FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


               QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934


For Quarter Ended June 30, 1999

Commission File No. 1-5562

                              KOLLMORGEN CORPORATION
             (Exact name of registrant as specified in its charter)

        New York                                        04-2151861
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                      Identification No.)


1601 Trapelo Road, Waltham, Massachusetts                  02451
(Address of principal executive offices)                 (Zip Code)


Registrant's telephone number, including area code:   (781)  890-5655


        -----------------------------------------------------------
(Former  name,  former  address and former  fiscal year,  if changed  since last
report.)


        Indicate by check mark whether the  registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                                               Yes   X       No ____

        Indicate  the  number  of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

       Class                                  Outstanding at August 12, 1999
Common Stock, $2.50 par value                        10,078,356 shares





<PAGE>2

                   KOLLMORGEN CORPORATION AND SUBSIDIARIES


                                                     INDEX



                                                                    Page No.


PART I - Financial Information

        Unaudited Consolidated Statements of                             3
               Operations for the Three Months and Six
               Months Ended June 30, 1999 and 1998

        Unaudited Consolidated Balance Sheets                            4
               as of June 30, 1999 and
               December 31, 1998

        Unaudited Consolidated Statements of Cash Flows                  5
               for the Six Months Ended June 30, 1999
               and 1998

        Notes to Unaudited Consolidated Financial Statements             6

        Management's Discussion and Analysis of Financial                9
               Condition and Results of Operations



PART II - Other Information




<PAGE>3



                             PART I - FINANCIAL INFORMATION

                       KOLLMORGEN CORPORATION AND SUBSIDIARIES
                        Consolidated Statements of Operations
                    (Dollars in thousands, except per share amounts)
                                     (Unaudited)
<TABLE>
<CAPTION>
                                                                           For the                               For the
                                                                     Three Months Ended                       Six Months Ended
                                                                          June 30,                                June 30,
                                                                   --------------------------              -----------------------
                                                                     1999             1998                   1999            1998
                                                                   ---------        ---------              --------        --------
<S>                                                                <C>              <C>                    <C>             <C>
Net sales                                                          $59,922          $60,340                $119,393        $117,133
Cost of sales                                                       42,999           41,388                  84,877          81,054
                                                                   -------          -------               ---------        --------
Gross profit                                                        16,923           18,952                  34,516          36,079

Selling and marketing expenses                                       6,387            6,077                  12,522          11,696
General and administrative expenses                                  6,752            6,233                  13,204          11,355
Research and development expenses                                    3,434            2,749                   6,487           5,930
Restructuring charge                                                 3,065                -                   3,065               -
Impairment of goodwill and assets
        held for sale                                                    -                -                       -           2,733
Tender offer costs                                                       -                -                       -           1,273
                                                                   -------         ---------               ---------        --------
Income (loss) from operations                                       (2,715)           3,893                    (762)          3,092

Other income (expense):
       Interest expense                                             (1,013)            (852)                 (1,914)         (1,686)
       Interest income                                                  47              273                     121             650
       Intellectual property license,
        net of expenses                                                  -                -                       -          21,217
       Other, net                                                     (279)             122                     899          (8,214)
                                                                   --------        ---------               ---------        --------
Income (loss) before income taxes
  and minority interest                                             (3,960)           3,436                  (1,656)         15,059
(Provision) benefit for income taxes                                 1,385           (1,067)                    580          (7,139)
                                                                   --------        ---------               ---------       ---------
Income (loss) before minority interest                              (2,575)           2,369                  (1,076)           7,920
Minority interest                                                       59              (90)                    194            (81)
                                                                   --------        ---------               ---------       ---------
Net income (loss)                                                  $(2,516)          $2,279                 $  (882)          $7,839
                                                                   ========        =========               =========       =========
Earnings (loss) per common share:
        Basic                                                     $(0.25)            $ 0.23                $  (0.09)           $0.78
        Diluted                                                   $(0.25)            $ 0.21                $  (0.09)           $0.73
                                                                  =========         =========              =========       =========

Number of shares used in calculating earnings (loss) per common share:
        Basic                                                   10,214,040        10,069,067              10,184,608      10,055,310
        Diluted                                                 10,214,040        10,702,072              10,184,608      10,675,887
                                                                ==========        ==========              ==========      ==========


<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>


<PAGE>4


<TABLE>
                              KOLLMORGEN CORPORATION AND SUBSIDIARIES
                                      Consolidated Balance Sheets
                                            (In thousands)
                                              (Unaudited)
<CAPTION>
                                                ASSETS
                                                                                              June 30,                December 31,
                                                                                                1999                    1998
                                                                                              --------               -----------
<S>                                                                                           <C>                    <C>
Current assets:
        Cash and cash equivalents                                                             $ 8,951                $ 13,086
        Accounts receivable (net of reserve of
          $584 in 1999 and $581 in 1998)                                                       42,427                  48,927
        Recoverable amounts on long-term contracts                                              5,238                   2,597
        Inventories                                                                            29,914                  27,838
        Prepaid expenses and other current assets                                               2,320                   1,885
                                                                                              -------               ---------
Total current assets                                                                           88,850                  94,333

Property, plant and equipment, net                                                             29,535                  30,809
Goodwill, patents and other intangible assets net                                              31,443                  20,420
Deferred income taxes                                                                           9,375                   9,448
Other assets                                                                                   14,490                  13,623
                                                                                              -------                ---------
Total assets                                                                                 $173,693                $168,633
                                                                                              =======                =========
                                LIABILITIES and SHAREHOLDERS' EQUITY

Current liabilities:
        Accounts payable                                                                    $13,875                  $ 14,336
        Income taxes payable                                                                  3,843                     6,733
        Accrued liabilities                                                                  25,145                    28,110
        Line of credit                                                                        9,117                     9,270
        Current portion of long-term debt                                                     2,359                     2,419
                                                                                           ---------                 ---------
Total current liabilities                                                                    54,339                    60,868

Long-term debt                                                                               49,764                    36,120
Other liabilities                                                                            13,984                    14,943
Minority interest                                                                                 -                       175

Shareholders' equity:
        Common stock                                                                         26,945                    26,932
        Additional paid-in capital                                                           13,313                    12,882
        Retained earnings                                                                    21,486                    22,772
        Accumulated other comprehensive loss                                                 (1,683)                     (270)
        Less: common stock in treasury, at cost                                              (4,455)                   (5,789)
                                                                                           ---------                  ---------
Total shareholders' equity                                                                   55,606                     56,527
                                                                                           ---------                  ---------
Total liabilities and shareholders' equity                                                 $173,693                   $168,633
                                                                                           =========                  =========
<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>


<PAGE>5

<TABLE>
                              KOLLMORGEN CORPORATION AND SUBSIDIARIES
                               Consolidated Statements of Cash Flows
                                         (In thousands)
                                          (Unaudited)
<CAPTION>

                                                                    For the Six Months Ended
                                                                             June 30
                                                                      1999              1998
                                                                    -------           -------
<S>                                                                 <C>               <C>
Cash flows from operating activities:
Net income (loss)                                                   $ (882)           $ 7,839
Adjustments to reconcile income (loss) to
  net cash provided by (used in) operating activities:
      Depreciation                                                   3,144              2,559
      Amortization                                                     886                736
      Impaired asset charge                                              -              2,733
      (Gain) loss on sale of assets                                   (359)                22
      Deferred income taxes                                              -             (3,572)
      Minority interest and other non-cash expenses                    (90)               358
Changes in operating assets and liabilities
      Accounts receivable                                            4,639             (2,486)
      Recoverable amounts on long-term contracts                    (2,641)              (196)
      Inventories                                                   (1,636)            (2,662)
      Prepaid expenses                                                (423)              (760)
      Accounts payable and accrued liabilities                      (5,165)             5,347
      Other                                                           (343)             1,060
                                                                  ---------          ---------
        Net cash provided by (used in) operating activities         (2,870)            10,978
                                                                  ---------          ---------
Cash flows from investing activities:
      Capital expenditures                                          (3,601)           (3,766)
      Proceeds from sale of assets                                   1,408                 -
      Acquisitions, net                                            (16,054)                -
      Other                                                            (36)               70
                                                                  ---------         ---------
        Net cash used in investing activities                      (18,283)           (3,696)
                                                                  ---------         ---------
Cash flows from financing activities:
      Borrowings (repayments) under credit lines, net                2,578               286
      Proceeds from common stock issued from treasury                  977                89
      Borrowings (repayments) of long-term debt, net                13,928            (1,242)
      Dividends paid                                                  (404)             (402)
                                                                   --------         ---------
        Net cash provided by (used in) financing activities         17,079            (1,269)
                                                                   --------         ---------
      Effect of exchange rate changes on cash                          (61)             (209)
                                                                   ---------        ---------
      Net increase (decrease) in cash and cash equivalents          (4,135)            5,804
      Cash and cash equivalents at beginning of period              13,086            14,854
                                                                   ---------        ---------
      Cash and cash equivalents at end of period                    $8,951           $20,658
                                                                   =========        =========





<FN>
See accompanying notes to unaudited consolidated financial statements.
</FN>
</TABLE>

<PAGE>6

                          KOLLMORGEN CORPORATION AND SUBSIDIARIES

             Notes to Unaudited Consolidated Financial Statements
                   (In thousands, except per share amounts)


1.      The accompanying unaudited consolidated financial statements include the
        accounts of Kollmorgen Corporation and its subsidiaries (the "Company").

