
                         ========  ========  ========  ========  =======   ========  ======== 
TRANSFERS BETWEEN                                                                             
 GEOGRAPHIC OPERATIONS:                                                                       
 From Italy............. L 14,909  L 25,927  L 40,322  $ 25,029  L 6,904   L  7,716  $  4,790 
 From France, Germany,                                                                        
  and Spain.............    1,152     6,855       925       574      --          17        11 
 From United States.....      --        243       --        --       --          40        24 
 From Japan.............       16        70       --        --       --         --        --  
                         --------  --------  --------  --------  -------   --------  -------- 
                         L 16,077  L 33,095  L 41,247  $ 25,603  L 6,904   L  7,773  $  4,825 
                         ========  ========  ========  ========  =======   ========  ======== 
NET LOSS:                                                                                     
 Italy.................. L(12,627) L(17,096) L  4,077  $  2,531  L(3,145)  L   (314) $   (195)
 France, Germany, and                                                                         
  Spain.................     (460)   (4,460)   (2,084)   (1,294)  (2,350)      (978)     (607)
 United States..........   (5,290)   (2,315)   (4,928)   (3,059)  (1,231)    (1,384)     (859)
 Japan..................       51      (362)     (925)     (574)    (407)      (631)     (392)
                         --------  --------  --------  --------  -------   --------  -------- 
                         L(18,326) L(24,233) L (3,860) $ (2,396) L(7,133)  L (3,307) $ (2,053)
                         ========  ========  ========  ========  =======   ========  ======== 
IDENTIFIABLE ASSETS:                                                                          
 Italy..................           L131,218  L108,043  $ 67,066            L109,180  $ 67,772 
 France, Germany, and                                                                         
  Spain.................             21,234    31,033    19,263              25,774    15,999 
 United States..........             28,525    40,513    25,147              31,665    19,655 
 Japan..................              3,478     7,069     4,388               3,900     2,420 
                                   --------  --------  --------            --------  -------- 
                                   L184,455  L186,658  $115,864            L170,519  $105,846 
                                   ========  ========  ========            ========  ======== 

Identifiable assets by geographic area are those assets used specifically by
the Division's operations in each geographic area. Interdivisional transfers    
between geographic areas are generally priced to recover costs plus a           
reasonable amount of profit and have been eliminated from combined net sales.   

NOTE 3--RESTRUCTURING COSTS                                                     

The Division recorded restructuring costs of Lire 823 ($511) and Lire 2,949 
during fiscal years 1993 and 1992, respectively.                                

The 1993 restructuring charges reflect the severance costs relating to the  
dismissal of employees at the Metrology Division of DEA France S.A.             

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

The 1992 restructuring charge relates to Lire 2,432 of social security and  
pension costs that the Italian Division is obliged to pay following the         
agreement with employees to take early retirement and Lire 517 to the costs of  
dismissing 30 employees at the Metrology Division of DEA France S.A.            

NOTE 4--OPERATING INCOME                                                        

The operating income for the year is stated after charging the costs of the 
Division's research and development department of Lire 8,290 ($5,146) for 1993  
(Lire 8,200 and Lire 10,900 for 1992 and 1991, respectively) and after          
crediting government grants receivable of Lire 2,410 ($1,496) (Lire 500 in      
1992).                                                                          

NOTE 5--INTERCOMPANY BALANCES AND TRANSACTIONS                                  

The Division is a member of an affiliated group of companies controlled by  
IRI Finmeccanica, an Italian state owned financial holding entity. The          
transactions with affiliated companies during the years and the respective      
balances at the year ends and quarter ends are summarized as follows:           

Trade receivables from affiliates included in accounts receivable             

                                                                [Download Table]

                               12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                               -------- -------- -------- -------- --------
                                                                           
Alfa Romeo Avio...............   L--     L2,788   $1,731   L3,310   $2,055 
Alenia group..................    --        281      174      298      185 
Sistemi di Assemblaggio                                                    
 Robotizzato S.p.A............    --        207      129      120       74 
Ansaldo group.................    --        137       85      137       85 
Elsag Bailey (a division of                                                
 Finmeccanica S.p.A.).........    234        49       30       49       30 
Other affiliated companies....    298        29       18       12        8 
                                 ----    ------   ------   ------   ------ 
                                 L532    L3,491   $2,167   L3,926   $2,437 
                                 ====    ======   ======   ======   ====== 

Sales to affiliated companies during the years ending December 31, 1993 and 
1992 were Lire 3,339 ($2,073) and Lire 111 respectively. Sales to affiliated    
companies during the three months ending March 31, 1994 and 1993 were Lire 23   
($14) and Lire 89, respectively.                                                

Trade payables from affiliates included in accounts payable                   

                                                                [Download Table]

                                    12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                    -------- -------- -------- -------- --------
                                                                                
Elsag Sistemi......................   L11      L11      $ 7      L--      $--   
Other affiliated companies.........   --       --       --       --        --   
                                      ---      ---      ---      ---      ----  
                                      L11      L11      $ 7      L--      $--   
                                      ===      ===      ===      ===      ====  

Other receivables from affiliates                                             

                                                                [Download Table]

                                   12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                   -------- -------- -------- -------- --------
                                                                               
CURRENT ACCOUNTS                                                               
Savafactoring S.p.A............... L   --    L2,319   $1,440    L--      $--   
Elsag Bailey France...............     --       903      560     --       --   
Sistemi di Assemblaggio                                                        
 Robotizzato S.p.A................     --        91       56     --       --   
Cofiri Factor S.p.A...............  10,214      --       --      --       --   
Finmeccanica S.p.A................   3,169      --       --      --       --   
                                   -------   ------   ------    ----     ----  
                                   L13,383   L3,313   $2,056    L--      $--   
                                   =======   ======   ======    ====     ====  

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

The current account operated with Savafactoring S.p.A. is used for invoice  
factoring and discounting. The other current accounts are utilized to settle    
commercial transactions between the Companies. Interest is charged/credited to  
the accounts at normal commercial bank rates. Interest income during 1993 on    
such short-term lending amounted to Lire 353 ($219) (Lire 109 for 1992).        

Other payables to affiliates                                                  

                                                                [Download Table]

                                   12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                   -------- -------- -------- -------- --------
                                                                               
CURRENT ACCOUNTS AND SHORT-TERM                                                
 LOANS                                                                         
Elsag Bailey (a division of                                                    
 Finmeccanica S.p.A.)............. L 1,195  L19,292  $11,975  L19,815  $12,300 
Finmeccanica S.p.A.--Lire.........  25,000   36,229   22,488   37,736   23,424 
--other currencies................  24,065   14,994    9,307   14,995    9,308 
Elsag Bailey Inc..................  28,336      --       --       --       --  
                                   -------  -------  -------  -------  ------- 
                                    78,596   70,515   43,770   72,546   45,032 
OTHER PAYABLES                                                                 
Other affiliates..................     --       773      480    1,513      939 
                                   -------  -------  -------  -------  ------- 
                                   L78,596  L71,288  $44,250  L74,059  $45,971 
                                   =======  =======  =======  =======  ======= 

The Division, under the terms of informal agreements with the above         
affiliated companies, operates current accounts with them. The accounts are     
used to settle commercial transactions and to provide short-term finance. The   
current accounts bear interest at varying rates from 5.3% to 11.75% as          
determined by the commercial rates available for the currency in which the      
loans are denominated.                                                          

The interest expense relating to such borrowings was Lire 7,960 ($4,941) for
the year ended December 31, 1993 (Lire 8,134; and Lire 7,326 for 1992 and 1991, 
respectively).                                                                  

The interest expense relating to such borrowings was Lire 2,126 ($1,320) for
the period ended March 31, 1994 and Lire 2,251 for the three months ended March 
31, 1993.                                                                       

Long-term affiliated debt                                                     

The Division has a long-term loan from Elsag Bailey, a division of          
Finmeccanica. The terms, conditions, and amount repayable under the loan are    
detailed in Note 14 .                                                           

 Interest charged on this loan was Lire 725 ($450) for the year ended December
31, 1993 (Lire 1,025; and Lire 1,325 for 1992 and 1991, respectively).          

Interest charged on this loan was Lire 114 ($71) for the period ended March 
31, 1994 and Lire 194 for the three months ended March 31, 1993.                

Other transactions involving affiliated companies                             

a. On December 29, 1992, the Division's Spanish subsidiary, DEA Iberica S.A.    
 sold its freehold buildings to Elsag Bailey for Lire 3,208. The sales price
was based on an appraisal by an independent firm of qualified appraisers. 
The profit realized on the sale of Lire 766 has been included as "other   
income (expenses)" in the combined statement of income.                   

On January 4, 1993, DEA Iberica S.A. signed an agreement whereby it       
undertook to rent the property from Elsag Bailey (a division of           
Finmeccanica S.p.A.) for an annual fixed rent of Pesetas 30,600,000       

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

(Lire 367 ($228)) based on the exchange rate of 12 Italian Lire to the      
Spanish Peseta in existence at March 31, 1994 for a period of five years.   
The contract is renewable, at the option of both parties, at the end of the 
five year period. In this case, the annual rent will be revised and may be  
adjusted to account for inflation in the previous five years. The new       
agreed upon rent will be indexed linked from year six onwards. Rent charged 
to operations in the period to March 31, 1994 amounted to Lire 90 ($56) and 
Lire 103 in the three months ended March 31, 1993.                          

b. DEA S.p.A. rents its premises in Moncalieri from Elsag Bailey S.p.A. under   
 the terms of a rental agreement. The agreement commenced on January 1, 1992
 and expires on December 31, 1997. The minimum annual rent payable under the
contract is Lire 1,300 per annum. The rent is adjusted to account for     
inflation at the beginning of each year. Rent charged to operations in the
 period to March 31, 1994 totalled Lire 337 ($209) and Lire 337 in the three
months ended March 31, 1993.                                              

DEA S.p.A. is responsible for all maintenance and repair costs to the     
buildings during the period of the contract.                              

NOTE 6--ACCOUNTS RECEIVABLE                                                     

The accounts receivable balance is composed of the following:               

                                                                [Download Table]

                                   12/31/92  12/31/93  12/31/93  03/31/94  03/31/94
                                   --------  --------  --------  --------  --------
                                                                                   
Trade receivables--external                                                        
 customers........................ L75,472   L81,626   $50,668   L70,127   $43,530 
Trade receivables--affiliated                                                      
 customers........................     532     3,491     2,167     3,926     2,437 
                                   -------   -------   -------   -------   ------- 
                                    76,004    85,117    52,835    74,053    45,967 
Allowance for doubtful accounts...  (1,253)   (1,385)     (860)   (1,304)     (809)
                                   -------   -------   -------   -------   ------- 
                                   L74,751   L83,732   $51,975   L72,749   $45,158 
                                   =======   =======   =======   =======   ======= 

Included in the trade receivables balance are receivables of Lire 10,976    
($6,813), (Lire 5,230 for 1992) from one customer which accounted for           
approximately 11% (12% in 1992) of the combined sales of the Metrology Division 
of Finmeccanica S.p.A. There were no customers accounting for more than 10% of  
the combined sales in the three months ending March 31, 1994.                   

NOTE 7--INVENTORIES                                                             

Inventories consist of the following:                                       

                                                                [Download Table]

                                   12/31/92  12/31/93  12/31/93  03/31/94  03/31/94
                                   --------  --------  --------  --------  --------
                                                                                   
Parts, raw materials, and                                                          
 supplies......................... L31,399   L21,689   $13,463   L26,483   $16,439 
Semi-finished goods...............  23,134    21,236    13,182    19,887    12,345 
Finished goods....................  22,802    33,250    20,639    27,656    17,167 
                                   -------   -------   -------   -------   ------- 
                                    77,335    76,175    47,284    74,026    45,951 
Provision for slow moving and                                                      
 obsolete inventory...............  (8,626)   (9,087)   (5,640)   (9,149)   (5,680)
                                   -------   -------   -------   -------   ------- 
                                   L68,709   L67,088   $41,644   L64,877   $40,271 
                                   =======   =======   =======   =======   ======= 

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 8--OTHER CURRENT ASSETS                                                    

Other current assets consist of the following:                              

                                                                [Download Table]

                                   12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                   -------- -------- -------- -------- --------
                                                                               
Government grants receivable......  L2,684   L4,861   $3,017   L4,762   $2,956 
Prepaid expenses..................     983    2,180    1,353    2,757    1,711 
Advances to employees.............     526      343      213      454      282 
Prepaid social security                                                        
 contributions....................     500    1,177      731      619      384 
VAT and other taxes recoverable...     410    1,120      695    1,437      892 
Other.............................   1,308      171      106      345      214 
                                    ------   ------   ------  -------   ------ 
                                    L6,411   L9,852   $6,115  L10,374   $6,439 
                                    ======   ======   ======  =======   ====== 

The net increase from December 1992 to December 1993 in government grants   
receivable reflects the following:                                              

.  the recognition of Lire 2,410 ($1,496) of grants in the combined         
statement of operations following approval of the grant project and   
completion of the terms and conditions of the grant;                  

.  the receipt of Lire 233 ($145) of government grants.                     

NOTE 9--PROPERTY, PLANT, AND EQUIPMENT                                          

Property, plant, and equipment consists of the following:                   

                                                                [Download Table]

                              12/31/92  12/31/93  12/31/93  03/31/94  03/31/94 
                              --------  --------  --------  --------  -------- 
                                                                               
Property..................... L     79  L     79  $     49  L     79  $     49 
Leasehold improvements.......    2,623     2,879     1,787     2,822     1,752 
Machinery, equipment, and                                                      
 tools.......................   25,576    28,553    17,724    27,842    17,282 
Office equipment and furni-                                                    
 ture........................   10,415    11,453     7,109    11,176     6,937 
Motor vehicles...............      796       926       575       959       595 
                              --------  --------  --------  --------  -------- 
                                39,489    43,890    27,244    42,878    26,615 
Less: Accumulated deprecia-                                                    
 tion........................  (29,931)  (34,549)  (21,446)  (34,285)  (21,281)
                              --------  --------  --------  --------  -------- 
                              L  9,558  L  9,341  $  5,798  L  8,593  $  5,334 
                              ========  ========  ========  ========  ======== 

Depreciation charges relative to property, plant, and equipment were as     
follows:                                                                        

                                                                [Download Table]

                               YEAR ENDED DECEMBER 31,   QUARTER ENDED MARCH 31,
                             --------------------------- -----------------------
                              1991   1992   1993   1993   1993    1994    1994  
                             ------ ------ ------ ------ ------- ------- -------
                                                                                
Depreciation charges........ L4,285 L4,128 L3,813 $2,367    L907    L769 $   477
                             ------ ------ ------ ------ ------- ------- -------

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 10--OTHER NON-CURRENT ASSETS AND DEFERRED CHARGES                          

Other non-current assets and deferred charges consist of the following:     

                                                                [Download Table]

                                YEAR ENDED DECEMBER 31, QUARTER ENDED MARCH 31,
                                ----------------------- -----------------------
                                 1992    1993    1993      1994        1994    
                                ------- ------- ------- ----------- -----------
                                                                               
Goodwill.......................  L3,656  L2,886 $ 1,791      L2,649     $ 1,644
Deposits.......................     457     779     484         366         227
Loans to employees.............     387     433     269         408         253
Advance to distributor.........     --      317     196         300         186
Software costs.................   1,319     298     185         174         108
Trade licenses and technical                                                   
 rights........................     212     157      98         146          91
Other deferred charges.........   1,308   1,226     761         917         570
                                ------- ------- ------- ----------- -----------
                                 L7,339  L6,096 $ 3,784      L4,960     $ 3,079
                                ======= ======= ======= =========== ===========

Amortization charges relative to other non-current assets and deferred      
charges were as follows:                                                        

                                                                [Download Table]

                              YEAR ENDED DECEMBER 31,   QUARTER ENDED MARCH 31,
                            --------------------------- -----------------------
                             1991   1992   1993   1993   1993    1994    1994  
                            ------ ------ ------ ------ ------- ------- -------
                                                                               
Amortization charge in the                                                     
 year...................... L1,356 L1,590 L1,877 $1,165    L477    L427    $265
                            ------ ------ ------ ------ ------- ------- -------

The written down value of the goodwill at December 31, 1993 consists of Lire
2,033 ($1,262) (Lire 2,647 for 1992) and at March 31, 1994, Lire 1,879 ($1,166) 
representing the excess of the purchase cost over the net assets acquired from  
Prima Industrie S.p.A. in 1990 and 1991 and Lire 853 ($529) (Lire 1,009 in      
1992) arising from the acquisition of the Renault Automation business by the    
Metrology Division of DEA France S.A. in July 1992.                             

NOTE 11--BORROWINGS AND CURRENT MATURITIES OF DEBT                              

Borrowings and current maturities of debt consist of the following:         

                                                                [Download Table]

                                    12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                    -------- -------- -------- -------- --------
                                                                                
Bank overdrafts and other short-                                                
 term borrowings..................  L13,538  L39,163  $24,310  L34,156  $21,202 
Current portion of long-term debt.    7,706    7,920    4,916    7,934    4,925 
                                    -------  -------  -------  -------  ------- 
                                    L21,244  L47,083  $29,226  L42,090  $26,127 
                                    =======  =======  =======  =======  ======= 

The composition of the bank overdrafts and other short term borrowings by   
currency is as follows:                                                         

                                                                [Download Table]

                                    12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                    -------- -------- -------- -------- --------
                                                                                
U.S. Dollars....................... L    54  L26,757  $16,609  L23,847  $14,803 
Italian Lire.......................   2,026    1,040      645      --       --  
Deutsche Mark......................   5,071    4,436    2,754    3,955    2,455 
Japanese Yen.......................   1,713    2,597    1,612      364      226 
French Francs......................   4,674    4,333    2,690    5,990    3,718 
Other currencies...................     --       --       --       --       --  
                                    -------  -------  -------  -------  ------- 
                                    L13,538  L39,163  $24,310  L34,156  $21,202 
                                    =======  =======  =======  =======  ======= 

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

As of December 31, 1992, the Division maintained relationships with banks   
providing the following credit lines:                                           

                                                                [Download Table]

                                                            CREDIT LINE UTILIZED
                                                            ----------- --------
                                                                                
Bank overdraft and short-term loans........................   L47,851   L11,538 
Invoice discounting facilities.............................     2,000     2,000 
                                                              -------   ------- 
                                                              L49,851   L13,538 
                                                              =======   ======= 

As of December 31, 1993, the Division maintained relationships with banks   
providing the following credit lines:                                           

                                                                [Download Table]

                                      CREDIT LINE UTILIZED CREDIT LINE UTILIZED
                                      ----------- -------- ----------- --------
                                                                               
Bank overdraft and other short-term                                            
 borrowings..........................   L61,707   L39,163    $38,303   $24,310 
                                        =======   =======    =======   ======= 

As of March 31, 1994, the Division maintained relationships with banks      
providing the following credit lines:                                           

                                                                [Download Table]

                                      CREDIT LINE UTILIZED CREDIT LINE UTILIZED
                                      ----------- -------- ----------- --------
                                                                               
Bank overdraft and other short-term                                            
 borrowings..........................   L63,364   L34,156    $39,332   $21,202 
                                        =======   =======    =======   ======= 

The weighted average interest rates on deposits and borrowings are as       
follows:                                                                        

                                                                [Download Table]

                                                BORROWINGS         DEPOSITS     
                                             ----------------- -----------------
                                             12/31/92 12/31/93 12/31/92 12/31/93
                                             -------- -------- -------- --------
                                                                                
U.S. Dollars--overdraft.....................    --       4.0%    --       --    
Italian Lire--overdraft.....................   17.5%    13.7%    7.0%     3.0%  
Deutsche Mark--overdraft....................   10.9%    10.3%    --       --    
Japanese Yen--overdraft.....................    4.0%     4.0%    --       --    
French Francs--short-term loan..............   12.0%    12.0%    --       --    

                                                                [Download Table]

                                                             BORROWINGS DEPOSITS
                                                              03/31/94  03/31/94
                                                             ---------- --------
                                                                                
U.S. Dollars--overdraft.....................................     4.0%     --    
Italian Lire--overdraft.....................................    13.7%     3.0%  
Deutsche Mark--overdraft....................................    10.3%     --    
Japanese Yen--overdraft.....................................     4.0%     --    
French Francs--short-term loan..............................    12.0%     --    

The total interest expense during 1993 in respect of short and long-term    
borrowings from both external and affiliated sources was Lire 12,485 ($7,750)   
(Lire 15,272 for 1992).                                                         

NOTE 12--ACCOUNTS PAYABLE                                                       

The accounts payable balance is composed of the following:                  

                                                                [Download Table]

                                   12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                   -------- -------- -------- -------- --------
                                                                               
Accounts payable--external                                                     
 suppliers........................ L33,642  L25,921  $16,090  L21,575  $13,392 
Accounts payable--affiliated                                                   
 suppliers........................      11       11        7      --       --  
                                   -------  -------  -------  -------  ------- 
                                   L33,653  L25,932  $16,097  L21,575  $13,392 
                                   -------  -------  -------  -------  ------- 

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 13--ACCRUED EXPENSES AND OTHER LIABILITIES                                 

Accrued expenses and other liabilities consist of the following:            

                                                                [Download Table]

                                   12/31/92 12/31/93 12/31/93 03/31/94 03/31/94
                                   -------- -------- -------- -------- --------
                                                                               
Payroll and other related                                                      
 liabilities...................... L10,243   L5,824  $ 3,615   L4,611  $ 2,862 
Value added tax and other                                                      
 taxation.........................   1,814    4,078    2,531    1,261      783 
Accrued commissions...............   2,539    3,287    2,040    3,067    1,904 
Social security contributions on                                               
 early retirement of staff........   2,431    2,109    1,309    2,953    1,833 
Advances from customers and                                                    
 deferred income..................   5,627    2,040    1,267    1,445      897 
Accrued interest..................   2,611    1,791    1,112    1,542      957 
Warranty reserve..................   1,003    1,679    1,042      861      534 
Provision for redundancy costs....     --       535      332      --       --  
Other accruals....................   3,236    3,645    2,263    3,407    2,115 
                                   -------  -------  -------  -------  ------- 
                                   L29,504  L24,988  $15,511  L19,147  $11,885 
                                   =======  =======  =======  =======  ======= 

NOTE 14--LONG-TERM DEBT                                                         

Long-term debt consists of the following                                    

                                                        [Enlarge/Download Table]

                                     12/31/92          12/31/93          03/31/94     
                                 ----------------- ----------------- -----------------
                                 CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
           THIRD PARTY DEBT      PORTION  PORTION  PORTION  PORTION  PORTION  PORTION 
           ----------------      ------- --------- ------- --------- ------- ---------
                                                                                      
 5.5%  Unsecured loan from                                                            
        Istituto Mobiliare                                                            
        Italiano (IMI) repay-                                                         
        able in semi-annual in-                                                       
        stallments expiring in                                                        
        July 1996. The original                                                       
        capital amount was Lire                                                       
        3,563..................   L453    L1,521    L479    L1,041    L493     L790   
10.05% Unsecured loan from IMI                                                        
        repayable in semi-an-                                                         
        nual installments ex-                                                         
        piring in October 1996.                                                       
        The original capital                                                          
        amount was Lire 2,250..    288     1,024     371       711     371      711   
10.05% Unsecured loan from IMI                                                        
        repayable in semi-an-                                                         
        nual installments ex-                                                         
        piring in October 1996.                                                       
        The original capital                                                          
        amount was Lire 783....    101       364     110       254     110      254   
10.05% Unsecured loan from IMI                                                        
        repayable in semi-an-                                                         
        nual installments ex-                                                         
        piring in October 1996.                                                       
        The original capital                                                          
        amount was Lire 1,827..    233       824     320       570     320      570   
12.33% Unsecured loan from                                                            
        Mediocredito Piemontese                                                       
        repayable in semi-an-                                                         
        nual installments ex-                                                         
        piring in April 1994.                                                         
        The original capital                                                          
        amount was Lire 953....    159       159     159       --      159      --    
 9.07% Unsecured loan from                                                            
        Mediocredito Piemontese                                                       
        repayable in semi-an-                                                         
        nual installments ex-                                                         
        piring in April 1994.                                                         
        The original capital                                                          
        amount was Lire 1,167..    168       167     167       --      167      --    

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                     12/31/92          12/31/93          03/31/94     
                                 ----------------- ----------------- -----------------
                                 CURRENT LONG-TERM CURRENT LONG-TERM CURRENT LONG-TERM
           THIRD PARTY DEBT      PORTION  PORTION  PORTION  PORTION  PORTION  PORTION 
           ----------------      ------- --------- ------- --------- ------- ---------
                                                                                      
12.39% Unsecured loan from the                                                        
        Ministry of Industry                                                          
        repayable in annual in-                                                       
        stallments expiring in                                                        
        October 1996. The orig-                                                       
        inal capital amount was                                                       
        Lire 787...............  L   71   L   505  L   79   L   427  L   79   L   427 
 8.28% Unsecured loan from the                                                        
        Ministry of Industry                                                          
        repayable in annual                                                           
        installments commencing                                                       
        in 1995 and expiring in                                                       
        2004. The total amount                                                        
        of the loan is Lire                                                           
        1,916 with Lire 1,505                                                         
        received as of December                                                       
        31, 1992...............     --      1,505     --      1,505     --      1,870 
11.76% Unsecured loan from the                                                        
        Ministry of Industry                                                          
        repayable in annual in-                                                       
        stallments expiring in                                                        
        1999. The original cap-                                                       
        ital amount was Lire                                                          
        586....................      47       425      26       372      26       374 
12.36% Unsecured loan from the                                                        
        Ministry of Industry                                                          
        repayable in annual in-                                                       
        stallments expiring in                                                        
        1999. The original cap-                                                       
        ital amount of the loan                                                       
        was Lire 2,344.........     186     1,713     209     1,504     209     1,504 
                                 ------   -------  ------   -------  ------   ------- 
       Total third party long                                                         
        term debt..............   1,706     8,207   1,920     6,384   1,934     6,500 
                                 ------   -------  ------   -------  ------   ------- 
       AFFILIATED DEBT                                                                
  5.0% Unsecured loan from                                                            
        Elsag Bailey repayable                                                        
        in annual installments                                                        
        of Lire 6,000 expiring                                                        
        in June 1995...........   6,000    12,000   6,000     6,000   6,000     6,000 
                                 ------   -------  ------   -------  ------   ------- 
       Total long-term debt....  L7,706   L20,207  L7,920   L12,384  L7,934   L12,500 
                                 ======   =======  ======   =======  ======   ======= 
       U.S. Dollars............                    $4,916   $ 7,687  $4,925   $ 7,759 
                                                   ======   =======  ======   ======= 

 The repayment of long-term debt outstanding at December 31, 1993 is scheduled
as follows:                                                                     

                                                                [Download Table]

 YEAR                                                  ITALIAN LIRE U.S. DOLLARS
 ----                                                  ------------ ------------
                                                                                
1994..................................................     7,920        4,916   
1995..................................................     7,756        4,814   
1996..................................................     1,904        1,182   
1997..................................................       636          395   
1998..................................................       707          439   
Thereafter............................................     1,381          857   
                                                          ------       ------   
                                                          20,304       12,603   
                                                          ======       ======   

Interest charged to the income statement in the period in respect of long-  
term debt was Lire 1,469 ($862) (Lire 1,919 and Lire 2,446 for 1992 and 1991,   
respectively) for the year ended December 1993, of which Lire 725 ($450) (Lire  
1,025 and Lire 1,325 for 1992 and 1991, respectively) relates to the loan from  
Elsag Bailey (a division of Finmeccanica S.p.A.).                               

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

Interest charged to the income statement in the period in respect of long   
term debt was Lire 277 ($172) (Lire 395 in 1993) for the period ended March 31, 
1994, of which Lire 114 ($71) (Lire 194 in 1993) relates to the loan from Elsag 
Bailey (a division of Finmeccanica S.p.A.).                                     

NOTE 15--TERMINATION INDEMNITIES                                                

Movements in the reserve for employees termination indemnities are as       
follows:                                                                        

                                                                [Download Table]

                                                   12/31/92  12/31/93  03/31/94
                                                   --------  --------  --------
                                                                               
Balance at the beginning of the period............ L11,305   L11,346   L11,968 
Provisions made during the period.................   2,247     2,037       420 
Payments made during the period...................  (2,206)   (1,415)     (324)
                                                   -------   -------   ------- 
Balance at the end of the period.................. L11,346   L11,968   L12,064 
                                                   -------   -------   ------- 
U.S. Dollars......................................           $ 7,429   $ 7,489 
                                                             =======   ======= 

NOTE 16--INCOME TAXES                                                           

The Division has no income tax liability due to losses made in the current  
and previous years. All fiscal years from 1988 are still open for examination   
by the fiscal authorities.                                                      

The Division had a deferred tax asset which is summarized as follows:       

                                                        [Enlarge/Download Table]

                          12/31/91  12/31/92  12/31/93  12/31/93  03/31/93  03/31/94  03/31/94 
                          --------  --------  --------  --------  --------  --------  -------- 
                                                                                               
Tax losses available for                                                                       
 carry forward (per                                                                            
 filed tax returns).....  L  4,732  L 11,649  L 12,527  $  7,776  L 11,649  L 12,512  $  7,767 
Deferral of research and                                                                       
 development costs for                                                                         
 tax purposes...........     7,269     5,423     3,890     2,415     5,068     3,589     2,228 
Inventory valuation                                                                            
 reserve and provision                                                                         
 for warranty and                                                                              
 installation costs.....     3,236     3,549     3,126     1,940     3,236     3,132     1,944 
Deferred depreciation                                                                          
 and amortization.......     1,075     1,347     1,435       891     1,439     1,156       718 
Deferred maintenance                                                                           
 costs..................        18       224       180       111       224       180       112 
Other temporary timing                                                                         
 differences............     1,340     1,352     2,224     1,381     1,352     2,225     1,380 
                          --------  --------  --------  --------  --------  --------  -------- 
                            17,670    23,544    23,382    14,514    22,968    22,794    14,149 
Valuation allowance.....   (17,670)  (23,544)  (23,382)  (14,514)  (22,968)  (22,794)  (14,149)
                          --------  --------  --------  --------  --------  --------  -------- 
Net deferred tax asset..  L    --   L    --   L    --   $    --   L    --   L    --   $    --  
                          ========  ========  ========  ========  ========  ========  ======== 

A valuation allowance has been made against the full amount of the deferred 
tax asset as the Division does not meet the "more likely than not" realization  
criteria.                                                                       

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

NOTE 17--FINMECCANICA S.P.A. INVESTMENT                                         

                                                                [Download Table]

                                             DEA S.P.A.                        
                              DEA S.P.A.     ADDITIONAL    DIVISIONAL          
                             SHARE CAPITAL PAID IN CAPITAL   EQUITY    TOTAL   
                             ------------- --------------- ---------- -------- 
                                                                               
At December 31, 1991.......     L 1,500        L   --       L 14,393  L 15,893 
Reclassification of                                                            
 divisional equity of                                                          
 Digital Electronic                                                            
 Automation (USA) to                                                           
 accumulated deficit.......         --             --         (1,248)   (1,248)
                                -------        -------      --------  -------- 
At December 31, 1991 as                                                        
 restated..................       1,500            --         13,145    14,645 
Increase in share capital..      14,800            --            --     14,800 
Additional paid in capital.         --          15,247           --     15,247 
Divisional equity of DEA                                                       
 France S.A................         --             --          4,993     4,993 
                                -------        -------      --------  -------- 
At December 31, 1992.......      16,300         15,247        18,138    49,685 
Elimination of Divisional                                                      
 equity of Digital                                                             
 Electronic Automation                                                         
 following conversion from                                                     
 a division of Elsag Bailey                                                    
 Inc. to a subsidiary of                                                       
 DEA S.p.A.................         --             --        (13,145)  (13,145)
                                -------        -------      --------  -------- 
At December 31, 1993.......     L16,300        L15,247      L  4,993  L 36,540 
                                =======        =======      ========  ======== 
U.S. Dollars December 31,                                                      
 1993......................     $10,118        $ 9,464      $  3,100  $ 22,682 
                                =======        =======      ========  ======== 
Divisional equity of the                                                       
 Metrology division of DEA                                                     
 France S.A. at December                                                       
 31, 1993 eliminated on                                                        
 consolidation following                                                       
 the purchase of the share                                                     
 capital of DEA France S.A.                                                    
 by DEA S.p.A..............         --             --         (4,993)   (4,993)
                                -------        -------      --------  -------- 
At March 31, 1994..........     L16,300        L15,247      L    --    L31,547 
                                =======        =======      ========  ======== 
U.S. Dollars March 31,                                                         
 1994......................     $10,118        $ 9,464      $    --   $ 19,582 
                                =======        =======      ========  ======== 

On December 18, 1992, the share capital of DEA S.p.A. was increased to Lire 
16,300 by the creation and issue of a further 14,800 shares to Finmeccanica     
S.p.A. In addition, Finmeccanica S.p.A. contributed a further Lire 16,700 as    
additional paid in capital, of which Lire 15,247 related to the Metrology       
Division of DEA S.p.A. These transactions were made in order to comply with the 
minimum capital requirement stipulated by Italian company law.                  

 The whole of the share capital of DEA S.p.A., consisting of 16,300,000 shares
with a nominal value of 1,000 Italian Lire, is owned by Finmeccanica S.p.A.     

The divisional equity balance at December 31, 1992 is comprised of Lire     
13,145 representing the common stock, paid in and contribution capital of       
Digital Electronic Automation Inc. at the date it was converted into a trading  
division of Elsag Bailey Inc. On October 31, 1993 the net asset deficiency      
(Divisional equity and accumulated deficit) was eliminated by means of a loan   
waiver from Elsag Bailey Inc. Subsequently, on November 1, 1993 the net assets  
of the division were sold at their net book value of zero to DEA S.p.A. Lire    
4,993 representing the divisional capital of the Metrology Division of DEA      
France S.A. following its inclusion into the combined financial statements from 
January 1, 1992. On January 1, 1994 the non-metrology activities of DEA France  
S.A. were transferred to another Finmeccanica group entity and the              
shareholders' capital of the Company acquired by DEA S.p.A. The divisional net  
equity at December 31, 1993 was consequently eliminated on consolidation        
against the carrying value of the investment in DEA S.p.A. at March 31, 1994.   

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DEA METROLOGY ACTIVITIES OF FINMECCANICA

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

On August 18, 1993, Brown & Sharpe Manufacturing Company (Brown & Sharpe)   
announced that they had entered into a non-binding letter of intent to purchase 
the assets of the Metrology Division of Finmeccanica S.p.A. at June 30, 1993    
with the exception of certain agreed upon exclusions and adjustments. In return 
for the disposal, Finmeccanica S.p.A. would receive 2.5 million shares of Class 
A Brown & Sharpe common stock and a contingent non-assignable right to obtain a 
further 950,000 shares of Class A Brown & Sharpe common stock. Such right would 
be exercisable only if during the five year period following the closing date   
of the transaction, the closing share price of Brown & Sharpe common stock      
equals or exceeds $15.00 per share for thirty non-consecutive business days     
over any twelve month period of time. At the date of this report, the           
transaction has not yet been completed.                                         

NOTE 18--COMMITMENTS AND CONTINGENCIES                                          

The Company leases certain property and equipment under non-cancelable      
operating leases that expire in various years through to 2002. The property     
leases may be renewed upon expiry of the original term.                         

Future minimum payments under operating leases with initial or unexpired    
terms of one year or more consisted of the following:                           

                                                                [Download Table]

                                                          1992    1993    1993  
                                                         ------- ------- -------
                                                                                
1993.................................................... L 5,659 L   --  $   -- 
1994....................................................   5,376   6,695   4,156
1995....................................................   4,940   5,681   3,526
1996....................................................   4,229   4,388   2,724
1997....................................................   3,193   3,891   2,415
1998....................................................     --      954     592
Thereafter..............................................     298     623     387
                                                         ------- ------- -------
                                                         L23,695 L22,232 $13,800
                                                         ======= ======= =======

The total rental expense in respect of operating leases for the year ending 
December 31, 1993 was Lire 7,300 ($4,513) (Lire 5,524 and Lire 4,224 for 1992   
and 1991, respectively).                                                        

NOTE 19--GOING CONCERN                                                          

The Division has incurred substantial losses in recent years (1991: Lire    
18,326, 1992: Lire 10,095, 1993: Lire 6,985 ($4,336)) and at March 31, 1994 had 
a net asset deficiency of Lire 10,916 ($6,777), (March 1993: Lire 17,114).      

The ability of the Division to operate as a going concern has been dependent
on the financial support of its parent company, Finmeccanica S.p.A.             

Under the terms of the non-binding letter of intent, described in Note 17   
above, Brown & Sharpe is to assume existing debt of the DEA Metrology           
Activities of Finmeccanica up to the amount of $15 million. The ability of the  
Division to operate as a going concern is dependent upon the continuing         
financial support of its future owners and a return to profitable operations.   
Management forecasts this will occur in the foreseeable future as a result of   
the restructuring which has taken place and the completion of the contemplated  
transaction with Brown & Sharpe, which will substantially reduce the Division's 
borrowing needs.                                                                

NOTE 20--OTHER INCOME (EXPENSES)                                                

The 1991 net other income of Lire 10,688 includes a gain of Lire 11,618 that
arose on the disposal of the factory premises at Moncalieri to an affiliated    
company following the reorganization of the divisions                           

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NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(ITALIAN LIRE IN MILLIONS; U.S. DOLLARS IN THOUSANDS) 

operations in that year. No taxation was incurred on this transaction since the 
gain was fully offset against trading losses incurred in that year.             

NOTE 21--ACCUMULATED DEFICIT                                                    

The accumulated deficit at December 31, 1991 is stated net of the           
recapitalization transactions made in order to comply with the minimum capital  
requirements stipulated by Italian company law. Under these regulations, the    
shareholders, in general meeting, elect to eliminate part of the accumulated    
loss against issued share capital or additional capital injections.             

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                                                                       EXHIBIT C

FINANCIAL STATEMENTS OF ETS. PIERRE ROCH S.A. 

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
Report of Independent Accountants--Kurt Schlotthauer (Expert Computable).. C-2 

Balance Sheet as of December 31, 1992, 1993, and March 31, 1994 (Unau-         
 dited)................................................................... C-3 

Statement of Income (Loss) for the Years Ended December 31, 1991, 1992,        
 and 1993 and for the Quarters Ended March 31, 1993 (Unaudited) and 1994       
 (Unaudited).............................................................. C-4 

Statement of Cash Flows for the Years Ended December 31, 1991, 1992, and       
 1993 and for the Quarters Ended March 31, 1993 (Unaudited) and 1994 (Un-      
 audited)................................................................. C-5 

Notes to Financial Statements............................................. C-6 

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KURT SCHLOTTHAUER                                                               
DOCTEUR ES SCIENCES ECONOMIQUES                                                 
WIRTSCHAFTSPRUFER                                                               
EXPERT COMPTABLE DIPLOME                                                        
COMMISSAIRE AUX COMPTES INSCRIT                                                 
155, boulevard Haussmann                                                        
75008 PARIS                                                                     
Tel. (1) 43.59.33.88                                                            
Telex 643 348 F                                                                 
Telecopie (1) 45.63.93.59                                                       

                                          To the General Meeting
                                              ETABLISSEMENTS PIERRE ROCH
                                   societe anonyme
                                     Luneville--France

                                         Paris, May 10th, 1994

Dears Misters,                                                                  

 In performing the duties entrusted to me by your General meeting of June 14th
1989, I hereby present my audit report concerning:                              

--the audited balance sheet of Roch S.A. as of December 31, 1991, 1992, and 
 1993, and the audited statements of income (loss) and of cash flows for
each of the three years ended December 31, 1991, 1992, and 1993.      

--specific controls and information required by law, relative to the        
accounting periods ended December 31, 1991, 1992, and 1993.           

I. OPINION ON THE FINANCIAL STATEMENTS

In accordance with professional accounting and auditing standards, generally
accepted in the United States, I hereby certify that the financial statements   
are accurate, honest and that they present a true and fair view of the results  
of the Company's operations and of its financial situation at the end of these  
accounting period, in conformity with U.S. generally accepted accounting        
principles.                                                                     

Auditor                                                                         

Kurt Schlotthauer                                                               

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ROCH S.A. 

BALANCE SHEET 

AT DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993; MARCH 31, 1993; AND 
MARCH 31, 1994

(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                    FOR THE YEARS                    FOR THE QUARTERS        
                          -------------------------------------  --------------------------- 
                            1991      1992      1993     1993      1993      1994     1994   
                          --------  --------  --------  -------  --------  --------  ------- 
                                                                                             
         ASSETS                                                                              
Current assets:                                                                              
Cash and cash                                                                                
 equivalents............  FF   563  FF   129  FF    86  $    15  FF   140  FF   171  $    30 
Accounts receivable, net                                                                     
 of allowance for                                                                            
 doubtful debts.........    17,010    19,048    11,804    2,032    16,373    13,834    2,382 
Other receivables.......     1,390     6,335     1,217      210     4,804     2,497      430 
Inventories.............    28,390    26,331    22,838    3,932    26,612    21,955    3,781 
Other current assets....       --        --        --       --        --        --       --  
                          --------  --------  --------  -------  --------  --------  ------- 
Total current assets....    47,353    51,843    35,945    6,189    47,929    38,457    6,623 
                          --------  --------  --------  -------  --------  --------  ------- 
Non-current assets:                                                                          
Property, plant and                                                                          
 equipment, net of                                                                           
 accumulated                                                                                 
 depreciation...........     6,037     4,793     5,574      959     4,931     4,064      700 
Other assets and                                                                             
 deferred charges.......     1,217       861     1,522      261     1,538     1,736      299 
                          --------  --------  --------  -------  --------  --------  ------- 
Total non-current                                                                            
 assets.................     7,254     5,654     7,096    1,222     6,469     5,800      999 
                          --------  --------  --------  -------  --------  --------  ------- 
Total assets............  FF54,606  FF57,496  FF43,042  $ 7,409  FF54,398  FF44,258  $ 7,623 
                          ========  ========  ========  =======  ========  ========  ======= 
    LIABILITIES AND                                                                          
   STOCKHOLDERS EQUITY                                                                       
Current liabilities:                                                                         
Borrowings and current                                                                       
 maturities of debt.....  FF21,258  FF24,310  FF15,891  $ 2,736  FF19,988  FF19,060  $ 3,282 
Accounts payable........     5,082     5,076     4,242      730     4,935     3,814      657 
Other payables..........     2,747     2,123     1,785      307     4,307     3,814      656 
Accrued expenses and                                                                         
 other liabilities......     8,725     7,645     7,161    1,233     6,329     5,952    1,024 
                          --------  --------  --------  -------  --------  --------  ------- 
Total current                                                                                
 liabilities............    37,812    39,154    29,079    5,006    35,559    32,640    5,619 
                          --------  --------  --------  -------  --------  --------  ------- 
Non-current liabilities:                                                                     
Long term debt..........     3,164     2,970     7,266    1,251     5,162     7,267    1,251 
Retirement indemnities..     3,000     3,000     3,000      516     3,000     3,000      516 
                          --------  --------  --------  -------  --------  --------  ------- 
Total liabilities.......    43,976    45,125    39,345    6,772    43,722    42,907    7,386 
                          --------  --------  --------  -------  --------  --------  ------- 
  STOCKHOLDERS' EQUITY                                                                       
Stock...................    11,750    11,750    11,750    2,023    11,750    11,750    2,023 
Additional paid in                                                                           
 Capital                                                                                     
Earnings employed in the                                                                     
 business...............       941    (2,643)   (1,013)    (174)     (927)   (9,796)  (1,686)
Current period earnings.    (2,883)    1,716    (8,783)  (1,512)   (1,695)   (2,347)    (404)
Reserves................       822     1,548     1,743      299     1,548     1,743      299 
Currency translation....       --        --        --       --        --        --       --  
                          --------  --------  --------  -------  --------  --------  ------- 
Total shareholders'                                                                          
 equity.................    10,630    12,371     3,697      636    10,676     1,350      232 
                          --------  --------  --------  -------  --------  --------  ------- 
Total liabilities and                                                                        
 equity.................  FF54,606  FF57,496  FF43,042  $ 7,409  FF54,398  FF44,258  $ 7,618 
                          ========  ========  ========  =======  ========  ========  ======= 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.

See notes to financial statements.

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ROCH S.A. 

STATEMENT OF INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993;
AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                    FOR THE YEARS                    FOR THE QUARTERS       
                          -------------------------------------  -------------------------- 
                            1991      1992      1993     1993      1993      1994     1994  
                          --------  --------  --------  -------  --------  --------  ------ 
                                                                                            
Net sales...............  FF97,771  FF79,072  FF57,311  $ 9,868  FF16,757  FF15,753  $2,713 
OPERATING COSTS:                                                                            
Cost of products sold...    55,245    42,683    32,752    5,639     8,873     8,481   1,461 
Selling, general and                                                                        
 administration.........    42,215    36,135    30,394    5,233     8,296     8,196   1,411 
Restructuring costs.....       --        --        --       --        --        --      --  
Depreciation and                                                                            
 amortization...........     1,106       504       203       34       320       840     145 
                          --------  --------  --------  -------  --------  --------  ------ 
Total operating costs...    98,566    79,322    63,349   10,906    17,489    17,517   3,017 
Operating (loss) income.      (795)     (250)   (6,038)  (1,038)     (732)   (1,764)   (304)
Interest expense, net...    (3,672)   (3,139)   (2,590)    (447)     (981)     (632)   (108)
Other (expenses) income,                                                                    
 net....................     1,584     5,105      (155)     (27)       17        49       9 
                          --------  --------  --------  -------  --------  --------  ------ 
Net loss................  FF(2,883)  FF1,716  FF(8,783) $(1,512) FF(1,695) FF(2,347) $ (403)
                          ========  ========  ========  =======  ========  ========  ====== 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.

See notes to financial statements.

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STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1991; DECEMBER 31, 1992; DECEMBER 31, 1993;
AND QUARTERS ENDED MARCH 31, 1993 AND MARCH 31, 1994

(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                    FOR THE YEARS                   FOR THE QUARTERS       
                          -------------------------------------  ------------------------- 
                            1991      1992      1993     1993      1993      1994    1994  
                          --------  --------  --------  -------  --------  --------  ----- 
                                                                                           
Cash provided by (used                                                                     
 in) operations:                                                                           
 Net loss...............  FF(2,883) FF 1,716  FF(8,783) $(1,512) FF(1,695) FF(2,347) $(404)
Adjustments to reconcile                                                                   
 net income to net cash                                                                    
 provided:                                                                                 
 Depreciation and                                                                          
  amortization..........     3,826       245     1,385      238        60     1,510    260 
 Other non-cash                                                                            
  expenses..............      (926)   (4,014)     (109)     (19)      --        --     --  
 Gain on sale of fixed                                                                     
  assets................       --        --        (82)     (14)      --        --     --  
Changes in working                                                                         
 capital--                                                                                 
 (Increase) decrease                                                                       
  in:                                                                                      
   accounts receivable..       551    (6,480)    7,355    1,266     4,206    (3,310)  (570)
   inventories..........     1,095     2,597     2,090      360      (281)      883    152 
   other current assets.       357      (460)      612      105       --        --     --  
   accounts payable.....    (4,759)     (441)    3,109      535       728       394     68 
                          --------  --------  --------  -------  --------  --------  ----- 
Net cash used in                                                                           
 operating activities...    (2,739)   (6,837)    5,577      959     3,018    (2,870)  (494)
                          --------  --------  --------  -------  --------  --------  ----- 
Cash flows from                                                                            
 investing activities:                                                                     
 Fixed assets                                                                              
  additions.............    (2,381)   (1,019)   (1,669)    (287)     (198)      --     --  
 Proceeds from sale of                                                                     
  fixed assets..........     1,036     4,428       162       28       --        --     --  
 Other investing                                                                           
  activities............       138       137        10        2      (677)     (214)   (37)
                          --------  --------  --------  -------  --------  --------  ----- 
Net cash (used in)                                                                         
 investing activities...    (1,207)    3,546    (1,497)    (257)     (875)     (214)   (37)
                          --------  --------  --------  -------  --------  --------  ----- 
Cash flows from                                                                            
 financing activities:                                                                     
 Borrowings and current                                                                    
  maturities of long                                                                       
  term debt.............     8,246     5,159     2,120      365       --      3,169    545 
 Payment of long term                                                                      
  debt..................    (4,023)   (2,301)   (6,243)  (1,075)   (2,192)      --     --  
                          --------  --------  --------  -------  --------  --------  ----- 
Net cash provided from                                                                     
 financing activities...     4,223     2,858    (4,123)    (710)   (2,192)    3,169    545 
                          --------  --------  --------  -------  --------  --------  ----- 
Effect of exchange rate                                                                    
 changes                                                                                   
Cash and cash                                                                              
 equivalents--                                                                             
 Net increase                                                                              
  (decrease) in:                                                                           
   cash and cash                                                                           
    equivalents.........       277      (433)      (43)      (7)       11        85     14 
   beginning of period..       285       562       129       22       129        86     15 
                          --------  --------  --------  -------  --------  --------  ----- 
   end of period........  FF   562  FF   129  FF    86  $    15  FF   140  FF   171  $  29 
                          --------  --------  --------  -------  --------  --------  ----- 
Supplementary cash flow                                                                    
 information:                                                                              
Net interest paid.......  FF 3,021  FF 2,791  FF 2,616  $   450  FF   --   FF   --   $ --  
                          ========  ========  ========  =======  ========  ========  ===== 
Income taxes paid.......  FF 1,440  FF 1,505  FF 1,033  $   178  FF   --   FF   --   $ --  
                          ========  ========  ========  =======  ========  ========  ===== 

The convenience translation into U.S. Dollars has been made using the exchange
rate of 5.81 French Francs to U.S. $1.

See notes to financial statements.

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NOTES TO FINANCIAL STATEMENTS 
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

The main difference between French and U.S. results in 1991 consists in the 
booking of a retirement provision of FF 3,000. This provision is only a         
commitment in France. So, the French result in 1991 amounts to FF 117; the U.S. 
one to FF (2,993). The financial statements for the quarters ended March 1993   
and March 1994 are unaudited and do not form part of the opinion expressed by   
the auditors; it is management opinion that they include all adjustments        
(consisting of only normal recurring adjustments) necessary for a fair          
presentation of the results of these periods.                                   

I. BALANCE SHEET                                                                

ASSETS

1. FIXED ASSETS                                                                 

See Note No. 1                                                              

Depreciation is recorded by the straight-line and the accelerated methods.  
The depreciation terms are as follows:                                          

                                                                [Download Table]

                                                                        YEARS
                                                                        -----
                                                                             
Buildings.............................................................. 20-10
Machinery and equipment................................................   5-8
Cars and trucks (straight-line only)...................................   2-3
Office and EDP equipment (straight-line only)..........................  5-10

2. CURRENT ASSETS                                                               

INVENTORIES DECEMBER 31, 1991                                                   

                                                                [Download Table]

                                    GROSS VALUE DEPRECIATION NET VALUE NET VALUE
                                    ----------- ------------ --------- ---------
                                                                                
Raw materials and consumables......  FF 8,626     FF1,772    FF 6,854   $1,180  
Work in progress...................     4,315         --        4,315      743  
Finished goods.....................    13,702       1,487      12,215    2,102  
Goods for sale.....................     5,245         905       4,340      747  
Payments on account................       666         --          666      115  
                                     --------     -------    --------   ------  
                                     FF32,554     FF4,164    FF28,390   $4,886  
                                     ========     =======    ========   ======  

INVENTORIES DECEMBER 31, 1992                                                   


                                    GROSS VALUE DEPRECIATION NET VALUE NET VALUE
                                    ----------- ------------ --------- ---------
                                                                                
Raw materials and consumables......  FF 7,166     FF1,767    FF 5,399   $  929  
Work in progress...................     4,769         --        4,769      821  
Finished goods.....................    13,818       1,467      12,351    2,126  
Goods for sale.....................     3,537         852       2,685      462  
Payments on account................     1,127         --        1,127      194  
                                     --------     -------    --------   ------  
                                     FF30,417     FF4,086    FF26,331   $4,532  
                                     ========     =======    ========   ======  

INVENTORIES DECEMBER 31, 1993                                                   


                                    GROSS VALUE DEPRECIATION NET VALUE NET VALUE
                                    ----------- ------------ --------- ---------
                                                                                
Raw materials and consumables......  FF 7,600     FF2,141    FF 5,459   $  940  
Work in progress...................     2,667          99       2,568      442  
Finished goods.....................    14,394       1,732      12,662    2,179  
Goods for sale.....................     2,540         664       1,876      323  
Advance payments to suppliers......       274         --          274       47  
                                     --------     -------    --------   ------  
                                     FF27,475     FF4,636    FF22,839   $3,931  
                                     ========     =======    ========   ======  

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

Physical inventory count                                                      

A physical inventory count took place on December 31st 1993, 1992, and 1991.

Valuation principles                                                          

Raw materials and consumables and goods for sale are valued at purchasing   
cost. Purchasing cost is determined on a "weighted average cost" basis.         
Indirect purchasing costs amounting to 5 or 3% are also included, according to  
the geographic origin of the goods concerned.                                   

Work in progress and finished goods are valued at manufacturing cost, which 
includes:                                                                       

.  Cost of raw materials and consumables consumed                           
.  Individual and global costs based on an hourly rate applied to the       
average production time.                                              

Depreciation of inventories December 31, 1991 and 1992                        

                                                                [Download Table]

                            DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION
                                1991       EXPENSES    RECOVERIES      1992    
                            ------------ ------------ ------------ ------------
                                                                               
Raw materials and                                                              
 consumables...............   FF1,772      FF1,767      FF1,772      FF1,767   
Finished goods.............     1,487        1,467        1,487        1,467   
Goods for sale.............       905          852          905          852   
                              -------      -------      -------      -------   
                              FF4,164      FF4,086      FF4,164      FF4,086   
                              =======      =======      =======      =======   

Depreciation of inventories December 31, 1992 and 1993                        

                                                        [Enlarge/Download Table]

                         DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION DEPRECIATION
                             1992      ALLOWANCE    RECOVERIES      1993         1993    
                         ------------ ------------ ------------ ------------ ------------
                                                                                         
Raw materials and                                                                        
 consumables............   FF1,767      FF2,141      FF1,767      FF2,141        $369    
Work in progress........       --            99          --            99          17    
Finished goods..........     1,467        1,732        1,467        1,732         298    
Goods for sale..........       852          664          852          664         114    
                           -------      -------      -------      -------        ----    
                           FF4,086      FF4,636      FF4,086      FF4,636        $798    
                           =======      =======      =======      =======        ====    

DEPRECIATION PRINCIPLES                                                         

The following method is applied to determine the amount of the depreciation 
of inventories:                                                                 

                                                                [Download Table]

                                                                  RATE OF   
                                                                DEPRECIATION
                                                                ------------
                                                                            
Inventories without movements within a year....................     100%    
Inventories covering 60 months or more of average consumption..      90%    
Inventories covering between 36 and 60 months of average                    
 consumption...................................................      75%    
Inventories covering between 24 and 36 months of average                    
 consumption...................................................      50%    
Inventories covering between 12 and 24 months of average                    
 consumption...................................................      25%    

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

ACCOUNTS RECEIVABLES                                                            

Trade debtors                                                                 

                                                                [Download Table]

                                                1991     1992     1993    1993 
                                              -------- -------- -------- ------
                                                                               
Trade receivables............................ FF13,547 FF13,979 FF10,988 $1,891
Short terms notes receivable.................    3,184    4,808      485     83
Doubtful accounts............................    2,051    1,904    1,864    321
                                              -------- -------- -------- ------
Gross value..................................   18,782   20,692   13,337  2,296
Allowance for doubtful accounts..............    1,771    1,644    1,533    264
                                              -------- -------- -------- ------
Net value.................................... FF17,010 FF19,048 FF11,804 $2,032
                                              ======== ======== ======== ======

  The depreciation of doubtful accounts is recorded without V.A.T., on a net   
basis.                                                                         

 Other debtors                                                                 


                                                1991     1992     1993    1993 
                                              -------- -------- -------- ------
                                                                               
Advances to employees........................ FF    35 FF    35 FF   164 $   28
Prepaid V.A.T................................      --       694      355     61
Taxes........................................    1,128      474      362     62
Other accounts receivable....................      177      254      299     51
Group companies..............................       49    4,877       37      6
                                              -------- -------- -------- ------
                                              FF 1,389 FF 6,334 FF 1,217 $  208
                                              ======== ======== ======== ======

  Taxes mainly consist of V.A.T. and state compensation for part time          
unemployment.                                                                  

CASH                                                                           


                                                1991     1992     1993    1993 
                                              -------- -------- -------- ------
                                                                               
Bank accounts................................ FF   511 FF    89 FF    47 $    8
Petty cash...................................       52       40       39      7
                                              -------- -------- -------- ------
                                              FF   563 FF   129 FF    86 $   15
                                              ======== ======== ======== ======

PREPAID EXPENSES                                                               

  They consist of:                                                             


                                                1991     1992     1993    1993 
                                              -------- -------- -------- ------
                                                                               
Consumables.................................. FF   140 FF   123 FF   115 $   20
Advertising equipment........................      562      314      506     87
Price lists..................................      103      --       --     -- 
Prepaid lease................................       43       91      116     20
Other expenses...............................       78       82       57     10
                                              -------- -------- -------- ------
                                              FF   926 FF   610 FF   794 $  137
                                              ======== ======== ======== ======

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 
STOCKHOLDERS' EQUITY

Net income appropriation December 31, 1991:                                 

                                                                [Download Table]

                                             1990      PLUS     MINUS    1991   
                                           --------  --------  ------- -------- 
                                                                                
Capital stock............................. FF11,750  FF   --   FF  --  FF11,750 
Revaluation reserve.......................      519       --       --       519 
Statutory or contractural reserves........      --         50      --        50 
Long term capital gains reserves..........       79       --       --        79 
Retained earnings.........................   (4,033)    4,974      --       941 
Profit and loss account...................    5,023    (2,883)   5,023   (2,883)
Investment subsidies......................       36       235       97      174 
                                           --------  --------  ------- -------- 
                                           FF13,374  FF 2,376  FF5,120 FF10,630 
                                           ========  ========  ======= ======== 

Capital stock consists of 235,000 ordinary shares of F 50 each. The         
shareholders' list is analysed below:                                           

                                                                [Download Table]

                                                                 NUMBER OF
                                                                  SHARES  
                                                                 ---------
                                                                          
Diehl GmbH & Co.................................................  234,250 
Plachez.........................................................      180 
Marchal.........................................................       61 
Heckel..........................................................       50 
Hederer.........................................................       50 
Hobrecker.......................................................       50 
Niethammer......................................................       50 
Around 26 people who own less than 50 shares each...............      309 
                                                                  ------- 
                                                                  235,000 
                                                                  ======= 

Net income appropriation December 31, 1992:                                 

                                                                [Download Table]

                                           1991      PLUS     MINUS      1992   
                                         --------  --------  --------  -------- 
                                                                                
Capital stock........................... FF11,750  FF   --   FF   --   FF11,750 
Revaluation reserve.....................      519       --        --        519 
Statutory or contractural reserves......       50         5       --         55 
Long term capital gains reserves........       79       695       --        774 
Retained earnings.......................      941    (2,643)      941    (2,643)
Profit and loss account.................   (2,883)    1,716    (2,883)    1,716 
Investment subsidies....................      174       138       112       200 
                                         --------  --------  --------  -------- 
                                         FF10,630  FF   (89) FF(1,830) FF12,371 
                                         ========  ========  ========  ======== 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

Capital stock consists of 235,000 ordinary shares of F 50 each. The         
shareholders' list is analysed below:                                           

                                                                [Download Table]

                                                                   NUMBER OF
                                                                    SHARES  
                                                                   ---------
                                                                            
Diehl GmbH & Co. .................................................  234,313 
Plachez...........................................................      180 
Marchal...........................................................       61 
Heckel............................................................       50 
Hederer...........................................................       50 
Hobrecker.........................................................       50 
Niethammer........................................................       50 
Around 26 people who own less than 50 shares each.................      246 
                                                                    ------- 
                                                                    235,000 
                                                                    ======= 

Net income appropriation December 31, 1993:                                 

                                                                [Download Table]

                                     1992      PLUS     MINUS    1993     1993  
                                   --------  --------  ------- --------  ------ 
                                                                                
Capital stock....................  FF11,750  FF   --   FF  --  FF11,750  $2,022 
Revaluation reserve..............       519       --       --       519      89 
Statutory or contractural re-                                                   
 serves..........................        55        86      --       141      24 
Long term capital gains reserves.       774       --       --       774     133 
Retained earnings................    (2,643)    1,630      --    (1,013)   (174)
Profit and loss account..........     1,716    (8,783)   1,716   (8,783) (1,512)
Investment subsidies.............       200       170       61      309      53 
                                   --------  --------  ------- --------  ------ 
                                   FF12,371  FF(6,897) FF1,777 FF 3,697  $  635 
                                   ========  ========  ======= ========  ====== 

Capital stock consists of 235,000 ordinary shares of F 50 each. The         
shareholders' list is analysed below:                                           

                                                                [Download Table]

                                                                   NUMBER OF
                                                                    SHARES  
                                                                   ---------
                                                                            
Diehl GmbH & Co. .................................................  234,313 
Plachez...........................................................      180 
Marchal...........................................................       61 
Heckel............................................................       50 
Hederer...........................................................       50 
Hobrecker.........................................................       50 
Niethammer........................................................       50 
Around 26 people who own less than 50 shares each.................      246 
                                                                    ------- 
                                                                    235,000 
                                                                    ======= 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

CONTINGENCY AND LOSS PROVISIONS                                                 

                                                                [Download Table]

CONTINGENCY PROVISIONS                           1991     1992     1993    1993 
----------------------                         -------- -------- -------- ------
                                                                                
Litigation with staff members................. FF   287 FF   135 FF   422 $   73
Dissolution costs of an American subsidiary...       50       50       50      9
Unrealized foreign exchange loss..............       67        8       63     11
                                               -------- -------- -------- ------
                                               FF   404 FF   193 FF   535 $   93
                                               ======== ======== ======== ======

LOSS PROVISIONS                                  1991     1992     1993    1993 
---------------                                -------- -------- -------- ------
                                                                                
Lay-off compensation.......................... FF   315 FF   124 FF   124 $   21
Product warranty..............................      580      580      530     91
Major repairs.................................      700      --       --     -- 
F.N.E. (tax on elderly people lay-off)........      167      --       --     -- 
                                               -------- -------- -------- ------
                                               FF 1,762 FF   704 FF   654 $  112
                                               ======== ======== ======== ======

BANK LOANS AND OVERDRAFT                                                        

  At December 31, 1991, 1992, and 1993, the Company's long term borrowings      
consisted of the following:                                                     


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
Lordex 1...................................... FF   345 FF   230 FF   115 $   20
Lordex 2......................................      358      187      --     -- 
Banque Nationale de Paris 1...................      600      469      326     56
Banque Nationale de Paris 2...................      900      756      598    103
SNVB..........................................      125      --       422     73
Banque du Credit Mutuel.......................    1,363    1,069      746    128
Accrued interest payable......................       46       38       16      3
                                               -------- -------- -------- ------
                                               FF 3,737 FF 2,749 FF 2,223 $  383
                                               ======== ======== ======== ======

  The installments of long term borrowings is described in the note No. 2.      

  At December 31, 1991, 1992, and 1993, the Company's short term borrowings     
consisted of the following:                                                     


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
Bank Accounts:                                                                  
Banque Nationale de Paris..................... FF 3,037 FF 1,656 FF   452 $   78
Foreign receivables...........................    2,122    2,082    2,216    381
Societe Nanceienne Varin Bernier..............       20      306        1    -- 
Societe Nanceienne Varin Bernier..............      --       --       102     18
Foreign currency account......................      813      569      327     56
Commerzbank, Paris (DM).......................      131      --       --     -- 
Commerzbank, Paris............................    7,266   15,055    9,659  1,662
Credit du Nord foreign receivables............      985      --       --     -- 
Credit du Nord, Paris.........................    2,312      648      --     -- 
Banque du Credit Mutuel.......................      629      554      525     90
Bayerische Vereinsbank........................               208      --     -- 
Accrued interest payable......................      206      483      387     67
                                               -------- -------- -------- ------
                                               FF17,521 FF21,561 FF13,669 $2,352
                                               ======== ======== ======== ======

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 
MISCELLANEOUS DEBTS                                                             

                                                                [Download Table]

                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
Diehl GmbH & Co. (current account)........  FF1,468   FF2,595 FF   --   $  --  
Diehl GmbH & Co. (loan)...................      --        --     1,670     287 
Bayerische Vereinsbank....................    1,196       --     5,113     880 
Aprodi....................................      500       375      375      65 
Accrued interest payable..................      --        --       108      19 
                                           --------  -------- --------  ------ 
                                            FF3,164   FF2,970  FF7,266  $1,251 
                                           ========  ======== ========  ====== 

OTHER CREDITORS                                                                


                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
Credit notes.............................. FF   823  FF   725 FF   405  $   70 
Unbilled credit notes.....................      166       172      311      54 
Fees......................................      467       427      419      72 
Mauser Werke GmbH.........................      --         69       57      10 
Kiehl GmbH & Co. KG.......................      145        87       27       5 
Research..................................      390       205      --      --  
Other.....................................      478       285      374      64 
                                           --------  -------- --------  ------ 
                                           FF 2,469  FF 1,970 FF 1,593  $  275 
                                           ========  ======== ========  ====== 

II. PROFIT AND LOSS ACCOUNT                                                    

                              A. OPERATING INCOME                              

1. TURNOVER                                                                    


                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
Sales of goods............................ FF29,099  FF22,894 FF16,686  $2,872 
Sales of manufactured goods...............   68,672    56,178   40,625   6,992 
                                           --------  -------- --------  ------ 
                                           FF97,771  FF79,072 FF57,311  $9,864 
                                           ========  ======== ========  ====== 

2. CHANGE IN FINISHED GOODS                                                    

                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
                                           FF(1,723) FF   571 FF(1,527) $ (263)
                                           ========  ======== ========  ====== 

3. OWN WORK CAPITALIZED                                                        

                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
                                           FF    22  FF    10 FF   --   $  --  
                                           ========  ======== ========  ====== 

4. SUBSIDIES                                                                   

                                             1991      1992     1993     1993  
                                           --------  -------- --------  ------ 
                                                                               
                                           FF   353  FF   --  FF   --   $  --  
                                           ========  ======== ========  ====== 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

5. EXCESS DEPRECIATION AND EXPENSE TRANSFER                                     

                                                                [Download Table]

                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
Depreciation recovery....................... FF    67  FF       FF1,040  $  179 
Recovery on doubtful debts provision........      391     1,268     762     131 
Decrease in product warranty................      680       580     580     100 
Decrease in lay-off compensation............      --        293     --      --  
Recovery on inventory losses provision......      --         77     --      --  
Other.......................................      295       137      91      16 
                                             --------  -------- -------  ------ 
                                             FF 1,433  FF 2,355 FF2,473  $  426 
                                             ========  ======== =======  ====== 

6. OTHER OPERATING INCOME                                                       


                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
                                              FF1,160  FF   786 FF  853  $  147 
                                             ========  ======== =======  ====== 

  This income represents the invoicing of freight, supplies, and rents.         

                             B. OPERATING EXPENSES                              

1. COST OF PURCHASED MERCHANDISE                                                


                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
                                             FF18,273  FF12,338 FF9,376  $1,614 
                                             ========  ======== =======  ====== 

  The merchandises consist in manufactured goods bought in foreign countries.   