2.      In the opinion of management, the unaudited consolidated financial
        statements included herein contain all adjustments, consisting only of
        normal recurring adjustments, necessary to present fairly the Company's
        financial condition at June 30, 1999, the results of operations for the
        three month and six month periods ended June 30, 1999 and 1998, and the
        cash flows for the six month periods ended June 30, 1999 and 1998.  The
        balance sheet at December 31, 1998 was derived from the audited
        financial statements as of December 31, 1998.  The results of operations
        for interim periods are not necessarily indicative of the results to be
        expected for the full year.  See Management's Discussion and Analysis of
        Financial Condition and Results of Operations for additional
        information.  These interim financial statements should be read in
        conjunction with the Company's Annual Report on Form 10-K for the year
        ended December 31, 1998.

3. Inventories consist of the following:

                                               June 30,            December 31,
                                                 1999                 1998
                                               --------            ------------
                Raw materials                  $12,379               $12,187
                Work in process                 10,320                 8,073
                Finished goods                   7,215                 7,578
                                               -------               -------
                                               $29,914               $27,838
                                               =======               =======


4.  The Company's comprehensive earnings (loss) were as follows:

                                    For the                  For the
                                 Three Months Ended     Six Months Ended
                                     June 30,               June 30,
                                 ------------------      ---------------
                                   1999      1998          1999     1998
                                 -------   -------      -------  -------
        Net income (loss)        $(2,516)  $ 2,279      $  (882) $ 7,839
        Foreign currency
      translation adjustment, net   (257)       76         (919)    (124)
                                 -------   -------      -------  -------
                                 $(2,773)  $ 2,355      $(1,801) $ 7,715
                                 =======   =======      =======  =======


5.      The following table includes certain financial  information  relating to
        each of the Company's segments:

<TABLE>
<CAPTION>
                                          Industrial         Aerospace
                                              and               and           Corporate,
                                          Commercial          Defense          Interest       Special
                                             Group             Group          And Other        Items        Total

<S>                                        <C>                <C>              <C>             <C>          <C>
Three months ended:
June 30,1999:
Sales                                      $ 31,272           $28,650               -               -       $59,922
Profit (loss) before tax                     (1,193)            3,287          (2,989)         (3,065)       (3,960)
June 30,1998:
Sales                                         33,708           26,632               -               -        60,340
Profit (loss) before tax                       1,828            3,421          (1,813)              -         3,436

Six months ended:
June 30,1999
Sales                                         64,829           54,564               -               -       119,393
Profit (loss) before tax                         305            6,091          (4,987)         (3,065)       (1,656)
June 30,1998
Sales                                         65,082           52,051               -               -       117,133
Profit (loss) before tax                       3,402            5,803          (2,932)          8,786        15,059
</TABLE>




<PAGE>7



6.      In June 1998, the Financial Accounting Standards Board ("FASB") issued
        Statement of Financial Accounting Standard No. 133 ("SFAS 133"),
        "Accounting for Derivative Instruments and Hedging Activities".  This
        statement establishes accounting and reporting standards for derivative
        instruments.  The statement requires that an entity recognize all
        derivatives as either assets or liabilities in the statement of
        financial position and measure those instruments at fair value.  In
        June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
        Instruments and Hedging Activities - Deferral of the Effective Date of
        FAS Statement 133," which postponed the adoption date of SFAS No. 133.
        As such, the Company is not required to adopt the statement until fiscal
        2001.  Had the Company implemented SFAS 133 for the current reporting
        period there would have been no material effect on the financial
        statements.

7.      Basic EPS  excludes  the  dilutive  effect of  common  stock  equivalent
        securities   and  is   computed   by   dividing   net   income   by  the
        weighted-average  number of common  shares  outstanding  for the period.
        Diluted  EPS  reflects  the  potential  dilution  that  could  occur  if
        securities or other  instruments to issue common stock were exercised or
        converted  into common stock or resulted in the issuance of common stock
        that then shared in the earnings of the entity. A reconciliation between
        basic and diluted EPS is as follows:

<TABLE>
<CAPTION>
                                      For the                For the
                                 Three Months Ended     Six Months Ended
                                      June 30,               June 30,
                                 ------------------      ---------------
                                   1999     1998          1999     1998
                                 -------   -------      -------  -------
<S>                              <C>       <C>          <C>      <C>
       Net income (loss)         $(2,516)  $ 2,279      $  (882) $ 7,839

       Shares used in net income
       (loss) per share - basic   10,214    10,069       10,185   10,055

       Effect of dilutive securities:
       Stock options                   0       633            0      621
                                  -------   -------      -------  -------
       Shares used in net income
       (loss) per share - diluted 10,214     10,702      10,185   10,676

       Net income (loss)
       per share-basic            $(0.25)     $0.23      $(0.09)  $0.78

       Net income (loss)
       per share-diluted          $(0.25)     $0.21      $(0.09)  $0.73

</TABLE>

        During the second quarter of 1999,  options to purchase 1,455,051 shares
        of  common  stock  were  outstanding,  but  were  not  included  in  the
        computation  of diluted  EPS  because  they would have an  anti-dilutive
        effect due to the Company's net loss position. During the second quarter
        of 1998,  options  to  purchase  1,500  shares of common  stock  with an
        exercise  price of $20.94 per share and with an  expiration  date of May
        12, 2008, were outstanding,  but were not included in the computation of
        diluted EPS because the options'  exercise  prices were greater than the
        average  market  price of the  common  shares.  Also  during  the second
        quarter of 1999 and 1998,  853,000  and  905,000,  respectively,  common
        equivalent  shares of the convertible  subordinated  debentures were not
        included  in  the  diluted  EPS   calculation   as  a  result  of  their
        antidilutive effect.

<PAGE>8



        During the second quarter of 1999, options to purchase 522,407 shares of
        common stock had exercise  prices that exceeded the average market price
        of the common stock. Exercise prices of these options ranged from $13.56
        to $20.94 and expiration dates ranged up to June 14,2009.

        During  the first six  months of 1999,  options  to  purchase  1,455,051
        shares of common  stock were  outstanding,  but were not included in the
        computation  of diluted  EPS  because  they would have an  anti-dilutive
        effect  due to the  Company's  net loss  position.  During the first six
        months of 1998,  options to purchase  3,000  shares of common stock with
        exercise  prices  ranging  from  $19.63 to $20.94  per share and with an
        expiration dates ranging up to May 12, 2008, were outstanding,  but were
        not  included in the  computation  of diluted  EPS because the  options'
        exercise prices were greater than the average market price of the common
        shares.  Also during the first six months of 1999 and 1998,  853,000 and
        905,000,  respectively,  common  equivalent  shares  of the  convertible
        subordinated debentures were not included in the diluted EPS calculation
        as a result of their antidilutive effect.

        During the first six months of 1999,  options to purchase 527,780 shares
        of common stock had  exercise  prices that  exceeded the average  market
        price of the common stock.  Exercise prices of these options ranged from
        $17.75 to $20.94 and expiration dates ranged up to May 26, 2008.


8.      Effective May 1, 1999,  the Company  purchased the assets of New England
        Affiliated Technologies ("NEAT") from  Instrument Industries, Inc. for
        $16.3 million, plus payments based upon the financial performance of
        NEAT over the next two years. The acquisition  was accounted for as a
        purchase.  The purchase price consists of assets acquired of $4.7
        million,  liabilities assumed of $1.8 million and goodwill of $13.4
        million.  NEAT is a leader in the application of high-performance
        motion  control for  advanced positioning  systems. The company has
        approximately 100 employees at its manufacturing facility in Lawrence,
        MA. and recorded sales of approximately $13 million in 1998.


9.      The Company recorded a $3.1 million restructuring charge in the second
        quarter of 1999 for the consolidation of its worldwide drives and
        controls business and cost reductions in its Industrial and Commercial
        motion control operations.  The charge was primarily for severance
        costs of $2.3 million associated with the termination of approximately
        87 employees in the U.S., Europe, and Israel.  The balance of the
        charge was mainly to provide for the subletting of a leased facility
        which will allow the Company to move one of its operations to a smaller,
        more cost effective facility.  At June 30, 1999, approximately $403,000
        for the termination of 25 people has been charged against the
        restructuring accrual.


10.     On July 1, 1999,  the Company  completed  the purchase of its  long-time
        naval  systems   partner,   Calzoni   S.p.A.   of  Bologna,   Italy  for
        approximately  $14.0 million.  Calzoni designs and builds motion systems
        and components primarily for naval platforms and is widely recognized as
        the world's leading maker of submarine masts.  Calzoni has facilities in
        Bologna, as well as Milan and Florence. Sales in 1998 were approximately
        $25 million.

11.     Over the past  several  years,  the  Company  has  notified  a number of
        domestic and foreign  companies that it believes infringe certain motion
        control  patents  owned by the  Company.  As  previously  reported,  the
        Company has concluded  royalty  bearing  licenses and  settlements  with
        third parties with respect to these patents.  The Company  believes that
        its  patents  are an  important  asset of the  Company,  and  intends to
        enforce its legal rights against alleged infringers.

        In May 1999, the Company commenced a patent  infringement action against
        Yaskawa  Electric  Corporation and Yaskawa  America,  Inc. in the United
        States District Court,  Western District of Virginia,  Roanoke Division,
        alleging that  defendants'  products  infringe  certain of the Company's
        patents.  The Company is seeking monetary damages and equitable  relief.
        In June 1999,  Allen-Bradley Company L.L.C. and Reliance Motion Control,
        Inc. commenced an action in the Eastern District Court, Eastern District
        of  Wisconsin  against  the  Company  for  a  declaratory  judgment  of
        non-infringement   requesting  the  court  to  enter  a  judgment  that
        plaintiffs'  products do not infringe  certain of the  Company's  motion
        control patents.



<PAGE>9



         Management's Discussion and Analysis of Financial Condition
                                 and Results of Operations



        For the three months ended June 30, 1999, the Company had sales of $59.9
million and a net loss, after  restructuring  charges,  of $2.5 million or $0.25
per common  share  (diluted).  These  results  compare  with sales for the three
months ended June 30, 1998 of $60.3 million and net income of $2.3 million equal
to $0.21 per common share (diluted). For the six months ended June 30, 1999, the
Company had sales of $119.4 million and a net loss, after restructuring charges,
of $0.9  million,  equal to $0.09 per  common  share  (diluted).  These  results
compare with sales for the six months ended June 30, 1998 of $117.1  million and
net income of $7.8 million equal to $0.73 per common share (diluted).  Excluding
the  restructuring  charge recorded in 1999, and discussed  below, the Company's
net loss for the three months  ended June 30 would have been $0.6 million  equal
to $0.05 per share (diluted).  Excluding the impact of the Special Items in 1998
discussed  below,  the  Company's net income for the three months ended June 30,
1998 would have been $2.3 million  equal to $0.21 per share  (diluted).  For the
six months ended,  excluding the  restructuring  charges and Special Items,  net
income would have been $1.1 million equal to $0.10 per share  (diluted) for 1999
and $4.2 million equal to $0.40 per share (diluted) for 1998.

         The Company recorded a $3.1 million  restructuring charge in the second
quarter of 1999 for the  consolidation  of its  worldwide  drives  and  controls
business,  and for cost  reductions  in its  industrial  and  commercial  motion
control  operations (the  "Restructuring").  The impact of the consolidation and
cost-reduction  efforts  will  result in a more  efficient  organization  and is
expected to produce annual savings of approximately $5 million in 2000.


        During the first quarter of 1998, the Company  announced the first major
license  agreement for its pioneering  electronic  motion control patents in the
amount of $27.2  million,  which,  after legal and other  expenses,  resulted in
income of $21.2 million.  In connection with its patent enforcement program (See
Item 1-Legal Proceedings contained in Part II of the Report for a description of
the Company's outstanding patent litigation), the Company has engaged counsel to
continue  enforcement  of the Company's  patent  estate,  and  accordingly,  has
recorded a charge of $6.8  million to cover  legal  expenses  and other  related
costs. The Company recorded a pre-tax charge of $2.7 million, primarily relating
to the write-down of goodwill from its 1994  acquisition of the assets of Sperry
Marine.  Also in the first quarter of 1998, the Company incurred $1.3 million of
expenses in conjunction  with the tender offer for Pacific  Scientific  Company.
Finally,  the Company  elected to change the vesting method for  post-retirement
medical insurance benefits,  resulting in a charge of $1.6 million. The total of
these items had a positive impact in 1998 of $8.8 million to the reported income
before  income  taxes of the Company  and $3.6  million to the net income of the
Company.  Collectively,  the items in this  paragraph  from the first quarter of
1998 will be  referred  to as the  "Special  Items" to provide  for  comparative
discussion of the Company's results on a consistent basis.



                                            RESULTS OF OPERATIONS

     The following  table  reflects the results of operations  for the Company's
two operating segments excluding the impact of the Restructuring and the Special
Items. This comparison  provides a consistent basis by which to view the results
of the Company's two operating segments (in millions):

<TABLE>
<CAPTION>

                                                                For the                        For the
                                                           Three Months Ended              Six Months Ended
                                                                June 30,                        June 30,
                                                          1999            1998            1999           1998
                                                          --------      ----------        -------    ---------
<S>                                                       <C>           <C>               <C>        <C>
Industrial and Commercial Group:
              Bookings                                     $ 32.8       $ 37.0            $ 70.1     $ 74.0
              Sales                                          31.3         33.7              64.8       65.1
              Profit (loss) before tax                       (1.2)         1.8               0.3        3.4
Aerospace and Defense Group:
              Bookings                                     $ 43.0       $ 31.9            $ 85.4     $ 60.1
              Sales                                          28.7         26.6              54.6       52.1
              Profit before tax                               3.3          3.4               6.1        5.8

</TABLE>

<PAGE>10



1999 versus 1998

        The loss before taxes for the three months  ending June 30, 1999 of $4.0
million  compares  with a profit before taxes of $3.4 million in the same period
of 1998.  The loss  before tax for the six months  ending  June 30, 1999 of $1.7
million  compares  with profit before tax of $15.1 million in the same period of
1998.  Excluding  the  Restructuring  in 1999  and  the  Special  Items  in 1998
discussed  above, the loss before tax would have been $0.9 million for the three
months  ending June 30, 1999 compared with profit before tax of $3.4 million for
the three months  ending June 30, 1998.  For the six months ending June 30, 1999
and 1998,  profit  before tax would  have been $1.4  million  and $6.3  million,
respectively.

        For the three months ended June 30, 1999, the Company's  sales decreased
$400,000 or 1% as compared to the same period a year ago. The the  Aerospace and
Defense Group's revenue increased 8% to $28.7 million for the three months ended
June 30, 1999 from $26.6  million for the three months ended June 30, 1998.  The
increase reflects increased  revenues for submarine systems,  the acquisition of
Magnedyne in July 1998 and initial shipments under long term aerospace contracts
by  the  group's  French  operation.  These  increases  offset  declines  in the
Industrial and Commercial Group's motion control businesses due to a slowdown in
the domestic  machine tool sector and the continued  impact of the Asian economy
on the group's high volume  business.  Sales to the  Industrial  and  Commercial
Group's  markets of $31.3  million  for the three  months  ended  June 30,  1999
represented  a decrease of 7% from the $33.7  million of sales in same period of
1998.  This  decrease  was  partially  offset  by the  acquisitions  of NEAT and
Magnedyne.

        The  Company's  sales  increased  $2.3  million or 2% for the six months
ended June 30, 1999 as compared to the same period a year ago. The Aerospace and
Defense Group's  revenue  increased 5% to $54.6 million for the six months ended
June 30, 1999 from $52.1  million for the six months  ended June 30,  1998.  The
increase  reflects  the  acquisition  of  Magnedyne  in July  1998  and  initial
shipments under long term aerospace  contracts by the group's French  operation.
These increases offset declines in the Industrial and Commercial  Group's motion
control businesses due to a slowdown in the domestic machine tool sector and the
continued impact of the Asian economy on the group's high volume business. Sales
to the Industrial and  Commercial  Group's  markets of $64.8 million for the six
months ended June 30, 1999  represented a decline from the $65.1 million in same
period of 1998.  This decline was partially  offset by the  acquisitions of NEAT
and Magnedyne.

        The Company's  overall  gross margin as a percent of sales  declined for
both the three and six months  ended June 30, 1999  compared to the same periods
in 1998. The Industrial and Commercial  Group had a decline in gross margin as a
percent  of sales to 25% for the second  quarter  of 1999 from 29% in 1998.  The
decline in margin was due to lower  revenues  experienced by the group without a
corresponding  reduction  in  fixed  costs.  As part of the  Restructuring,  the
Company  has  provided  for a  reduction  in  overhead  costs which will help to
improve  its gross  margin by the fourth  quarter  of 1999.  The  Aerospace  and
Defense  Group had a decline in gross  margin as a percent of sales from 31% for
the second  quarter of 1998 to 30% in 1999 as a result of product  mix.  For the
six months  ended June 30, 1999 the  Industrial  and  Commercial  Group's  gross
margin as a percent  of sales was 26%,  down from 29% in the same  period of the
prior year for the reasons  described  above.  The Aerospace and Defense Group's
gross margin for the six months ended June 30, 1999 remained consistent with the
same period in the prior year at 31%.