2. CHANGE IN GOODS INVENTORY                                                    


                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
                                             FF  (364) FF 1,708 FF  997  $  172 
                                             ========  ======== =======  ====== 

3. COST OF RAW MATERIALS, CONSUMABLES, AND SUPPLIES                             


                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
                                             FF13,925  FF 9,912 FF7,273  $1,252 
                                             ========  ======== =======  ====== 

4. CHANGE IN RAW MATERIALS INVENTORY AND OTHER SUPPLIES EXPENSES                


                                               1991      1992    1993     1993  
                                             --------  -------- -------  ------ 
                                                                                
                                             FF  (265) FF 1,459 FF (434) $  (75)
                                             ========  ======== =======  ====== 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

5. OTHER PURCHASES AND EXTERNAL CHARGES                                         

                                                                [Download Table]

                                               1991      1992     1993    1993 
                                             --------  -------- -------- ------
                                                                               
Energy expenses............................. FF 1,239  FF 1,090 FF   959 $  165
Supplies and minor equipment................    1,308       817      740    127
Packaging...................................      302       302      239     41
Office supplies.............................      320       295      196     34
Cost of purchased service...................    4,782     2,955    3,997    688
Maintenance and repairs.....................      775       550      516     89
Leasing.....................................    1,861     1,499    1,275    219
Insurance premium...........................      488       469      321     55
Research studies............................    1,079     1,095      306     53
Outside and temporary employees.............      203       286       45      8
Sundry expenses.............................    1,467       896      493     85
Fees........................................      724       780      509     88
Advertising expenses........................    2,140     1,484      788    136
Purchases freight costs.....................      549       454      289     50
Sales freight costs.........................    1,847     1,696    1,372    236
Travelling expenses.........................      983       804      508     87
Telephone expenses..........................      907       922      566     97
Dues........................................      259       124       48      8
Bank fees...................................      151       157      144     25
Other.......................................      208       125       99     17
Company's fees..............................      764       --       --     -- 
                                             --------  -------- -------- ------
                                             FF22,356  FF16,800 FF13,410 $2,308
                                             ========  ======== ======== ======

6. TAXES AND SIMILAR EXPENSES                                                  


                                               1991      1992     1993    1993 
                                             --------  -------- -------- ------
                                                                               
Employment tax in France to enhance                                            
 continuing education....................... FF   558  FF   315 FF   314 $   54
Social construction tax.....................      --        --        12      2
Employment tax in France for training.......       39        39       36      6
Tax on corporate cars.......................       81       --       954    164
Business use tax............................    1,359     1,430       80     14
Real estate tax.............................       81        75      --     -- 
Tax stamps..................................        6         1      --     -- 
Local construction tax......................     (137)        8       89     15
ORGANIC (Social security compensating tax)..       94        77       59     10
Sundry taxes................................       30       152       27      5
                                             --------  -------- -------- ------
                                             FF 2,111  FF 2,097 FF 1,571 $  270
                                             ========  ======== ======== ======

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

7. WAGES AND SALARIES                                                           

                                                                [Download Table]

                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
Gross wages................................... FF 8,237 FF 7,678 FF 6,258 $1,077
Vacation expenses for workers.................    1,372    1,202    1,019    175
Wages premium and bonus for workers...........    1,770    1,861    1,755    302
Compensation..................................   10,059    9,019    8,550  1,472
Independant salesmen provisions...............    2,132    1,810      924    159
Vacation expenses for employees...............      855      723      496     85
Wages premium and bonus for employees.........    1,315    1,372    1,123    193
Lay-off compensation..........................    1,115      638      204     35
Other expenses................................      131       58       79     14
Independant salesmen provisions...............       48      --       --     -- 
                                               -------- -------- -------- ------
                                               FF27,034 FF24,361 FF20,408 $3,512
                                               ======== ======== ======== ======

8. SOCIAL SECURITY AND PENSION EXPENSES                                         


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
Social Security charges in France............. FF 9,283 FF 8,985 FF 8,110 $1,396
Social Security charges in Oberndorf..........      413      360      --     -- 
Personnel committee fees......................      313      272      250     43
Medical labor charges.........................       60       58       57     10
                                               -------- -------- -------- ------
                                               FF10,069 FF 9,675 FF 8,417 $1,449
                                               ======== ======== ======== ======

9. FIXED ASSETS DEPRECIATION ALLOWANCE                                          


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
                                               FF 2,240 FF 1,718 FF 1,425 $  245
                                               ======== ======== ======== ======

10. DEPRECIATION ON CURRENT ASSETS EXPENSES                                     


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
                                               FF   300 FF 1,142 FF 1,251 $  215
                                               ======== ======== ======== ======

  At December 31, 1993, the depreciation on current assets consisted of the     
following:                                                                      


                                                                   1993    1993 
                                                                 -------- ------
                                                                                
Doubtful accounts.............................                   FF   651 $  112
Depreciation of inventories...................                        550     95
Depreciation of other debtors.................                         50      9
                                                                 -------- ------
                                                                 FF 1,251 $  216
                                                                 ======== ======

11. DEPRECIATION ON CONTINGENCY AND LOSS PROVISIONS                             


                                                 1991     1992     1993    1993 
                                               -------- -------- -------- ------
                                                                                
Product warranty.............................. FF   580 FF   580 FF   530 $   91
Lay-off compensation..........................      --       --       212     36
                                               -------- -------- -------- ------
                                               FF   580 FF   580 FF   742 $  127
                                               ======== ======== ======== ======

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

12. OTHER OPERATING EXPENSES                                                    

                                                                [Download Table]

                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
Loss on doubtful debts............................. FF  278 FF1,029   FF457 $ 79 
Retirement Indemnities.............................   3,000     --      --   --  
Directors' fees....................................      34      33      35    6 
License fees.......................................      33      33     112   19 
Other expenses.....................................     222     158     110   19 
                                                    ------- ------- ------- ---- 
                                                    FF3,567 FF1,253   FF714 $123 
                                                    ======= ======= ======= ==== 

               C. INTEREST, DIVIDENDS, AND OTHER FINANCIAL INCOME                

1. INTEREST AND OTHER INCOME                                                     


                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
                                                      FF198   FF209   FF175 $ 30 
                                                    ======= ======= ======= ==== 

2. EXCESS PROVISIONS CHARGED                                                     


                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
                                                      FF159    FF67     FF8   $1 
                                                    ======= ======= ======= ==== 

  This line item recorded the recovery on unrealized foreign currency losses     
booked in 1991, 1992, and 1993.                                                  

3. FOREIGN EXCHANGE GAINS                                                        


                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
                                                      FF137    FF69   FF119  $20 
                                                    ======= ======= ======= ==== 

  This line item recorded the foreign currency gains realized during 1991,       
1992, and 1993.                                                                  

                    D. INTEREST AND OTHER FINANCIAL CHARGES                      

1. FINANCIAL PROVISIONS                                                          

                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
                                                       FF67     FF8    FF63  $11 
                                                    ======= ======= ======= ==== 

  This line item recorded the provision on foreign currency losses at December   
1991, 1992, and 1993.                                                            

2. INTEREST AND OTHER FINANCIAL CHARGES                                          


                                                     1991    1992    1993   1993 
                                                    ------- ------- ------- ---- 
                                                                                 
Bank interest paid................................. FF2,517 FF2,442 FF2,377 $409 
Discounting of notes...............................     919     537     154   27 
Interest paid on loans.............................     504     350     239   41 
Sundry expenses....................................       4       2       5    1 
                                                    ------- ------- ------- ---- 
                                                    FF3,944 FF3,331 FF2,775 $478 
                                                    ======= ======= ======= ==== 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

3. FOREIGN EXCHANGE LOSSES                                                      

                                                                [Download Table]

                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
                                                     FF  289 FF  145 FF 53 $ 9 
                                                     ======= ======= ===== === 

  This line item recorded the foreign currency losses realized during 1991,    
1992, and 1993.                                                                

                            E. EXTRAORDINARY INCOME                            

1. EXTRAORDINARY GAINS IN OPERATIONS                                           

                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
                                                     FF  113 FF   11 FF  1 $-- 
                                                     ======= ======= ===== === 

2. PROCEEDS OF ASSETS SOLD AND OTHER CAPITAL GAINS                             


                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
Effect of exchange rate changes on the financial                               
 statements of Oberndorf............................ FF   91 FF   -- FF -- $-- 
Portion of capital subsidies reported as income.....       6     112    61  10 
Proceeds from sales of assets.......................   1,036     356    39   7 
Income from the sale of the permanent                                          
 establishment in Oberndorf.........................     --    4,007   --  --  
                                                     ------- ------- ----- --- 
                                                     FF1,132 FF4,475 FF100 $17 
                                                     ======= ======= ===== === 

3. EXCESS PROVISIONS CHARGED AND EXPENSE TRANSFERS                             

                                                      1991    1992             
                                                     ------- -------           
                                                                               
                                                     FF1,561 FF  926           
                                                     ======= =======           

                           F. EXTRAORDINARY EXPENSES                           

1. EXTRAORDINARY LOSSES IN OPERATIONS                                          

                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
                                                     FF  353 FF    3 FF  3 $ 1 
                                                     ======= ======= ===== === 

2. BOOK VALUE OF ASSETS SOLD AND OTHER CAPITAL LOSSES                          


                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
                                                     FF   81 FF  294 FF178 $31 
                                                     ======= ======= ===== === 

3. EXTRAORDINARY DEPRECIATION AND REGULATED PROVISIONS                         


                                                      1991    1992   1993  1993
                                                     ------- ------- ----- ----
                                                                               
Lay-off compensation................................ FF  606 FF   10 FF 75 $13 
                                                     ======= ======= ===== === 

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NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(FRENCH FRANCS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 
III. COMMITMENTS                                                                

1. OPERATING LEASE                                                              

See the note 3.                                                             

2. DISCOUNTED NOTES NOT YET MATURED                                             

                                                                [Download Table]

                                                      1991   1992   1993   1993
                                                     ------- ----- ------- ----
                                                                               
These notes amounted to............................. FF3,173 FF444 FF4,011 $690
                                                     ======= ===== ======= ====

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LONG TERM DEBTS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                               TERM          INTEREST         LONG TERM DEBTS' EVOLUTION          INSTALLMENT     
                         ----------------- -------------  ---------------------------------- ---------------------
                                                                                                      2-          
         LENDER            FROM      TO    AMOUNT  RATE   12/31/91 INCREASE REFUND  12/31/92  1 YR. 5 YRS.  5 YRS.
         ------          -------- -------- ------- -----  -------- -------- ------- -------- ------ ------ -------
                                                                                                                  
Lordex 1................ 11/01/80 11/15/94 FF1,150  9.50% FF  345   FF--    FF  115 FF  230                       
Lordex 2................ 01/01/86 07/01/93   1,100  9.75%     358     --        170     188                       
Banque Nationale de                                                                                               
 Paris 1................ 01/01/91 12/31/95     600  8.75%     600     --        131     469                       
Banque Nationale de                                                                                               
 Paris 2................                       900 Pibor+     900     --        144     756                       
                                                    0.60%                                                         
Credit Mutuel Lorraine.. 07/05/91 12/05/95     750  8.75%     681     --        149     532                       
Credit Mutuel Lorraine.. 07/06/91 12/06/95     750 10.25%     682     --        145     537                       
APRODI..................                     1,500  8,75%     125     --        125     --                        
SNUB....................                       500            500     --        125     375                       
Interest................                                       46     --          8      38                       
                                                          -------   -----   ------- -------                       
                                                          FF4,237   FF--    FF1,113 FF3,125                       
                                                          =======   =====   ======= =======                       

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LONG TERM DEBTS SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                               TERM          INTEREST        LONG TERM DEBTS' EVOLUTION           INSTALLMENT      
                         ----------------- -------------  --------------------------------- -----------------------
                                                                                                      2-           
         LENDER            FROM      TO    AMOUNT  RATE   12/31/92 INCREASE REFUND 12/31/93   1 YR. 5 YRS.   5 YRS.
         ------          -------- -------- ------- -----  -------- -------- ------ -------- ------- ------- -------
                                                                                                                   
Lordex 1................ 11/01/80 11/15/94 FF1,150  9.50% FF  230   FF--    FF115  FF  115  FF  115 FF  --         
Lordex 2................ 01/01/86 07/01/93   1,100  9.75%     187     --      187      --       --      --         
Banque Nationale de                                                                                                
 Paris 1................ 01/01/91 12/31/95     600  8.75%     469     --      143      326      156     170        
Banque Nationale de                                                                                                
 Paris 2................                       900 Pibor+     756     --      158      598      184     413        
                                                    0.60%                                                          
Credit Mutuel Lorraine.. 07/05/91 12/05/95     750  8.75%     532     --      162      370      177     193        
Credit Mutuel Lorraine.. 07/06/91 12/06/95     750 10.25%     537     --      161      376      163     213        
APRODI..................                       500            375     --      --       375      125     250        
SNUB....................                       450            --      450      28      422       84     338        
Interest................                                       38      16      38       16      --      --         
                                                          -------   -----   -----  -------  ------- -------        
                                                          FF3,124   FF466   FF993  FF2,598  FF1,004 FF1,577        
                                                          =======   =====   =====  =======  ======= =======        

                               TERM          INTEREST        LONG TERM DEBTS' EVOLUTION           INSTALLMENT      
                         ----------------- -------------  --------------------------------- -----------------------
                                                                                                      2-           
         LENDER            FROM      TO    AMOUNT  RATE   12/31/92 INCREASE REFUND 12/31/93   1 YR. 5 YRS.   5 YRS.
         ------          -------- -------- ------- -----  -------- -------- ------ -------- ------- ------- -------
                                                                                                                   
Lordex 1................ 11/01/80 11/15/94 $   198  9.50% $    40   $ --    $  20  $    20  $    20 $   --         
Lordex 2................ 01/01/86 07/01/93     189  9.75%      32     --       32      --       --      --         
Banque Nationale de                                                                                                
 Paris 1................ 01/01/91 12/31/95     103  8.75%      81     --       25       56       27      29        
Banque Nationale de                                                                                                
 Paris 2................                       155 Pibor+     130     --       27      103       32      71        
                                                    0.60%                                                          
Credit Mutuel Lorraine.. 07/05/91 12/05/95     129  8.75%      92     --       28       64       30      33        
Credit Mutuel Lorraine.. 07/06/91 12/06/95     129 10.25%      92     --       28       65       28      37        
APRODI..................                        86             65     --      --        65       22      43        
SNUB....................                        77            --       77       5       73       14      58        
Interest................                                        7       3       7        3      --      --         
                                                          -------   -----   -----  -------  ------- -------        
                                                          $   539   $  80   $ 172  $   449  $   173 $   271        
                                                          =======   =====   =====  =======  ======= =======        

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ASSETS SCHEDULE 
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                   ACQUISITION COSTS                        AMORTIZATION                       
                         -------------------------------------- ------------------------------------ BOOK VALUE
                         12/31/91 ACQUISITIONS  SALES  12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92  12/31/92 
                         -------- ------------ ------- -------- -------- --------- -------- -------- ----------
                                                                                                               
Concessions, patents,                                                                                          
 similar rights......... FF   349    FF 31     FF  --  FF   380 FF   317  FF   44   FF --   FF   361  FF   19  
Payments on account.....      --       --          --       --       --       --      --         --       --   
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
TANGIBLE ASSETS.........      349       31         --       380      317       44     --         361       19  
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
Lands...................      656      --          --       656      103      --      --         103      554  
Buildings...............    1,450      --          --     1,450    1,408       21     --       1,429       20  
Plant & machinery.......   16,505      345          66   16,784   13,098    1,135      52     14,181    2,603  
Other assets............    3,624      109         --     3,733    2,500      211     --       2,711    1,022  
Cars & trucks...........      318      154         314      158      187       83     190         80       77  
Computer & office                                                                                              
 equipment..............    2,333      137         539    1,931    1,612      223     421      1,414      516  
Payment on account......       59       34          93      --       --       --      --         --       --   
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
INTANGIBLE ASSETS.......   24,946      779       1,011   24,713   18,909    1,674     663     19,918    4,793  
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
Other fixed securities..        9      --          --         9        9      --      --           9        1  
Other loans.............      116       95         --       211      --       --      --         --       211  
Other investments.......       76        2          65       13      --       --      --         --        13  
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
INVESTMENTS.............      201       97          65      233        9      --      --           9      224  
                         --------    -----     ------- -------- --------  -------   -----   --------  -------  
FIXED ASSETS............ FF25,495    FF907     FF1,077 FF25,325 FF19,234  FF1,718   FF663   FF20,288  FF5,036  
                         ========    =====     ======= ======== ========  =======   =====   ========  =======  

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ASSETS SCHEDULE 
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                  ACQUISITION COSTS                       AMORTIZATION                       
                         ------------------------------------ ------------------------------------ BOOK VALUE
                         12/31/91 ACQUISITIONS SALES 12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92  12/31/92 
                         -------- ------------ ----- -------- -------- --------- -------- -------- ----------
                                                                                                             
Concessions, patents,                                                                                        
 similar rights......... FF   380   FF    8    FF--  FF   388 FF   361  FF   16  FF  --   FF   377  FF   11  
Payments on account.....      --        342      --       342      --       --       --        --       342  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
TANGIBLE ASSETS.........      380       350      --       730      361       16      --        377      353  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
Lands...................      656       --       --       656      103      --       --        103      554  
Buildings...............    5,183       --       --     5,183    4,141      215      --      4,356      827  
Plant & machinery.......   16,784     1,138      102   17,820   14,181      967    1,142    14,006    3,814  
Cars & trucks...........      158        78      126      110       81       75       46       110      --   
Computer & office                                                                                            
 equipment..............    1,931        15      --     1,946    1,415      151      --      1,566      380  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
INTANGIBLE ASSETS.......   24,713     1,231      228   25,715   19,921    1,408    1,188    20,141    5,575  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
Other fixed securities..        9       --       --         9        9      --       --          9        1  
Other loans.............      211        90      --       301      --       --       --        --       301  
Other investments.......       13       --         2       11      --       --       --        --        11  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
INVESTMENTS.............      233        90        2      321        9      --       --          9      313  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
FIXED ASSETS............ FF25,325   FF1,671    FF230 FF26,766 FF20,291  FF1,424  FF1,188  FF20,527  FF6,241  
                         ========   =======    ===== ======== ========  =======  =======  ========  =======  

                                  ACQUISITION COSTS                       AMORTIZATION                       
                         ------------------------------------ ------------------------------------ BOOK VALUE
                         12/31/91 ACQUISITIONS SALES 12/31/92 12/31/91 ALLOWANCE RECOVERY 12/31/92  12/31/92 
                         -------- ------------ ----- -------- -------- --------- -------- -------- ----------
                                                                                                             
Concessions, patents,                                                                                        
 similar rights......... $     65   $     1    $ --  $     67 $     62  $     3  $   --   $     65  $     2  
Payments on account.....      --         59      --        59      --       --       --        --        59  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
TANGIBLE ASSETS.........       65        60      --       126       62        3      --         65       61  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
Lands...................      113       --       --       113       18      --       --         18       95  
Buildings...............      892       --       --       892      713       37      --        750      142  
Plant & machinery.......    2,889       196       18    3,067    2,441      166      197     2,411      656  
Cars & trucks...........       27        13       22       19       14       13        8        19      --   
Computer & office                                                                                            
 equipment..............      332         3      --       335      244       26      --        270       65  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
INTANGIBLE ASSETS.......    4,310       222       40    4,426    3,430      242      205     3,468      958  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
Other fixed securities..        2       --       --         2        2      --       --          2      --   
Other loans.............       36        15      --        52      --       --       --        --        52  
Other investments.......        2       --       --         2      --       --       --        --         2  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
INVESTMENTS.............       40        15      --        56        2      --       --          2       54  
                         --------   -------    ----- -------- --------  -------  -------  --------  -------  
FIXED ASSETS............ $  4,358   $   287    $  40 $  4,608 $  3,494  $   245  $   205  $  3,535  $ 1,073  
                         ========   =======    ===== ======== ========  =======  =======  ========  =======  

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OPERATING LEASE SCHEDULE
(FRENCH FRANCS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                        [Enlarge/Download Table]

                                                                                     LEASE RENTALS PAYABLE                     
                                                                  LEASE    CUMULATED ----------------------                    
                 ACQUISITION AMORTIZATION  CUMULATED    BOOK     RENTALS     LEASE     WITHIN      1 TO 5     TOTAL  REPURCHASE
     ASSETS         COST     OF THE YEAR  AMORTIZATION  VALUE  OF THE YEAR  RENTALS    A YEAR      YEARS     AMOUNT    PRICE   
     ------      ----------- ------------ ------------ ------- ----------- --------- ----------  ----------  ------- ----------
                                                                                                                               
Hardware........   FF  974      FF288       FF  685    FF  290    FF345     FF  807  FF     267  FF      72  FF  339    FF14   
Cars............     1,455        404           796        659      490         902         566         321      888      35   
                   -------      -----       -------    -------    -----     -------  ----------  ----------  -------    ----   
Total at                                                                                                                       
 December 31,                                                                                                                  
 1991...........   FF2,429      FF692       FF1,481    FF  949    FF835     FF1,709  FF     833  FF     393  FF1,227    FF49   
                   =======      =====       =======    =======    =====     =======  ==========  ==========  =======    ====   
Hardware........   FF  907      FF170       FF  205    FF  702    FF169     FF  212  FF     280  FF     400  FF  679    FF 1   
Cars............     1,995        456         1,130        865      535       1,287         456         519      974      32   
                   -------      -----       -------    -------    -----     -------  ----------  ----------  -------    ----   
Total at                                                                                                                       
 December 31,                                                                                                                  
 1992...........   FF2,902      FF626       FF1,335    FF1,567    FF704     FF1,499  FF     736  FF     919  FF1,653    FF33   
                   =======      =====       =======    =======    =====     =======  ==========  ==========  =======    ====   
Hardware........   FF1,253      FF334       FF  474    FF  779    FF383     FF  546  FF     479  FF     413  FF  892    FF18   
Cars............     1,860        406         1,402        458      493       2,573         295         185      480      33   
                   -------      -----       -------    -------    -----     -------  ----------  ----------  -------    ----   
Total at                                                                                                                       
 December 31,                                                                                                                  
 1993...........   FF3,113      FF740       FF1,876    FF1,237    FF876     FF3,119  FF     774  FF     598  FF1,372    FF51   
                   =======      =====       =======    =======    =====     =======  ==========  ==========  =======    ====   
Hardware........   $   216      $  57       $    82    $   134    $  66     $    94  $       82  $       71  $   154    $  3   
Cars............       320         70           241         79       85         443          51          32       83       6   
                   -------      -----       -------    -------    -----     -------  ----------  ----------  -------    ----   
Total at                                                                                                                       
 December 31,                                                                                                                  
 1993...........   $   536      $ 127       $   323    $   213    $ 151     $   537  $      133  $      103  $   237    $  9   
                   =======      =====       =======    =======    =====     =======  ==========  ==========  =======    ====   

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                                                                       EXHIBIT D

FINANCIAL STATEMENTS OF MAUSER PRAZISIONS--MESSMITTEL GMBH

                                                                [Download Table]

                                                                           PAGE
                                                                           ----
                                                                               
Report of Independent Accountants--Coopers & Lybrand                           
 Wirtschaftsprufungsgesellschaft Gesellschaft mit beschrankter Haftung...  D-2 

Balance Sheet as of December 31, 1992, 1993, and March 31, 1994 (Unau-         
 dited)..................................................................  D-3 

Statement of Income (Loss) and Accumulated Losses for the Years Ended De-      
 cember 31, 1991, 1992, and 1993, and for the Quarters Ended March 31,         
 1993 (Unaudited) and 1994 (Unaudited)...................................  D-4 

Statement of Cash Flows for the Years Ended December 31, 1991, 1992, and       
 1993, and for the Quarters Ended March 31, 1993 (Unaudited) and 1994          
 (Unaudited).............................................................  D-5 

Notes to Financial Statements............................................  D-6 

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REPORT OF INDEPENDENT ACCOUNTANTS 

To the Stockholders and Board of Directors of                                   
Mauser Prazisions-Messmittel GmbH:                                              

We have audited the accompanying balance sheets of Mauser Prazisions-       
Messmittel GmbH (the "Company") as of December 31, 1992 and 1993, and the       
related statements of income (loss) and accumulated losses and cash flows for   
the period September 1, 1992 through December 31, 1992 and for the year ended   
December 31, 1993. 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 in the United States. Those standards require that we plan and        
perform the audit to obtain reasonable assurance about whether the financial    
statements are free of material misstatement. An audit includes examining, on a 
test basis, evidence supporting the amounts and disclosures in the financial    
statements. An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall     
financial statement presentation. We believe that our audits provide a          
reasonable basis for our opinion.                                               

 In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mauser Prazisions-Messmittel   
GmbH as of December 31, 1992 and 1993, and the results of its operations and    
its cash flows for the period September 1, 1992 through December 31, 1992 and   
for the year ended December 31, 1993, in conformity with generally accepted     
accounting principles in the United States.                                     

As explained in Note 1 to the financial statements, on March 24, 1994, Brown
& Sharpe Manufacturing Company acquired all the common stock of the Company     
from Diehl GmbH & Co., the Company's parent. The accompanying financial         
statements do not include any allocation of the purchase price or other         
adjustments to the Company's historical carrying values of assets and           
liabilities as a result of this transaction.                                    

               Coopers & Lybrand
                             Wirtschaftsprufungsgesellschaft
                                   Gesellschaft mit beschrankter Haftung
Munich, Germany                                                                 
May 31, 1994                                                                    

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

BALANCE SHEET 

(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                                [Download Table]

                                                          AT DECEMBER 31,      
                                                       ----------------------- 
                                                        1992     1993    1993  
                                                       -------  ------  ------ 
                                                                               
ASSETS                                                                         
Current Assets:                                                                
  Cash and cash equivalents (Note 1).................. DM    3  DM   2  $    1 
  Accounts receivable trade (net of allowances of DM                           
   22 in 1992 and DM 110 in 1993).....................     614     477     286 
    Affiliates........................................     696      14       8 
    Other.............................................      12      23      14 
  Inventories (Note 1)................................     267     195     117 
  Prepaid expenses....................................      30      14       8 
                                                       -------  ------  ------ 
Total current assets..................................   1,622     725     434 
                                                       -------  ------  ------ 
Machinery and equipment at cost.......................      34      76      46 
Less accumulated depreciation.........................       8      33      20 
                                                       -------  ------  ------ 
Machinery and equipment, net..........................      26      43      26 
                                                       -------  ------  ------ 
Goodwill (net of accumulated amortization of DM 32 in                          
 1992 and DM 1,043 in 1993) (Note 1)..................   1,111     100      60 
                                                       -------  ------  ------ 
                                                       DM2,759  DM 868  $  520 
                                                       =======  ======  ====== 
LIABILITIES AND STOCKHOLDER'S EQUITY                                           
Current Liabilities:                                                           
  Current portion of long-term debt due to parent..... DM  --   DM  25  $   15 
  Accounts payable                                                             
    Affiliates (Note 2)...............................   2,686   3,058   1,831 
    Other.............................................     144      30      18 
  Accrued and other current liabilities (Note 3)......      94     182     109 
                                                       -------  ------  ------ 
Total current liabilities.............................   2,924   3,295   1,973 
Long-term debt due to parent less current portion                              
 (Note 4).............................................     --       55      33 
                                                       -------  ------  ------ 
                                                         2,924   3,350   2,006 
                                                       -------  ------  ------ 
Stockholder's Equity (Deficit):                                                
  Common stock (Note 5)...............................      50      50      30 
  Accumulated losses..................................    (215) (2,532) (1,516)
                                                       -------  ------  ------ 
Total stockholder's equity (deficit)..................    (165) (2,482) (1,486)
                                                       -------  ------  ------ 
Total liabilities and stockholder's equity (deficit).. DM2,759   DM868  $  520 
                                                       =======  ======  ====== 

The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1. 

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

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

STATEMENT OF INCOME (LOSS) AND ACCUMULATED LOSSES 

(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                                [Download Table]

                            FOUR MONTHS        YEAR ENDED      QUARTER ENDED   
                         ENDED DECEMBER 31,   DECEMBER 31,       MARCH 31,     
                         ------------------ -----------------  --------------- 
                                1992          1993     1993     1994     1994  
                         ------------------ --------  -------  -------  ------ 
                                                                (UNAUDITED)    
                                                                               
Net sales...............      DM2,039        DM4,398  $ 2,634  DM1,185  $  710 
Cost and expenses:                                                             
  Cost of goods sold....        1,642          3,698    2,214      865     518 
  Selling, general and                                                         
   administrative                                                              
   expenses.............          627          1,932    1,157      617     370 
  Amortization of                                                              
   goodwill (Note 1)....           32          1,010      605        2       1 
                              -------       --------  -------  -------  ------ 
Operating loss..........         (262)        (2,242)  (1,342)    (299)   (179)
Other income (expense)                                                         
  Interest income.......           15             27       16      --      --  
  Interest expense......          --            (118)     (71)     --      --  
  Other income, net                                                            
   (Note 2).............           15             16       10    2,502   1,498 
                              -------       --------  -------  -------  ------ 
Net income (loss).......         (232)        (2,317)  (1,387)   2,203   1,319 
Retained earnings                                                              
 (accumulated losses),                                                         
 beginning of period....           17           (215)    (129)  (2,532) (1,516)
                              -------       --------  -------  -------  ------ 
Accumulated losses, end                                                        
 of period..............      DM (215)      DM(2,532) $(1,516) DM (329) $ (197)
                              =======       ========  =======  =======  ====== 

The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1. 

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

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

STATEMENT OF CASH FLOWS 

(DEUTSCH MARKS IN THOUSANDS, U.S. DOLLARS IN THOUSANDS) 

                                                                [Download Table]

                             FOUR MONTHS        YEAR ENDED       QUARTER ENDED    
                          ENDED DECEMBER 31,   DECEMBER 31,        MARCH 31,      
                          ------------------ -----------------  ----------------- 
                                 1992          1993     1993      1994     1994   
                          ------------------ --------  -------  --------  ------- 
                                                                  (UNAUDITED)     
                                                                                  
CASH FLOWS FROM                                                                   
 OPERATING ACTIVITIES:                                                            
Net income (loss).......       DM  (232)     DM(2,317) $(1,387) DM 2,203  $ 1,319 
Adjustments to reconcile                                                          
 net income (loss) to                                                             
 net cash provided by                                                             
 (used in) operating                                                              
 activities:                                                                      
  Forgiveness of                                                                  
   accounts payable to                                                            
   parent...............            --            --       --     (2,495)  (1,494)
  Depreciation and                                                                
   amortization.........             40         1,036      621         7        4 
  Provision for losses                                                            
   on accounts                                                                    
   receivable...........             22            88       53       (67)     (40)
Changes in operating                                                              
 assets and liabilities:                                                          
  Accounts receivable--                                                           
   trade................           (636)           49       29       (32)     (19)
     --affiliates.......           (625)          682      408       (35)     (21)
     --other............            (12)          (11)      (7)       16       10 
  Inventories...........           (267)           72       43       (14)      (8)
  Prepaid expenses......            (30)           16       10        (7)      (4)
  Accounts payable--                                                              
   affiliates...........          2,685           372      222       454      272 
     --other............            144          (114)     (68)       (2)      (1)
  Accrued and other                                                               
   current liabilities..             91            88       53       280      167 
                               --------      --------  -------  --------  ------- 
Net cash provided by                                                              
 (used in) operating                                                              
 activities.............          1,180           (39)     (23)      308      185 
                               --------      --------  -------  --------  ------- 
CASH FLOWS FROM                                                                   
 INVESTING ACTIVITIES:                                                            
Acquisition of branch                                                             
 assets.................         (1,177)          --       --        --       --  
Additions to machinery                                                            
 and equipment..........            --            (42)     (26)      --       --  
                               --------      --------  -------  --------  ------- 
Net cash used in                                                                  
 investing activities...         (1,177)          (42)     (26)      --       --  
                               --------      --------  -------  --------  ------- 
CASH FLOWS FROM                                                                   
 FINANCING ACTIVITIES:                                                            
Proceeds from                                                                     
 borrowings.............            --             80       48       --       --  
                               --------      --------  -------  --------  ------- 
Net cash provided by                                                              
 financing activities...            --             80       48       --       --  
                               --------      --------  -------  --------  ------- 
Net increase (decrease)                                                           
 in cash and cash                                                                 
 equivalents............              3            (1)      (1)      308      185 
Cash and cash                                                                     
 equivalents, beginning                                                           
 of period..............            --              3        2         2        1 
                               --------      --------  -------  --------  ------- 
Cash and cash                                                                     
 equivalents, end of                                                              
 period.................       DM     3      DM     2  $     1  DM   310  $   186 
                               ========      ========  =======  ========  ======= 

The convenience translation into U.S. Dollars has been made using the exchange
rate in effect at March 31, 1994 of 1.67 Deutsche Marks to U.S. $1. 

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

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

NOTES TO COMBINED FINANCIAL STATEMENTS
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                      

Business:                                                                     

The Company distributes precision measuring instruments and associated tools
throughout Germany.                                                             

Formation of the Company:                                                     

Mauser Prazisions-Messmittel GmbH, a wholly-owned subsidiary of Diehl GmbH &
Co. ("Diehl"), was formed from its predecessor company, Elektrosil GmbH. On     
August 27, 1992, the Company's articles were rewritten in order to effect the   
change in name and business. With effect from September 1, 1992, the Company    
acquired certain assets of the former Oberndorf branch of Ets. Pierre Roch      
S.A., Luneville, France for DM 1,177.                                           

Consequently, the fiscal periods included in these financial statements are 
for the period September 1, 1992 to December 31, 1992 and for the year ended    
December 31, 1993, and for the quarter ended March 31, 1994.                    

Sale of the Company:                                                          

On March 24, 1994, Brown & Sharpe Manufacturing Company acquired all the    
common stock of the Company from Diehl. The financial statements do not include 
any allocations of the purchase price or other adjustments to the Company's     
historical carrying values of assets and liabilities as a result of this        
transaction.                                                                    

Interim Financial Statements:                                                 

 The financial statements for the quarter ended March 31, 1994 and the related
notes are unaudited and in the opinion of management, include all adjustments   
(consisting of only normal recurring adjustments) necessary for a fair          
presentation of the results of the period. These results are not necessarily    
indicative of the results to be expected for the entire year.                   

Translation of Foreign Currencies:                                            

The functional currency for the accounts of the Company is the local        
currency, the Deutschmark (DM). A translation of convenience has been applied   
in translating the financial statements into US Dollars at the rate prevailing  
at March 31, 1994, US $1--DM 1.67. (DM 1 = US $0.60).                           

Revenue Recognition:                                                          

Revenue is recognized upon shipment of product.                             

Cash and Cash Equivalents:                                                    

 The Company considers all debt instruments purchased with a maturity of three
months or less at the time of acquisition to be cash equivalents.               

Inventories:                                                                  

Inventories of finished measuring instruments are carried at the lower of   
average cost or market.                                                         

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

Machinery and Equipment:                                                      

 Machinery and equipment are stated at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight line method over the  
estimated useful lives of the assets of between two and six years. Depreciation 
expense was DM 8, DM 25 ($15) and DM 5 ($3) for the period September 1, 1992    
through December 31, 1992, the year ended December 31, 1993, and the quarter    
ended March 31, 1994, respectively.                                             

Repair and maintenance costs are expensed, while additions and betterments  
are capitalized. The cost and related accumulated depreciation of assets sold   
or retired are eliminated from the accounts and any gains or losses are         
reflected in earnings.                                                          

Goodwill:                                                                     

The excess of cost over the fair value of net assets of a purchased business
is recorded as goodwill, which is included in intangible assets. In 1993, an    
adjustment was made to the valuation of goodwill to take account of the adverse 
development of the business, which had not previously been expected.            
Consequently, DM 1,010 ($605) was written off in order to revalue the remaining 
goodwill at DM 100 ($60), which is being amortized on a straight-line basis     
over 10 years.                                                                  

Income Taxes:                                                                 

Due to losses in 1992 and 1993, no income taxes are payable. In accordance  
with Statement of Financial Accounting Standards No. 109, deferred tax assets   
and liabilities are recognized for the expected future tax consequences of      
events that have been included in the financial statements or tax returns under 
the liability method. A valuation allowance is provided for when it is more     
likely than not that some portion or all of a deferred tax asset will not be    
realized.                                                                       

2. ACCOUNTS PAYABLE TO AFFILIATES                                               

At December 31, the Company owed the following amounts to affiliates        
(excluding the long-term debt--see Note 4):                                     

                                                                [Download Table]

                                                          1992    1993    1993 
                                                         ------- ------- ------
                                                                               
Diehl GmbH & Co. Nurnberg, Germany...................... DM  175 DM2,414 $1,446
Mauser-Werke Oberndorf, Germany.........................       5      21     12
Ets. Pierre Roch S.A., Luneville, France................   2,506     623    373
                                                         ------- ------- ------
                                                         DM2,686 DM3,058 $1,831
                                                         ======= ======= ======

 The Company purchases all goods for resale from Ets. Pierre Roch S.A. Amounts
owed Diehl principally represent net operating expenditures incurred by Diehl   
on behalf of the Company. During the quarter ended March 31, 1994, Diehl        
forgave all amounts owed to Diehl by the Company.                               