        Sales and  marketing  expenses  were $6.4  million  or 11% in the second
quarter of 1999 as compared to $6.1  million or 10% for the same period in 1998.
Sales and  marketing  expenses were $12.5 million or 10% in the first six months
of 1999 as compared to $11.7 million or 10% for the same period in 1998.

        General and administrative expenses were $6.8 million or 11% of sales in
the second  quarter of 1999 as compared to $6.2  million or 10% of sales for the
same period in 1998. General and  administrative  expenses were $13.2 million or
11% in the first six months of 1999 as compared to $11.4  million or 10% for the
same period in 1998. This increase reflects insurance settlements and credits in
the first  quarter of 1998 and the effect of the inclusion of Magnedyne and NEAT
in 1999.


<PAGE>11



        Research and  development  expenses were $3.4 million or 6% of sales for
the second  quarter of 1999 as compared with $2.7 million or 5% of sales for the
same  period  in the  prior  year.  For the  first  half of 1999,  research  and
development  expenses were $6.5 million or 5% of sales compared to $5.9 or 5% of
sales in the same period of the prior year.

Interest and Taxes

        Interest  expense was $1.9  million  and $1.7  million for the six month
periods  ending June 30, 1999 and 1998,  respectively.  The increase in interest
expense is due to an increase in borrowing to fund the purchase of the assets of
NEAT during the second quarter of 1999.

        The Company  recorded a tax benefit of 35% for the three  months and six
months ended June 30, 1999.  The tax rate for the six months ended June 30, 1998
was 47%. That rate reflected the impact of the patent licensing income, recorded
in the  first  quarter  of  1998,  taxable  in the  U.S.  and  subject  to Japan
withholding tax.  Excluding this Special Item, the Company's  effective tax rate
was 31% in 1998. The Company's  effective tax rate,  excluding Special Items, is
less  than  the  statutory  U.S.  tax  rate  as some  of the  Company's  foreign
subsidiaries operate in countries where the statutory rate is less than the U.S.
rate, or the Company is operating under a tax holiday agreement.

        Bookings  increased  $21.5 million or 16% during the first six months of
1999 as compared to the same  period in the prior year.  The  increase is due to
the improved  bookings in the Aerospace and Defense Group,  which included a $22
million submarine periscope order.

                     LIQUIDITY AND CAPITAL RESOURCES

        The  Company's  consolidated  cash  position  decreased  by $4.1 million
during the first half of 1999. Cash used for operations was $2.9 million,  $18.3
million was used for investing  activities,  and financing  activities  provided
$17.1 million.

        The Company used $5.6 million to fund working capital requirements. This
was principally due to scheduled payments for taxes and compensation,  including
severance.

        The Company's investing activities used $18.3 million primarily relating
to the  acquisition of NEAT.  Capital  expenditures  used $3.6 million,  and the
Company  received $1.4 million in connection with the sale of a building at book
value after an impairment  charge in the first quarter of 1998. On July 1, 1999,
the  Company  agreed  to  purchase   Calzoni  S.p.A.   of  Bologna,   Italy  for
approximately  $14.0  million.  The Company  will fund this  purchase out of its
existing line of credit.

        The Company's financing activities provided $17.1 million of cash during
the first half of 1999. This was due to the borrowing under the Company's credit
facility to fund the purchase of NEAT.  Common  dividends paid were $0.4 million
or $0.02 per common share for the six months ended June 30, 1999.

        The  Company  believes  that  it  can  generate   sufficient  cash  from
operations and its current line of credit to finance its cash  requirements  for
capital expenditures,  mandatory sinking fund payments,  potential acquisitions,
and working capital needs for the next twelve months.


     Year 2000 Issue

     The year 2000 issue is the result of computer  programs having been written
using two digits,  rather than four, to define the  applicable  year. Any of the
Company's  computers,   computer  programs,   manufacturing  and  administration
equipment or products  that have  date-sensitive  software may  recognize a date
using "00" as the year 1900 rather than the year 2000.  If any of the  Company's
systems or  equipment  that have  date-sensitive  software  use only two digits,
system failures or miscalculations may result causing disruptions of operations,
including,  among other things, a temporary inability to process transactions or
send and receive  electronic data with third parties or engage in similar normal
business activities.

     During 1998, the Company formed an ongoing  internal review team to address
the year 2000 issue that encompasses  operating and administrative  areas of the
Company.  A team of global  professionals  has been engaged in a process to work
with Company personnel to identify and resolve significant year 2000 issues in a
timely manner. In addition,  executive  management regularly monitors the status
of the Company's year 2000 remediation plans. The process includes an assessment
of issues and development of remediation plans, where necessary,  as they relate
to internally used software,  computer hardware and use of computer applications
in the Company's  manufacturing processes and products. In addition, the Company
is engaged in assessing the year 2000 issue with significant suppliers.


<PAGE>12



     The assessment process has been completed at the Company's U.S. operations.
With respect to the Company's international  operations,  the assessment process
has been  completed for computer  software and hardware  information  technology
systems used internally by the Company.  In addition,  the Company is finalizing
its assessment of significant  suppliers at all major locations to determine the
extent to which the Company is vulnerable to third parties' failure to remediate
their own year 2000 issues.  Finally,  related to products  sold by the Company,
the Company believes it has little if any exposure to  contingencies  related to
year 2000 issues.

     During the past three  years,  as part of business  modernization  programs
intended  to reduce  cycle  time and  improve  profitability,  the  Company  has
purchased   Enterprise  Resource  Planning  ("ERP")  Systems  for  some  of  its
operations  in the U.S. and other  international  locations,  which the software
vendors  have  indicated  are  year  2000  compliant.  The  Company  is  in  the
implementation  phase for these systems and other  ancillary  financial  systems
with many sites expected to achieve full implementation before October 31, 1999.
Some sites are not expected to implement new ERP systems  before the end of 1999
and  accordingly,  the Company has begun  making the current  systems  year 2000
compliant.  The cost of making those adaptations are not expected to be material
and will be expensed in the period  incurred.  It is expected that the Company's
internal  systems will be in full  compliance  before the year 2000.  If, due to
unforeseen  circumstances,  the implementation of the plan is not completed on a
timely basis,  the year 2000 could have a material  impact on the  operations of
the Company.



     The Euro

     On January 1, 1999,  eleven of fifteen  member  countries  of the  European
Union  established  fixed  conversion  rates between their  existing  currencies
("legacy currencies") and one common currency,  the euro. The euro now trades on
currency exchanges and may be used in business  transactions.  The conversion to
the euro  eliminates  currency  exchange  rate  risk  among  the  eleven  member
countries.  Beginning in January 2002, new euro-denominated bills and coins will
be issued.  The  Company's  business  units  significantly  affected by the euro
conversion  have  established  plans to address  the  issues  raised by the euro
currency conversion, and expect to be substantially complete with these plans by
the year 2000.  These issues include,  among others,  the need to adapt computer
and  financial  systems,  business  processes  and  equipment,  and the  need to
accommodate euro-denominated  transactions and the impact of one common currency
on product pricing, taxation and governmental and legal regulations. The Company
does not expect the system and equipment  conversion costs to be material to its
financial  condition,  results of  operations  or cash  flows.  Due to  numerous
uncertainties,  the Company cannot reasonably estimate the effects currency will
have on pricing and the resulting  impact,  if any, on its  financial  condition
results of operations or cash flows.

   Forward Looking Information

Certain  statements in this report are "forward looking  statements"  within the
meaning of the Private  Securities  Litigation  Reform Act of 1995.  All forward
looking statements involve risks and uncertainties. In particular, any statement
contained herein, in press releases, written statements or other documents filed
with the Securities and Exchange Commission,  or in the Company's communications
and  discussions  with  investors  and analysts in the normal course of business
through meetings,  phone calls and conference calls,  regarding the consummation
and benefits of future  acquisitions,  as well as  expectations  with respect to
future sales, operating efficiencies and product expansion, are subject to known
and unknown risks, uncertainties and contingencies, many of which are beyond the
control of the Company.  These factors may cause actual results,  performance or
achievements to differ  materially  from  anticipated  results,  performances or
achievements. Factors that might affect such forward looking statements include,
but are not limited to, overall economic and business conditions; the demand for
the  Company's  goods and services;  the timing of and market  acceptance of new
products;  competitive factors in the industries and geographic markets in which
the Company competes;  changes in tax requirements  (including tax rate changes,
new tax laws and revised tax law  interpretations);  interest rate  fluctuations
and  other  capital  market   conditions,   including   foreign   currency  rate
fluctuations;  economic and political  conditions in international  markets; the
ability to achieve  anticipated  synergies  and other cost savings in connection
with  acquisitions;  the ability of the company to achieve cost savings and
subsequent financial performance from its 1999 second quarter restructuring;
the timing, impact and other  uncertainties of future  acquisitions;  and the
Company's ability and its customers' and suppliers' ability to replace, modify
or upgrade  computer programs in order to adequately address the year 2000
issue. Any forward looking statements should be considered in light of these
factors.