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MAUSER PRAZISIONS-MESSMITTEL GMBH 

NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) 
(DEUTSCH MARKS IN THOUSANDS; U.S. DOLLARS IN THOUSANDS) 

3. ACCRUED AND OTHER CURRENT LIABILITIES                                        

                                                                [Download Table]

                                                                1992 1993  1993
                                                                ---- ----- ----
                                                                               
Due to customer................................................ DM46 DM 45 $ 27
Employees......................................................  --     21   13
Taxes other than income........................................  --     18   11
Compensated absences...........................................   36    14    8
Miscellaneous accrued expenses.................................   12    84   50
                                                                ---- ----- ----
                                                                DM94 DM182 $109
                                                                ==== ===== ====

4. LONG-TERM DEBT DUE TO PARENT                                                 

 Long-term debt amounting to DM 80 ($48) is due to the Company's parent, Diehl
GmbH & Co., Nurnberg, Germany and bears interest at 7.5% per annum. It is       
repayable as follows:                                                           

                                                                [Download Table]
                                                                           
1994................................................................. DM 25
1995................................................................. DM 25
1996................................................................. DM 30

5. COMMON STOCK                                                                 

As a "GmbH"--form of company incorporated in Germany, the Company's common  
stock is not divided into individual shares.                                    

6. INCOME TAXES                                                                 

Due to losses in 1992 and 1993, no income taxes are payable by the Company. 
At December 31, 1993, a deferred tax asset of DM 1,025 ($614) existed in        
connection with net German operating loss carryforwards, which do not expire.   
The Company has provided a valuation allowance in full for this asset due to    
the uncertainty of realizing the benefit of the loss carryforwards.             

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                                                                       EXHIBIT E

WERTHEIM SCHRODER & CO.                               EQUITABLE CENTER          
INCORPORATED                                       787 SEVENTH AVENUE     
                                              NEW YORK, NEW YORK
                                      10019-6016
                                                  TELEPHONE 212-492-6000

                                                                   June 15, 1994

The Board of Directors                                                          
Brown & Sharpe Manufacturing Company                                            
Precision Park                                                                  
200 Frenchtown Road                                                             
North Kingston, RI 02852-1700                                                   

Members of the Board:                                                           

We have acted as financial advisor to Brown & Sharpe Manufacturing Company  
("Brown & Sharpe") in connection with its negotiations with Finmeccanica S.p.A. 
("Finmeccanica") which have resulted in the acquisition agreement, dated as of  
June 10, 1994 (the "Acquisition Agreement"), pursuant to which Brown & Sharpe   
and Finmeccanica have entered into a transaction (the "Transaction") in which   
Brown & Sharpe will acquire all of the outstanding shares of the DEA Metrology  
Activities of Finmeccanica ("DEA").                                             

The Acquisition Agreement provides, among other things that, upon closing of
the DEA acquisition, Finmeccanica will receive 3,450,000 newly issued shares of 
Class A Common Stock of Brown & Sharpe subject to adjustments related to the    
change in Adjusted Net Asset Value (as defined in the Acquisition Agreement) of 
DEA's balance sheet audited on the basis of Italian Generally Accepted          
Accounting Principles ("Italian GAAP"), as of July 31, 1994, as compared to the 
Adjusted Net Asset Value of DEA's balance sheet, audited on the basis of        
Italian GAAP, as of June 30, 1993. As of the closing, DEA will have             
approximately $13,800,000 of debt. In addition, Brown & Sharpe will assume some 
other liabilities for payments for termination of certain employees and         
transfer taxes whose maximum amount has been estimated to be approximately $2.1 
million (the "Additional Payments"). The Acquisition Consideration is deemed to 
consist of the Class A Common Stock to be issued to Finmeccanica at closing,    
the amount of debt on DEA's balance sheet at closing and the Additional         
Payments. The terms of the Transaction are more fully set forth in the          
Acquisition Agreement.                                                          

You have requested our opinion, as investment bankers, as to the fairness   
from a financial point of view, to the common shareowners of Brown & Sharpe, of 
the Transaction.                                                                

 In connection with our opinion set forth herein, we have, among other things:

(i) reviewed the Letter of Intent dated May 3, 1993 between Brown &     
Sharpe and Finmeccanica;                                                    

(ii) reviewed the Acquisition Agreement dated June 10, 1994 and the     
Shareholders Agreement dated June 14, 1994;                                 

 (iii) reviewed DEA's Audited Combined Financial Statements for the fiscal
years ended December 31, 1990 through December 31, 1993; the Unaudited      
Combined Financial Statements for the quarters ended March 31, 1993 and     
March 31, 1994; and the Audited Combined Financial Statement for the six    
months ended June 30, 1993;                                                 

(iv) reviewed DEA's internally prepared 1994 budget;                    

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 (v) reviewed and discussed, with the management of DEA, certain financial
information prepared by the management of DEA, including the 1994 budget,   
the results for the fiscal years ended December 31, 1990 through 1993; the  
results of the quarters ended March 31, 1993 and 1994 and for the six       
months ended June 30, 1993; and the financial condition, earnings, assets   
and prospects of DEA;                                                       

(vi) compared the results of operations of DEA with those of certain    
companies which we deemed to be reasonably comparable to DEA;               

(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;                                

(viii) participated in discussions and due diligence sessions among     
representatives of Brown & Sharpe, Finmeccanica and DEA;                    

 (ix) reviewed, with DEA's auditors, DEA's financial statements, financial
controls and financial reporting systems;                                   

(x) discussed the market position of DEA and its major competitors with 
some customers of DEA and Brown & Sharpe; and                               

(xi) performed such other analyses and reviewed and analyzed such other 
information as we deemed appropriate.                                       

In rendering our opinion, we have, with the permission of Brown & Sharpe,   
relied upon the accuracy and completeness of all information supplied or        
otherwise made available to us by Finmeccanica and DEA, and we have not         
independently verified such information, undertaken an independent appraisal of 
the assets or liabilities (contingent or otherwise) of DEA or been furnished    
with any such appraisals. With respect to financial forecasts furnished to us   
by DEA, we have been advised by the senior management of Finmeccanica and DEA   
and we have assumed that they have been reasonably prepared and reflect the     
best currently available estimates and judgement of the senior management of    
Finmeccanica and DEA as to the expected future financial performance of DEA. We 
have also reviewed and discussed with the management of Finmeccanica and DEA    
the various competitive factors affecting the worldwide market for metrology    
products and the potential effect on DEA's future results. Our opinion is       
necessarily based upon financial, economic, market and other conditions as they 
exist, and the information made available to us, as of the date hereof.         

Wertheim Schroder & Co. Incorporated, ("Wertheim Schroder"), as part of its 
investment banking business, is continually engaged in the valuation of         
businesses and their securities in connection with mergers and acquisitions,    
negotiated underwriting, secondary distributions of listed and unlisted         
securities, private placements and valuations for estate, corporate and other   
purposes. Wertheim Schroder, during the past twelve months, acted as a co-      
manager of two underwritten initial public offerings of two subsidiaries of     
Finmeccanica.                                                                   

This letter is for the information of The Board of Directors of Brown &     
Sharpe and is to be included in the Proxy Statement to be filed by Brown &      
Sharpe in connection with the shareowners meeting to be held to approve the     
Acquisition Agreement.                                                          

 Based upon and subject to the foregoing, we are of the opinion, as investment
bankers, that as of the date hereof, the Acquisition Consideration to be paid   
by Brown & Sharpe in the Acquisition is fair to the common shareowners of Brown 
& Sharpe from a financial point of view.                                        

                     Very truly yours,

                           Wertheim Schroder & Co.
                          Incorporated

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                                                                       EXHIBIT F

ACQUISITION AGREEMENT 

ACQUISITION AGREEMENT made as of June 10, 1994 (this "Agreement") by and    
between Brown & Sharpe Manufacturing Company, a Delaware corporation with its   
principal offices at 200 Frenchtown Road, Precision Park, North Kingstown,      
Rhode Island 02852 U.S.A. ("Brown & Sharpe") and Finmeccanica S.p.A., an        
Italian corporation, operating through its Elsag Bailey division, with offices  
at Via Puccini, 2, 16154 Genoa, Italy ("Finmeccanica").                         

WHEREAS, Brown & Sharpe and Finmeccanica have agreed to combine the DEA     
Business with the Brown & Sharpe business upon the terms and conditions set     
forth below, intending thereby to expand the combined business line of CMM (as  
defined below) products, strengthen CMM distribution capability worldwide,      
augment its R&D capabilities, and provide for other synergies.                  

WHEREAS, Finmeccanica, through its direct and indirect ownership of all of  
the issued and outstanding shares of capital stock of DEA S.p.A., an Italian    
corporation (the "Company"), and the other DEA companies listed in Annex A      
attached hereto (collectively, the "DEA Companies or sometimes "the Company and 
its Subsidiaries") is engaged in the design, engineering, development, testing, 
manufacture, sale and servicing of coordinate measuring machines ("CMMs") and   
parts and accessories therefor (the "DEA Business");                            

WHEREAS, Brown & Sharpe and certain of its subsidiaries (collectively, the  
"B&S Subsidiaries") are engaged in the design, engineering, development,        
testing, manufacture, sale and servicing of CMMs and other metrology products   
(the "B&S Business");                                                           

NOW THEREFORE, and in consideration of the respective covenants and         
conditions herein contained, Finmeccanica and Brown & Sharpe hereby agree as    
follows:                                                                        

1. ACQUISITION OF THE DEA SHARES BY BROWN & SHARPE ON THE CLOSING DATE.     

1.1 Purchase and Sale of the DEA Shares. Finmeccanica agrees to sell and    
transfer to Brown & Sharpe (or, at the option of Brown & Sharpe, to one or more 
wholly owned subsidiaries of Brown & Sharpe designated by Brown & Sharpe (its   
"designee" or "designees")) at the Closing (as defined in Section 2), and Brown 
& Sharpe agrees to purchase (or cause its designee or designees to purchase)    
from Finmeccanica at the Closing, all of the issued and outstanding shares of   
capital stock of the Company (the "DEA Shares").                                

1.2 Purchase Price for the DEA Shares. In consideration of the assignment,  
transfer, conveyance and delivery by Finmeccanica of the DEA Shares to Brown &  
Sharpe (or its designee or designees) and of the other agreements of            
Finmeccanica stated herein, Brown & Sharpe (or its designees) will pay and      
Finmeccanica will receive the purchase price for the DEA Shares determined in   
accordance with Section 1.3 below.                                              

1.3 Elements of the Purchase Price. Subject to the Post-Closing Purchase    
Price Adjustment as described in Section 1.4, the purchase price for the DEA    
Shares (the "Purchase Price") shall be 3,450,000 shares of Class A Common       
Stock, $1.00 par value per share (the "Brown & Sharpe Purchase Price Shares"    
which term shall also include any additional shares of Class A Common Stock of  
Brown & Sharpe issued to Finmeccanica pursuant to the Post-Closing Purchase     
Price Adjustment referred to in Section 1.4 below).                             

1.3A Aggregate Permitted Indebtedness. As of July 31, 1994 (the "Pricing    
Date"), the amount of Indebtedness (as defined herein) which shall be reflected 
on the books of the Company and its Subsidiaries shall be the sum of (w) 8,000  
Million Italian Lire ("Lit.") denominated Indebtedness ("Lit. Debt"), plus (x)  
$9,897,960 U.S. Dollar denominated Indebtedness ("U.S. Debt"), plus (y) the     
aggregate amount of the Company's and its Subsidiaries' cash and cash           
equivalents in excess of Lit. 800 Million, minus (z) the amount of the accrual  
for TFR Liabilities of the Company and the Subsidiaries attributable to CIGS    
Employees reflected on and as of the date of the Pricing Balance Sheet, but not 
to exceed Lit. 1,700 Million ("Aggregate                                        

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Permitted Indebtedness"); such amount of TFR Liabilities shall first reduce     
short term Lit. Debt to the maximum extent possible and then to the extent      
short term Lit. Debt cannot be reduced by such amount, U.S. Debt converted at   
the U.S. Dollar/Lit. exchange rate in effect on the business day immediately    
preceding July 31, 1994 as published in SOLE 24 ORE. "Indebtedness" shall mean  
amounts classified on the Pricing Balance Sheet (as such term is defined in     
Section 1.4(c) below) as borrowings, including short-term debt, current         
maturities of debt, long term debt and payables (other than payables for goods  
or services) of the DEA Companies to Finmeccanica (including its Elsag Bailey   
division and its subsidiaries).                                                 

1.4 Post-Closing Purchase Price Adjustment.                                 

(a) For purposes of this Agreement and of calculating the Post-Closing      
Purchase Price Adjustment, based on the Pricing Balance Sheet as of July 31,    
1994, the following terms shall have the meanings ascribed to them below:       

"Adjusted Net Asset Value" of the DEA Companies shall mean an amount    
determined, as the case may be, by reference to the audited combined        
balance sheets of the DEA Companies at the relevant balance sheet dates     
(June 30, 1993 or the Pricing Date), equal to:                              

 (i) the total assets (excluding cash and cash equivalents) of the DEA
Companies as shown on and as of the date of the relevant balance sheet; 
minus                                                                   

 (ii) the total liabilities of the DEA Companies as shown on and as of
the date of the relevant balance sheet, other than amounts classified   
on the balance sheet of the DEA Companies as of such relevant balance   
sheet date as Indebtedness; plus                                        

(iii) the accrual for TFR Liabilities of the Company and the        
Subsidiaries attributable to CIGS Employees shown on and as of the date 
of the relevant balance sheet in the amount of Lit. 1,700 Million as of 
the Pricing Date and Lit. 1,700 million as of June 30, 1993; plus.      

(iv) solely with respect to the June 30, 1993 DEA Financial         
Statements, the net accrual of Lit. 2,019 million for INPS liability    
for terminated employees reflected on such financial statements.        

"CIGS Employees" shall mean, as of the relevant balance sheet date, any 
and all employees of the Company and the Subsidiaries that are, or have     
been in the past, placed in Cassa Integrazione Guadagni Straordinaria       
and/or in the solidarity system and/or in any temporary or definitive lay-  
off plan other than (i) those employees who have been terminated with all   
TFR Liabilities on account thereof having been paid in full and no accrual  
in respect thereof is recorded on the books of the Company or any           
Subsidiary, and (ii) those employees who have been recalled to full-time    
active employment by the Company or any of its Subsidiaries.                

"TFR Liabilities" shall mean T.F.R. "trattamento di fine rapporto"      
severance pay liabilities of the Company and the Subsidiaries accrued as of 
the relevant balance sheet dates.                                           

"Pricing Adjusted Net Asset Value" shall mean an amount equal to the    
Adjusted Net Asset Value determined by reference to the Pricing Balance     
Sheet (as herein defined), plus either (A) Lit. 3.4 Billion which amount is 
equal to the aggregate amount of the understatement of the provision for    
excess, slow moving and obsolete inventory and the provision for warranty   
costs identified in the report of RE&Y (as defined below) to the December   
31, 1993 DEA Financial Statements if such reserves have been charged to the 
inventory account and charged as a warranty liability on the Pricing        
Balance Sheet or (B) zero if there has been no change in the accounting     
methodology for excess, slow moving and obsolete inventory or warranty      
costs, i.e., no such charge or change in warranty costs is reflected in the 
Pricing Balance Sheet. Any unrealized loss or gain on foreign currency      
exchange with respect to Indebtedness (which was, by way of reference, Lit  
1.19 Billion on June 30, 1993) shall be assumed to be zero in the Pricing   
Balance Sheet for purposes of the pricing adjustments made pursuant to this 
Section 1.                                                                  

"June 30, 1993 Adjusted Net Asset Value" shall mean an amount equal to  
Lit. 112,551 Billion.                                                       

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(b) Finmeccanica represents and warrants to Brown & Sharpe that attached    
hereto as Schedule 1.4(b), is a true and accurate list of all employees of the  
Company and its Subsidiaries who are on CIGS on the date hereof; no additional  
employees will be on CIGS at the Pricing Date or the Closing Date. In           
connection with such Schedule, Finmeccanica represents and warrants to Brown &  
Sharpe that (i) other than the 77 employees on CIGS (as set forth on the        
Schedule), no Employee is on the date hereof, or as of the Pricing Date or the  
Closing Date will be, on the solidarity system, the mobilita system or on any   
temporary or definitive layoff system, nor has any of such 77 employees on CIGS 
been recalled to full employment and active work by the Company or any          
Subsidiary, except in each case with the consent of Brown & Sharpe, and (ii)    
except to the extent required by the Verbale di Accordo dated June 15, 1993     
among the Company, INTERSIND, FIOM-CGIL, FIM-CISL, UILM-UIL and RSA-DEA no      
commitment has been or will have been made on or prior to the Pricing Date or   
the Closing Date with respect to any CIGS Employees being placed on the         
solidarity system or the mobilita system or being recalled to full employment   
and active work by the Company or any Subsidiary, except that with regard to    
(i) and (ii) above, not more than five employees in the aggregate may be        
recalled to full employment to replace vacancies in the Company's existing work 
force, and for each employee recalled from CIGS, another employee can be put on 
CIGS so that the number of employees on CIGS never exceeds 77 employees.        

(c) Subsequent to the Closing, Finmeccanica will cause combined financial   
statements of the DEA Companies (consisting of a balance sheet as of the        
Pricing Date (the "Pricing Balance Sheet") and the related income statement,    
statement of stockholder's equity and statement of cash flows for the period    
January 1, 1994 through July 31, 1994, the Pricing Date, together with notes    
thereto (hereinafter the "Pricing Financial Statements", or sometimes the       
"Closing Financial Statements") prepared by the Company to be audited and       
certified by Reconta Ernst & Young ("RE&Y") and delivered to the parties within 
75 days after the Closing Date. The scope of the audit will be consistent with  
the scope used in the audits of the December 31, 1992 and 1993 and June 30,     
1993 DEA Financial Statements. Brown & Sharpe will cause the DEA Companies to   
furnish to Finmeccanica and RE&Y such assistance in the preparation of the      
Pricing Financial Statements and their certification as they shall reasonably   
request, including making available at no cost to Finmeccanica all books and    
records pertinent thereto and employees of the DEA Companies customarily        
involved in the preparation of the DEA financial statements. Such employees may 
be requested by Finmeccanica and under Finmeccanica's supervision to prepare    
the Pricing Financial Statements and to perform other tasks with respect        
thereto which shall generally be consistent with tasks performed by such        
employees prior to the Closing Date. These employees will prepare the Pricing   
Financial Statements using the same accounting principles and accounting        
policies and methodologies (including those policies attached as Annex C and    
referred to below) used in the December 31, 1992 and 1993 and June 30, 1993 DEA 
Financial Statements, consistently applied, except to the extent that those     
accounting principles and methodologies applicable to the provision for         
warranty costs and the provision for slow moving and obsolete inventories, as   
applied to the Pricing Financial Statements, may be provided for in accordance  
with Italian GAAP or, in the absence thereof, IASC GAAP (each as defined        
below), thereby eliminating the understatement for warranty costs and           
overstatement of inventory values as indicated in the report of RE&Y to the     
audited combined financial statements for the Company and its Subsidiaries for  
the periods ending December 31, 1993 and 1992 and June 30, 1993.                

Finmeccanica has previously delivered to Brown & Sharpe and C&L descriptions
of the accounting principles and methodologies used in the preparation of such  
financial statements with regard to revenue recognition, accounts receivable    
reserves and related receivables credit policy, excess and obsolete inventory   
and warranty policy which are attached as Annex C hereto.                       

 (d) The Pricing Financial Statements shall be denominated in Italian Lire and
shall fairly present, in conformity with generally accepted Italian accounting  
principles (hereinafter "Italian GAAP") or, in the absence thereof, accounting  
principles recommended by the International Accounting Standards Committee      
("IASC") (hereinafter "IASC GAAP") (except to the extent that an increase of    
Lit. 2,800 Million to the reserve for excess, slow-moving and obsolete          
inventory and a provision of Lit. 600 Million for warranty costs                

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may not be reflected in the Pricing Balance Sheet) on a basis consistent with   
the December 31, 1992 and 1993 and June 30, 1993 DEA Financial Statements and   
the methodologies described in Annex C, in all material respects the combined   
financial position of the DEA Companies as of the Pricing Date and the results  
of operations, changes in stockholder's equity and cash flows during the period 
covered thereby. The amount on the Pricing Balance Sheet for TFR Liability      
shall reflect an accrual in respect of the number of CIGS Employees at the      
Pricing Balance Sheet date, which accrual shall be calculated utilizing the     
same methodology used in the December 31, 1993 and June 30, 1993 DEA Financial  
Statements for determining TFR Liability for CIGS Employees, consistently       
applied. The Closing Financial Statements shall be accompanied by certificates  
of the Chief Financial Officer of Elsag Bailey S.p.A., a subsidiary of          
Finmeccanica as to the compliance with the provisions of this Section 1.4(d)    
and the auditor's report of RE&Y.                                               

(e) Although it is not to be a joint audit, Coopers & Lybrand ("C&L") and   
Brown & Sharpe's accounting staff shall be permitted access to work papers      
supporting specific audit areas when completed and reviewed by the RE&Y         
engagement partner in each respective country and will be allowed to observe    
any physical counts and similar procedures RE&Y may conduct during the audit.   
RE&Y will not be required to address, prior to certification, any C&L and/or    
Brown & Sharpe accounting staff's questions concerning the working papers. C&L  
will not in any way interfere with the timely and efficient completion of the   
audit. In addition, RE&Y and C&L will meet and agree with each other on the     
scope and procedures for the audit.                                             

(f) Within 30 days of Brown & Sharpe's receipt of the Pricing Balance Sheet,
Brown & Sharpe shall inform Finmeccanica if Brown & Sharpe does not agree with  
the amounts contained in such Pricing Balance Sheet, and, in the absence of     
such notification, such Pricing Balance Sheet shall become final and binding    
upon Brown & Sharpe and Finmeccanica at the expiration of such 30 day period.   
If Brown & Sharpe gives such notification to Finmeccanica, Brown & Sharpe and   
Finmeccanica shall promptly meet in an effort to resolve any differences. In    
the event any differences remain 30 days after Finmeccanica's receipt of such   
notification by Brown & Sharpe, Brown & Sharpe and Finmeccanica shall refer the 
question to their respective independent public accountants which shall attempt 
to resolve such differences and whose determination shall be final and binding  
upon Brown & Sharpe and Finmeccanica. If such independent public accountants    
are themselves unable to resolve any differences, they shall refer such         
differences to a third firm of independent public accountants selected by lot   
from among such of the "Big Six" accounting firms (or their successors) as are  
not the past or then current principal auditors of Finmeccanica and Brown &     
Sharpe, whose determination of the Pricing Balance Sheet shall be final and     
binding upon Brown & Sharpe and Finmeccanica. Such accounting firm shall make   
its determination within sixty (60) days after the referral. Each party shall   
bear the cost of its own employees and independent accountants and shall share  
equally the cost of any third firm of independent public accountants in         
connection with such determination.                                             

(g) The Purchase Price shall be adjusted as follows:                        

(i)(A) If the Pricing Adjusted Net Asset Value as of July 31, 1994 is   
greater than the June 30, 1993 Adjusted Net Asset Value by an amount which, 
after netting the amounts required pursuant to Clauses (iii), A(i), A(ii)   
and A(iii) below, is greater than Lit. 800 Million (the "Basket"), then     
Brown & Sharpe shall issue an additional number of shares of its Class A    
Common Stock with a value (as determined by the average of the Closing      
Prices of such shares on the Listing Exchange over a thirty day period      
immediately preceding the Closing Date) equal to the amount by which the    
Pricing Adjusted Net Asset Value exceeds the June 30, 1993 Adjusted Net     
Asset Value after netting the amounts referred to in Clauses (iii), A(i),   
A(ii) and A(iii) below ("Purchase Price Increase").                         

(i)(B) If the Pricing Adjusted Net Asset Value as of July 31, 1994 is   
less than the June 30, 1993 Adjusted Net Asset Value by an amount which,    
after netting the amounts required pursuant to Clauses (iii), B(i), B(ii)   
and B(iii) below, is greater than the Basket, then Finmeccanica shall       
contribute cash to the capital of Brown & Sharpe (without receiving shares  
therefor) in an amount equal to the amount of the difference between the    
Pricing Adjusted Net Asset Value and the June 30, 1993 Adjusted Net Asset   
Value after netting the amounts referred to in Clauses (iii), B(i), B(ii)   
and B(iii) below ("Purchase Price Decrease").                               

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(ii) If the Pricing Adjusted Net Asset Value is less than or more than  
the June 30, 1993 Adjusted Net Asset Value by an amount which, after        
netting the amounts referred to in the clauses set forth in (iii)(A) and    
(iii)(B) below, is, in either case, less than or equal to the Basket, no    
adjustment shall be made pursuant to Clause (i)(A) or (i)(B).               

(iii) Any Post-Closing Purchase Price Adjustment required to be made    
pursuant to Sections 1.4(g)(i)(A) or (B) above shall be calculated by       
netting against the amount by which Actual Excess Indebtedness as of July   
31, 1994 is greater than or less than Estimated Excess Indebtedness as of   
July 31, 1994.                                                              

(A)(i)   In the event an adjustment is required to be made pursuant to      
  Section 1.4(g)(i)(A) above, the amount of the Purchase Price
        Increase shall be netted against the amount by which Actual Excess
       Indebtedness is greater than Estimated Excess Indebtedness. (As a
     result, the number of shares of Brown & Sharpe's Class A Common
         Stock to be issued to Finmeccanica pursuant to Section 1.4(g)(i)(A)
shall be reduced by the difference between Actual Excess  
Indebtedness and Estimated Excess Indebtedness.)          

(A)(ii)  In the event an adjustment is required to be made pursuant to      
        Section 4(g)(i)(A) above, and if the amount by which Actual Excess
        Indebtedness exceeds Estimated Excess Indebtedness is greater than
      or equal to the Purchase Price Increase (the "difference") under
     Section 1.4(g)(i)(A), then no shares shall be issued by Brown &
      Sharpe to Finmeccanica, and Finmeccanica will contribute cash to
Brown & Sharpe in an amount equal to such difference.     

(A)(iii) In the event an adjustment is required to be made pursuant to      
      Section 1.4(g)(i)(A) above, and if Actual Excess Indebtedness is
         less than Estimated Excess Indebtedness, Brown & Sharpe shall issue
          to Finmeccanica shares of stock in an amount equal to the sum of (1)
      the amount of the Purchase Price Increase and (2) the difference
between Estimated Excess Indebtedness and Actual Excess   
Indebtedness.                                             

(B)(i)   In the event that an adjustment is required to be made pursuant to 
  Section 1.4(g)(i)(B) above, the amount of the Purchase Price
        Decrease shall be netted against the amount by which Actual Excess
      Indebtedness is less than Estimated Excess Indebtedness, and the
        amount of cash contributed to Brown & Sharpe by Finmeccanica under
     Section 1.4(g)(i)(B) shall be reduced by an amount equal to the
difference between (1) the shortfall between Actual Excess
         Indebtedness and Estimated Excess Indebtedness and (2) the Purchase
Price Decrease.                                           

(B)(ii)  In the event an adjustment is required to be made pursuant to      
   Section 1.4(g)(i)(B) above, and if the amount by which Actual
    Excess Indebtedness is less than Estimated Excess Indebtedness
         exceeds the Purchase Price Decrease, then Brown & Sharpe will issue
   shares to Finmeccanica in an amount equal to such difference.

(B)(iii) In the event that an adjustment is required to be made pursuant to 
       Section 1.4(g)(i)(B) above, and the Actual Excess Indebtedness is
       greater than the Estimated Excess Indebtedness, Finmeccanica will
        contribute cash to Brown & Sharpe in an amount equal to the sum of
        (1) the Purchase Price Decrease and (2) the amount by which Actual
        Excess Indebtedness is greater than Estimated Excess Indebtedness.

(h) In the event of any Post-Closing Purchase Price Adjustment pursuant to  
all of the provisions of 1.4(g) (after taking into account by netting any       
adjustment required because Actual Excess Indebtedness as of July 31, 1994 is   
more or less than Estimated Excess Indebtedness as of July 31, 1994), (a) the   
delivery of a certificate or certificates representing additional Brown &       
Sharpe Purchase Price Shares to Finmeccanica or (b) the payment of cash by      
Finmeccanica to Brown & Sharpe (as a contribution to capital, without the       
receipt of any additional shares of stock) shall take place within ten days     
following acceptance (or final determination) under Section 1.4(f) of the       
Pricing Balance Sheet. Any certificates representing additional Brown & Sharpe  
Purchase Price Shares shall bear legends as required by Section 2.2 hereof.     

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(i) Not less than ten (10) days prior to July 31, 1994, Finmeccanica shall  
cause to be delivered to Brown & Sharpe an estimated unaudited combined balance 
sheet of the DEA Companies as of the July 31, 1994 Pricing Date ("Forecasted    
Pricing Balance Sheet"). The Forecasted Pricing Balance Sheet shall be          
denominated in Lit. and shall be prepared by the chief financial officer of the 
Elsag Bailey division of Finmeccanica to the extent practicable on a basis      
consistent with the December 31, 1993 and the June 30, 1993 combined balance    
sheets included in the DEA Financial Statements (except for such changes as are 
necessary to comply with the provisions hereof).                                

(j) The parties agree that, prior to July 31, 1994, if the Pricing Adjusted 
Net Asset Value (as computed based on the Forecasted Pricing Balance Sheet) is  
or may be, depending on certain contingencies, greater than the June 30, 1993   
Adjusted Net Asset Value without regard to the Basket, Finmeccanica shall cause 
the Company and/or its Subsidiaries to factor on commercially reasonable terms  
and at market rates, without recourse, an amount, which shall be mutually       
agreed between the parties, of the receivables then on the books of the Company 
and its Subsidiaries. Any differential between the cash received and the face   
amount of such receivables (net of any reserves in respect thereto), as         
reflected on the Forecasted Pricing Balance Sheet, shall be added to the        
Pricing Adjusted Net Asset Value and the face amount (net of reserve) of the    
receivables factored shall be subtracted from the Pricing Adjusted Net Asset    
Value and the term Forecasted Pricing Balance Sheet shall thereafter include    
the results of such factoring transactions.                                     

2. CLOSING. The acquisition of the DEA Shares by Brown & Sharpe or its      
designee(s) from Finmeccanica in exchange for the Purchase Price and the        
consummation of the transactions contemplated by this Agreement (the "Closing") 
shall be held at 12:00 P.M. at the offices of Ropes & Gray, One International   
Place, Boston, Massachusetts, 02110 U.S.A. on the date of the Special Meeting   
of Stockholders of Brown & Sharpe relating to the transactions contemplated     
hereby (the "Closing Date"), or at such other time and place as the parties may 
agree in writing. It is understood, however, that July 31, 1994 is the "Pricing 
Date" and that the parties are using a July 31, 1994 Pricing Balance Sheet as   
distinguished from a balance sheet dated as of the actual Closing for various   
purposes under this Agreement, including purchase price adjustment.             

At the Closing:                                                             

2.1 Delivery and Recordation of the DEA Shares by Finmeccanica. Finmeccanica
will deliver to Brown & Sharpe (or one or more of its designees) certificates   
representing the DEA Shares, duly endorsed with authenticated signature, in     
proper form for transfer and will cause upon said delivery the due recordation  
of such transfer of such DEA Shares on the stock ledger book of the Company as  
required to vest in Brown & Sharpe (or its designee) all of the right, title    
and interest in the DEA Shares.                                                 

 2.2 Payment to Finmeccanica. Brown & Sharpe (or its designee) will deliver to
Finmeccanica a certificate or certificates representing 3,450,000 of the Brown  
& Sharpe Purchase Price Shares, which shall in each case bear a legend          
referencing the investment representation in Section 3.20 and the restrictions  
and provisions of the Stockholders Agreement referred to below.                 

 2.3 Stockholders Agreement. Finmeccanica and Brown & Sharpe shall execute and
deliver a Stockholders Agreement providing for the election of directors of     
Brown & Sharpe, restrictions on transfer, sale of or other disposition of the   
Brown & Sharpe Purchase Price Shares issued or to be issued to Finmeccanica and 
registration and pro rata securities purchase rights, in substantially the form 
of Exhibit 2.3 (the "Stockholders Agreement").                                  

It is expressly understood that Finmeccanica's right to purchase a pro-rata 
portion of future issues of securities by Brown & Sharpe from time to time, in  
order to maintain its percentage ownership of the capital stock of Brown &      
Sharpe after giving effect to the issue of stock of Brown & Sharpe at the       
Closing, is an integral part of the acquisition transaction contemplated by     
this Agreement. Said right is, for the convenience of the parties, set forth in 
the Stockholders Agreement to be delivered at the Closing hereunder.            