<PAGE>13




                                     PART II - OTHER INFORMATION
Item 1.  Legal Proceedings

         Over the past several years, the Company has notified a number of
domestic and foreign  companies that it believes infringe certain motion control
patents owned by the Company. As previously reported,  the Company has concluded
royalty  bearing  licenses and  settlements  with third  parties with respect to
these patents.  The Company  believes that its patents are an important asset of
the Company, and intends to enforce its legal rights against alleged infringers.

        In May 1999, the Company commenced a patent  infringement action against
Yaskawa  Electric  Corporation  and Yaskawa  America,  Inc. in the United States
District Court,  Western District of Virginia,  Roanoke Division,  alleging that
defendants'  products infringe certain of the Company's patents.  The Company is
seeking  monetary  damages and  equitable  relief.  In June 1999,  Allen-Bradley
Company L.L.C.  and Reliance  Motion  Control,  Inc.  commenced an action in the
Eastern District Court,  Eastern District of Wisconsin against the Company for a
declaratory  judgement  of  non-infringement  requesting  the  court  to enter a
judgement  that  plaintiffs'  products do not infringe  certain of the Company's
motion control patents.

Item 5.  Other Information

         On July 1,  1999,  the  Company  completed  the  purchase  of its
long-time  naval systems  partner,  Calzoni S.p.A.  of Bologna,  Italy.  Calzoni
designs and builds motion systems and components  primarily for naval  platforms
and is widely  recognized  as the  world's  leading  maker of  submarine  masts.
Calzoni has facilities in Bologna, as well as Milan and Florence.  Sales in 1998
were approximately $25 million.

Item 6.  Exhibits and Reports on Form 8-K

        (a) Exhibits - Listed below are the exhibits filed with this report.

                      10      First Amendment to Fifth Amended and Restated
                              Multicurrency Credit Agreement dated as of
                              September 30, 1997, among Kollmorgen Corporation,
                              certain other Financial Institutions Listed on
                              Schedule 1, and BankBoston, N.A., as Agent.

                      27      Financial Data Schedules.


        (b)  Reports on Form 8-K - none



<PAGE>14


                                         SIGNATURES


        Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company  has caused  this  report to be signed on its behalf by the  undersigned
thereunto duly authorized.



                                             KOLLMORGEN CORPORATION


                                             By:   /s/  Robert J. Cobuzzi
                                                 Robert J. Cobuzzi, Senior Vice
                                                    President, Treasurer and
                                                    Chief Financial Officer


Date:   August 13, 1999

<PAGE>15



                                                                EXHIBIT 10


                           FIRST AMENDMENT
        TO FIFTH AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT


         First  Amendment dated as of May 14, 1999 to Fifth Amended and Restated
Multicurrency  Credit  Agreement  (the  "Amendment"),  by and  among  KOLLMORGEN
CORPORATION,  a Delaware  corporation (the "Company"),  PMI MOTION  TECHNOLOGIES
GmbH, a German limited liability company ("PMI GmbH"), BANKBOSTON,  N.A. and the
other  lending  institutions  listed on Schedule 1 to the Credit  Agreement  (as
hereinafter defined)  (collectively,  the "Banks"),  ABN AMRO Bank, N.V., as the
new fronting bank (the "Fronting  Bank") and BANKBOSTON,  N.A., as agent for the
Banks and the Fronting Bank (in such capacity,  the "Agent"),  amending  certain
provisions  of the Fifth  Amended and Restated  Multicurrency  Credit  Agreement
dated as of September 30, 1997 (as amended and in effect from time to time,  the
"Credit Agreement") by and among the Company,  PMI GmbH, the Banks, the Fronting
Bank and the Agent.  Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the same respective meanings herein as therein.

         WHEREAS,  the Company,  PMI GmbH, the Fronting Bank, and the Banks have
agreed to modify  certain  terms  and  conditions  of the  Credit  Agreement  as
specifically set forth in this Amendment;

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

         1.      Amendment to ss.1 of the Credit Agreement.  Section 1 of the
Credit Agreement is hereby amended as follows:

         (a) the  definition of  "Borrowers"  is hereby  amended by deleting the
text of the  definition  in its entirety and  substituting  in place thereof the
words "The Company, PMI GmbH and any other Borrowing Subsidiary.";

         (b) the  definition of  "Collateral  Instruments"  is hereby amended by
inserting  immediately  after  the  words  "of PMI GmbH" the words "or any other
Borrowing Subsidiary";

         (c) the definition of "Counter Indemnity" is hereby amended by deleting
the words "PMI GmbH" in each place in which they appear in such  definition  and
substituting in place thereof the words "any Borrowing Subsidiary";

         (d)  the definition of "DM Lending Office" is hereby amended by
deleting such definition in its entirety;

         (e) the definition of "International  Facility Loans" is hereby amended
by deleting the words "to PMI GmbH pursuant to ss.4 and all  liabilities  of PMI
GmbH" in their  entirety  and  substituting  in place  thereof the words "to any
Borrowing  Subsidiary  pursuant to ss.4 and all  liabilities  of such  Borrowing
Subsidiary";

         (f)  the definition of "Maximum DM Amount" is hereby amended by
deleting such definition in its entirety;

         (g)  the  definition  of  "Optional  Currency"  is  hereby  amended  by
inserting  immediately  after  the words  "Any  currency"  which  appear in such
definition the words "(including, without limitation, the Euro)"; and

         (h)  Section  1.1  is  further   amended  by  inserting  the  following
definitions in the appropriate alphabetical order:

                  ABN.  ABN Amro Bank N.V.

                  Borrowing Subsidiary.  Collectively,  (a) PMI GmbH and (b) any
         other wholly-owned Subsidiary of the Company which shall have delivered
         to  the  Agent  an  election  to  become  a  Borrowing  Subsidiary,  in
         substantially  the form of Exhibit G hereto (the  "Election  Request"),
         duly executed by such wholly-owned Subsidiary and the Company and which
         Election  Request shall have been approved in writing by the Agent, the
         Fronting Bank and the Majority  Banks,  with such approval to be at the
         sole discretion of the Agent, the Fronting Bank and the Majority Banks.

                  Election Request.  As such term is defined in the definition
         of "Borrowing Subsidiary".


<PAGE>16



                  EMU.  The third stage of the economic and monetary union
         formed pursuant to the EU Treaties.

                  Euro LIBOR Rate.  With respect to any Loans  denominated or to
         be denominated in Euros,  the rate of interest equal to (a) the rate at
         which the Agent or the  Fronting  Bank,  as the case may be, is able to
         obtain  deposits  for  comparable  amounts  in Euros  for the  relevant
         Interest Period in the London interbank market for a period  comparable
         to the duration of such Interest Period,  as determined by the Agent or
         the Fronting  Bank, as the case may be divided by (b) a number equal to
         1.00 minus the Eurocurrecy Reserve Rate, if applicable.

                  EU Treaties.  The Treating  Establishing the European Economic
         Community,  as  amended  by the  Treaty  on  the  European  Union  (the
         Maastrict Treaty).

                  Euro or e. The currency  introduced  during the third stage of
         the EMU.

                  Foreign  Lending Office.  Initially,  the German branch or the
         Italian branch,  as the case may be, of ABN in its capacity as Fronting
         Bank,  and  thereafter  such office as the Fronting  Bank,  in its sole
         discretion  acting  in good  faith,  may  notice  to the  Agent and the
         Borrowers and which office shall include any lending office,  branch or
         affiliate of ABN.

                  participating member state.  Each state described as a
         "participating member state" in the EU Treaties.

         2.      Amendment to ss.4 of the Credit Agreement.  Section 4 of the
Credit Agreement is hereby amended by deleting Section 4 in its entirety and
restating it as follows:

         4.  INTERNATIONAL CREDIT FACILITY.

                  4.1  Eurocurrency  Loans.  Subject to the terms and conditions
         set forth in this Credit  Agreement,  (a) the  Fronting  Bank agrees to
         lend to any Borrowing  Subsidiary,  and each such Borrowing  Subsidiary
         may borrow,  repay,  and reborrow from time to time between the Closing
         Date and the Revolving Credit Loan Maturity Date either (i) upon notice
         by such  Borrowing  Subsidiary  to the  Agent and the  Fronting  Bank's
         Foreign  Lending  Office  located in Germany given in  accordance  with
         ss.4.6,  Loans in Deutschmarks for a specified  Interest Period to bear
         interest at the Eurocurrency Rate (the "DM Eurocurrency Loans"), or, at
         such Borrowing Subsidiary's option from time to time, subject to ss.4.7
         hereof,  Loans in an Optional Currency for a specified  Interest Period
         to bear  interest  at the  Eurocurrency  Rate (the  "Optional  Currency
         Loans"),  or (ii) by  means of  overdraft  advances  on such  Borrowing
         Subsidiary's  DM  current  account  with the  Fronting  Bank's  Foreign
         Lending Office located in Germany (the "DM Overdraft Advances") and (b)
         the  Fronting  Bank  agrees  to issue  Collateral  Instruments  for the
         account  of each such  Borrowing  Subsidiary  upon  receipt  by it of a
         duly-completed  and  executed  Counter  Indemnity  from such  Borrowing
         Subsidiary in respect of each such Collateral  Instrument,  in form and
         substance  satisfactory  to the Fronting  Bank,  provided  that (a) the
         Dollar  Equivalent of the aggregate  amount of all  liabilities  of the
         Borrowing  Subsidiaries  in  respect  of all such  Counter  Indemnities
         (whether  contingent  or otherwise)  plus the Dollar  Equivalent of the
         total  amount  of DM  Eurocurrency  Loans  and  DM  Overdraft  Advances
         outstanding  at any  one  time  (after  giving  effect  to all  amounts
         requested)  plus the Dollar  Equivalent of the total amount of Optional
         Currency Loans  outstanding at any one time (after giving effect to all
         amounts  requested)  (such aggregate amount being referred to herein as
         "Total Facility  Usage") shall not exceed  $20,000,000,  and,  provided
         further that the aggregate  amount of all  liabilities of the Borrowing
         Subsidiaries  in  respect  of all  such  Counter  Indemnities  (whether
         contingent or otherwise) plus the total amount of DM Eurocurrency Loans
         outstanding  at any  one  time  (after  giving  effect  to all  amounts
         requested) plus the total amount of Optional Currency Loans outstanding
         at any one time (after giving effect to all amounts requested) plus the
         aggregate  amount of all DM Overdraft  Advances  outstanding at any one
         time,  plus the sum of the outstanding  amount of the Revolving  Credit
         Loans (after giving effect to all amounts  requested)  plus the Maximum
         Drawing Amount and all Unpaid  Reimbursement  Obligations  shall not at
         any  time  exceed  the  Total   Commitment.   Each  request  for  a  DM
         Eurocurrency  Loan,  Optional  Currency Loan or Collateral  Instruments
         hereunder and  acceptances of a DM Overdraft  Advance under this ss.4.1
         shall  constitute  a  representation  and  warranty  by the  applicable
         Borrowing  Subsidiary  and the Company that the conditions set forth in
         ss.12 and  ss.13,  in the case of the  initial  DM  Eurocurrency  Loan,
         Optional Currency Loan or Collateral Instruments (if any) to be made or
         issued,  and  ss.13,  in the case of all other DM  Eurocurrency  Loans,
         Optional Currency Loans or Collateral Instruments,  have been satisfied
         on the date of such request or acceptance, as the case may be.



<PAGE>17



                  4.2 Mandatory  Repayments of International  Facility Loans. If
         at any time, for any reason  whatsoever,  including without  limitation
         fluctuations  in currency rates (a) the Dollar  Equivalent of the Total
         Facility  Usage exceeds  $20,000,000  by more than 5% (with such amount
         which  exceeds  the  Total   Facility  Usage  by  more  than  5%  being
         hereinafter  referred  to as the "IFL  Excess"),  or (b) the sum of (i)
         Total Facility Usage plus (ii) the sum of the outstanding amount of the
         Revolving  Credit Loans (after giving effect to all amounts  requested)
         plus (iii) the  Maximum  Drawing  Amount  and all Unpaid  Reimbursement
         Obligations  shall at any time exceed the Total  Commitment  (with such
         amount being hereinafter referred to as the "Additional Excess"),  then
         each Borrowing  Subsidiary shall  immediately pay the IFL Excess or, as
         the case may be,  the  Additional  Excess  to the  Fronting  Bank,  for
         application  first,  to reduce the  outstanding  amount of DM Overdraft
         Advances,  second,  to  provide  cash  collateral  in  respect  of  any
         outstanding   Counter  Indemnities  and  third,  to  any  International
         Facility Loans then outstanding.

                  4.3.  Interest  on  International  Facility  Loans.  Except as
         otherwise provided in ss.6.11,  each International  Facility Loan shall
         bear interest as follows:

                  (a) with respect to DM Overdraft  Advances,  interest shall be
         payable by the relevant Borrowing  Subsidiary on the day-to-day balance
         in such Borrowing  Subsidiary's  current  account  maintained  with the
         Fronting Bank's Foreign Lending Office located in Germany at a rate per
         annum equal to the higher of (i) Eurocurrency  Rate plus the Applicable
         Margin  or (ii)  such  other  rate as the  local  rate  charged  by the
         Fronting  Bank at the time the DM Overdraft  Advances are  outstanding;
         and  shall  be  deducted   from  such  current   account  on  the  last
         Eurocurrency  Business Day of each calendar month or such other monthly
         date as  such  Foreign  Lending  Office  may  reasonable  require  such
         payments; and

                  (b) with respect to all other  International  Facility  Loans,
         for the period  commencing with the Drawdown Date thereof and ending on
         the last day of the Interest  Period with respect thereto at a rate per
         annum equal to the sum of (i) the Eurocurrency Rate determined for such
         Interest  Period  plus  (ii) the  Applicable  Margin  with  respect  to
         Eurocurrency  Rate Loans as in effect from time to time. Each Borrowing
         Subsidiary promises to pay interest,  in accordance with ss.6.3 on each
         International  Facility Loan in arrears on each  Interest  Payment Date
         with respect thereto.

                  4.4. Requests for Eurocurrency Loans. The applicable Borrowing
         Subsidiary  shall  give to the Agent and the  Fronting  Bank's  Foreign
         Lending Office written  notice  substantially  in the form of Exhibit C
         hereto  (or  telephonic  notice  confirmed  in a writing in the form of
         Exhibit  C  hereto)  of  each  International  Facility  Loan  requested
         hereunder (an  "International  Facility Loan Request") no less than two
         (2) Eurocurrency  Business Days prior to the proposed  Drawdown Date of
         such  Eurocurrency  Rate Loan.  Each such notice shall  specify (a) the
         principal amount of the Loan requested,  (b) the proposed Drawdown Date
         of such  Loan,  (c) the  Interest  Period for such Loan (d) the Type of
         such Loan;  and (e) whether such Loan is a DM  Eurocurrency  Loan or an
         Optional Currency Loan. Each International Facility Loan Request for an
         International  Facility Loan shall be  irrevocable  and binding on such
         Borrowing  Subsidiary and shall  obligate such Borrowing  Subsidiary to
         accept  the  International  Facility  Loan  requested  on the  proposed
         Drawdown Date therefor.  Each such International  Facility Loan Request
         shall be in a minimum aggregate amount of the DM Equivalent of $250,000
         or an  integral  multiple  thereof.  In no event  shall  the  Borrowing
         Subsidiaries   have  more  than  (i)  three  (3)   Drawdown   Dates  of
         Eurocurrency  Loans in any calendar month,  and (ii) five (5) different
         Interest  Periods for borrowings of Eurocurrency  Loans  outstanding at
         any time.

                  4.5 Evidence of  Eurocurrency  Loans.  The obligations of each
         Borrowing   Subsidiary   to  repay  all  amounts   borrowed  by  it  as
         Eurocurrency Loans and DM Overdraft Advances,  all interest thereon and
         all other amounts  payable by it in respect  thereof shall be evidenced
         by this Credit Agreement,  it being the intention of the parties hereto
         that  such  Borrowing  Subsidiary's  obligations  with  respect  to the
         International  Facility  Loans owed by it is  evidenced  only as stated
         herein and not by separate promissory notes or other instruments.




<PAGE>18



                  4.6. Maturity of Eurocurrency Loans. Each Borrowing Subsidiary
         promises to pay on the  Revolving  Credit Loan  Maturity  Date, or such
         earlier date as the Total Commitment shall terminate or the obligations
         with respect to the International Facility Loan shall be accelerated in
         accordance  with  ss.14,  and there  shall  become  absolutely  due and
         payable on the  Revolving  Credit Loan  Maturity  Date or such  earlier
         date, all of the International Facility Loans outstanding on such date,
         together with any and all accrued and unpaid interest  thereon,  and to
         provide on such date cash collateral  satisfactory to the Fronting Bank
         for  the  aggregate   amount  of  all  liabilities  of  such  Borrowing
         Subsidiary  (whether contingent or otherwise) in respect of all Counter
         Indemnities outstanding on such date.