2.4 [Intentionally Left Blank]                                              

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2.5 [Intentionally Left Blank]                                              

2.6 Certificates, Opinions, etc. Each party will deliver to the others such 
certificates, opinions and other documents as are contemplated hereby or as may 
reasonably be requested by the other parties to evidence compliance with the    
terms of Sections 1 and 2 and the other provisions of this Agreement, including 
Sections 10 and 11.                                                             

2.7 Conduct of DEA Business Between the Pricing Date, July 31, 1994 and the 
Closing. In addition to complying with the provisions of Section 6.1 hereof,    
from July 31, 1994 (the date of the Pricing Balance Sheet) through the Closing, 
subject always to the Closing occurring, the parties further agree to cause the 
Company to operate the DEA Companies as follows:                                

(a) Accrual of Economic Benefits From July 31, 1994 to the Closing      
Date. In view of the fact that the Post-Closing Purchase Price Adjustment   
will reflect the operation of the DEA Business only through July 31, 1994,  
the economic risks and benefits which derive from the DEA Business from     
such date through the Closing shall accrue for the account of Brown &       
Sharpe, and Finmeccanica shall, if requested by Brown & Sharpe, execute     
such documents and instruments and shall take such action or refrain from   
taking such action as Brown & Sharpe may reasonably request, in order to    
evidence and to give effect to Brown & Sharpe's rights to such economic     
risks and benefits.                                                         

(b) Operation and Management of the DEA Business after the Pricing Date,
July 31, 1994. Finmeccanica shall manage the DEA Business for the benefit   
of Brown & Sharpe in accordance with this Section 2.7. Except to the extent 
of cash and cash equivalents shown on the Pricing Balance Sheet (less Lit.  
800 Million), the DEA Companies shall not use any of their cash or other    
assets to pay any principal, interest or other charges in connection with   
Indebtedness existing as of the close of business on the Pricing Date, July 
31, 1994, in excess of Aggregate Permitted Indebtedness; nor shall any such 
principal, interest or other charges be charged to or in any way become the 
responsibility of the DEA Companies. The DEA Companies shall, however, be   
responsible for and make all accruals and payments required in connection   
with principal, interest and other charges in connection with new           
borrowings or incremental utilization of existing lines of credit after     
July 31, 1994. Finmeccanica shall not permit any cash or other assets to be 
transferred out of the DEA Companies by way of a dividend or distribution   
or in any other manner to Finmeccanica or any affiliate thereof, except     
that the DEA Companies may pay trade payables in the ordinary course of the 
conduct of the DEA Business, consistent with past practice; nor shall the   
DEA Companies forgive or compromise any amount owed to them by Finmeccanica 
or any affiliate thereof (or any amount owed to a third party without the   
consent of Brown & Sharpe). Finmeccanica shall not be required to fund,     
contribute to the assets of or otherwise make any commitments or guarantees 
with respect to any action taken or proposed to be taken by the DEA         
Business unless specifically consented to and indemnified by Brown &        
Sharpe. Finmeccanica shall be entitled to rely on any written instruction   
as to the operation of the DEA Business given by Brown & Sharpe, shall not  
be liable for any failure to act or for action it takes pursuant to such    
written instruction and shall be promptly indemnified by Brown & Sharpe for 
any "damages" (as defined in Section 8.5) arising from such reliance,       
inaction or action, except that Finmeccanica shall be liable to Brown &     
Sharpe for any damages resulting from any negligence on Finmeccanica's part 
in failing to act or not to act in accordance with such written             
instructions from Brown & Sharpe, or failing to refrain from acting, in     
each case, in accordance with such written instructions from Brown &        
Sharpe.                                                                     

3. REPRESENTATIONS AND WARRANTIES BY FINMECCANICA. Finmeccanica represents  
and warrants to Brown & Sharpe (and its designee(s)) as to the matters set      
forth in this Section 3. For purposes of this Section 3, the term "best         
knowledge of Finmeccanica" shall mean the actual knowledge of the Chief         
Financial Officer and Chief Legal Officer the Elsag Bailey division of          
Finmeccanica, the Managing Director, Chief Financial Officer, and Director of   
Sales and Marketing of DEA SpA and the general manager of each DEA Company and  
branch other than DEA SpA and (solely as to the matters covered by Section      
3.12) the Director of Product Development of DEA SpA.                           

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3.1 Corporate Status. The Company is a corporation duly organized, validly  
existing and in good standing under the laws of the Republic of Italy and has   
all necessary corporate power and authority to carry on the DEA Business as now 
conducted and as proposed to be conducted. The Company has delivered to Brown & 
Sharpe a complete and correct copy of its charter and by-laws, each as amended  
to date and all minutes of meetings of its stockholders and directors since     
January 1, 1991. On the Closing Date Finmeccanica will have delivered to Brown  
& Sharpe or to the possession of DEA all other minutes of meetings of           
stockholders and directors and all other corporate records of DEA and its       
subsidiaries (or branches). Finmeccanica is a corporation duly organized,       
validly existing and in good standing under the laws of the Republic of Italy   
and has all necessary corporate power and authority to carry on its business.   

Except as set forth in Schedule 3.1, the assets of the DEA Companies        
constitute all of the property and property rights (including contract rights)  
used in the conduct of the DEA Business in the manner and to the extent         
presently conducted and conducted since June 30, 1993 except for incidental     
changes in such items in the ordinary course of business. Finmeccanica is not   
engaged in any aspect of the manufacture and sale of CMM's except through the   
DEA Companies.                                                                  

 3.2 Capitalization and Ownership of the DEA Shares. The authorized and issued
share capital of the Company consists of 16,300,000 shares of common stock,     
nominal value Lit. 1,000 per share (the "Company Common Stock" or the "DEA      
Shares"). Finmeccanica owns of record and beneficially all of the issued and    
outstanding Company Common Stock, free and clear of all liens, claims, charges, 
encumbrances and restrictions ("Encumbrances"). No other person or entity has   
or shares any direct or indirect interest or right with respect to the DEA      
Shares. The DEA Shares have been duly authorized and validly issued and are     
fully paid and nonassessable. There are no preemptive rights or rights of first 
refusal on the part of any holder of any class of securities of the Company or  
any other person. There are no options, warrants, conversion or other rights,   
agreements or commitments of any kind obligating the Company, contingently or   
otherwise, to issue or sell any shares of its capital stock of any class or any 
securities convertible into or exchangeable for any such shares, and no         
authorization therefore has been given. Finmeccanica has full right, power and  
authority to transfer the DEA Shares to Brown & Sharpe and/or its designees,    
free and clear of any Encumbrances, and such transfer will not constitute a     
breach or violation of, or a default under, any agreement or instrument by      
which Finmeccanica is bound.                                                    

 3.3 Subsidiaries. The DEA Companies listed on Annex A, other than the Company
(each, a "Subsidiary" and, collectively, the "Subsidiaries"), are the only      
corporations, associations, partnerships or other entities or business          
enterprises in which the Company has any investment or owns any shares of       
capital stock or any other record or beneficial equity or other ownership or    
control interest. Except as set forth on Schedule 3.3, the Company owns or is   
sole beneficiary of all of the issued and outstanding stock options, warrants,  
rights or commitments, relating to the issuance of any shares of capital stock  
of or equity interests in the Subsidiaries. Each Subsidiary is a duly           
organized, validly existing corporation in good standing under the laws of its  
jurisdiction of organization and has all necessary power and authority,         
corporate or otherwise, to carry on its business as presently conducted and as  
proposed to be conducted. The Company has delivered to Brown & Sharpe a         
complete and correct copy of the organizational and governance documents, each  
as amended to date, of each Subsidiary.                                         

3.4 Authority for Agreement. Finmeccanica has all necessary power and       
authority to execute and deliver this Agreement and the Stockholders Agreement  
and to carry out its obligations hereunder and thereunder. Each of this         
Agreement and the Stockholders Agreement constitutes the valid and legally      
binding obligation of Finmeccanica and is enforceable in accordance with its    
terms, subject to bankruptcy, insolvency, reorganization or similar laws of     
general application affecting the rights and remedies of creditors. The         
execution and delivery of this Agreement and the Stockholders Agreement and the 
consummation of any of the other transactions contemplated hereby and thereby   
will not conflict with, or result in any violation of, or default with respect  
to, or require the consent of any third parties under, any mortgage, loan,      
indenture,                                                                      

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lease, agreement or other instrument, permit, concession, grant, franchise,     
license, judgment, order, decree, statute, law, ordinance, rule or regulation   
applicable to the Company or any of its Subsidiaries, or Finmeccanica. Subject  
to the receipt prior to the Closing of the consents of certain of the DEA       
Companies' lenders as provided in Section 10.12 below, such execution, delivery 
and consummation will not accelerate the maturity of or otherwise modify in any 
material respect the terms of any indebtedness of the Company or any            
Subsidiary, or result in the creation of any Encumbrance upon any of the        
property or assets of the Company or any Subsidiary.                            

 There are no agreements by which the Company or any Subsidiary is bound which
restrict the ability of the Company to carry on the DEA Business or any other   
metrology business anywhere in the world. Except as described in Schedule 3.4,  
there are no agreements to which the Company or any Subsidiary is a party which 
upon the consummation of the transactions contemplated hereby create rights in  
any third party enforceable against the Company or any Subsidiary as a          
consequence of a change in control of the Company or any Subsidiary, and no     
consent, approval, order or authorization of, recording, or registration,       
declaration or filing with any governmental authority is required in connection 
with the execution and delivery of this Agreement and the Stockholders          
Agreement or the consummation of any of the other transactions contemplated     
hereby and thereby by the Company or Finmeccanica.                              

3.5 Financial Statements; Indebtedness.                                     

(a) Attached hereto as Schedule 3.5 are true and correct copies of (i) the  
audited combined balance sheets of the Company and the Subsidiaries as of       
December 31, 1993 and 1992 and June 30, 1993 and the related combined           
statements of operations, accumulated deficit and cash flows all denominated in 
Lit (together with the auditors' reports thereon, including any exceptions      
noted therein) for the twelve and six month periods then ended (excluding any   
non-metrology activities of any DEA Company), together with the notes to such   
financial statements (the "Audited Combined DEA Financial Statements"); (ii)    
the separate audited balance sheets of each of the Subsidiaries other than      
Digital Electronic Automation Company ("DEA U.S.") as of December 31, 1993 and  
1992 and June 30, 1993 and the related statements of operations, accumulated    
deficit and cash flows for the twelve and six month periods then ended,         
together with the notes to such financial statement (the "Audited DEA           
Subsidiaries Financial Statements"); and (iii) the audited balance sheets of    
DEA U.S. as of December 31, 1993 and of the Digital Electronic Automation       
division of Elsag Bailey, Inc. as of December 31, 1992 and June 30, 1993 and    
the related statements of operations, divisional deficit and cash flows         
(together with the auditors' reports thereon, including any exceptions noted    
therein) for the twelve and six month periods then ended, together with the     
notes to such financial statements (the "Audited DEA U.S. Financial             
Statements") (collectively, the "DEA Financial Statements").                    

 (b) Except as otherwise indicated in the respective reports of auditors or in
the notes thereto, all of the DEA Financial Statements have been prepared (in   
the case of the Audited Combined DEA Financial Statements) in accordance with   
Italian GAAP or, in the absence thereof, with IASC GAAP or (in the case of the  
Audited DEA Subsidiaries Financial Statements) in accordance with IASC GAAP or, 
in the case of the U.S. entity, United States generally accepted accounting     
principles ("U.S. GAAP"), in each case consistently applied throughout the      
periods indicated, and fairly present, in all material respects, the financial  
condition of the DEA Companies (excluding any non-metrology activity of any DEA 
Company) and the results of their operations and cash flows as of the dates and 
for the periods covered thereby, subject to the exceptions stated in the        
auditor's reports included therewith.                                           

 (c) The DEA Financial Statements are in accordance with the books and records
of the DEA Companies. All material transactions occurring during the periods    
covered by the DEA Financial Statements have been disclosed in the DEA          
Financial Statements to the extent required to be disclosed under the           
applicable generally accepted accounting principles referred to above.          

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At the Closing Finmeccanica will place in the possession of Brown & Sharpe  
the books and records of the DEA Companies, including without limitation the    
accounting journals and general ledgers of the DEA Companies.                   

3.5.1 Terms of Indebtedness of the Company and the Subsidiaries on the  
Closing Date. The principal terms of the Aggregate Permitted Indebtedness   
of the Company and the Subsidiaries which will be outstanding on the        
Closing Date are set out on Schedule 3.5.1 (identifying the lender, amount  
outstanding, interest rate(s) and maturity). The Company has provided Brown 
& Sharpe with access to all agreements relating to such Aggregate Permitted 
Indebtedness and all copies of such agreements delivered by the Company to  
Brown & Sharpe are true and correct.                                        

3.6 Absence of Undisclosed Liabilities. Except as set forth in Schedule 3.6 
and other than liabilities which have arisen after December 31, 1993 in the     
ordinary course of business and consistent with past practice, neither the      
Company nor any of its Subsidiaries has any material liabilities or obligations 
of any nature, whether absolute, contingent or otherwise (including without     
limitation, letters of credit for the purchase of inventory) which are required 
to be reflected or reserved against in, or otherwise provided for in the notes  
to, the DEA Financial Statements under Italian GAAP or, in the absence thereof, 
IASC GAAP, and which are not so reflected or reserved against therein or in the 
notes thereto.                                                                  

3.7 Absence of Changes. Except as set forth in Schedule 3.7 since December  
31, 1993, (a) there has been no material adverse change in the condition,       
financial or otherwise (other than as a result of general external economic     
conditions affecting the metrology industry), properties, assets, liabilities,  
business or operations of the Company and its Subsidiaries, considered as a     
whole ("Material Adverse Change"); and (b) neither the Company nor any of its   
Subsidiaries has:                                                               

(i) declared, set aside, made or paid any dividend or other distribution
in respect of its capital stock or agreed to do any of the foregoing, or    
purchased or redeemed or agreed to purchase or redeem, directly or          
indirectly, any shares of its capital stock;                                

(ii) issued or sold any shares of its capital stock of any class or any 
options, warrants, conversion or other rights to purchase any such shares   
or any securities convertible into or exchangeable for such shares;         

(iii) incurred any indebtedness for purchase money or borrowed money    
other than in the ordinary course of business consistent with past          
practice;                                                                   

(iv) mortgaged, pledged, or subjected to any Encumbrance, any of its    
properties or assets, tangible or intangible, except Permitted Encumbrances 
(as defined in Section 3.9.1);                                              

(v) acquired or disposed of any assets or properties in any transaction 
involving money or value in excess of $25,000 with any officer, director or 
salaried employee of the Company, or any Subsidiary, or any relative by     
blood or marriage, or except in the ordinary course of business acquired or 
disposed of any assets or properties having a value in excess of $100,000   
in any transaction with any other person;                                   

(vi) forgiven or canceled any debts or claims, or waived any rights,    
except in the ordinary course of business and consistent with past          
practices;                                                                  

(vii) (A) granted to any officer, director or consultant or to any      
employee whose annual compensation is, or was during the year ended         
December 31, 1993, in excess of the equivalent of $50,000, any material     
increase in compensation in any form (including any material increase in    
scope of any benefits), other than annual salary increases consistent with  
prior practice, or (B) become subject to any request for severance or       
termination pay, or granted any severance or termination pay, or entered    
into any employment or severance agreement with any officer or employee     
(other than a CIGS Employee) whose annual compensation is or was during the 
year ended December 31, 1993 in excess of the equivalent of $50,000;        

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(viii) adopted, or amended in any material respect, any bonus, profit-  
sharing, compensation, stock option, pension, welfare, security,            
retirement, deferred compensation or other material plan, agreement, trust, 
fund or arrangement for the benefit of any employee or employees;           

(ix) except as disclosed on Schedule 3.7 experienced any actual or, to  
the best of the knowledge of the Company and the Subsidiaries, threatened   
dispute with a supplier involving more than $100,000 or with a customer     
involving more than the lower of (a) $90,000 or (b) the full contract value 
of the machine or other product which is the subject of the dispute;        

 (x) except as disclosed on Schedule 3.7, made any capital expenditures or
commitment therefor in excess of $250,000;                                  

(xi) incurred any liability (absolute, accrued or contingent) except    
current liabilities incurred, liabilities under contracts entered into,     
borrowings under short-term lines of credit and liabilities in respect of   
letters of credit issued under credit facilities, in each case incurred in  
the ordinary course of business consistent with past practices;             

(xii) suffered a loss, damage or destruction, whether or not covered by 
insurance, in excess of $25,000; or                                         

(xiii) extended or modified in any material respect the terms or        
provisions of any lease of real property of the character set forth on      
Schedule 3.9 or described in Section 3.9.2.                                 

(xiv) made any changes in accounting principles or accounting practices.

3.8 Taxes.                                                                      

(a) The following defined terms shall have the meanings set forth below:    

(i) "Tax" means any (and in the plural "Taxes" shall mean all) income,  
gross receipts, license, payroll, employment, excise, manufacturing,        
severance, stamp, occupation, premium, windfall profits, environmental,     
customs, capital stock, franchise, profits, withholding, social security    
(or similar), unemployment, disability, real property, personal property,   
sales, use, transfer, registration, value added, turnover, alternative or   
add-on minimum, estimated or other tax, duty, or other fiscal charge of any 
kind whatsoever (whether payable directly, or by way of withholding or on   
account, and including those paid or withheld in the capacity as            
withholding tax agent), including without limitation any interest, penalty, 
or addition thereto, whether disputed or not, imposed by any national or    
local taxing authority or other authority having jurisdiction to administer 
or enforce any of the foregoing.                                            

(ii) "Tax Return" means any return, declaration, report, claim for      
refund, or information return relating to Taxes, including without          
limitation any schedule or attachment thereto, and any amendment thereof.   

(b) Except as set forth on Schedule 3.8:                                    

(i) The Company and each of the Subsidiaries have filed or caused to be 
filed and, from the date hereof until the Closing Date, will file or cause  
to be filed all Tax Returns required to be filed by them in accordance with 
applicable laws on or before the date hereof or the Closing Date (as        
applicable) with respect to Taxes.                                          

 (ii) All Taxes which are shown on Tax Returns filed on or before the date
hereof as due from or payable by the Company or the Subsidiaries have been  
paid in full or adequately disclosed and fully provided for in the DEA      
Financial Statements, and all Taxes which are shown on Tax Returns filed    
after the date hereof and on or before the Closing Date as due from or      
payable by the Company or the Subsidiaries will be paid in full or          
adequately disclosed and fully provided for in the Company's Closing        
Financial Statements.                                                       

(iii) There are no actions, suits, proceedings, examinations, audits,   
claims or assessments by any governmental authority now pending against the 
Company or the Subsidiaries in respect of Taxes or any Tax Return.          

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(iv) There are no outstanding agreements or waivers between the Company 
or any Subsidiary and any governmental authority extending the statute of   
limitations applicable to any Tax Return of the Company or any of the       
Subsidiaries for any period;                                                

(v) The Company and the Subsidiaries have delivered to Brown & Sharpe   
correct and complete copies of all income Tax Returns, examination reports, 
and statements of deficiencies for the 1990, 1991 and 1992 tax years and    
shall deliver all income Tax Returns for subsequent periods that are filed  
on or before the Closing Date. No Tax deficiency (whether or not agreed to  
by the Company or the Subsidiaries) have been assessed against or proposed  
in writing to be assessed against the Company or any Subsidiary by any      
governmental authority except for Tax deficiencies that have been paid in   
full or adequately disclosed and fully provided for in the DEA Financial    
Statements. Prior to the Closing Finmeccanica will have placed in the       
possession of the Company all other tax returns of the Company and its      
Subsidiaries.                                                               

(vi) The Company and the Subsidiaries are not a party to any Tax sharing
agreement. It is understood, however, that Istituto per la Ricostruzione    
Industriale--IRI S.P.A. files consolidated VAT returns for all its          
consolidated Italian subsidiaries (including the Company).                  

(vii) The Company and the Subsidiaries are not liable, by contract or as
a matter of law, primarily or otherwise, for the payment of any Taxes for   
which another person is liable.                                             

(viii) The Company has reported net operating losses as reflected in its
Tax Returns filed for the 1988, 1989, 1990, 1991 and 1992 tax years and a   
cumulative net operating loss of 23.5 Billion Lit. in its draft Tax Return  
for the 1993 tax year, a copy of which is furnished as Exhibit 3.8(viii).   
Finmeccanica makes no representation or warranty that the net operating     
losses of the Company and its Subsidiaries referred to above will be        
allowed as deduction by the Company or its Subsidiaries in tax periods      
ending after the Closing Date.                                              

3.9 Property.                                                               

3.9.1 Title; Encumbrances. Except as stated in Schedule 3.9, each of the
Company and its Subsidiaries (as indicated in Schedule 3.9) has good and    
marketable title to all real properties owned by it and to all material     
tangible personal property reflected in the June 30, 1993 and December 31,  
1993 combined balance sheets included in the DEA Financial Statements or    
acquired after such dates (except to the extent of property disposed of     
since such dates in the ordinary course of business), and valid leasehold   
interests in all real properties leased by the Company or its Subsidiaries  
and all material tangible personal properties leased by the Company or its  
Subsidiaries, in each case free and clear of all mortgages, liens, charges, 
encumbrances, easements, security interests or title imperfections except   
(a) liens for current taxes not due and payable or the validity of which is 
being contested in good faith, (b) liens securing Indebtedness reflected on 
the December 31, 1993 balance sheet included in the DEA Financial           
Statements, which liens are listed on Schedule 3.9, (c) purchase money      
security interests and liens securing rental payments under leases incurred 
in the ordinary course of business, (d) liens arising by operation of law   
in favor of mechanics, materialmen and similar parties for work done to the 
extent that the obligation secured thereby is not at the time required to   
be paid and (e) other encumbrances on real property, such as ordinary       
utility easements, rights of way, zoning, building and use restrictions,    
that do not materially interfere with the existing use of such property in  
the conduct of the DEA Business or materially detract from the value of     
such property (the exceptions described in the foregoing clauses (a), (b),  
(c), (d) and (e) being referred to herein as "Permitted Encumbrances").     

Neither the Company nor any Subsidiary has received any notice or has any   
knowledge of any violation of any zoning restrictions and ordinances, health    
and fire codes and ordinances, laws or regulations, affecting any such parcel   
in any material respect, and have no reason to believe that any authority       
contemplates issuing the same. Neither the Company nor any Subsidiary has       
received any notice of any condemnation or eminent domain proceeding for any    
taking of any such parcel, or any part thereof or of any negotiations for the   
purchase of any such parcel, or any part thereof in lieu of condemnation and,   
to the best of their knowledge,                                                 

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no condemnation or eminent domain proceedings or negotiations have been         
commenced or threatened in connection with any such property.                   

3.9.2 Leases. Except as set forth on Schedule 3.9.2, the Company and its
Subsidiaries enjoy peaceful and undisturbed possession under all leases of  
real and personal property to which they are parties (which in the case of  
personal property means any lease having an unexpired term of one or more   
years and remaining rental payments aggregating in excess of $10,000) and   
all such leases are valid and subsisting; the Company or its Subsidiaries,  
as the case may be, have paid all rent due and payable under all such       
leases, and there exists no material default on the part of the Company or  
its Subsidiaries, or, to the best of Finmeccanica's and the Company's       
knowledge, the lessors, existing thereunder.                                

3.9.3 Condition. Except as set forth in Schedule 3.9.3, all structures  
and other improvements, including fixtures, located on the real property    
owned or leased by the Company or any of its Subsidiaries and all tangible  
personal property owned or leased by the Company or its Subsidiaries, which 
in each case are necessary for the conduct of the DEA Business as presently 
conducted, are in good operating condition in all material respects for     
property of its type and age, subject to ordinary wear and tear.            

3.10 Material Contracts. Schedule 3.10 contains a complete and correct list 
of all agreements, contracts and commitments of the following types, written or 
oral, to which the Company or any of its Subsidiaries is a party or by which    
any of their property is bound as of the date hereof (collectively the "DEA     
Material Contracts"):                                                           

(a) notes, loans, credit agreements, overdraft facilities, mortgages,   
indentures, security agreements and other agreements and instruments        
relating to the borrowing of money or extension of credit to the Company or 
its Subsidiaries or to any guarantee by the Company or its Subsidiaries of  
any obligations of a third party;                                           

(b) consulting or professional services agreements, or employment       
agreements;                                                                 

(c) all distribution, agency, commission or sales representative        
agreements;                                                                 

(d) agreements, orders, or commitments for the purchase of raw materials
exceeding $75,000 in any case or for the purchase of supplies or finished   
products exceeding $75,000 in any case or;                                  

(e) agreements, orders or commitments for the sale or lease to customers
of products or services exceeding $200,000 in any case (or $100,000, if     
such agreements, orders or commitments for sale or lease involve a warranty 
or performance representation, terms or acceptance criteria imposed by the  
purchaser which are different from the standard warranty and terms and      
conditions of sale terms disclosed in or scheduled pursuant to Section      
3.22);                                                                      

(f) all licenses by or to the Company or its Subsidiaries (other than   
solely intercompany licenses between the Company and any of the             
Subsidiaries) of any Intellectual Property (as defined in Section 3.12) to  
or from any affiliated or unaffiliated third party (excluding any end-user  
licenses available through normal commercial channels), including all       
licenses from third parties relating to Software Programs and Technical     
Documentation (as such terms are defined in Section 3.12);                  

(g) agreements or commitments for capital expenditures in excess of     
$100,000 for any single project or series of related projects; and          

(h) other agreements or obligations material to the Company and its     
Subsidiaries involving payments, receipts, assets or obligations of more    
than $100,000.                                                              

The Company has delivered or made available to Brown & Sharpe complete and  
correct copies of all written Material Contracts and accurate summaries of all  
oral Material Contracts. Except as disclosed in Schedule 3.10, all such         
Material Contracts are in full force and effect. Except as set forth on         
Schedule 3.10, neither the Company nor any of its Subsidiaries have any         
outstanding powers of attorney, except routine powers of attorney relating to   
representation before governmental agencies or given in connection with         
qualification to conduct business in another jurisdiction.                      

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3.11 Accounts Receivable; Inventories. (a) The accounts receivable of the   
Company and its Subsidiaries reflected on the combined balance sheets of the    
DEA Companies as at June 30, 1993 and December 31, 1993 contained in the DEA    
Financial Statements (except those collected since such date) and such          
additional accounts receivable as are reflected on the books of the Company and 
its Subsidiaries on the date hereof, net of applicable reserves as shown on     
such June 30, 1993 and December 31, 1993 balance sheets or applicable reserves  
on the additional accounts receivable subsequent to December 31, 1993, (which   
reserves have been determined in accordance with the general accounting         
methodology with respect to reserves against accounts receivable and with       
respect to credit policies relating to receivables utilized by the Company and  
its Subsidiaries and furnished to Brown & Sharpe pursuant to Section 1.4(b)     
above) and arose out of bona fide sales and deliveries of goods or the          
performance of services in the ordinary course of the DEA Business in           
accordance with past practice.                                                  

(b) The inventories reflected on such combined balance sheet as at December 
31, 1993 and held by the Company and its Subsidiaries on the date hereof are in 
good, usable or saleable condition and, except as indicated in the report of    
RE&Y accompanying the DEA Financial Statements for the periods ended December   
31, 1993 and 1992, have been reflected on such balance sheet in accordance with 
Italian GAAP or, in the absence thereof, IASC GAAP consistently applied. The    
reserves with respect to obsolete, slow moving or discontinued items and the    
accounting for inventory is in accordance with the general accounting policy    
and methodology with respect to inventory utilized by the Company and its       
Subsidiaries and furnished to Brown & Sharpe pursuant to Section 1.4(b) above,  
except as indicated in the report of RE&Y accompanying the DEA Financial        
Statements for the periods ended December 31, 1993 and 1992.                    

 To the best knowledge of Finmeccanica and the Company, except as disclosed on
Schedule 3.11(b), none of the DEA Companies holds any goods on consignment from 
third parties. Except as disclosed on Schedule 3.11(b), no third party          
(including Finmeccanica or any of its affiliates) holds any goods on            
consignment from the DEA Companies or has purchased goods from the DEA          
Companies on a "sale on approval" basis or with a right of return (other than   
pursuant to an express warranty as disclosed in Schedule 3.22D).                

3.12 Intellectual Property. (a) For purposes of this Section 3.12, the term 
"Intellectual Property" shall mean all patents and patent applications,         
registered or unregistered trademarks, copyrights, service marks, applications  
for registration thereof, trade names, inventions, processes, designs and       
design rights, formulas, trade secrets, know-how, software and computer         
programs, including all software or program logic burned into a chip            
("Firmware") and other items of intellectual property and propriety rights.     

 (b) The Company and the Subsidiaries own all rights to the name "DEA" and the
other names listed on Schedule 3.12 for all products, and no other person has   
acquired or owns any rights thereto. Schedule 3.12 also contains a complete and 
correct list of all patents, patent applications, registered or unregistered    
trademarks, tradenames or servicemarks, registered trademarks, tradenames or    
servicemarks applications, and all copyrights or copyright applications (which  
copyrights are listed by general category only), which are, in the case of each 
item on said lists, owned by the Company and the Subsidiaries or in which the   
Company or its Subsidiaries has any rights or licenses. Schedule 3.12 also sets 
forth the principal products (or features such as controls) which utilize or    
are covered by the software programs and Firmware which the DEA Companies own   
or have the right to use.                                                       

The Company and its Subsidiaries own, or possess adequate rights to use, all
Intellectual Property necessary for the conduct of the DEA Business as          
presently conducted and as conducted since June 30, 1993.                       

Except as set forth on Schedule 3.12, neither the Company nor any of its    
Subsidiaries has any obligation to make payments of royalties or other amounts  
or transfer any interest in such Intellectual Property to any third party,      
including Finmeccanica and its other affiliates.                                

(c) For the purposes of this Section 3.12(c), the term "Technical           
Documentation" shall mean flow charts, diagrams, descriptive texts and          
programs, computer print-outs, underlying tapes, source codes and computer data 
bases, mechanical designs, parts manufacturing and assembly processes and       
similar items                                                                   

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owned by the Company and the Subsidiaries or in which the Company or the        
Subsidiaries has any right or interest with respect to the software programs    
and Firmware.                                                                   

 To the best knowledge of Finmeccanica, the Technical Documentation, including
that relating to the Firmware and the software programs (except with respect to 
any third party software programs which include only the materials and          
Technical Documentation actually delivered to the Company and the Subsidiaries  
by the third party under any third party software contract) includes the source 
code, system documentation, statements of principles of operation, and          
schematics for all software programs and Firmware used in the conduct of the    
DEA Business. Except with respect to third party software programs, the         
Technical Documentation also includes any program (including compilers),        
"workbenches", tools and higher level (or "proprietary") language used for the  
development, maintenance, and implementation of the software programs and       
Firmware.                                                                       

(d) To the best knowledge of Finmeccanica and the Company, the Company and  
the Subsidiaries have obtained all necessary rights and licenses to use, copy   
and distribute as part of the software programs or Firmware used in the DEA     
business the third-party programming and materials contained in the software    
programs and Technical Documentation. The Company has exercised reasonable      
efforts to maintain the source codes and system documentation relating to the   
software programs. The software programs and Firmware have been maintained in   
confidence, except for end-user licenses solely for use in connection with      
products of the Company and the Subsidiaries purchased by such end-users. The   
Company and the Subsidiaries have not received or have knowledge of any claims  
from any person or entity that the use of the Intellectual Property by the      
Company and the Subsidiaries infringes or conflicts with any intellectual       
property right or other proprietary right of any person or entity.              

(e) Except as indicated in Schedule 3.12, to the best knowledge of          
Finmeccanica and the Company, the Company and the Subsidiaries have not         
granted, transferred or assigned, or acquiesced in or permitted use without a   
license of, any right or interest in the Intellectual Property to any person or 
entity, except pursuant to non-exclusive end-user license agreements for        
internal purposes only.                                                         

3.13 Insurance. The Company and its Subsidiaries have maintained and now    
maintain, as the case may be, (i) insurance on the DEA Business covering        
property damage and loss of income by fire and other casualty to the limits and 
with the deductibles shown on Schedule 3.13 and (ii) insurance protection       
against such liabilities, claims and risks including product liability, and in  
such amounts, as is shown on such Schedule. The Company will, upon request,     
deliver to Brown & Sharpe complete and correct copies of all such policies      
together with all riders and amendments thereto. Such policies are in full      
force and effect, all premiums due thereon have been paid, and the Company and  
its Subsidiaries have complied in all material respects with the provisions of  
such policies and have not received notice of any material increase in          
insurance premiums payable.                                                     

3.14 Litigation. (a) Except for the matters described in Schedules 3.8, 3.14
and 3.19.1 and claims fully covered by insurance policies of the Company and    
its Subsidiaries, there are no judicial or administrative actions, suits,       
proceedings or arbitrations or investigations (domestic or foreign) pending or, 
to the best knowledge of Finmeccanica or the Company, threatened (for an amount 
in excess of $100,000 in the case of threatened matters) against the Company or 
any of its Subsidiaries or their respective assets, including the DEA Shares,   
or which were pending or threatened at any time since January 1, 1991.          
Finmeccanica has heretofore furnished or made available to Brown & Sharpe, if   
so requested by Brown & Sharpe, true and complete copies of all relevant court  
papers, proceeding administrative request, and other documents relating to the  
matters specifically set forth on Schedules 3.8, 3.14 and 3.19.1. Grievance     
matters if less than $15,000 or, in the aggregate $50,000, are excluded from    
this Section 3.14.                                                              

(b) Except as listed on Schedule 3.14, there are no machines, products,     
systems or equipment sold by the Company or any of its Subsidiaries as to       
which, to the best knowledge of Finmeccanica, there is pending a written        
dispute with a customer for an amount in excess of $100,000 as to the           
performance or functionality                                                    

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of the items sold to such customer (and all such disputes where the Company or  
a Subsidiary has received a letter from legal counsel for such customer have    
been reflected in the reserve to the accounts receivable on the December 31,    
1993 combined balance sheet included in the DEA Financial Statements or         
reserved against in the case of any such disputes occurring after December 31,  
1993 to the extent required in each case to be so reserved against under        
applicable Italian GAAP or in the absence thereof IASC GAAP and the reserves    
policies furnished to Brown & Sharpe under Section 1.4(c)).                     

3.15 Compliance with Laws; Governmental Authorizations. Except for matters  
described in Schedule 3.15 and excluding environmental matters that are         
encompassed by Section 3.16 below and all matters encompassed by Section 3.19   
below, the Company and its Subsidiaries are not in violation of or default in   
any material respect under any statute, law, ordinance, rule, regulation,       
judgment, order, decree, permit, concession, grant, franchise, license or other 
governmental authorization or approval including without limitation any laws,   
rules or regulations of the European Union ("EU Law") applicable to the Company 
or its Subsidiaries or to any of their assets, properties, products or          
services. All permits, concessions, grants, franchises, licenses and other      
governmental authorizations and approvals necessary for the conduct of the DEA  
Business have been duly obtained and are in full force and effect, except where 
the failure to obtain or maintain in effect any of the foregoing would not have 
a material adverse effect on any plants or facilities of the Company or any     
Subsidiary or on the business of the Company or any Subsidiary, and there are   
no proceedings pending or, to Finmeccanica's knowledge threatened that may      
result in the revocation, cancellation or suspension, or any materially adverse 
modification, of any thereof.                                                   

3.16 Environmental Matters. Schedule 3.16 is a true and complete list of all
known conditions or states of fact existing on the date hereof and as of the    
Closing Date based on or resulting from the presence in or discharge, spill,    
disposal, emission, generation, storage or release of any chemical, pollutant,  
contaminant, waste, toxic or hazardous substance or petroleum product into the  
environment caused by any of the DEA Companies at any location owned or leased, 
currently or in the past, by the Company or any of its Subsidiaries, which      
constitutes a violation of or requires remediation under any Health and         
Environmental Laws.                                                             

"Health and Environmental Laws" means any decree, order (including any      
administrative act issued by any authority requiring compliance with applicable 
laws, statutes, rules and regulations before the issue of a formal order) or    
arbitration award of, any EU Regulation and Decision (as defined below) or any  
law, statute, or binding decision or regulation of or any agreement with, or    
any license, authorization or permit from, any EU Institution, national,        
regional or local governmental authority or court relating to occupational and  
public health and safety (including fire prevention), or the environment in     
effect as of the date hereof and the Closing Date (including, without           
limitation, national, regional and local laws, statutes, rules and regulations  
relating to environmental matters and contamination of any type whatsoever).    

"EU Institution" shall mean the EU Council, the European Commission and the 
European Court of Justice.                                                      

 "EU Regulations and Decisions" means all applicable regulations and decisions
adopted by the EU Council (or the former Council of the European Community) or  
the European Commission (or the former Commission of the European Community).   

3.16.1 Except as disclosed on Schedule 3.16, the Company and its        
Subsidiaries are in compliance in all material respects with all applicable 
Health and Environmental Laws with respect to the use, transport, import,   
export, temporary or final storage, recycling or disposal of any waste,     
chemical substance or mixture, pollutant, including without limitation, any 
contaminant, irritant, or pollutant or other hazardous or toxic substance   
("Hazardous Materials") which are identified as such in any jurisdiction in 
which the Company or its Subsidiaries either owns or leases real property   
or conducts its business.                                                   

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3.16.2 Except as disclosed on Schedule 3.16, (i) neither the Company nor
any of its Subsidiaries has received notice from any governmental authority 
(or has knowledge that any governmental authority may give notice) that it  
is in violation of any applicable Health and Environmental Laws with        
respect to the use, transport, import, export, temporary or final storage,  
recycling or disposal of any such Hazardous Materials; (ii) the Company and 
its Subsidiaries have obtained and have complied with all financial or      
other conditions contained in all necessary permits, licenses,              
authorizations and consents for the use, transport, import, export,         
temporary or final storage, recycling and disposal of all Hazardous         
Materials used in the conduct of the DEA Business except for those permits, 
licenses or authorizations the failure to obtain which would not have a     
Material Adverse Effect on the DEA Business; and (iii) to the knowledge of  
Finmeccanica, there have been no direct or indirect discharges, spills,     
leaks or releases, whether accidental or voluntary, of any Hazardous        
Materials caused by any of the DEA Companies on any real property (a) now   
leased or previously leased or (b) now owned or previously owned by the     
Company or any of its Subsidiaries, which in any case constitutes a         
violation of or requires remediation under any Health and Environmental     
Law.                                                                        

3.17 Brokers, Finders, etc. Neither Finmeccanica, the Company or any of its 
Subsidiaries has retained any financial advisor, broker, agent or finder or     
paid or agreed to pay for any financial advisor, broker, agent, or finder on    
account of this Agreement or any transaction contemplated hereby, or any        
transaction of like character that would be required to be paid by              
Finmeccanica, the Company, any of its Subsidiaries or Brown & Sharpe.           

3.18 Directors, Officers and Employees; Compensation. The Company has       
delivered to Brown & Sharpe a true and complete list of directors and officers  
of the Company and its Subsidiaries and of all employees and consultants of the 
Company and its Subsidiaries whose current total compensation was for the       
calendar year ended 1993 at an annual rate in excess of $50,000 (or the         
equivalent amount in foreign currency), which list states the annual rate of    
compensation of, and the positions held by, the persons listed.                 

3.19 Labor and Employment; ERISA.                                           

3.19.1 Except as set forth on Schedule 3.19.1:                          

(a) each of the Company and its Subsidiaries is in compliance in all
material respects with all applicable EU Regulations and Decisions,     
national and state or local laws, rules and regulations with respect to 
its employees and employment practices, and terms and conditions of     
employment, including without limitation any provisions thereof         
relating to wages, bonuses, hours of work and social security pensions  
and other mandatory contributions, medical laws and safety insurance    
laws and regulations (including [INPS, INAIL] and other similar         
authorities as well as other funds, entities or agencies, as provided   
for by the applicable national collective bargaining agreements);       

(b) there is not pending or, to the best knowledge of Finmeccanica, 
threatened, and there has not occurred since January 1, 1991, any       
material trade union or collective labor-related disputes or strikes    
involving the Company or any of its Subsidiaries;                       

(c) there are no grievance or arbitration proceedings arising out of
or under any national collective bargaining agreement pending or, to    
the best knowledge of Finmeccanica, threatened, and no claim therefor   
has been asserted against the Company, in each case for an amount in    
excess of $15,000 or in the aggregate $50,000;                          

(d) all pension plans and severance funds required by law to be     
funded by the Company or any Subsidiary are funded in accordance with   
applicable laws, regulations or statutes;                               

(e) there are no material written agreements or understandings with 
any unions or shop committees (in regard to employees outside the       
United States), except under the provisions of the applicable national  
collective bargaining agreements;                                       

(f) except where required by law, there are no employment agreements
(other than those the terms of which are solely prescribed by laws,     
regulations and applicable national collective                          

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bargaining agreements) or agreements for provision of services or       
consultancy of whatever nature, which (A) are not terminable by the     
Company or its Subsidiaries on 90 or fewer days notice at any time      
without penalty, (B) have a remaining term, as of the date hereof, of   
more than one year in length of obligation on the part of the Company   
or its Subsidiaries or (C) involve payment by the Company and its       
Subsidiaries, subsequent to the date hereof, of more than US $50,000;   

(g) there are no employment agreements whatsoever that may be       
terminated solely as a result of a change of control of the Company or  
any of its Subsidiaries, other than for as provided for by any          
applicable national collective bargaining agreements.                   

3.19.2 Schedule of Employee Benefit Plans.                              

 (a) Schedule 3.19.2 contains a true and complete list, as of the date of this
Agreement, of all profit sharing, deferred compensation, severance pay, bonus,  
stock option, stock purchase, pension, retainer, consulting, retirement,        
change-in-control, welfare or incentive plans, contracts, arrangements,         
policies, programs or practices, vacation pay (or so-called "thirteen months'   
pay") or other plans, policies or agreements for the benefit of employees       
whether or not subject to the US Employee Retirement Income Security Act of     
1974, as amended ("ERISA") (including any funding mechanism therefor now in     
effect or required in the future as a result of the transaction contemplated by 
this Agreement or otherwise) maintained or contributed to by the Company and    
its Subsidiaries (other than government plans) and in which any one or more of  
the employees (including former employees and beneficiaries of employees or     
former employees) of the Company and its Subsidiaries participates or is        
eligible to participate, whether or not reduced to writing, including, without  
limitation, a complete list of all plans, agreements, arrangements, policies,   
programs or practices which constitute "fringe benefits" with respect to any of 
the employees of the Company and its Subsidiaries, vacation plans or programs,  
sick leave plans or programs, group medical insurance, group life insurance,    
medical reimbursement, disability insurance, workmen's compensation,            
supplemental unemployment benefits, other insurance coverage relating to        
employees (including any self-insured arrangements) and related benefits, any   
employee benefit plan (as defined in Section 3(3) of ERISA), maintained by the  
Company or any of its Subsidiaries or to which the Company or any of its        
Subsidiaries makes or is required to make contributions, or to which the        
Company or any of its Subsidiaries is a party or by which it is bound, except   
any such plan, contract, arrangement, policy, program or practice which the     
Company or any of its Subsidiaries is required by law to maintain or to which   
the Company or any of its Subsidiaries is required by law to contribute         
(collectively, the "Plans"). True, current and complete copies of such Plans,   
all amendments and written interpretations with respect thereto, if any, and to 
the extent applicable, copies of the most recent of the following have been     
furnished to Brown & Sharpe: (i) determination letter of the Internal Revenue   
Service and any outstanding request for a determination letter; (ii) Form 5500, 
attached schedules, audited financial statements, and any related actuarial     
valuation reports with respect to the last three plan years for each Plan; and  
(iii) any summary plan description.                                             

 (b) Each Plan and each trust or funding vehicle related to such Plan has been
administered and operated in all material respects in compliance with its terms 
and with all applicable statutes, orders, rules and regulations, including      
where applicable, ERISA and the US Internal Revenue Code of 1986, as amended    
("Code"), including, but not limited to, the preparation and filing of all      
required reports and returns with respect to such Plan, the submission of such  
reports or returns to the appropriate governmental authorities, the timing,     
preparation and distribution of all required employee communications (including 
without limitation any notice of plan amendments which is required prior to the 
effectiveness of such amendments), and the proper and timely disposition of all 
benefit claims. Each Plan which is intended to be a "qualified plan" as         
described in Section 401(a) of the Code has been determined by the Internal     
Revenue Service to so qualify (or a timely application for such determination   
has been or is intended to be submitted to the Internal Revenue Service), and   
neither the Company nor any Subsidiary knows of any fact or facts which might   
adversely affect such qualification. Neither the Company nor any Subsidiary     
sponsors or contributes to any Plan subject to the funding requirements of      
Section 412 of the Code.                                                        

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(c) With respect to all Plans and related trusts, no "prohibited            
transaction," as that term is defined in Section 406 of ERISA, has occurred     
which is likely to subject any Plan, related trust or party dealing with any    
such Plan or related trust to any material tax or penalty on prohibited         
transactions imposed by Section 502(i) of ERISA or Section 4975 of the Code and 
the consummation of the transactions contemplated hereby will not constitute    
such a prohibited transaction. There are no actions, suits, arbitrations or     
claims with respect to a Plan (other than routine claims for benefits by        
employees, beneficiaries or dependents arising in the normal course of          
operations of such Plan) pending, or to the best knowledge of Finmeccanica,     
threatened, with respect to any such Plan or any fiduciary or sponsor of such   
Plan with respect to their duties under such Plan or the assets of any trust    
under any such Plan.                                                            

 (d) Other than the TFR Liabilities reflected on the December 31, 1993 balance
sheet included in the DEA Financial Statements, there are no unfunded           
obligations under any Plan providing pension or post-retirement welfare         
benefits to any employee of the Company or any Subsidiary who will be employed  
by Brown & Sharpe after the Closing Date (other than continuation of health     
coverage as provided pursuant to Sections 601 through 608 of ERISA, Sections    
104, 105, 106, and 4980B of the Code).                                          

3.20 Investment Representation. Neither Finmeccanica nor any of its         
affiliates owns beneficially or of record any of the capital stock of Brown &   
Sharpe. Finmeccanica is acquiring the Brown & Sharpe Purchase Price Shares and  
the Contingent Stock for its own account and not with a view to, or for sale in 
connection with, directly or indirectly, any distribution thereof that would    
require registration under the Securities Act of 1933, as amended (the          
"Securities Act") or applicable state "blue sky" or securities laws or would    
otherwise violate the Securities Act of 1933 or such state securities laws.     

3.21 Government Grants. Attached as Schedule 3.21 is a true and correct list
of grants from governmental bodies to the Company and its Subsidiaries as       
reflected on the combined balance sheet at December 31, 1993 included in the    
DEA Financial Statements. Except as set forth in Schedule 3.21, the funds       
represented by such grants have been disbursed by the relevant governmental     
bodies and received by the relevant DEA Companies, and no DEA Company which is  
a recipient of any such grant is in default of any of the terms and conditions  
specified in the governmental authorization of such grant.                      

3.22 Customers, Suppliers, Product Warranties, Defects in Products. Schedule
3.22A contains a correct and complete list of all orders for unshipped goods    
involving a sales price of $95,000 or more for non-standard and $150,000 or     
more for standard machines, products or equipment. To the best of the knowledge 
of the Company and the Subsidiaries, all such orders are written orders signed  
by the customer, with a delivery date as set forth on Schedule 3.22A and such   
orders do not require any reserves to be established under Italian GAAP or, in  
the absence thereof, IASC GAAP or under the past practices of the Company and   
the Subsidiaries. Schedule 3.22A also includes a current and complete list of   
all sales transactions involving a sales price of $95,000 or more for non-      
standard and $150,000 for standard machines, products or equipment pursuant to  
which the goods have been shipped and the revenue therefrom recognized in full  
but as to which (i) the Company or a Subsidiary has an obligation to perform    
services (excluding warranty services) or additional work (such as for example  
software programming) at no additional charge in addition to the sales price    
and (ii) the gross margin recognized in the transaction is less than the cost   
of performing the service or other work (other than warranty work) that is      
contractually to be performed by the Company or the Subsidiary.                 

Schedule 3.22B is a list by country of the top 20 customers of the Company  
and its Subsidiaries, having the largest aggregate monetary purchases from the  
Company and the Subsidiaries for each of the years 1993, 1992 and 1991, with    
notation of the aggregate dollar purchases, and a list of the top 10 suppliers  
to the Company for each of the years 1993, 1992 and 1991.                       

The estimated costs of warranty work and "out-of-warranty" work (less any   
payments received therefor) for machines sold by the Company and the            
Subsidiaries in each of 1993, 1992 and 1991 are set forth on Schedule 3.22C. It 
is expressly acknowledged and agreed by Brown & Sharpe that inasmuch as the DEA 

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Companies do not charge warranty costs to a separate account in the ordinary    
course of business, actual historical warranty cost data are not available, and 
that the figures stated in the foregoing sentence are solely estimates provided 
in good faith for informational purposes. Unless such information has not been  
provided in good faith, Finmeccanica shall not be liable for any failure to     
disclose, or inaccurate disclosure of, the actual warranty cost of the DEA      
Companies in respect of the machines described in the foregoing sentence.       
Schedule 3.22D sets forth a correct and complete list of machines sold for      
$95,000 or more (for standard machines) and $150,000 or more (for nonstandard   
machines) under warranty as of the date hereof for which the Company has        
provided special or non-standard warranty provisions. Attached as Schedule      
3.22E are the standard warranty provisions relating to CMMs and spare parts     
therefor produced and sold as part of the DEA Business since January 1, 1993.   

3.23 No Illegal Payments, etc. Neither Finmeccanica, the Company or any of  
its Subsidiaries, nor, to the knowledge of Finmeccanica or the Company, any of  
their respective officers, employees or agents, has (a) directly or indirectly  
given or agreed to give any illegal gift, contribution, payment or similar      
benefit to any supplier, customer, governmental official or employee or other   
person who was, is or may be in a position to help or hinder the Company or any 
of its Subsidiaries (or assist in connection with any actual or proposed        
transaction) or made or agreed to make any illegal contribution, or reimbursed  
any illegal political gift or contribution made by any other person, to any     
candidate for federal, state, local or foreign public office (i) which would    
subject the Company, any of its Subsidiaries to any damage or penalty in any    
civil, criminal or governmental litigation or proceeding or (ii) the non-       
continuation of which has had or will have, individually or in the aggregate, a 
material adverse effect on the Company or any Subsidiary or (b) established or  
maintained any unrecorded fund or asset or made any false entries on any books  
or records for any purpose.                                                     

3.24 Financial Statements and Other Information for Inclusion in the Brown &
Sharpe Proxy Statement. Finmeccanica has heretofore delivered to Brown & Sharpe 
for inclusion in the Brown & Sharpe Proxy Statement and the Brown & Sharpe      
Registration Statement (each as defined in Section 22) (i) consolidated         
financial statements (expressed in U.S. dollars) consisting of balance sheets,  
income statements, statements of cash flow and the footnotes relating thereto   
for the Company and the Subsidiaries and including the operations of the        
metrology business units in the United States, France and England (to the       
extent not included in the above referred entities as at the end of and for     
each of the years ended December 31, 1993, 1992 and 1991, and at March 31, 1994 
and for the three months then ended (which statements are audited in the case   
of the years ended December 31, 1993, 1992 and 1991 and unaudited in the case   
of the three months ended March 31, 1994) in each case in accordance with U.S.  
GAAP and in compliance with the Securities Act of 1933, as amended (the         
"Securities Act"), the Securities Exchange Act of 1934, as amended (the         
"Exchange Act"), and the rules and regulations promulgated by the Securities    
Exchange Commission (the "Commission Rules") applicable to financial statements 
prepared for inclusion in proxy statements and registration statements, in each 
case reported on and certified by the unqualified opinion of RE&Y with respect  
to years ending December, 1992 and 1993 and of Coopers & Lybrand with respect   
to years ending 1990 and 1991, together with the text of Management's           
Discussion and Analysis of Financial Condition and Results of Operations        
("Management's Discussion and Analysis") for the year ended December 31, 1993   
and the three months ended March 31, 1994 and (ii) a description of the         
business of the entities included in the consolidated financial statements      
referred to above complying with the requirements, in each case, of the         
Securities Act and the Exchange Act and the Commission Rules applicable to such 
information. All of the financial statements referred to in this Section 3.24   
are true and complete in all material respects and the Management's Discussion  
and Analysis referred to above and the description of the business does not     
contain an untrue statement of a material fact or omit to state a material fact 
required to be stated therein or necessary in order to make the statements      
therein not misleading.                                                         

3.25 Disclosure. Neither this Agreement (including without limitation the   
Schedules hereto), nor the DEA Financial Statements, nor the information and    
financial statements furnished to Brown & Sharpe and referred to in Section     
3.24 furnished for the Brown & Sharpe Proxy Statement and for the Brown &       
Sharpe Registration Statement, nor any other document, certificate, financial   
statement or other instrument furnished                                         

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or to be furnished by or on behalf of Finmeccanica, contains or will contain    
any untrue statement of a material fact, nor, considered as a whole, omit to    
state a material fact necessary in order to make the statements contained       
herein or therein not misleading.                                               

4. REPRESENTATIONS AND WARRANTIES BY BROWN & SHARPE. Brown & Sharpe         
represents and warrants to Finmeccanica as follows:                             

 4.1 Corporate Status. Brown & Sharpe is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has   
full corporate power and authority to carry on its business as now conducted    
and to own or lease and operate its properties as and in the places where such  
business is now conducted and such properties are now owned, leased or          
operated. Brown & Sharpe is qualified to do business in each jurisdiction in    
which such qualification is required and where the failure to do so would have  
a Material Adverse Effect (as defined in Section 4.6).                          

 4.2 Authority for Agreement. Brown & Sharpe has all necessary corporate power
to execute and deliver this Agreement and the Stockholders Agreement and to     
carry out its obligations hereunder and thereunder and to cause any of its      
subsidiaries to carry out any of its obligations. The execution and delivery of 
this Agreement and the Stockholders Agreement and the consummation of the       
transactions contemplated hereby and thereby have been duly authorized by all   
necessary actions on behalf of Brown & Sharpe on the date hereof, except for    
the approval of its stockholders as contemplated by Section 10.6. Upon          
obtaining of such approval by stockholders of Brown & Sharpe, this Agreement    
and the Stockholders Agreement constitute the valid and legally binding         
obligations of Brown & Sharpe and are enforceable against Brown & Sharpe in     
accordance with their respective terms, subject to bankruptcy, insolvency,      
reorganization or similar laws of general application affecting the rights and  
remedies of creditors and to general equity principles; and the execution and   
delivery of this Agreement and the Stockholders Agreement and the consummation  
of the transactions contemplated hereby will not conflict with, or result in    
any violation of, or default under, any provision of the charter or by-laws of  
Brown & Sharpe or any mortgage, loan indenture, lease, agreement or other       
instrument, permit, concession, grant, franchise, license, judgment, order,     
decree, statute, law, ordinance, rule or regulation applicable to Brown &       
Sharpe, any of its subsidiaries or any of their respective properties or        
assets. Except as set forth in Schedule 4.2, such execution, delivery and       
consummation will not accelerate the maturity of or otherwise modify in any     
material respect the terms of any indebtedness of Brown & Sharpe or any of its  
subsidiaries, or result in the creation of any Encumbrance upon any of the      
properties or assets of Brown & Sharpe or any of its subsidiaries. There are no 
agreements by which Brown & Sharpe or any of its subsidiaries is bound which    
restrict the ability of Brown & Sharpe to carry on the B&S Business anywhere in 
the world. Except as set forth on Schedule 4.2 and subject to such filings as   
may be required by the Securities and Exchange Commission, no consent,          
approval, order or authorization of, or registration, declaration or filing     
with, any governmental authority is required in connection with the execution   
and delivery of this Agreement or the consummation of the transactions          
contemplated hereby and thereby by Brown & Sharpe.                              

 4.3 Capitalization; Authorization of Brown & Sharpe Purchase Price Shares and
Brown & Sharpe Purchase Price Shares Right. Brown & Sharpe's authorized capital 
stock consists of 15,000,000 shares of Class A Common Stock, 2,000,000 shares   
of Class B Common Stock and 1,000,000 shares of Preferred Stock. On March 4,    
1994 there were issued and outstanding 4,468,138 shares of Class A Common       
Stock, 545,693 shares of Class B Common Stock and no shares of Preferred Stock. 
On March 24, 1994, a total of 175,000 shares of Class A Common Stock were       
issued to Diehl GmbH & Co. ("Diehl") in connection with the acquisition by      
Brown & Sharpe from Diehl of the share capital of Ets. Pierre Roch S.A. and     
Mauser Prazisions--Messmittel GmbH (the "Roch Group"), of which 140,350 shares  
of Class A Common Stock were issued to Diehl for cash and 34,650 shares were    
issued to Diehl in consideration for the transfer of the Roch Group to Brown &  
Sharpe International Capital Corporation, a wholly-owned subsidiary of Brown &  
Sharpe and an additional 25,000 shares of Class A Common Stock have been        
reserved for issuance to Diehl pursuant to purchase price adjustments. In       
connection with the acquisition of the Roch Group, Diehl also                   

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received a non-assignable contingent right to receive an additional 50,000      
shares of Class A Common Stock of Brown & Sharpe.                               

 As of March 24, 1994, the Company had reserved for issuance 609,523 shares of
Class A Common Stock issuable on conversion of the 9 1/4% Convertible           
Debentures Due December 15, 2005 outstanding in principal amount of             
$16,000,000, and shares of Class A Common Stock, not exceeding 800,000 shares   
in the aggregate, issuable pursuant to the Amended Profit Incentive Plan, the   
amended 1973 Stock Option Plan, the Restated Employee Stock Ownership and       
Profit Participation Plan, the Savings and Retirement Plan and the 1989 Equity  
Incentive Plan. Upon obtaining approval by the Stockholders of Brown & Sharpe,  
the Brown & Sharpe Purchase Price Shares to be issued in connection with the    
transactions contemplated hereby will have been duly authorized and, when       
issued under this Agreement shall be validly issued, fully paid and non-        
assessable. Brown & Sharpe has reserved a sufficient number of Class A Common   
Stock for issuance pursuant to the Post-Closing Price Adjustment provided for   
in Section 1.4 hereof. The Brown & Sharpe Purchase Price Shares will be duly    
authorized for listing on the New York Stock Exchange upon the required         
approval by stockholders of Brown & Sharpe of the issue thereof pursuant to     
this Agreement. There are no preemptive rights on the part of any holder of any 
class of securities of Brown & Sharpe. There are no options, warrants,          
conversion or other rights, agreements, or commitments of any kind obligating   
Brown & Sharpe, contingently or otherwise, to issue or sell any shares of its   
capital stock of any class or any securities convertible into or exchangeable   
for any such shares except as set forth above, and no authorization therefor    
has been given, except for not exceeding 100,000 shares of Class A Common Stock 
which may be issued in connection with potential acquisitions. All outstanding  
shares of Brown & Sharpe's Class A Common Stock and Class B Common Stock and    
any outstanding options, warrants or other rights to purchase shares of Brown & 
Sharpe's capital stock and any shares of Brown & Sharpe's stock issuable upon   
exercise, conversion or exchange thereof, have been issued or granted in        
compliance with the registration or qualification provisions of the Securities  
Act and any applicable state securities laws, or pursuant to valid exemptions   
therefrom. Brown & Sharpe is not a party or subject to any agreement or         
understanding and, to the best of its knowledge, there is no agreement or       
understanding between any persons that affects or relates to the voting or      
giving of written consents with respect to any security or the voting by a      
director of Brown & Sharpe. Except for agreements relating to shares of Class A 
common stock held by members of the Mercer family and by Diehl GmbH & Co.,      
which together do not exceed in the aggregate 300,000 shares (exclusive of      
50,000 contingent shares which Diehl GmbH has a right to acquire), Brown &      
Sharpe is not under any obligation to register any of its presently outstanding 
securities or any of its securities which may hereafter be issued. To the       
extent Brown & Sharpe is under any obligation to register any of its            
securities, such obligations do not violate, limit or impede the rights granted 
to Finmeccanica under the Stockholders Agreement.                               

Brown & Sharpe has heretofore delivered a true and complete copy of its     
Certificate of Incorporation, as amended, setting forth the rights and          
privileges associated with the classes of its capital stock. A correct list as  
of March 4, 1994 of beneficial owners of 5% or more of the capital stock of     
Brown & Sharpe is contained in the Brown & Sharpe Proxy Statement delivered to  
its securities holders for the 1994 Annual Meeting on April 29, 1994.           

4.4 Subsidiaries. Except as set forth on Schedule 4.4, there are no         
corporations, associations, partnerships or other entities or business          
enterprises in which Brown & Sharpe, directly or indirectly, has any investment 
or owns any shares of capital stock or any other record or beneficiary equity   
or other ownership or control interest (except such investments or interests    
which as of December 25, 1993 had a book value as reflected in the Brown &      
Sharpe Financial Statements (as defined in Section 4.5) of less than $250,000)  
which are set forth in a letter of even date from Brown & Sharpe to             
Finmeccanica. Except as set forth on Schedule 4.4, Brown & Sharpe owns or is    
sole beneficiary of all of the issued and outstanding stock options, warrants,  
rights or commitments, relating to the issuance of any shares of capital stock  
or equity interests of its subsidiaries. Brown & Sharpe and its subsidiaries    
have no commitment to contribute to the capital of, make loans to or share the  
losses of any enterprise.                                                       

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Each of Brown & Sharpe's subsidiaries is a duly organized, validly existing 
corporation in good standing under the laws of its jurisdiction of              
organization, and has all necessary power and authority (corporate or           
otherwise) to carry on its business as presently conducted and as proposed to   
be conducted.                                                                   

4.5 Financial Statements. Attached hereto as Schedule 4.5 are copies of the 
audited consolidated balance sheets of Brown & Sharpe and its subsidiaries at   
and for the years ending December 25, 1993, December 26, 1992 and December 28,  
1991 and the three months ending April 2, 1994 (unaudited) and related          
statements of operations, changes in shareholder equity and cash flows          
(together with the auditors' reports thereon) for each of the years in the      
three year period ended December 25, 1993 and for the three months ended April  
2, 1994 (unaudited), together with the notes to such financial statements (all  
of such financial statements being herein referred to as the "Brown & Sharpe    
Financial Statements"). Such financial statements are true and complete in all  
material respects and have been prepared in accordance with U.S. GAAP           
consistently applied throughout the periods indicated (except as otherwise      
indicated in the report of Coopers & Lybrand and except as indicated in the     
footnotes to the Financial Statements for the three months ended April 2,       
1994), and fairly present the financial condition of the entities covered       
thereby, as of the dates thereof, and the results of their operations for the   
indicated periods subject, in the case of the unaudited statements, to normal   
and recurring year-end audit adjustments.                                       

4.6 Absence of Changes. Except as set forth in the Brown & Sharpe Report on 
Form 10-Q for the quarter ended April 2, 1994 and in Schedule 4.6 and other     
than liabilities which have arisen after December 25, 1993 in the ordinary      
course of business consistent with past practice, since December 25, 1993, (a)  
there has been no material adverse change in the condition, financial or        
otherwise (other than as a result of general external economic conditions       
affecting the metrology industry), properties, assets, liabilities, business or 
operations of Brown & Sharpe and its subsidiaries, considered as a whole (a     
"Material Adverse Effect") and (b) neither the Company nor any of its           
subsidiaries has:                                                               

(i) declared, set aside, made or paid any dividend or other distribution
(other than intercompany dividends or distributions) in respect of its      
capital stock, or agreed to do any of the foregoing, or purchase or redeem  
or agreed to purchase or redeem, directly or indirectly, any shares of its  
capital stock;                                                              

(ii) issued or sold any shares of its capital stock of any class or any 
options, warrants, conversion or other rights to purchase any such shares   
or any securities convertible into or exchangeable for such shares; except  
for issuances or proposed issuances as referred to in Section 4.3;          

(iii) incurred any indebtedness for purchase money or borrowed money    
other than in the ordinary course of business consistent with past          
practices, except that it is understood that Brown & Sharpe and its         
Subsidiaries may borrow additional amounts under the lines of credit and    
agreements described in its Annual Report on Form 10-K for the year ended   
December 25, 1993 (the "Annual Report") and that Brown & Sharpe may obtain  
a Rhode Island Plant mortgage which would be repaid following the Closing   
out of the proceeds of the funding referred to in Section 10.11;            

(iv) mortgaged, pledged, or subjected to any Encumbrance any of its     
properties or assets, tangible or intangible, except for loans under the    
lines of credit and agreements described in its Annual Report and Permitted 
Encumbrances; other than in connection with a Rhode Island Plant Mortgage   
referred to above;                                                          

(v) except in the ordinary course of business or in connection with the 
Roch Group acquisition or any pending acquisition by Brown & Sharpe the     
consideration for which consists of shares of its Class A Common Stock as   
contemplated by Section 4.3, acquired or disposed of any tangible assets or 
properties having a value in excess of $100,000 in any transaction with any 
other person;                                                               

(vi) forgiven or canceled any debts or claims, or waived any rights,    
except in the ordinary course of business and consistent with past          
practices;                                                                  

 (vii) with respect to any director, officer, employee or consultant whose
annual compensation is, or was during the year ended December 25, 1993, in  
excess of the equivalent of $50,000, (A) granted to any such person any     
material increase in compensation in any form (including any material       
increase in                                                                 

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scope of any benefits), other than annual salary increases consistent with  
prior practice, or increases upon promotions or bonuses under the           
President's Award Program and the Profit Incentive Plan or promotional      
increases in sales commissions, or (B) become subject to any request for    
severance or termination pay, or granted any severance or termination pay,  
or entered into any employment or severance agreement with any such person; 

(viii) adopted, or amended in any material respect, any bonus, profit-  
sharing, compensation, stock option, pension, welfare, security,            
retirement, deferred compensation or other material plan, agreement, trust, 
fund or arrangement of Brown & Sharpe Manufacturing Company for the benefit 
of any employee or employees;                                               

 (ix) experienced any Material Adverse Effect in its relations with any of
its suppliers or customers;                                                 

(x) except for the construction of the TML Building in England or as    
disclosed on Schedule 4.6, made any capital expenditures or commitment      
therefor in excess of $250,000;                                             

(xi) incurred any liability (absolute, accrued or contingent) except    
current liabilities incurred, liabilities under contracts entered into, in  
each case incurred in the ordinary course of business, borrowings under     
short-term lines of credit, the borrowings referred to in clauses (iii) and 
(iv) above and liabilities in respect of letters of credit issued under     
credit facilities;                                                          

(xii) extended or modified in any material respect the terms or         
provisions of any lease of real property to the Company or any Subsidiary   
that is a Brown & Sharpe Material Contract (as defined in Section 4.12).    

(xiii) made any change in accounting principles or practices, except for
a shift to percentage of completion accounting for its Leitz subsidiary     
(Brown & Sharpe already being on percentage of completion accounting        
method).                                                                    

4.7 Taxes.                                                                  

Except as set forth on Schedule 4.7:                                        

(i) Brown & Sharpe and each of its Subsidiaries have filed or caused to 
be filed and, from the date hereof until the Closing Date, will file or     
cause to be filed all Tax Returns required to be filed by them on or before 
the date hereof or the Closing Date (as applicable) with respect to Taxes.  

 (ii) All Taxes which are shown on Tax Returns filed on or before the date
hereof as due from or payable by Brown & Sharpe or its Subsidiaries have    
been paid in full or adequately disclosed and fully provided for in the     
Brown & Sharpe Financial Statements and all Taxes which are shown on Tax    
Returns filed after the date hereof and on or before the Closing Date due   
from or payable by Brown & Sharpe or its Subsidiaries will be paid in full  
or adequately disclosed and fully provided for in the Brown & Sharpe        
financial statements.                                                       

(iii) There are no actions, suits, proceedings, examinations, audits,   
claims or assessments by any governmental authority now pending against     
Brown & Sharpe or its subsidiaries in respect of Taxes or any Tax Return.   

(iv) There are no outstanding agreements or waivers between Brown &     
Sharpe or any subsidiary and any governmental authority extending the       
statute of limitations applicable to any Tax Return of Brown & Sharpe or    
any of its subsidiaries for any period;                                     

(v) No Tax deficiency (whether or not agreed to by Brown & Sharpe or its
Subsidiaries) have been assessed against proposed in writing to be assessed 
against Brown & Sharpe or any subsidiary by any governmental authority      
except for Tax deficiencies that have been paid in full or adequately       
disclosed and fully provided for in the Brown & Sharpe Financial            
Statements.                                                                 

(vi) Brown & Sharpe and its subsidiaries are not a party to any Tax     
sharing agreement.                                                          

(vii) Brown & Sharpe and its subsidiaries are not liable, by contract or
as a matter of law, primarily or otherwise, for the payment of any Taxes    
for which another person is liable.                                         

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4.8 Litigation. Except for the matters described in Schedule 4.8 and claims 
fully covered by insurance policies of the Company and its subsidiaries, there  
are no judicial or administrative actions, suits, proceedings or arbitrations   
or investigations (domestic or foreign) pending or, to the best knowledge, of   
Brown & Sharpe, threatened (for an amount in excess of $100,000 in the case of  
threatened matters) against Brown & Sharpe or any of its subsidiaries. Brown &  
Sharpe has heretofore furnished or made available to Finmeccanica, if so        
requested by Finmeccanica, true and complete copies of all relevant court       
papers, proceedings, administrative requests, and other documents relating to   
the matters specifically set forth on Schedule 4.8.                             

4.9 Filings Under the Securities Exchange Act of 1934.                      

 (a) The Brown & Sharpe Annual Report on Form 10-K for the year ended December
25, 1993, the Report on Form 10-Q for the first quarter of 1994 and the 1994    
Annual Meeting Proxy Statement heretofore filed under the Exchange Act, when    
they were filed (or, if any amendment with respect to any such document was     
filed, when such amendment was filed), conformed in all material respects with  
the requirements of the Exchange Act and the rules and regulations thereunder;  
and no such document when it was filed (or, if an amendment with respect to any 
such document was filed, when such amendment was filed), contained an untrue    
statement of a material fact or omitted to state a material fact required to be 
stated therein or necessary in order to make the statements therein not         
misleading.                                                                     

(b) The Brown & Sharpe Proxy Statement to approve the issue of the Brown &  
Sharpe Purchase Price Shares and the Contingent Stock under this Agreement,     
when filed, will conform in all material respects with the requirements of the  
Exchange Act and the rules and regulations thereunder and, when it is filed,    
will not contain an untrue statement of a material fact or omit to state a      
material fact required to be stated therein or necessary in order to make the   
statements therein not misleading, excluding from the provisions of this        
Section 4.9(b) the description of the DEA Business, the financial statements of 
the Company and the Subsidiaries, the related Management's Discussion and       
Analysis and financial and other data relating to the Company and the           
Subsidiaries contained therein.                                                 

(c) The Brown & Sharpe Registration Statement, when filed, will conform in  
all material respects with the requirements of the Securities Act and the       
Commission Rules and, when it is declared effective in accordance with the      
Commission Rules, will not contain an untrue statement of a material fact       
required to be stated therein or necessary in order to make the statements      
therein not misleading, in light of the circumstances under which they were     
made, excluding from the provisions of this Section 4.9(c) the description of   
the business of the Company and the Subsidiaries (or information in respect     
thereof contained in a combined description of the business of Brown & Sharpe   
after giving effect to the transactions contemplated by this Agreement), the    
financial statements of the Company and the Subsidiaries, the related           
Management's Discussion and Analysis and financial and other data relating to   
the Company and the Subsidiaries contained therein.                             

4.10 Brokers, Finders, etc. Neither Brown & Sharpe nor any of its           
subsidiaries has retained any financial advisor, broker, agent or finder or     
paid or agreed to pay for any financial advisor, broker, agent, or finder on    
account of this Agreement or any transaction contemplated hereby, or any        
transaction of like character that would be required to be paid by Brown &      
Sharpe, the Company, any of its Subsidiaries or Finmeccanica, except for the    
fees of Wertheim Schroder payable by Brown & Sharpe pursuant to the agreements  
between Brown & Sharpe and Wertheim Schroder.                                   

4.11 Disclosure. This Agreement (including without limitation the Schedules 
hereto), the Brown & Sharpe Financial Statements, the information furnished by  
Brown & Sharpe for the Brown & Sharpe Proxy Statement, any other document,      
certificate, financial statement or other instrument furnished or to be         
furnished by or on behalf of Brown & Sharpe do not contain any untrue statement 
of a material fact, or, considered as a whole, omit to state a material fact    
necessary in order to make the statements contained herein or therein not       
misleading.                                                                     

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4.12 Contracts and Other Instruments                                        

 (a) The Brown & Sharpe Annual Report on Form 10-K for the year ended December
25, 1993 includes in Item 14 a list of all contracts, agreements and other      
instruments material to Brown & Sharpe ("B&S Material Contracts"), to the       
extent required to be so listed and filed as an exhibit by applicable rules     
under the Exchange Act and, except as specified therein, as of the date such    
Annual Report was filed pursuant to the Exchange Act, there is no other         
contract, agreement or other instrument that is material to the Brown & Sharpe  
Business, taken as a whole, which was required to be so filed.                  

(b) Except as disclosed in Schedule 4.12, neither Brown & Sharpe nor, to    
Brown & Sharpe's best knowledge, any other party to any B&S Material Contract   
to which Brown & Sharpe is a party or which any of their assets or properties   
are bound is in breach of or default under or is claimed to be in breach of or  
default in complying with any provision thereof or has committed or permitted   
any event which, with notice or the passage of time or both, would constitute   
such a breach or default, except for such breaches and defaults which in the    
aggregate would not have a Material Adverse Effect on the B&S Business taken as 
a whole.                                                                        

 (c) Except as set forth in Schedule 4.12, no consent of any party to any such
contract, agreement or other instrument to which Brown & Sharpe is a party or   
by which any of their properties or assets are bound is required for any of the 
transactions contemplated by this Agreement except for such consents, the       
failure of which to obtain would not in the aggregate have a Material Adverse   
Effect on Brown & Sharpe.                                                       

4.13 Compliance with Laws; Governmental Authorizations. Except for matters  
described in Schedule 4.13 or covered elsewhere in this Section 4, Brown &      
Sharpe and its subsidiaries are not in violation in any material respect of any 
governmental license or permit, statute, law, ordinance, rule, regulation,      
judgment, order, decree, permit, concession, grant, franchise, license or other 
governmental authorization or approval including without limitation any EU laws 
applicable to Brown & Sharpe or its subsidiaries or to any of their assets,     
properties, properties or businesses. All permits, concessions, grants,         
franchises, licenses and other governmental authorizations and approvals        
necessary for the conduct of the business of Brown & Sharpe and its             
subsidiaries as presently conducted have been duly obtained and are in full     
force and effect, except where the failure to obtain or maintain in effect any  
of the foregoing would not have a material adverse effect on the business of    
Brown & Sharpe or any subsidiary, and there are no proceedings pending or, to   
the Brown & Sharpe's best knowledge, threatened that may result in the          
revocation, cancellation or suspension, or any materially adverse modification, 
of any thereof.                                                                 

4.14 Environmental Matters. Schedule 4.14 is a true and complete list of all
known conditions or states of fact existing on the date hereof and as of the    
Closing Date based on or resulting from the presence in or discharge, spill,    
disposal, emission, generation, storage or release of any chemical, pollutant,  
contaminant, waste, toxic or hazardous substance or petroleum product into the  
environment caused by any of Brown & Sharpe or any of its subsidiaries at any   
location owned or leased, currently or in the past, by Brown & Sharpe or any of 
its subsidiaries, which constitutes a violation of or requires remediation      
under any Health and Environmental Laws.                                        

4.14.1 Except as disclosed on Schedule 4.14, Brown & Sharpe and its     
subsidiaries are in compliance in all material respects with all applicable 
Health and Environmental Laws with respect to the use, transport, import,   
export, temporary or final storage, recycling or disposal of any waste,     
chemical substance or mixture, pollutant, including without limitation, any 
contaminant, irritant, or pollutant or other hazardous or toxic substance   
("Hazardous Materials") which are identified as such in any jurisdiction in 
which Brown & Sharpe or its subsidiaries either owns or leases real         
property or conducts its business.                                          

4.14.2 Except as disclosed on Schedule 4.14, (i) neither Brown & Sharpe 
nor any of its subsidiaries has received notice from any governmental       
authority (or has knowledge that any governmental authority may give        
notice) that it is in violation of any applicable Health Environmental Laws 
with respect to the                                                         

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use, transport, import, export, temporary or final storage or disposal of   
any such Hazardous Materials; (ii) Brown & Sharpe and its subsidiaries have 
obtained and have complied with all financial or other conditions contained 
in all necessary permits, licenses, authorizations and consents for the     
use, transport, import, export, temporary or final storage, recycling and   
disposal of all Hazardous Materials used in the conduct of the Brown &      
Sharpe Business except for those permits, licenses or authorizations the    
failure to obtain which would not have a Material Adverse Effect on the     
Brown & Sharpe Business; and (iii) to Brown & Sharpe's knowledge, there     
have been no, direct or indirect, discharges, spills or leaks or releases,  
whether accidental or voluntary, of any Hazardous Materials caused by any   
of Brown & Sharpe or any of its subsidiaries on any real property (a) now   
leased or previously leased or (b) now owned or previously owned by Brown & 
Sharpe or any of its subsidiaries, which in any case constitutes a          
violation of or requires remediation under any Health and Environmental     
Law.                                                                        

 4.15 Absence of Undisclosed Liabilities. Except as set forth in Schedule 4.15
and other than liabilities which have arisen after December 25, 1993 in the     
ordinary course of business consistent with past practice (including those      
permitted by or scheduled pursuant to Section 4.6), neither Brown & Sharpe nor  
any of its Subsidiaries has any material liabilities or obligations of any      
nature, whether absolute, contingent or otherwise which are required to be      
reflected or reserved against in, or otherwise provided for in the notes to,    
the Brown & Sharpe Financial Statements under U.S. GAAP and which are not so    
reflected or reserved against therein or in the notes thereto.                  

4.16 Prohibited Foreign Trade Practices Act; Sensitive Payments. To the best
of Brown & Sharpe's knowledge, Brown & Sharpe and its subsidiaries are in       
compliance with the Prohibited Foreign Trade Practices Act with respect to the  
Brown & Sharpe Business, and have no "sensitive" receipts or disbursements,     
which are defined to mean the following types of transactions: (i) illegal      
receipts from or payments to governmental officials or employees; (ii)          
commercial bribes or kickbacks; (iii) amounts disbursed or received with an     
understanding that rebates or refunds will be made in contravention of the laws 
of any nation or other jurisdiction; (iv) illegal political contributions; or   
(v) payments of commitments, regardless of form, made with the knowledge or     
under circumstances that would indicate that all or part thereof is to be paid  
ultimately to or for the benefit of governmental officials or employees or as   
an influence payment or kickback.                                               

5. EXPENSES. Each of the parties hereto shall assume and bear all expenses, 
costs and fees (including any fees of investment banks, financial advisors,     
professional advisers and legal counsel) incurred or assumed by such party in   
the preparation and execution of this Agreement and compliance herewith,        
whether or not the transactions herein provided for shall be consummated, it    
being understood and agreed that Finmeccanica and not the Company shall assume  
and bear the reasonable legal, and other out-of-pocket expenses, costs and fees 
of the Company and the Subsidiaries in connection with the transactions hereby  
contemplated, except that the Company may pay for the audit fees of RE&Y in     
preparing the audited financial statements of the Company and the Subsidiaries, 
including the Closing Financial Statements; Brown & Sharpe, on the one hand,    
and Finmeccanica, on the other, shall indemnify and hold each other harmless    
from and against any and all liabilities and claims in respect of any such      
expenses, costs or fees or taxes which are the responsibility of or assumed by  
Brown & Sharpe, the Company and the Subsidiaries on the one hand and which are  
the responsibility of or assumed by Finmeccanica and their affiliates on the    
other hand. Notwithstanding the foregoing, all excise, documentary, transfer    
(including indirect transfer of stock of the Subsidiaries), value added taxes   
and like taxes, if any, or fees for the like payable in connection with the     
sale, transfer and delivery of the DEA Shares to Brown & Sharpe or its          
designees (including indirect transfer of DEA Subsidiary shares and             
transactions pursuant to the Post-Closing Purchase Price Adjustment provisions) 
shall be paid in the first instance by Brown & Sharpe and the total cost        
thereof shall be borne equally by the parties, except that in this connection   
it is agreed that any liability for registration taxes or issue taxes incurred  
by the Company in connection with the removal of "excess" Indebtedness of the   
Company in accordance with Section 6.4 and other applicable sections shall be   
paid by the Company and shall be the responsibility of Brown & Sharpe and shall 
not be reflected in the Pricing Adjusted Net Asset Value for purposes of        
determining the Post-Closing Purchase Price Adjustment.                         

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6. ADDITIONAL COVENANTS OF THE PARTIES. The parties further covenant and    
agree as follows:                                                               

6.1 Conduct of Business. From and after the date of this Agreement and until
the Closing Date, except as the other party shall otherwise specifically        
consent to in writing, each of the parties will conduct, or in the case of      
Finmeccanica, cause the Company and the Subsidiaries to conduct, their affairs  
so that they:                                                                   

(a) carry on their respective businesses in, and only in, the usual,    
regular and ordinary course in substantially the same manner as conducted   
since January 1, 1994 and use reasonable efforts to preserve intact their   
respective present business organizations, to the extent reasonably         
possible keep available the services of present officers and employees, and 
preserve their respective relationships with customers, suppliers and       
others having business dealings with them;                                  

(b) not sell or withdraw assets, including factoring of receivables,    
except for inventory in the ordinary course of business or disposals of     
assets which are replaced in the ordinary course.                           

 (c) maintain all of the material structures, equipment and other tangible
personal property used in the conduct of their respective businesses as     
conducted since January 1, 1993 in good repair, order and condition except  
for ordinary wear and tear;                                                 

(d) keep in full force and effect insurance comparable in amount and    
scope of coverage to the insurance now carried by them and, in the case of  
Finmeccanica, as disclosed on Schedule 3.13;                                

(e) perform in all material respects all obligations under all DEA      
Material Contracts and B&S Material Contracts, as the case may be;          

 (f) maintain their books of account and records in the usual, regular and
ordinary manner;                                                            

(g) comply in all material respects with all applicable statutes, laws, 
ordinances, rules and regulations;                                          

(h) not take or permit to be taken any action or incur any liability or 
obligation which if taken or incurred prior to the date hereof would have   
been required to be disclosed pursuant to any of the representations and    
warranties made by Finmeccanica or Brown & Sharpe, as the case may be;      

(i) not issue any capital stock or other securities other than, in the  
case of Brown & Sharpe, as may be required pursuant to any of Brown &       
Sharpe's stock option or employee benefit plans described in Section 4.3 or 
from such reserves as are disclosed in Section 4.3 or not exceeding 100,000 
shares of Class A Common Stock for purposes of future acquisitions; and     

 (j) maintain adequate reserves under the applicable accounting principles
specified in Section 3.5 and the reserve policies provided to Brown &       
Sharpe and referred to in Section 1.4(b) or the applicable accounting       
principles specified in Section 4.5 for all Taxes and other governmental    
charges which have occurred during such period and for any disputes with    
customers.                                                                  

Notwithstanding the foregoing provisions of this Section 6.1, this Section  
6.1 shall be subject to the over-riding provisions of Section 2.7 which         
provides, as set forth therein, that the business of the DEA Companies during   
the period after July 31, 1994 and prior to the completion of the Closing on    
the Closing Date shall be operated for the economic benefit of Brown & Sharpe.  
In addition, the factoring of a mutually agreed amount of receivables of the    
DEA Companies, as contemplated by Section 1.4(j) and Section 6.4, shall not     
constitute a violation of this Section 6.1.                                     

6.2 Governmental Filings. (a) The parties shall fully cooperate in making   
joint or separate filings to the German, Belgian, and Portuguese antitrust or   
competition authorities and in seeking any approvals which may be required from 
such authorities for the consummation of the transactions contemplated hereby.  
Each party shall be responsible for any inaccuracy or omission relating to      
information supplied by it and contained in such filings and further agrees to  
indemnify and hold harmless the other party for any damages, including without  
limitation, fines imposed by such authorities, arising from such inaccuracy or  
omission.                                                                       

(b) The parties acknowledge that the Closing may occur on a date which is   
more than one year after the expiration in August 1993 of the waiting period    
under the Hart-Scott-Rodino Antitrust Improvement                               

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Act of 1976 ("HSR") for completion of the transactions contemplated hereby and  
that it is a condition to each of Finmeccanica's and Brown & Sharpe's           
obligation to perform its agreements hereunder that the transactions either     
close prior to the expiration of said one year period or that the parties       
refile reports under the HSR Act and not complete the transactions hereby       
contemplated until after the expiration of the HSR waiting period following     
said 1994 HSR filings by the parties. Accordingly, each of the parties          
covenants and agrees to cooperate and use their best efforts to make all        
necessary filings and notifications under HSR permit the Closing.               

6.3 Shareholder Approval. (a) Brown & Sharpe shall, as soon as reasonably   
practicable after the date hereof, take all action necessary in accordance with 
the Exchange Act, the laws of the State of Delaware and Brown & Sharpe's        
Certificate of Incorporation and By-laws to give notice of and convene a        
special meeting (the "Meeting") of its shareholders to consider and vote upon   
the approval of the issuance of the Brown & Sharpe Purchase Price Shares in     
connection with the consummation of the transactions contemplated hereby and    
for such other purposes as may be necessary or desirable. The Board of          
Directors of Brown & Sharpe shall, consistent with their fiduciary obligations, 
recommend without qualification of any nature that Brown & Sharpe's             
shareholders vote to approve such issuance of the Brown & Sharpe Purchase Price 
Shares, and use its reasonable best efforts to solicit and secure from the      
shareholders of Brown & Sharpe such approval, which efforts may include,        
without limitation, causing Brown & Sharpe to solicit shareholder proxies       
therefor and to advise Finmeccanica upon its request from time to time as to    
the status of the shareholder vote then tabulated.                              

(b) Promptly following the date of this Agreement, Brown & Sharpe shall     
prepare and file with the Securities and Exchange Commission under the Exchange 
Act and the Commission Rules a preliminary draft of the Brown & Sharpe Proxy    
Statement. The Company and Finmeccanica shall cooperate fully with Brown &      
Sharpe in the preparation and filing of the Brown & Sharpe Proxy Statement and  
any amendments and supplements thereto. So far as practicable in the judgment   
of Brown & Sharpe's counsel, the Brown & Sharpe Proxy Statement shall not be    
filed, and no amendment or supplement thereto shall be made by Brown & Sharpe,  
without Finmeccanica's (or its counsel's) prior approval which shall not be     
unreasonably delayed or withheld. Brown & Sharpe shall use its reasonable best  
efforts to have any review of the Brown & Sharpe Proxy Statement conducted by   
the Securities and Exchange Commission promptly. As soon as reasonably          
practicable following the date hereof, Brown & Sharpe shall cause to be mailed  
a definitive Brown & Sharpe Proxy Statement to its shareholders entitled to     
vote at the Meeting called to vote upon the issuance of the Brown & Sharpe      
Purchase Price Shares promptly following completion of any review by, or in the 
absence of such review, the termination of any applicable waiting period        
required under the Exchange Act and the Commission Rules.                       

6.4 Elimination of Excess Indebtedness. Finmeccanica will, prior to July 31,
1994, make its best possible forecast of the amount of total Indebtedness of    
the DEA Companies, net of cash, in excess of Lit. 800 Million, on the           
Forecasted Pricing Balance Sheet of the DEA Companies as of July 31, 1994.      

Based on that forecast, Finmeccanica will identify the amount of total      
Indebtedness of the DEA Companies to be discharged at the Closing by            
Finmeccanica. If practical, Finmeccanica may concentrate the Indebtedness of    
the DEA Companies (including through a payoff of certain Indebtedness to third  
parties) in the so-called current account of the DEA Companies with             
Finmeccanica. By making contributions of the appropriate amount to the capital  
of DEA on or prior to the Closing, Finmeccanica will put itself in a position   
to cause the DEA Companies to be obligated at the Closing in the aggregate only 
with respect to an amount of Indebtedness equal to the amount of Aggregate      
Permitted Indebtedness as of July 31, 1994. It is understood that, as of the    
Pricing Date, July 31, 1994, the exact amount of Indebtedness of the DEA        
Companies to be discharged can only be estimated. After July 31, 1994 and prior 
to the Closing, Finmeccanica shall use its best efforts to gather the           
information necessary to verify the accuracy of the forecast made prior to July 
31, 1994 with regard to the amount of Indebtedness of the DEA Companies to be   
discharged. Finmeccanica will share such information with Brown & Sharpe, and   
the parties agree that they will work together in good                          

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faith to effect the required reduction of Indebtedness in a manner that will    
result, after making all of the calculations contemplated by Section 1.4, in    
the issuance of the least possible number of additional Brown & Sharpe Purchase 
Price Shares under Section 1.4(h). Accordingly, Finmeccanica will determine,    
with the consent of Brown & Sharpe, which may not unreasonably be withheld, if  
the forecast for the amount of Indebtedness of the DEA Companies to be          
discharged by Finmeccanica on the Closing needs to be modified based on the new 
information, and any such modification shall be reflected on the Forecasted     
Pricing Balance Sheet (which term shall thereafter for all purposes reflect     
such modification).                                                             

On the Closing Date Finmeccanica shall cause the DEA Companies to be        
obligated in the aggregate only with respect to Indebtedness equal to the       
amount of Aggregate Permitted Indebtedness as of July 31, 1994 by discharging   
any DEA Companies Indebtedness in excess of Aggregate Permitted Indebtedness.   

 Subsequent to the Closing, on the basis of the final Pricing Balance Sheet as
determined under Section 1.4(f), the precise actual amount of Excess            
Indebtedness that should have been discharged at the Closing shall be           
established ("Actual Excess Indebtedness"). In the event that the Actual Excess 
Indebtedness as of July 31, 1994 based on the Pricing Balance Sheet is less or  
more than the Forecasted Excess Indebtedness based on the Forecasted Pricing    
Balance Sheet as of July 31, 1994 (as adjusted by Finmeccanica for any          
reforecast required by this Section 6.4 above), the amount of said overage or   
shortfall shall be taken into account and netted in the Post-Closing Purchase   
Price Adjustment calculation as provided in Section 1.4(g). Then, as and to the 
extent required by Section 1.4(h), Brown & Sharpe shall issue additional Brown  
& Sharpe Purchase Price Shares or Finmeccanica shall contribute cash to the     
capital of Brown & Sharpe (without receiving any shares of stock therefor).     

6.5 B&S Business Plan. As soon as practicable after the date hereof, and in 
any event not later than the Closing Date, the executive management of Brown &  
Sharpe shall submit for approval by the Board of Directors of Brown & Sharpe    
(as evidenced by an extract from the meeting of the Board of Directors of Brown 
& Sharpe) a business plan for the 18-month period commencing upon the Closing   
Date (containing a detailed action plan for the implementation of management's  
revenue and cost objectives). Brown & Sharpe shall deliver to Finmeccanica, not 
later than the Closing, a copy of such business plan.                           

7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise          
specifically provided for in this Agreement, all representations, warranties    
and agreements (other than Section 8) of Finmeccanica and Brown & Sharpe        
contained herein or in any document, certificate or other instrument required   
to be delivered hereunder in connection with the transactions contemplated      
hereby shall survive for a period of 21 months from the Closing Date.           
Notwithstanding the foregoing:                                                  

(a) the representations and warranties set forth in Sections 3.16, 3.20,
and 3.21 and Section 4.14 shall survive for five years from the Closing     
Date;                                                                       

(b) the representations and warranties set forth in Sections 3.8, 3.19, 
3.23 and 3.24 and Sections 4.7 and 4.9 shall survive until thirty (30) days 
after the expiration of the relevant statutes of limitation, including any  
extensions thereof; and                                                     

(c) the representations and warranties set forth in Sections 3.2, 3.4,  
3.9.1, 3.12 and 3.17 and Sections 4.2, 4.3 and 4.10 shall survive without   
limit as to time.                                                           

8. INDEMNIFICATION.                                                         

8.1 Indemnity by Finmeccanica. Finmeccanica hereby agrees to indemnify,     
defend and hold harmless Brown & Sharpe and its directors, officers and         
affiliates (and, in the case of claims arising in connection with the DEA       
Financial Statements and the information furnished by Finmeccanica and included 
in the Brown & Sharpe Proxy Statement or the Brown & Sharpe Registration        
Statement, each person, if any, who controls Brown & Sharpe within the meaning  
of Section 15 of the Securities Act) against and in respect of any damage that  
results from                                                                    

 (i) the inaccuracy of any representation or warranty made by Finmeccanica
herein, or resulting from any misrepresentation, breach of warranty or non- 
fulfillment of any agreement or covenant of                                 

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Finmeccanica contained herein or in any agreement or instrument required to 
be entered into in connection herewith and specifically identified herein   
or from any misrepresentation in or omission from any schedule, document,   
certificate or other instrument required to be furnished by Finmeccanica    
hereunder and specifically identified herein;                               

(ii) (a) the amount (if any) by which the accrual for TFR Liabilities on
the Pricing Balance Sheet exceeds Lit. 1,715 million; (b) the amount (if    
any) by which the Lit. 2,400 million liability for INPS for terminated      
employees reflected on the June 30, 1993 DEA Financial Statements has not   
been actually paid by the Closing, except for Lit. 16 million which the     
parties agreed need not be paid by such date; and (c) any liability to any  
employee of the Company or any Subsidiary terminated or terminating prior   
to or on the Closing Date or, after the Closing Date, if such termination   
results from or grants rights to any such employee as a consequence of a    
change in control (excluding those provisions provided for under applicable 
labor or national contract or statute); and (d) any in accuracy in the      
representations and warranties made in Section 1.4(b) above and in Schedule 
1.4(b);                                                                     

(iii) any liability of the Company or any Subsidiary for Indebtedness in
excess of the Aggregate Permitted Indebtedness on the Closing Date (subject 
to the Post-Closing Purchase Price Adjustment);                             

(iv) any liability on account of any conditions or states of fact       
existing on the Closing Date based on or resulting from the presence in or  
discharge, spill, disposal, emission, generation, storage or release of any 
chemical, pollutant, contaminant, waste, toxic or hazardous substance or    
petroleum product into the environment caused by any of the DEA Companies   
at any location owned or leased, currently or in the past, by the Company   
or any of its Subsidiaries, which constitutes a violation of or requires    
remediation under Environmental Laws other than any such conditions or      
states of fact disclosed on Schedule 3.16 (as to which Finmeccanica shall   
have no liability under this clause (iv)); provided that such condition or  
states of fact shall not have been discovered as a result of Brown &        
Sharpe's voluntary investigative efforts; provided, further that nothing in 
this clause (iv) shall limit the obligations of Finmeccanica pursuant to    
clause (i) to the extent such matters relate to a breach of the             
representations and warranties covered by Section 3.16 hereof;              

(v) all Taxes arising from judgments, assessments, impositions,         
administrative decrees or arbitration awards upon, or being the liabilities 
of, the Company or any of the Subsidiaries to the extent that such Taxes    
are not absorbed by net operating losses and are attributable to any period 
ending on or prior to the Closing Date and the aggregate liability in       
respect thereof exceeds the amount provided for Taxes in the Closing        
Balance Sheet;                                                              

 (v) (A) any liability or other damages (including without limitation, the
cost of making improvements to facilities or changes in operations          
conducted at the facilities in order to obtain the issuance of the permits  
and certificates noted in Schedule 3.15) resulting from the failure of the  
DEA Business to have the permits or certificates noted in Schedule 3.15.    

(vi) any and all claims, actions, suits and proceedings resulting from  
any of the foregoing (hereinafter called a "Brown & Sharpe Claim" or "Brown 
& Sharpe Claims").                                                          

 At the option of Brown & Sharpe, any dispute between the parties under clause
(iv) of Section 8.1 as to the existence of states of fact or conditions on or   
prior to the Closing Date or having come into existence after the Closing Date  
shall be referred to the parties' respective independent environmental          
consultants which shall attempt to resolve such disputes and whose              
determination shall be final and binding on the parties. If such independent    
environmental consultants are themselves unable to agree, they shall refer any  
such dispute to a third firm of independent environmental consultants whose     
determination and resolution of such dispute shall be final and binding on the  
parties. Such third firm of independent environmental consultants shall make    
its determination within sixty (60) days after the referral. Each party shall   
bear the cost of its own independent environmental consultants and shall share  
equally in the costs of any third firm of independent environmental consultants 
so appointed.                                                                   

Notwithstanding the foregoing, Finmeccanica shall have no obligation to     
indemnify Brown & Sharpe under this Section 8.1 unless, and only to the extent  
that, the aggregate of all amounts for which indemnity                          

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would otherwise be due as a result of or arising out of the matters set forth   
in clauses (i) through (vi) of Section 8.1 (but excluding clause (ii)(a)) above 
exceed $500,000, provided that in computing such amount each single indemnity   
amount (or any series of amounts relating to a class action or series of claims 
arising out of a common set of facts) of less than $10,000 shall be             
disregarded. Finmeccanica's liability under this Section 8.1 shall not exceed   
in the aggregate $10,000,000.                                                   

8.2 Brown & Sharpe Indemnity. Brown & Sharpe hereby agrees to indemnify and 
hold harmless Finmeccanica and its directors, officers and affiliates against   
and in respect of any damage resulting from                                     

(i) the inaccuracy of any representation or warranty made by Brown &    
Sharpe or resulting from any misrepresentation, breach of warranty or non-  
fulfillment of any agreement or covenant of Brown & Sharpe contained herein 
or in any agreement or instrument required to be entered into in connection 
herewith and specifically identified herein or from any misrepresentation   
in or omission from any document, certificate or other instrument required  
to be furnished by Brown & Sharpe hereunder and specifically identified     
herein or any liability or any other damage arising prior to the expiration 
of 21 months from the Closing resulting from (i) any accounting restatement 
of Brown & Sharpe Financial Statements (other than a restatement for the    
change in accounting principle previously disclosed in Brown & Sharpe's 10Q 
for the first quarter of 1994) or (ii) the establishment of a specific      
receivable reserve relating to one customer, as disclosed in the Brown &    
Sharpe Registration Statement, or any charges made thereto, (it being       
understood that this provision shall be the only remedy for breach of any   
representation by Brown & Sharpe based on the occurrence of any such        
restatement, or the transaction giving rise to said restatement).           

(ii) any liability on account of (A) facts or conditions which present a
substantial threat to human health or to the environment, including         
environmental conditions at operating facilities, or (B) any violation of   
any environmental laws which are or may become applicable, relating to any  
act or failure to act by Brown & Sharpe or condition or occurrence existing 
on or prior to the Closing Date unless such facts or conditions are set     
forth on Schedule 4.14 (in which event there shall be no liability with     
respect thereto under this clause (ii)); provided, however, that nothing in 
this clause (ii) shall limit the obligations of Brown & Sharpe pursuant to  
clause (i) to the extent that such matters relate to a breach of the        
representations and warranties covered by Section 4.14 hereof;              

(iii) all Taxes arising from judgments, assessments, impositions,       
administrative decrees or arbitration awards upon, and being the            
liabilities of, Brown & Sharpe or any of the Brown & Sharpe Subsidiaries to 
the extent that such Taxes are attributable to the period prior to the      
Closing Date and the aggregate liability in respect thereof exceeds the     
amount provided for Taxes in the December 25, 1993 consolidated balance     
sheet included in the Brown & Sharpe Financial Statements, as adjusted in   
the interim consolidated financial statements of Brown & Sharpe during the  
period from December 25, 1993 through the quarter ending prior to the       
Closing Date; and                                                           

(iv) any and all claims, actions, suits and proceedings resulting from  
any of the foregoing (hereinafter called an "Finmeccanica Claim" or         
"Finmeccanica Claims").                                                     

Notwithstanding the foregoing, Brown & Sharpe shall have no obligation to   
indemnify Finmeccanica under this Section 8.2 unless, and only to the extent    
that, the aggregate of all amounts for which indemnity would otherwise be due   
as a result of or arising out of the matters set forth in clauses (i) through   
(iv) above exceed $500,000; provided that in computing such amount each single  
indemnity amount (or any series of amounts relating to a class action or series 
of claims arising out of a common set of facts) of less than $10,000 shall be   
disregarded. Brown & Sharpe's liability under this Section 8.2 shall not exceed 
$10,000,000.                                                                    

8.3 Certification of Claims. If Brown & Sharpe or Finmeccanica is of the    
opinion that any Brown & Sharpe Claim or an Finmeccanica Claim, as the case may 
be, has occurred or will or may occur, Brown & Sharpe or Finmeccanica, as the   
case may be, shall so notify the other, and each such notice shall specify the  
circumstances of such asserted Brown & Sharpe Claim or Finmeccanica Claim.      

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8.4 Third Party Actions.                                                    

(a) In the event any claim is made, suit is brought or tax audit or other   
proceeding, including any administrative action relating to environmental laws  
or conditions, is instituted against Brown & Sharpe or the Company or any       
Subsidiary, or any of their respective directors, officers or affiliates which  
involves or appears reasonably likely to involve a Brown & Sharpe Claim for     
which indemnification may be sought against Finmeccanica hereunder, Brown &     
Sharpe will, promptly (and in any event within 15 days) after receipt of notice 
of any such claim, suit, tax audit or proceeding, notify Finmeccanica of the    
commencement thereof. The failure to so notify Finmeccanica of the commencement 
of any such claim, suit, tax audit or proceeding will relieve Finmeccanica from 
liability only to the extent that such failure materially adversely affects the 
ability of Finmeccanica to defend its interests in such claim, suit, tax audit  
or proceeding. Finmeccanica (at its expense) shall have the right and shall be  
given the opportunity (i) to assume and control the defense of such claim,      
suit, tax audit or proceeding or (ii) in the case of any environmental claim or 
administrative action for which remediation is or may be required, to have      
authority and control as to the methodology, extent and implementation of any   
clean-up or remedial measures ("Remedial Measures") with respect thereto,       
provided that Brown & Sharpe and its counsel (at Brown & Sharpe's expense) may  
participate in (but not control the conduct of) all matters pertaining to the   
defense or settlement of such claim, suit, tax audit or proceeding and, in the  
case of any Remedial Measures required by law or administrative action, have    
the rights provided in Section 8.7.1 hereof. Whether or not Finmeccanica elects 
to assume such defense, Brown & Sharpe shall not, except at its own cost, make  
any settlement with respect to any such claim, suit, tax audit or proceeding    
without the prior consent of Finmeccanica, which may not be unreasonably        
withheld; provided, that, if Finmeccanica elects not to undertake any Remedial  
Measure(s) as may be required either by law or pursuant to an administrative    
order, Brown & Sharpe may undertake any and all such Remedial Measures as may   
be required by such law or administrative order without the consent of          
Finmeccanica but the lack of Finmeccanica's consent thereto shall not relieve   
it of its indemnification obligations hereunder. In the event that Brown &      
Sharpe determines to settle any such claim, suit, tax audit or proceeding       
without the prior consent of Finmeccanica (as provided above), Finmeccanica     
shall have no indemnification obligations with respect to such claim, suit, tax 
audit or proceeding. Brown & Sharpe's consent to the settlement of any such     
claim, suit, tax audit or proceeding by Finmeccanica shall be required and      
shall not be unreasonably withheld, but such consent shall not be required if   
(or to the extent that) such settlement only requires the payment of a monetary 
amount.                                                                         

(b) In the event any claim is made, suit is brought or tax audit or other   
proceeding is instituted against Finmeccanica which involves or appears         
reasonably likely to involve a Finmeccanica Claim for which indemnification may 
be sought against Brown & Sharpe hereunder, Finmeccanica will, promptly (and in 
any event within 15 days) after receipt of notice of any such claim, suit, tax  
audit or proceeding, notify Brown & Sharpe of the commencement thereof. The     
failure to so notify Brown & Sharpe of the commencement of any such claim,      
suit, tax audit or proceeding will relieve Brown & Sharpe from liability only   
to the extent that such failure materially adversely affects the ability of     
Brown & Sharpe to defend its interest in such claim, suit, tax audit or         
proceeding. Brown & Sharpe (at its expense) shall have the right and shall be   
given the opportunity to assume and control the defense of such claim, suit,    
tax audit or proceeding, provided that Finmeccanica and their counsel may       
participate in (but not control the conduct of) all matters pertaining to the   
defense or settlement of such claim, suit, tax audit or proceeding. Whether or  
not Brown & Sharpe elects to assume such defense, Finmeccanica shall not,       
except at its own cost, make any settlement with respect to any such claim,     
suit, tax audit or proceeding without the prior consent of Brown & Sharpe,      
which may not be unreasonably withheld. In the event that Finmeccanica          
determines to settle any such claim, suit, tax audit or proceeding without the  
prior consent of Brown & Sharpe (as provided above), Brown & Sharpe shall have  
no indemnification obligations with respect to such claim, suit, tax audit or   
proceeding. Finmeccanica's consent to the settlement of any such claim, suit,   
tax audit or proceeding by Brown & Sharpe shall be required and shall not be    
unreasonably withheld, but such consent shall not be required if (or to the     
extent that) such settlement only requires the payment of a monetary amount.    