                  4.7  Optional Currencies.

                  4.7.1.   Request  for  Optional   Currency.   Subject  to  the
               limitations set forth in ss.4.1,  each Borrowing  Subsidiary may,
               upon at least three (3)  Business  Days'  notice to the Agent and
               the  Fronting  Bank (an "OC  Notice"),  request  that one or more
               International  Facility Loans be made as Eurocurrency  Rate Loans
               in an Optional Currency, provided that any International Facility
               Loan  proposed  to be made  under  this  ss.4.7.1  shall be in an
               amount not less than  $250,000,  or a greater  amount which is an
               integral  multiple of $100,000,  or the equivalent in an Optional
               Currency.  Each OC Notice  requesting an  International  Facility
               Loan  in an  Optional  Currency  shall  be by  telephone,  telex,
               telecopy  or cable  (in each case  confirmed  in  writing  by the
               requesting  Borrowing  Subsidiary),  specifying  (a) the Optional
               Currency Loan to be made,  (b) the requested date of the proposed
               borrowing,  (c) the  requested  currency  in which  the  Optional
               Currency Loan is to be made, (d) the initial  Interest Period for
               the Optional Currency Loan to be borrowed, and (e) such Borrowing
               Subsidiary's  account with the Fronting  Bank, or, in the case of
               an Optional  Currency  which is the legal  tender of a country in
               which the Fronting  Bank has no office,  with another  depository
               specified  by  such  requesting   Borrowing  Subsidiary  in  such
               country,  to  which  payment  of the  proceeds  of such  Optional
               Currency Loan is to be made. If the Fronting Bank, on or prior to
               the second  Business Day  preceding the first day of any Interest
               Period for which an OC Notice has been  delivered  requesting  an
               International  Facility  Loan in an  Optional  Currency or on any
               funding   date,   determines   (which   determination   shall  be
               conclusive) that the Optional Currency is not freely transferable
               and convertible into Dollars or that it will be impracticable for
               the Fronting Bank to fund the International Facility Loan in such
               Optional Currency,  then the Fronting Bank shall so notify Agent,
               which  notification  shall be given  immediately  by the Agent to
               such Borrowing  Subsidiary,  and the requested  Optional Currency
               Loan  shall,   notwithstanding  any  contrary  election  by  such
               Borrowing   Subsidiary  or  any  other  provisions   hereof,   be
               denominated in Deutschmarks as a DM Eurocurrency Loan unless such
               Borrowing Subsidiary,  one Business Day prior to the commencement
               of the Interest Period elects to have such Optional Currency Loan
               denominated  in Dollars as a Eurocurrency  Rate Loan.  Subject to
               the foregoing and to the satisfaction of the terms and conditions
               of ss.ss.12 and 13, each International Facility Loan requested to
               be  made  in an  Optional  Currency  will  be  made  on the  date
               specified therefor in the OC Notice, in the currency requested in
               the OC Notice  and,  upon being so made,  will have the  Interest
               Period requested in the OC Notice.

                  4.7.2.  Exchange Rate.  For purposes of this Credit  Agreement
               the  amount in one  currency  which  shall be  equivalent  on any
               particular date to a specified  amount in another  currency shall
               be that amount (as conclusively  ascertained by the Fronting Bank
               by its normal banking  practices,  absent  manifest error) in the
               first  currency  which is or could be  purchased  by the Fronting
               Bank (in  accordance  with normal  banking  practices)  with such
               specified  amount  in  the  second  currency  in  any  recognized
               Eurocurrency  Interbank  Market  selected by the Fronting Bank in
               good faith for delivery on such date at the spot rate of exchange
               prevailing  at  2:00  p.m.  (local  time at the  Fronting  Bank's
               Foreign Lending office) (or as soon thereafter as practicable) on
               such date (such amount  described in this ss.4.7.2,  the "Rate of
               Exchange").



<PAGE>19



                  4.7.3. Multiple  Denominations.  In the event that any portion
               of the funds available  under the terms of this Credit  Agreement
               is  denominated  in one or more Optional  Currencies,  the Dollar
               equivalent  of such  portion  of the  funds  shall be  calculated
               pursuant to ss.2.9.2 above.  The amount so determined  shall then
               be added to the amount  already  outstanding  in Dollars  for the
               purpose of determining the remaining  availability of funds under
               ss.4 hereof and any required repayments under ss.4.2.

                  4.7.4.  Funding.  The Fronting Bank may make any International
               Facility Loan denominated in an Optional  Currency by causing any
               of its  foreign  branches  or  foreign  affiliates  to make  such
               Optional  Currency  Loan (whether or not such branch or affiliate
               is named as a lending  office  on the  signature  pages  hereof);
               provided  that in such  event the  obligation  of the  applicable
               Borrowing  Subsidiary to repay such Optional  Currency Loan shall
               nevertheless be to the Fronting Bank and shall,  for all purposes
               of this Credit  Agreement be deemed made by the Fronting Bank, to
               the extent of such  Optional  Currency  Loan,  for the account of
               such branch or affiliate.

         3.    Amendment to ss.5 of the Credit Agreement.  Section 5.1.1 of the
Credit  Agreement  is hereby  amended by deleting  the words "(i) the sum of the
aggregate Maximum Drawing Amount, all Unpaid  Reimbursement  Obligations and all
obligations under the Collateral Instruments shall not exceed $15,000,000 at any
one time; and (ii)" which appear in the second sentence of ss.5.1.1.

         4.    Amendment to ss.6 of the Credit Agreement.  Section 6 of the
Credit Agreement is hereby amended as follows:

         (a) Section  6.12.2(iii)  of the Credit  Agreement is hereby amended by
deleting  the  reference  to "PMI  GmbH"  which  appears in  ss.6.12.2(iii)  and
substituting in place thereof the words "any Borrowing Subsidiary"; and

         (b)  Section 6 of the Credit Agreement is further amended by inserting
immediately after the end of the text ofss.6.12 the following:

                  6.13.  European Monetary Union.

                  (a) When,  as a result of the  implementation  of the EMU, any
         Optional  Currency or  Deutschmarks,  as the case may be,  ceases to be
         lawful  currency  of the  nation  issuing  such  Optional  Currency  or
         Deutschmarks and is replaced by the Euro as the lawful currency of such
         nation,  any amount payable hereunder by the Banks to any Borrower,  or
         by  any  Borrower  to  the  Banks,   in  such   Optional   Currency  or
         Deutschmarks,  as the case may be, shall instead be payable in the Euro
         and the amount so payable shall be determined by translating the amount
         payable in such Optional Currency or Deutschmarks,  as the case may be,
         to the  Euro at the  exchange  rate  then  recognized  by the  European
         Central Bank for the purpose of implementing the EMU.

                  (b) Upon  written  notice  by the  Agent to the  Company,  any
         Optional  Currency or Deutschmarks,  as the case may be,  recognized at
         the same time as the Euro shall no longer be  available  as an Optional
         Currency  or  Deutschmarks,  as the case may be, for  purposes  of this
         Credit Agreement, effective at the expiration of the period of five (5)
         Business  Days  following the  Company's  receipt of such notice.  Such
         notice  shall  apply to (i) any Loan to be made or  Letter of Credit or
         Collateral Instrument to be issued, extended or renewed on or after the
         expiration  of such  five  (5)  Business  Day  period  or (ii) any Loan
         outstanding  at the  end of such  five  (5)  Business  Day  period  and
         denominated in such Optional Currency or Deutschmarks,  as the case may
         be, following the expiration of the Interest Period  applicable to such
         outstanding  Loan  at the  time of the  expiration  of  such  five  (5)
         Business Day period.

                  (c) The Agent and the Fronting  Bank may in its  discretion by
         notice to the Banks and the Company:

                  (i)  modify  the  definition  of  "Business  Day" to include a
         principal  financial  center of any  participating  member  state where
         Loans to bear  interest by reference to the Euro LIBOR Rate are funded,
         or any amounts are or are to be paid in Euros;

                  (ii) designate an account or accounts at a bank in a principal
         financial  center  of any  participating  member  state  for  receiving
         payments to the Agent or the Fronting Bank,  whether for the account of
         the Agent,  the  Fronting  Bank or for the  account  of the  Banks,  in
         immediately  available  funds, in Euros or for disbursing Loans to bear
         interest by reference to the Euro LIBOR Rate;





<PAGE>20



                  (iii)  designate  the date or time for  fixing  the Euro LIBOR
         Rate for any  Interest  Period to be  consistent  with any  practice or
         convention in the London interbank market;

                  (iv) designate the fraction for rounding upwards quotations by
         the Reference Bank used to determine the Euro LIBOR Rate, to be, in the
         reasonable  judgment of the Agent, as nearly as may be, consistent with
         the  rounding of quotation by the  Reference  Banks for other  Optional
         Currencies  or  Deutschmarks,  as the case may be, and also  consistent
         with any practice or convention in the London interbank market;

                  (v) designate  other  mechanics for fixing the Euro LIBOR Rate
         to be, in the  reasonable  judgment of the Agent,  as nearly as may be,
         consistent with the mechanics for determining  rates for other Optional
         Currencies or  Deutschmarks,  as the case may be, (e.g. by reference to
         Reuters  screen  or page)  and also  consistent  with any  practice  or
         convention  in the London  interbank  market  (e.g.  by  reference to a
         comparable Reuters screen or page for the Euro);

                  (vi)  designate  the period of notice from any Borrower to the
         Agent or the Fronting  Bank  required  for the  Borrowers to borrow any
         Loan to be denominated  in Euros or to convert any Loan  denominated in
         another  Optional  Currency or  Deutschmarks,  as the case may be, to a
         Loan denominated in Euros;

                  (vii)  designate  the basis of  accrual of  interest,  fees or
         other amounts to be  consistent  with any practice or convention in the
         London interbank  market with respect to amounts  calculated or payable
         in Euros;

                  (viii) where this Credit Agreement  specifies a minimum amount
         or integral multiple thereof,  designate what the Agent or the Fronting
         Bank considers a reasonably  comparable  and convenient  minimum amount
         and integral multiple for the Euro; and

                  (ix) where this  Credit  Agreement  specifies  an amount to be
         paid in an Optional Currency or Deutschmarks,  as the case may be, that
         is, under the terms of this Section,  to be paid in Euros,  designate a
         convenient amount in Euros to account for de minimis rounding.