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 8.5 Definition of Damages. For purposes of this Section 8, the term "damages"
shall mean the amount of any loss, claim, demand, damage, deficiency,           
assessment, judgment, remediation, cost or expense (including reasonable        
attorneys', consultants' and experts' fees and expenses) actually incurred, (in 
the case of a Finmeccanica Claim, either by Finmeccanica directly or by virtue  
of its shareholding in Brown & Sharpe) less the sum of the following economic   
benefits, if any, pertaining to such loss, claim, demand, damage, deficiency,   
cost or expense: (i) any income tax savings (net of any income tax cost         
attributable to the indemnity payment) actually realized (or incurred) that     
affect the overall economic impact of the damage to the indemnified party and   
(ii) any insurance proceeds actually realized and adverse insurance             
consequences actually incurred (such as premium adjustments and other           
detriments) that affect the overall economic impact of the damages to the       
indemnified party. Notwithstanding the foregoing, neither party will be         
entitled to any special, exemplary or consequential damages, including without  
limitation lost profits, good will or investments (excluding any damage         
resulting from a diminution in the value of the Brown & Sharpe Purchase Price   
Shares), loss of distributors, suppliers or customers or inability to use any   
of the properties of the DEA Business or the B&S Business with respect to any   
environmental matters covered under Sections 8.1(i) and (iv) and 8.2(i) and     
(ii). In the event that an indemnified party hereunder pays a claim covered by  
the indemnified party's insurance for which it is entitled to indemnification   
by another party hereunder, such indemnified party shall pay such claim and the 
indemnifying party shall reimburse the indemnified party the full amount of     
such claim (less the amount of any insurance proceeds previously recovered by   
the indemnified party with respect to such claim). If the indemnified party     
subsequently receives insurance proceeds with respect to such claim, the        
indemnified party shall pay the indemnifying party such insurance proceeds up   
to the amount actually paid by the indemnifying party. In the event of any      
claim by any third party based on facts which, if true as alleged, would give   
rise to any liability for damages as to which indemnification exists under this 
Agreement, the amount of the damages shall be deemed to include the reasonable  
costs of the defense thereof, whether or not successful, subject to the rights  
of the indemnifying party to assume such defense pursuant to Section 8.4        
hereof.                                                                         

8.6 Pricing Balance Sheet. Neither party shall be entitled to seek damages  
from the other party pursuant to this Section 8 with respect to any claim to    
the extent that the liability forming the basis for such claim is reflected as  
a liability in the Pricing Balance Sheet and thereby included in the            
calculation of the Post-Closing Purchase Price Adjustment under Section 1.4,    
including a liability not resulting in an adjustment as a result of the Basket. 

8.7 Environmental Limitations. For the avoidance of doubt, no claim for     
damages by either party for which indemnification is available pursuant to      
Sections 8.1(iv) or 8.2(ii), respectively, may be made by either party if the   
basis for such claim derives from a change in law or regulation or a change in  
the standards of enforcement or remediation applicable to environmental         
conditions or hazards which change becomes effective on or after the Closing    
Date.                                                                           

8.7.1 Remediation. (a) In the event of any Brown & Sharpe Claim under   
Section 8.1(iv) which involves the taking or required taking of a Remedial  
Measure with respect to any leased real property of the Company or any of   
its Subsidiaries and which Finmeccanica undertakes pursuant to Section      
8.4(a), then Finmeccanica shall use its reasonable efforts to minimize      
interruption or other disruption of the operations of the DEA Business and  
exercise its authority and control over the remediation in a reasonable     
manner and in compliance with all applicable Environmental Laws.            
Finmeccanica shall inform Brown & Sharpe at least quarterly of actions      
taken in furtherance of such remedial measures since the previous update    
and actions anticipated prior to the next update. The purpose of such       
updates shall be to attempt to reach consensus as to the best means of      
handling such matters. All consultant proposals, reports, conclusions       
and/or data shall be submitted promptly to Brown & Sharpe upon              
Finmeccanica's receipt. To the extent reasonably practicable, any           
submissions by Finmeccanica to environmental regulatory agencies shall be   
submitted to Brown & Sharpe for review prior to submission to such agency.  
Brown & Sharpe shall cooperate, assist and not interfere with               
Finmeccanica's performance of its obligations hereunder, including without  
limitation allowing Finmeccanica and its                                    

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agents, representatives or contractors to have access to the premises of    
the DEA Companies in order to (i) conduct studies, take samples and perform 
other inspections on the premises of the DEA Companies, (ii) install,       
maintain and operate treatment systems, equipment and other apparatus       
incidental to implementing a remedial measure; (iii) consult pertinent      
books and records and knowledgeable employees of the DEA Companies; and     
(iv) take any other remediation or other actions necessary to fulfill       
Finmeccanica's responsibilities under Sections 8.1(iv) and 8.4(a);          
provided, however, that if any Remedial Measure shall require the closing   
of any facility (or significant portion thereof) of the DEA Business for a  
period of greater than one week, then Finmeccanica shall consult with Brown 
& Sharpe so as to determine a reasonable period of shut down, taking into   
account Brown & Sharpe's need to minimize any disruptive effect on the      
facilities' operations and Finmeccanica's desire to utilize the most cost-  
effective method of remediation, and Finmeccanica shall conform the         
remediation plan accordingly.                                               

9. ACCESS AND INFORMATION; CONFIDENTIALITY.                                 

9.1 Finmeccanica shall cause the Company to afford to Brown & Sharpe and its
employees, accountants, counsel and other authorized representatives reasonable 
access during normal business hours, upon reasonable notice, throughout the     
period prior to the Closing to the facilities, properties, books and records of 
the Company and its Subsidiaries and shall cause its representatives to furnish 
to Brown & Sharpe such additional financial and operating data and other        
information as Brown & Sharpe may from time to time reasonably request. Brown & 
Sharpe shall cause all information obtained by it or its representatives        
pursuant to this Agreement or in connection with the negotiation hereof to be   
treated as confidential and shall not use, nor permit others to use, any such   
information for any purpose whatsoever in a manner detrimental to the Company   
or its Subsidiaries. In the event that this Agreement is terminated, Brown &    
Sharpe shall promptly return all documents (together with all copies thereof)   
provided by the Company or any of its Subsidiaries.                             

9.2 Brown & Sharpe shall afford to Finmeccanica and its employees,          
accountants, counsel and other authorized representatives reasonable access     
during normal business hours, upon reasonable notice, throughout the period     
prior to the Closing to the facilities and properties of Brown & Sharpe and its 
subsidiaries and shall cause its representatives to furnish to Finmeccanica     
such additional financial data and other information (including action plans    
and projections relating to the transactions contemplated hereby) as            
Finmeccanica may from time to time reasonably request. Finmeccanica shall cause 
all information obtained by it or its representatives pursuant to this          
Agreement or in connection with the negotiation hereof to be treated as         
confidential and shall not use, nor permit others to use, any such information  
for any purpose whatsoever in a manner detrimental to Brown & Sharpe. In the    
event that this Agreement is terminated, Finmeccanica shall promptly return all 
documents (together with all copies thereof) provided by Brown & Sharpe.        

9.3 Confidentiality. Following the Closing Date, Finmeccanica shall hold in 
confidence all financial information concerning the business, assets,           
intellectual property, products, application methods, sources of supply,        
markets, marketing methods and customers of the Company and its Subsidiaries    
that heretofore has been treated as proprietary or confidential. This Agreement 
shall continue to apply after the Closing Date for a period of five years, but  
shall cease to apply to information that comes into the public domain (other    
than through a breach by Finmeccanica of an obligation of confidentiality owed  
to Brown & Sharpe hereunder) and to information the disclosure of which is      
required by law or pursuant to any request or order of any governmental agency  
or authority.                                                                   

10. CONDITIONS PRECEDENT TO BROWN & SHARPE'S OBLIGATIONS. All obligations of
Brown & Sharpe under this Agreement are subject to the fulfillment to the       
satisfaction of Brown & Sharpe and its counsel prior to or at Closing of each   
of the following conditions, any of which may be waived in writing by Brown &   
Sharpe:                                                                         

10.1 Performance by Finmeccanica; Certificate. Finmeccanica shall have      
performed and complied with all agreements and conditions required by this      
Agreement to be performed or complied with by it prior to or at the Closing,    
and shall deliver to Brown & Sharpe a certificate of the Chief Executive        
Officer and Chief Financial Officer of the Elsag Bailey Division of             
Finmeccanica, dated the Closing Date, to such effect.                           

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10.2 Representations and Warranties; Certificate. The representations and   
warranties of Finmeccanica contained in this Agreement shall be true and        
correct in all material respects on and as of the Closing Date except for       
changes contemplated by this Agreement or specifically consented to or approved 
by Brown & Sharpe, and Brown & Sharpe shall have received a certificate of the  
Chief Executive Officer and Chief Financial Officer of the Elsag Bailey         
Division of Finmeccanica dated the Closing Date to the foregoing effect.        

 10.3 Opinions of Counsel. Brown & Sharpe shall have received such opinions of
counsel for Finmeccanica and the Company and its Subsidiaries with respect to   
the subject matter of this Agreement as Brown & Sharpe and its counsel shall    
deem necessary, the form and substance of such opinions of counsel to be        
determined by Brown & Sharpe and its counsel.                                   

10.4 Absence of Litigation. No action or proceeding shall have been         
instituted or threatened prior to or at the Closing Date before any court or    
governmental agency, body or authority pertaining to the transactions           
contemplated hereby, the result of which could prevent or make illegal the      
consummation of such transactions.                                              

10.5 Governmental Clearance and Approval. All required filings with all     
United States, European, federal, national, state, local and foreign            
governmental agencies or authorities, the notification of which, or consent,    
approval or clearance by which, is necessary in connection with the             
consummation of the transactions (or any of them) contemplated hereby shall     
have been made, and all clearances or consents required in order to effect the  
transactions contemplated hereby shall have been obtained, or any applicable    
waiting period under any applicable statute or regulation shall have expired or 
been terminated, without any objection or notice of intent to challenge the     
transactions contemplated hereby having been received by any of the parties     
hereto or their subsidiaries and not withdrawn by the objecting or challenging  
agency.                                                                         

10.6 Approval by Stockholders of Brown & Sharpe. The issue of the Brown &   
Sharpe Purchase Price Shares pursuant to this Agreement shall have been         
approved by the stockholders of Brown & Sharpe in accordance with its Bylaws    
and the rules of the New York Stock Exchange, and in connection therewith,      
Wertheim Schroder shall have provided Brown & Sharpe with a fairness opinion on 
the contemplated transactions hereunder in customary form, which is             
satisfactory to the Board of Directors of Brown & Sharpe.                       

10.7 Approval of Proceedings; Documentation. All corporate and other        
proceedings in connection with the transactions contemplated by this Agreement, 
and the form and substance of all opinions, certificates and other documents    
hereunder shall be reasonably satisfactory in form and substance to Brown &     
Sharpe and its counsel.                                                         

10.8 Factoring of Receivables. The parties shall have mutually agreed on the
amount of factoring of DEA receivables and such factoring shall have been       
satisfactorily completed on or prior to July 31, 1994.                          

10.9 Stockholder Agreement. Finmeccanica shall have executed and delivered  
the Stockholders Agreement.                                                     

10.10 [Intentionally left blank]                                            

 10.11 Working Capital and Refinancing Requirements. Brown & Sharpe shall have
completed arrangements with its principal lending institutions to ensure that   
Brown & Sharpe and its Subsidiaries, including the Company and its              
Subsidiaries, are able to obtain sufficient borrowings to meet working capital  
requirements, including refinancing of their working capital requirements for   
the Brown & Sharpe Business and the DEA Business to be conducted after the      
Closing Date, or shall have simultaneously completed such other arrangements to 
raise such necessary funding, in each case as Brown & Sharpe deems appropriate. 

10.12 Company Indebtedness; Consents of Lenders. The aggregate Indebtedness 
of the Company and its Subsidiaries as of the Closing Date shall not exceed the 
Aggregate Permitted Indebtedness as defined by                                  

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and calculated in accordance with the applicable Sections of this Agreement;    
and the terms and conditions of such Aggregate Permitted Indebtedness shall be  
satisfactory to Brown & Sharpe, and the Lenders identified on Schedule 3.5.1    
shall, if required, have consented to the transactions contemplated hereby.     

10.13 Resignations of Members of the Board of Directors. All of the members 
of the boards of directors of the Company and each Subsidiary shall have        
submitted their resignations as directors effective upon the Closing on the     
Closing Date and upon their acceptance by Brown & Sharpe after the Closing      
Date.                                                                           

10.14 [Intentionally Left Blank]                                            

10.15 [Intentionally Left Blank]                                            

11. Conditions Precedent to the Obligations of Finmeccanica. The obligation 
of Finmeccanica to consummate the transactions contemplated hereby shall be     
subject to the fulfillment prior to or at the Closing of each of the following  
conditions, any of which may be waived by Finmeccanica:                         

11.1 Performance by Brown & Sharpe; Certificate. Brown & Sharpe shall have  
performed and complied with all agreements and conditions required by this      
Agreement to be performed or complied with by it prior to or at the Closing on  
the Closing Date and Brown & Sharpe shall delivered a certificate of its        
President and Chief Financial Officer, dated the Closing Date, to such effect.  

11.2 Representations and Warranties; Certificate. The representations and   
warranties of Brown & Sharpe contained in this Agreement shall be true and      
correct in all material respects on and as of the Closing Date, except for      
changes contemplated by this Agreement or specifically concerted to or approved 
by Finmeccanica, and Finmeccanica shall have received a certificate of the      
President and Chief Financial Officer of Brown & Sharpe to that effect.         

 11.3 Opinion of Counsel. Finmeccanica shall have received an opinion of Ropes
& Gray, counsel to Brown & Sharpe, and, if appropriate, an opinion of James W.  
Hayes, III or other counsel to Brown & Sharpe, with respect to the subject      
matter of this Agreement in form and substance reasonably satisfactory to       
Finmeccanica and its counsel.                                                   

11.4 Absence of Litigation. No action or proceeding shall have been         
instituted or threatened prior to or at the Closing Date before any court or    
governmental agency, body or authority pertaining to the transactions           
contemplated hereby, the result of which could prevent or make illegal the      
consummation of such transactions.                                              

11.5 Governmental Clearance and Approval. All required filings with all     
United States, European, federal, state, local and foreign governmental         
agencies or authorities, the notification of which, or consent, approval or     
clearance by which, is necessary in connection with the consummation of the     
transactions contemplated hereby shall have been made, and all clearances or    
consents required in order to effect the transactions contemplated hereby shall 
have been obtained, or any applicable waiting period under any applicable       
statute or regulation shall have expired or been terminated, without any        
objection or notice of intent to challenge the transactions contemplated hereby 
having been received by any of the parties hereto and not withdrawn by the      
objecting or challenging agency.                                                

11.6 Approval by Stockholders of Brown & Sharpe. The issue of the Brown &   
Sharpe Purchase Price Shares and the Contingent Stock pursuant to this          
Agreement shall have been approved by the stockholders of Brown & Sharpe in     
accordance with its Bylaws and the rules of the New York Stock Exchange.        

11.7 Approval of Proceedings; Documentation. All corporate and other        
proceedings in connection with the transactions contemplated by this Agreement, 
and the form and substance of all opinions, certificates and other documents    
hereunder shall be satisfactory in form and substance to Finmeccanica and its   
counsel.                                                                        

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11.8 Execution and Delivery of Stockholder Agreement. Brown & Sharpe shall  
have executed and delivered the Stockholders Agreement.                         

11.9 [Intentionally Left Blank]                                             

11.10 Guarantees of Indebtedness of the Company to Banks. Each relevant     
lender to the DEA Companies shall have released Finmeccanica from its guarantee 
of Indebtedness of the Company and either (a) such Indebtedness shall have been 
extinguished or an agreement to repay all of such indebtedness shall have been  
reached with each such lender as of the Closing Date or (b) Brown & Sharpe      
shall have agreed to guarantee that portion of Aggregate Permitted Indebtedness 
of the Company and its Subsidiaries which is owed to each such lender on the    
Closing Date and each such lender shall have agreed to substitute the guaranty  
of Brown & Sharpe for the guaranty of Finmeccanica.                             

12. COVENANT NOT TO COMPETE. (a) Finmeccanica agrees that, in consideration 
of the purchase by Brown & Sharpe hereunder, neither Finmeccanica nor any       
affiliate thereof shall, on or prior to the date which is five (5) years after  
the Closing Date directly or indirectly own, manage, operate, control or have   
any greater than 20% ownership interest in any business, venture or activity    
which competes with the metrology business relating to CMMs (including parts    
and accessories therefor) being conducted or proposed to be conducted at the    
Closing Date by the Company and its Subsidiaries or relating to metrology       
products performing functions similar to those of the products manufactured and 
sold by the Company and its Subsidiaries, whether or not the assets of the      
Company and the Subsidiaries are subsequently moved in whole or in part into    
another legal entity within Brown & Sharpe and its Subsidiaries, provided that  
the provisions of this Section 12(a) shall terminate if Brown & Sharpe no       
longer owns a greater than 50% ownership interest in the DEA Business and       
provided further that Finmeccanica shall not be in breach of the covenant made  
in this Section 12(a) if Finmeccanica or any of its affiliates acquires or      
invests in any company or group of companies, whether through an acquisition of 
assets or stock, merger, consolidation or other combination or otherwise, which 
includes among its business operations the manufacture and sale of metrology    
products performing functions similar to those of the products manufactured and 
sold by the DEA Companies to the extent that sales of such products constitute  
only an immaterial portion of the total revenues of the acquired business. In   
this connection Finmeccanica represents to Brown & Sharpe that it has no        
present intention of acquiring any company or group of companies engaged in the 
business of manufacturing and selling such metrology products.                  

(b) Finmeccanica further agrees that for a period of three (3) years after  
the Closing Date it will not, without the prior written consent of Brown &      
Sharpe, recruit, offer employment, including employment as a consultant, to any 
person who is an employee of Brown & Sharpe (including the Company and its      
Subsidiaries) or any subsidiary, group, or division of Brown & Sharpe           
(including the Company and its Subsidiaries), unless such person has been       
terminated by the Company or a Subsidiary.                                      

13. AGREED EXCHANGE RATIO. Except as otherwise specified in this Agreement, 
the Agreed Exchange Ratio for the purposes of calculating 8 Billion Lit.        
Indebtedness of the Company and the Subsidiaries on the Closing Date shall be   
$1 = Lit. 1,568. For all other purposes, the Agreed Exchange Ratio shall be the 
U.S. Dollar/Lit. exchange rate, as published in SOLE 24 ORE, in effect on the   
date preceding the date a payment of cash or delivery of Brown & Sharpe         
Purchase Price Shares is required.                                              

14. ENTIRE AGREEMENT. This Agreement, together with the schedules and       
exhibits hereto, constitutes the entire agreement between the parties hereto    
pertaining to the subject matter hereof and supersedes all prior and            
contemporaneous agreements, understandings, negotiations and discussions,       
whether oral or written, of the parties, and there are no warranties,           
representations, or other agreements between the parties in connection with the 
subject matter hereof except as specifically set forth or incorporated herein;  
provided, however, that the provisions of Section 9 shall survive the           
termination of this Agreement pursuant to Section 17.                           

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15. AMENDMENT. This Agreement may be amended by the parties hereto at any   
time, but only by an instrument in writing duly executed and delivered on       
behalf of each of the parties hereto.                                           

16. PRESS RELEASES. Each of the parties agrees that they (and their         
respective affiliate and subsidiaries) will not issue any announcements or      
reports, or confirm any statements by third parties pertaining to any of the    
proposed transactions until after the Closing Date under this Agreement except  
as may be advisable for Brown & Sharpe under U.S. securities laws or            
Finmeccanica under Italian securities laws upon advice of counsel or except as  
may be mutually agreed upon by the parties.                                     

17. TERMINATION. This Agreement may be terminated without liability:        

(a) at any time by mutual agreement of Brown & Sharpe and Finmeccanica; 

 (b) by either Brown & Sharpe or Finmeccanica if, by the close of business
on October 31, 1994, or such later date as the parties may mutually agree,  
the consummation of the transactions hereby contemplated to take place on   
the Closing Date shall not have occurred; provided, however, that this      
Agreement may not be terminated by a party which at such time is in         
material breach of a provision of this Agreement.                           

18. HEADINGS. Section headings are not to be considered part of this        
Agreement and are included solely for convenience and are not intended to be    
full or accurate descriptions of the content thereof. References to sections    
are to portions of this Agreement unless the context requires otherwise.        

19. EXHIBITS, ETC. Exhibits and schedules referred to in this Agreement are 
an integral part of this Agreement.                                             

 20. ASSIGNMENT, SUCCESSORS AND ASSIGNS; BENEFITS OF AGREEMENT. This Agreement
may not be assigned by any party without the prior written consent of the other 
parties hereto, except that Brown & Sharpe may designate one or more of its     
Subsidiaries to acquire all or some of the DEA Shares. All of the terms and     
provisions of this Agreement shall be binding upon and shall inure to the       
benefit of the parties hereto and their respective transferees, successors and, 
subject to the foregoing, their assigns, and shall not inure to the benefit of, 
or be enforceable by, any other person or entity.                               

21. NOTICES. All notices, requests, demands and other communications        
hereunder shall be in writing and shall be deemed to have been duly given if    
delivered by hand or courier or delivery service or mailed, first-class postage 
prepaid,                                                                        

(a) if to Brown & Sharpe:                                               

Brown & Sharpe Manufacturing Company                                
200 Frenchtown Road                                                 
Precision Park                                                      
North Kingstown, Rhode Island 02852                                 
USA                                                                 

Attn: Vice President and Chief Financial Officer                    

In each case, with a copy to:                                       

Ropes & Gray                                                        
One International Pace                                              
Boston, MA 02110-2624                                               
USA                                                                 

Attn: Howard K. Fuguet, Esq.                                        

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(b) if to Finmeccanica:                                                 

Elsag Bailey                                                        
via G. Puccini, 2                                                   
16154 Genova                                                        
Italy                                                               

Attn: Chief Financial Officer and General Counsel                   

in each case, with a copy to:                                       

Coudert Brothers                                                    
1114 Avenue of the Americas                                         
New York, NY 10036-7794                                             
USA                                                                 

Attn: W. Preston Tollinger, Esq.                                    

or, in each case, at such other address as the party receiving notice shall     
have furnished in writing to the party giving notice.                           

 22. ACCOUNTING TERMS; PROXY STATEMENT; REGISTRATION STATEMENT. All accounting
terms not otherwise defined herein have with respect to Finmeccanica and its    
affiliates the meanings assigned to them in accordance with generally accepted  
Italian accounting principles or, in the absence thereof, with accounting       
principles as recommended by the IASC, except for the financial statements to   
be delivered for inclusion in the Brown & Sharpe Proxy Statement and the Brown  
& Sharpe Registration Statement which shall have the meanings assigned to them  
in accordance with United States generally accepted accounting principles, and  
shall have, with respect to Brown & Sharpe and its affiliates, the meanings     
assigned to them in accordance with United States generally accepted accounting 
principles.                                                                     

The term "Brown & Sharpe Proxy Statement" shall mean the definitive proxy   
statement of Brown & Sharpe as filed or to be filed with the Securities and     
Exchange Commission relating to the transactions contemplated hereby.           

The term "Brown & Sharpe Registration Statement" shall mean a Registration  
Statement on Form S-1 of Brown & Sharpe covering the registration of an         
aggregate of $75,000,000 of debt securities of Brown & Sharpe to be offered and 
sold under the Securities Act.                                                  

23. SEVERABILITY. The provisions of this Agreement are severable, and in the
event that any one or more provisions are deemed illegal or unenforceable, the  
remaining provisions shall remain in full force and effect.                     

24. ARBITRATION. All disputes, differences, controversies or claims arising 
in connection with, or questions occurring under, this Agreement (other than    
those relating to the Post-Closing Purchase Price Adjustment, which shall be    
resolved in the manner provided in Section 1.4) shall be finally settled under  
the Rules of Arbitration (the "Rules") of the International Chamber of Commerce 
("ICC") by an arbitral tribunal composed of three arbitrators appointed in      
accordance with said Rules.                                                     

24.1. Each of Brown & Sharpe and Finmeccanica shall each nominate one       
arbitrator in accordance with the Rules. If a party fails to nominate an        
arbitrator within thirty (30) days from the date when the claimant's request    
for arbitration has been communicated to the other party, such appointment      
shall be made by the ICC International Court of Arbitration.                    

24.2. The two arbitrators so appointed shall agree upon the third arbitrator
who shall act as Chairman of the arbitral tribunal. If said two arbitrators     
fail to nominate a Chairman, the Chairman shall be selected by the ICC          
International Court of Arbitration.                                             

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24.3. In all cases the Chairman of the arbitral tribunal shall be a lawyer  
fluent in English and not of the same nationality as either party.              

24.4. The place of arbitration shall be London, England.                    

24.5. The arbitral proceedings shall be conducted in the English language.  

24.6. The parties hereby exclude any right of appeal to any court on the    
merits of the dispute.                                                          

24.7. Judgment on the award may be entered in any court having jurisdiction 
over the award or any of the parties or their assets.                           

24.8. At the time of the arbitration, the parties may agree in writing to   
submit the dispute to a single arbitrator. In such event said single arbitrator 
shall be appointed by the ICC International Court of Arbitration, and shall be  
subject to the same qualifications as would have been the Chairman under        
Section 24.3 hereof.                                                            

 24.9. Nothing contained in this arbitration clause shall prevent either party
from seeking injunctive relief or interim measures of protection in the form of 
pre-award attachment of assets from a court of competent jurisdiction.          

25. GOVERNING LAW. This Agreement shall be governed by and construed and    
enforced in accordance with the laws (other than those with respect to conflict 
of laws) of the State of New York.                                              

26. TAX RETURN COOPERATION. (a) Brown & Sharpe shall provide Finmeccanica or
any affiliate that Finmeccanica may designate (hereinafter the "Finmeccanica    
Group") with such financial, accounting, tax and other information with respect 
to the Company and the Subsidiaries as shall be reasonably required by the      
Finmeccanica Group to enable the Finmeccanica Group to prepare:                 

(i) the income tax returns of the Company and the Subsidiaries for the  
taxable years ending on December 31, 1993 and for any other taxable periods 
beginning before the Closing Date and ending on or before the Closing Date, 
including, without limitation, the U.S. Federal income tax returns and the  
U.S. state and local corporate franchise and income tax returns of DEA      
Company (which state and local tax returns may be prepared on a separate    
return basis or on a unitary, combined or consolidated basis),              

(ii) any non-income tax return or report properly due by the Company or 
any Subsidiary for any taxable periods beginning before and ending on or    
before the Closing Date, except for any return for registration or capital  
tax, if any, arising in connection with the reduction of Indebtedness of    
DEA and its subsidiaries required by Section 6.4 and other applicable       
sections of this Agreement required to be filed by the Company or any of    
its Subsidiaries for any period beginning on or after January 1, 1994.      

(iii) any income tax returns and non-income tax return or report of the 
Finmeccanica Group which requires information with respect to the Company   
or any Subsidiary.                                                          

 (b) At the reasonable request of the Finmeccanica Group, Brown & Sharpe shall
cause a representative of the Company, or the relevant Subsidiary, or any       
successor to the Company or the relevant Subsidiary to sign any returns and     
related consents prepared by the Finmeccanica Group for the Company or its      
Subsidiaries for taxable periods ending on or before the Closing Date pursuant  
to this Section 26.                                                             

(c) The Finmeccanica Group shall provide Brown & Sharpe, the Company, any   
Subsidiary, or any affiliate of Brown & Sharpe that Brown & Sharpe may          
designate (collectively, the "Brown & Sharpe Group") with such financial,       
accounting, tax and other information with respect to the Company and the       
Subsidiaries as shall be reasonably required by the Brown & Sharpe Group to     
enable the Brown & Sharpe Group to prepare:                                     

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(i) the income tax returns of the Company and the Subsidiaries for any  
taxable periods beginning on or before the Closing Date and ending after    
the Closing Date and for the two taxable years following each such period,  
including, without limitation, the Italian national income tax returns and  
the Italian local income tax returns of the Company and comparable returns  
for the Subsidiaries in other countries,                                    

(ii) any non-income tax return or report properly due by the Company or 
any Subsidiary for any taxable periods beginning on or before and ending    
after the Closing Date, and any return for registration or capital tax, if  
any, arising in connection with the reduction of Indebtedness required by   
applicable sections of this Agreement that is required to be filed by the   
Company or its Subsidiaries for any period beginning on or after January 1, 
1994;                                                                       

 (iii) any income tax return, non-income tax return or report of the Brown
& Sharpe Group which requires information with respect to the Company or    
any Subsidiary.                                                             

(d) Brown & Sharpe will be responsible for filing, and agrees to file or to 
cause the Company and the Subsidiaries to file, all tax returns and reports of  
the Company and the Subsidiaries for any taxable periods beginning on or after  
the Closing Date and any return for registration or capital tax, if any,        
arising in connection with the reduction of Indebtedness required by applicable 
sections 6.4, 10.12 and 1.4(f) of this Agreement that is required to be filed   
by the Company or its Subsidiaries for any period beginning on or after January 
1, 1994.                                                                        

(e) None of the provisions of this Section 26 shall relieve Finmeccanica of 
its obligation to indemnify, defend and hold harmless Brown & Sharpe and its    
directors, officers and affiliates as more fully provided in Section 8.1 of     
this Agreement, except to the extent attributable to the acts or omissions of   
Brown & Sharpe, of its directors, officers or affiliates.                       

 27. COUNTERPARTS. This Agreement may be executed simultaneously in any number
of counterparts, each of which shall be deemed an original, but all of which    
together shall constitute one and the same instrument.                          

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement,   
attested by their respective Secretaries as of the day and year first above     
written.                                                                        

ATTEST:                                 Brown & Sharpe Manufacturing Company    

  By
-------------------------------------     -----------------------------------   
Secretary                                 Title:                                

ATTEST:                                 Finmeccanica S.p.A. (through its        
                        Elsag Bailey Division)

  By
-------------------------------------     -----------------------------------   
Secretary                                 Title:                                

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ANNEX A 

LIST OF DEA COMPANIES 

1. D.E.A. SpA (Italy)                                                           

Outstanding Capital Stock:       16,300,000 shares; nominal value:              
L.1,000/share 

Corporate Headquarters:          Corso Torino, 70, Moncalieri (TO), Italy       

2. D.E.A. Company (USA)                                                         

Outstanding Capital Stock:                                                      

Corporate Headquarters:          37100 Plymouth Rd., Livonia, Michigan 48150,   
U.S.A.        

3. D.E.A.K.K. (Japan)                                                           

Outstanding Capital Stock:                                                      

Corporate Headquarters:          1030 Kawaraguchi-Ebina Shi, Kanagawa Pref.,    
Japan         

4. D.E.A. France S.A. (France)                                                  

Outstanding Capital Stock:                                                      

Other Shareholders:                                                             

Corporate Headquarters:          122, Rue Marcel Hartmann, 94853 Ivry-sur-      
Seine         
CEDEX France  

5. D.E.A. GmbH (Germany)                                                        

Outstanding Capital Stock:                                                      

Corporate Headquarters:          Praunheimer Landstr. 32, 6000 Frankfurt 90,    
Germany       

6. D.E.A. IBERICA S.A. (Spain)                                                  

Outstanding Capital Stock:                                                      

Corporate Headquarters:          Ctra. del Mig, 37, 08940 CORNELLA              
    (Barcelona), Spain

7. D.E.A. U.K. (United Kingdom)                                                 

Corporate Headquarters:          Terminal Three, 3B2, Sontehill Green, WESTLEA  
                        SWINDON, WILTS, SN5 7HB United Kingdom

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P                                                                               
R                                                                               
O                    BROWN & SHARPE MANUFACTURING COMPANY                       
X                                                                               
Y           PROXY FOR CLASS A COMMON STOCK AND CLASS B COMMON STOCK             

THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS   

AUGUST __, 1994     

   The undersigned appoints each of Henry D. Sharpe, Jr., John M. Nelson and
Russell A. Boss proxies with power of substitution to vote for the undersigned  
at the Special Meeting of Shareholders called for _______, August __, 1994 at   
10:00 A.M., at Precision Park, 200 Frenchtown Road, North Kingstown, Rhode      
Island, and at any adjournments, all shares of stock which the undersigned      
would be entitled to vote if present in accordance with their judgment upon     
any matters that may properly come before said meeting and to vote as           
specified on the reverse.                                                       

  A majority of the proxies present and acting at the meeting in person or
by substitute (or if only one shall be so present, then that one) shall have    
and may exercise all of the power and authority of said proxies hereunder.      
The undersigned hereby revokes any proxy previously given and acknowledges      
receipt of the Notice of Special Meeting and Proxy Statement pertaining to the  
aforesaid meeting.                                                              

 Your Shares of Class A Common Stock on the back are designated "Class A
Stock", and your Shares of Class B Common Stock are designated "Class B Stock". 

  To approve the Board of Directors' recommendations, simply sign and date
the back. You need not mark any boxes.                                          
                                                                 -----------
                                                                 SEE REVERSE
                                                                SIDE
                                                                 -----------

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[X] Please mark                                                                 
votes as in                                                             
this example.                                                           

To consider and vote on a proposal to approve the issuance of shares of Class   
A Common Stock, $1.00 par value, of Brown & Sharpe pursuant to the terms of     
(i) an acquisition agreement between Brown & Sharpe and Finmeccanica S.p.A,     
("Finmeccanica"), dated as of June 10, 1994 (the "DEA Acquisition Agreement"),  
and (ii) a shareholders agreement to be entered into between Brown & Sharpe     
and Finmeccanica in connection with the closing under the DEA Acquisition       
Agreement.                                                                      

FOR   AGAINST   ABSTAIN                                                       
[_]     [_]       [_]                                                         

                                               MARK HERE
                                                    FOR ADDRESS  [_]
                                                CHANGE AND
                                                NOTE AT LEFT

        Note:  When signing as Executor, Administrator, Trustee,
              Guardian, etc., add full title.  (Sign exactly as name appears
on this card.)                                  

This proxy when properly executed will be voted in the manner directed herein.  
If no direction is made the proxy will be voted FOR the proposal.               

Signature:                                        Date                          
          ---------------------------------------      -----------------------

Signature:                                        Date                          
          ---------------------------------------      -----------------------