                  (d)  Section 6.4 shall not apply in the event that an Optional
         Currency or  Deutschmarks,  as the case may be, is not  available or an
         interbank  offered rate may not be quoted for such Optional Currency or
         Deutschmarks, as the case may be, solely because such Optional Currency
         or  Deutschmarks,  as the case may be, ceases to be lawful  currency of
         the nation issuing such Optional Currency or Deutschmarks,  as the case
         may be,  and is  replaced  by the Euro as the lawful  currency  of such
         nation,  so long as the Euro is  available  as an Optional  Currency or
         Deutschmarks, as the case may be, and the Euro LIBOR Rate may be quoted
         for the Euro.

                  (e) Each  Borrower  agrees,  at the  request  of the  Majority
         Banks, at any time and within 30 days following such request,  to enter
         into an agreement  amending this Credit Agreement in such manner as the
         Majority Banks shall reasonably specify in order further to reflect the
         implementation  of the EMU  and to  place  the  parties  hereto  in the
         position they would have been in had the EMU not been implemented.

                  (f) Each  Borrower  agrees,  at the  request  of any Bank,  to
         compensate  such  Bank  for  any  reasonable  loss,  cost,  expense  or
         reduction in return that shall be incurred or sustained by such Bank as
         a result of the  implementation of the EMU and that would not have been
         incurred or sustained but for the  transactions  provided for herein. A
         certificate of a Bank setting forth (i) the amount or amounts necessary
         to compensate  such Bank,  (ii) a description of the nature of the loss
         or expense sustained or incurred by such Bank as a consequence  thereof
         and (iii) a reasonably detailed  explanation of the calculation thereof
         shall be delivered to the  applicable  Borrower and shall be conclusive
         absent  manifest  error.  The Borrowers  shall pay such Bank the amount
         shown as due on any such certificate within ten (10) days after receipt
         thereof.

         5.      Amendment to ss.7 of the Credit Agreement.  Section 7 of the
Credit Agreement is hereby amended as follows:

         (a)  Section  7.1 of the  Credit  Agreement  is hereby  amended  by (i)
deleting  each of the first two  references to "PMI GmbH" which appear in ss.7.1
and substituting in place thereof the words "any Borrowing Subsidiary"; and (ii)
deleting  the  last  reference  to  "PMI  GmbH"  which  appears  in  ss.7.1  and
substituting in place thereof the words "such Borrowing Subsidiary";




<PAGE>21



         (b) Section 7.2 of the Credit  Agreement is hereby  amended by deleting
each reference to "PMI GmbH" which appears in ss.7.2 and  substituting  in place
thereof the words "any Borrowing Subsidiary";

         (c) Section 7.3 of the Credit  Agreement is hereby  amended by deleting
the  reference to "PMI GmbH" which appears in ss.7.3 and  substituting  in place
thereof the words "any Borrowing Subsidiary"; and

         (d) Section 7.5 of the Credit  Agreement is hereby  amended by deleting
the  reference to "PMI GmbH" which appears in ss.7.5 and  substituting  in place
thereof the words "any Borrowing Subsidiary".

         6.  Amendment to ss.8 of the Credit Agreement.  Section 8.1(b) of the
Credit Agreement is hereby amended by deleting the reference to "PMI GmbH" which
appears in ss.8.1(b) and substituting in place thereof the words "the Company".

         7.  Amendment to ss.10 of the Credit Agreement.  Section 10 of the
Credit Agreement is hereby as follows:

         (a) Section  10.1(m) of the Credit  Agreement is hereby  amended by (i)
deleting the amount  "$10,000,000"  which appears in ss.10.1(m) and substituting
in place  thereof the amount  "$15,000,000";  and (ii)  deleting  the word "and"
which appears at the end of the text of ss.10.1(m);

         (b)  Section  10.1(n)  of the  Credit  Agreement  is hereby  amended by
deleting  the  period  which  appears  at the end of the text of  ss.10.(n)  and
substituting in place thereof a semicolon and the word "and";

         (c)  Section 10.1 of the Credit Agreement is further amended by
inserting immediately after the text ofss.10.1 (n) the following:

                  (o)  unsecured  Indebtedness  of  the  Company  not  otherwise
         permitted  in this  ss.10.1  which does not exceed,  in the  aggregate,
         $10,000,000 outstanding at any one time;

         (d) Section  10.5(a)(7)  of the Credit  Agreement is hereby  amended by
deleting  the  words  "exceed  $30,000,000  and that  portion  of the  aggregate
purchase price for such Permitted  Acquisitions (or series of related  Permitted
Acquisitions)  constituting  cash and any assumed  Indebtedness  does not exceed
$20,000,000"  which appears in  ss.10.5(a)(7)  and substituting in place thereof
the words "exceed $35,000,000".

         8.      Amendment  to the  Credit  Agreement.  The Credit  Agreement is
further  amended (a) by deleting each  reference to "DM Lending  Office" in each
place in which it appears and  substituting  in place thereof the words "Foreign
Lending  Office" and (b) by  incorporating  the Exhibit G attached hereto as the
Exhibit G to the Credit Agreement.

         9.      Resignation of Fronting Bank.  Notwithstanding anything to the
contrary contained in the Credit Agreement, the parties hereto hereby agree that
from and after the date hereof BKB shall be considered as having resigned of the
Fronting Bank in accordance with the provisions of the Credit  Agreement and ABN
shall be the Fronting Bank under the Credit Agreement.

         10.     Conditions to Effectiveness.  This Amendment shall not become
effective until the Agent receives a counterpart of this Amendment executed by
the Company, PMI GmbH, the Agent, the Fronting Bank and the Banks;

         11.     Representations and Warranties. Each of the Company and PMI
GmbH hereby repeats,  on and as of the date hereof, each of the representations
and warranties made by it in ss.8 of the Credit Agreement (except to the extent
of changes resulting from matters contemplated or permitted by the Credit
Agreement and the other  Loan  Documents,  changes  occurring  in the  ordinary
course of business that singly or in the aggregate are not materially adverse,
and to the extent that such  representations and warranties relate expressly to
an earlier date), provided, that all references therein to the Credit Agreement
shall refer to such Credit Agreement as amended hereby. In addition, each of
the Company and PMI GmbH hereby represents and warrants that the execution and
delivery by the Company and PMI GmbH of this Amendment and the performance by
the Company and PMI GmbH of all of its agreements and obligations under the
Credit Agreement as amended  hereby are within the  corporate  authority of the
Company and PMI GmbH and have been duly authorized by all necessary  corporate
action on the part of the Company and PMI GmbH.

         12.     Ratification,  Etc.  Except as expressly  amended  hereby, the
Credit Agreement and all documents,  instruments and agreements related thereto,
including, but not limited to the Guarantees,  are hereby ratified and confirmed
in all  respects  and shall  continue  in full  force  and  effect.  The  Credit
Agreement and this Amendment shall be read and construed as a single  agreement.
All  references  in the Credit  Agreement,  the Loan  Documents  or any  related
agreement or instrument to the Credit  Agreement  shall  hereafter  refer to the
Credit Agreement as amended hereby.

<PAGE>22



         13.     No Waiver.  Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrowers or any rights of the Agent or the Banks consequent thereon.

         14.     Counterparts.  This Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.

         15.     Governing Law.  THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICT OF LAWS).


         IN WITNESS WHEREOF,  the parties hereto have executed this Amendment as
a document under seal as of the date first above written.

                                               KOLLMORGEN CORPORATION



                                               By:_____________________________
                                               Name:
                                               Title:

                                               PMI MOTION TECHNOLOGIES GmbH



                                               By:_____________________________
                                               Name:
                                               Title:

                                               BANKBOSTON, N.A., individually
                                               and as Agent



                                               By:_____________________________
                                               Name:
                                               Title:

                                               ABN AMRO Bank N.V., individually
                                               and as Fronting Bank



                                               By:_____________________________
                                               Name:
                                               Title:


                                               By:_____________________________
                                               Name:
                                               Title:

                                               FIRST UNION BANK



                                               By:_____________________________
                                               Name:
                                               Title: