SC 14D9

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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
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                                 SCHEDULE 14D-9
               SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
            SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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                              IMO INDUSTRIES INC.
                           (NAME OF SUBJECT COMPANY)
 
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                              IMO INDUSTRIES INC.
                       (NAME OF PERSON FILING STATEMENT)
 
                    COMMON STOCK, PAR VALUE $1.00 PER SHARE
                         (TITLE OF CLASS OF SECURITIES)
 
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                                   452540107
                     (CUSIP NUMBER OF CLASS OF SECURITIES)
 
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                                 THOMAS J. BIRD
                           EXECUTIVE VICE PRESIDENT,
                         GENERAL COUNSEL AND SECRETARY
                              IMO INDUSTRIES INC.
                                1009 LENOX DRIVE
                               BUILDING FOUR WEST
                      LAWRENCEVILLE, NEW JERSEY 08648-0550
                                 (609) 896-7600
                 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
                AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
                   ON BEHALF OF THE PERSON FILING STATEMENT)
 
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                                WITH A COPY TO:
 
                                RONALD F. DAITZ
                           WEIL, GOTSHAL & MANGES LLP
                                767 FIFTH AVENUE
                         NEW YORK, NEW YORK 10153-0119
                                 (212) 310-8000
 
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ITEM 1.  SECURITY AND SUBJECT COMPANY
 
     The name of the subject company is Imo Industries Inc., a Delaware
corporation (the "Company"). The address of the principal executive offices of
the Company is 1009 Lenox Drive, Building Four West, Lawrenceville, New Jersey
08648-0550. The class of equity securities to which this Statement relates is
Common Stock, par value $1.00 per share, of the Company (the "Shares"),
including the associated right to purchase shares of the Company's Series B
Junior Participating Preferred Stock, par value $1.00 per share (the "Rights"),
issued pursuant to the Rights Agreement dated as of April 30, 1997 (as amended
from time to time, the "Rights Agreement"), between the Company and First
Chicago Trust Company of New York, as Rights Agent (as defined below). The
Rights will not be exercisable in connection with the Offer (as defined below).
See Item 3(b)(2) below for a description of the Rights Agreement.
 
ITEM 2.  TENDER OFFER OF THE BIDDER
 
     This Statement relates to a tender offer (the "Offer") by II Acquisition
Corp., a Delaware corporation ("Purchaser"), disclosed in a Tender Offer
Statement on Schedule 14D-1, dated July 31, 1997 (the "Schedule 14D-1"), to
purchase all of the outstanding Shares, together with the Rights, at a purchase
price of $7.05 per Share, net to the seller in cash (the consideration to be
paid per Share pursuant to the Offer being, the "Per Share Amount"), subject to
withholding of taxes, if applicable, on the terms and subject to the conditions
set forth in the Offer to Purchase, dated July 31, 1997 (the "Offer to
Purchase"), and in the related Letter of Transmittal (which together, as amended
and supplemented from time to time, constitute the "Offer Documents"), copies of
which are filed hereto as Exhibits A and B, respectively, and are incorporated
herein by reference.
 
     The Offer is being made pursuant to a Share Purchase Agreement, dated as of
July 25, 1997 (the "Acquisition Agreement"), between Purchaser and the Company.
See Item 3(b)(2) below for a description of the Acquisition Agreement, a copy of
which is filed as Exhibit C hereto and is incorporated herein by reference. A
copy of the press release issued by the Company on July 25, 1997 with respect to
entering into the Acquisition Agreement and terminating the UDI Agreement (as
defined herein) is filed as Exhibit D hereto and is incorporated herein by
reference. On July 29, 1997, United Dominion Industries Limited ("UDI")
terminated the UDI Offer (as defined herein) and the UDI Note Offer (as defined
herein).
 
     The Acquisition Agreement does not contemplate a merger involving the
Company following completion of the Offer. Accordingly, any Shares not purchased
in the Offer will remain outstanding as minority interests in the Company.
Purchaser has indicated in the Offer to Purchase that it intends to purchase
Shares not tendered in the Offer after the consummation of the Offer in order to
eliminate any minority interests. There can be no assurance, however, as to
whether such purchase will be made and any such purchases could be effected at
prices that may be higher or lower than the Per Share Amount. Purchaser has also
indicated in the Offer to Purchase that it intends to deregister and delist the
Shares following consummation of the Offer, if permitted by applicable law. See
Sections 11 and 13 of the Offer to Purchase.
 
     The Offer to Purchase states that the address and principal executive
offices of Purchaser are 9211 Forest Hill Avenue, Suite 109, Richmond, Virginia
23235.
 
ITEM 3.  IDENTITY AND BACKGROUND
 
     (a) Name and Address of the Company.  The name and business address of the
Company, which is the person filing this Statement, are as set forth in Item 1
above.
 
     (b) Material Contracts, etc.  Except as set forth in this Item 3(b) or
incorporated by reference herein, to the knowledge of the Company, as of the
date hereof, there exists no material contract, agreement, arrangement or
understanding and no actual or potential conflict of interest between the
Company or its
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affiliates and (1) the executive officers, directors or affiliates of the
Company or (2) Purchaser or its executive officers, directors or affiliates.
 
        (b)(1) Certain Contracts, Agreements, Arrangements or
        Understandings and any Actual or Potential Conflicts of
        Interests Between (A) the Company or its Affiliates and (B) the
        Executive Officers, Directors or Affiliates of the Company.
 
     Certain contracts, agreements, arrangements or understandings between the
Company or its affiliates and certain of its directors and executive officers
are described under the captions "Ownership by Directors and Executive
Officers," "Director Compensation" and "EXECUTIVE COMPENSATION" on pages 3-20 of
the Company's Proxy Statement, dated April 4, 1997 (the "1997 Proxy Statement"),
for the Company's 1997 Annual Meeting of Stockholders, a copy of which was
previously furnished to the Company's stockholders. A copy of such portions of
the 1997 Proxy Statement was previously filed with the Securities and Exchange
Commission and is incorporated herein by reference.
 
     As described in greater detail in the 1997 Proxy Statement, the Company is
party to termination agreements with various executive officers of the Company,
including Messrs. Donald K. Farrar, Chairman of the Board of Directors,
President and Chief Executive Officer, John J. Carr, Executive Vice President,
William M. Brown, Executive Vice President, Chief Financial Officer and
Corporate Controller, and Thomas J. Bird, Executive Vice President, General
Counsel and Secretary (each a "Termination Agreement" and collectively, the
"Termination Agreements"). The Termination Agreements become operative upon the
occurrence of a "change in control" of the Company. The Termination Agreements
provide that a "change in control" is deemed to occur if (i) any person is or
becomes the beneficial owner, directly or indirectly, of securities of the
Company representing 35% or more of the combined voting power of the Company's
then outstanding securities, (ii) individuals who constituted the Board of
Directors of the Company at the beginning of the term of such Termination
Agreement, including any new director whose election or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds of
the directors still in office who were directors at the beginning of the term of
such Termination Agreement or their successors, cease, for any reason, to
constitute a majority thereof or (iii) more than 50% of the assets of the
Company, including the business for which such executive's services are
principally performed, are disposed of by the Company pursuant to a partial or
complete liquidation of the Company, a sale of assets or otherwise. A "change of
control" under the Termination Agreements will occur upon consummation of the
Offer.
 
     Each executive has agreed pursuant to his Termination Agreement that,
subject to the terms thereof, in the event of a "potential change in control" of
the Company, the executive will remain in the employ of the Company or its
subsidiaries during the pendency of any such "potential change in control" and
for a period of one year after the occurrence of an actual "change in control."
A "potential change in control" is deemed to occur if (i) the Company enters
into an agreement, the consummation of which would result in a "change in
control" of the Company, (ii) any person, including the Company, publicly
announces an intention to take or to consider taking actions which if
consummated would constitute a "change in control" or (iii) the Board of
Directors adopts a resolution to the effect that a "potential change in control"
has occurred. A "potential change of control" under the Termination Agreements
occurred on March 21, 1997 when the Company publicly announced that it had hired
Credit Suisse First Boston Corporation ("CSFB") to evaluate alternatives for
enhancing shareholder value and reducing debt, including a possible sale of the
Company. If an executive's employment is terminated within three years of a
change in control (i) by the Company other than for cause, retirement or
disability or (ii) by the executive for "good reason," the executive will be
entitled to a lump sum payment equal to 2.99 times his average taxable
compensation from the Company during the five fiscal years of the Company
immediately preceding the change in control, as well as bonuses declared but not
yet paid, amounts in settlement of outstanding stock options, a lump sum payment
of certain retirement benefits and continuing life, disability, accident and
health insurance coverage for a three-year period after such termination. "Good
reason" is broadly defined in the Termination Agreements to include any change
in duties or responsibilities, reduction in compensation or benefits or
relocation. The Termination Agreements, however, provide that no amount is to be
paid to any such person which would result in such a payment being subject to an
excise tax under the Internal Revenue Code of 1986, as amended, and being
nondeductible by the Company for federal income tax purposes. If the employment
of all of the above-named executive officers
 
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were to be terminated under the circumstances requiring payments under such
agreements, such officers would currently be entitled to receive approximately
$5,084,898.
 
     The Company currently maintains several benefit programs for its employees
(collectively, the "Plans"). Under the terms of the Acquisition Agreement,
Purchaser has agreed to maintain (or cause the Company to maintain) for a period
of one year from the date of acceptance for payment by Purchaser of Shares
pursuant to the Offer (the "Consummation Date"), the Plans (other than the
Company's stock option plans), or other plans or arrangements that will provide
benefits that are substantially equivalent to, and no less favorable than, those
provided under the Plans (other than the Company's stock option plans) as in
effect as of the date of the Acquisition Agreement. In addition, in the event of
a merger or consolidation between Purchaser or any affiliate of Purchaser and
the Company, Purchaser has agreed in the Acquisition Agreement that it will, or
will cause the surviving corporation of such merger or consolidation to, assume
and agree to perform the Termination Agreements in the same manner and to the
same extent that the Company is required to perform such agreements.
 
     Article XIII of the Company's By-Laws provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit or proceeding, by reason
of the fact that he is or was a director, officer or employee of the Company, or
is or was serving at the request of the Company as a director, officer or
employee of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to the best interests of, the
Company. The Acquisition Agreement provides that the Company will, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former director, officer, employee, fiduciary and agent of the
Company and its subsidiaries against all costs and expenses (including
reasonable attorney's fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the
Consummation Date), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any act or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Consummation Date, for a period of six years after the date of the
Acquisition Agreement. The Acquisition Agreement also provides that the Company
will maintain provisions no less favorable with respect to indemnification than
are set forth in the By-Laws of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of six years from the
Consummation Date in any manner that would affect adversely the rights
thereunder of individuals who, at any time from and after the date of the
Acquisition Agreement and to and including the Consummation Date were directors,
officers, employees, fiduciaries or agents of the Company in respect of acts or
omissions occurring at or prior to the Consummation Date (including, without
limitation, the matters contemplated by the Acquisition Agreement), unless such
modification shall be required by law.
 
     The Acquisition Agreement further provides that the Company will maintain
in effect, for a period of six years after the Consummation Date, insurance
coverage, if available, equivalent to that provided by the directors' and
officers' liability insurance policies maintained as of the date of the
Acquisition Agreement by the Company with respect to matters occurring on or
prior to the Consummation Date; provided, however, that the Company may
substitute therefor policies of at least the same coverage containing terms and
conditions which are not materially less favorable and is not required to expend
more than an amount per year equal to 250% of the current annual premiums as of
the date of the Acquisition Agreement paid by the Company for such insurance.
 
        (b)(2) Certain Contracts, Agreements, Arrangements or
        Understandings and any Actual or Potential Conflicts of
        Interests Between (A) the Company or its Affiliates and (B)
        Purchaser and its Executive Officers, Directors or Affiliates.
 
  The Acquisition Agreement
 
     The following is a summary of the material terms of the Acquisition
Agreement. This summary is not a complete description of the terms and
conditions of the Acquisition Agreement and is qualified in its entirety by
reference to the full text of the Acquisition Agreement, which is incorporated
by reference and a copy of
 
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which has been filed as Exhibit C to this Schedule 14D-9. For purposes of this
Item 3(b)(2), except as set forth herein with respect to certain terms the
meaning of which may not be readily apparent, capitalized terms used and not
otherwise defined herein have the meanings given to such terms in the
Acquisition Agreement.
 
     The Offer.  The Acquisition Agreement provides for the commencement of the
Offer as promptly as reasonably practicable, but in no event later than five
business days after the first public announcement of the execution of the
Acquisition Agreement. As noted above, the Acquisition Agreement does not
contemplate a merger involving the Company following completion of the Offer. In
addition, Purchaser is not commencing a simultaneous offer to purchase all of
the Company's 11 3/4% Senior Subordinated Notes due 2006 (the "Notes") or
soliciting consents from the holders of the Notes to amend the indenture
governing the terms thereof (the "Indenture"), both of which were contemplated
by the UDI Agreement. Absent an amendment, the Indenture would have prohibited a
merger involving the Company following completion of the UDI Offer contemplated
by the UDI Agreement. The obligation of Purchaser to accept for payment and pay
for Shares tendered pursuant to the Offer is subject to the satisfaction of the
Minimum Condition and certain other conditions that are described below.
Purchaser has expressly reserved the right to waive any such condition, to
increase the price per Share payable in the Offer, and to make any other changes
in the terms and conditions of the Offer; provided, however, that Purchaser has
agreed that, without the consent of the Company, no change in the Offer may be
made that decreases the price per Share payable in the Offer, changes the form
of consideration payable in the Offer, reduces the maximum number of Shares
sought pursuant to the Offer, extends the expiration date of the Offer (except
that Purchaser may extend the expiration date of the offer (a) as required to
comply with any rule, regulation or interpretation of the Securities and
Exchange Commission (the "Commission") or (b) for one or more times each for an
aggregate period of up to 15 days (and not to exceed 60 days from the date of
commencement) for any reason other than those specified in the immediately
preceding clause (a)), or that imposes conditions to the Offer in addition to
those described below under the Conditions of the Offer.
 
     Termination of UDI Agreement.  The Company represented in the Acquisition
Agreement that it gave notice to UDI of the termination of the Agreement and
Plan of Merger, dated as of June 26, 1997, among UDI, UD Delaware Corp. ("UD
Delaware") and the Company (the "UDI Agreement") and effected payment to UDI of
the $8 million fee contemplated by the UDI Agreement and the deposit in escrow
of $2 million for payment to UDI in reimbursement of "Expenses" (as defined in
the UDI Agreement) by Purchaser having deposited such sums, on behalf of the
Company, in an account with a recognized commercial or investment bank and
providing irrevocable instructions for transmission of such funds to UDI upon
its request and, in the case of funds for reimbursement of Expenses, submission
of evidence of the incurrence thereof.
 
     Conduct of Business.  Pursuant to the Acquisition Agreement, the Company
has covenanted and agreed that, between the date of the Acquisition Agreement
and the election or appointment of Purchaser's designees to serve on the
Company's Board of Directors upon the purchase by Purchaser of any Shares
pursuant to the Offer (the "Purchaser's Election Date"), unless Purchaser shall
otherwise agree in writing, each of the Company and its Subsidiaries will
conduct its business only in, and the Company and the Subsidiaries will not take
any action except in, the ordinary course of business consistent with past
practice; and the Company will use all reasonable efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its Subsidiaries and to preserve the current
relationships of the Company and its Subsidiaries with customers, suppliers and
other persons with which the Company or any Subsidiary has significant business
relations. The Acquisition Agreement also provides that, except with the prior
written consent of Purchaser or as contemplated by the Acquisition Agreement,
the Company agrees that neither the Company nor any Subsidiary will, between the
date of the Acquisition Agreement and the Purchaser's Election Date, directly or
indirectly do, or propose to do, any of the following: (a) amend or otherwise
change its Certificate of Incorporation and By-Laws or equivalent organizational
documents, each as amended to date (the "Constituent Documents"); (b) issue,
sell, pledge, dispose of, grant, encumber, or authorize the issuance, sale,
pledge, disposition, grant or encumbrance of (i) any shares of capital stock of
any class of the Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
 
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such capital stock, or any other ownership interest (including, without
limitation, any phantom interest), of the Company or any Subsidiary (except for
the issuance of a maximum of 2,000,000 Shares issuable pursuant to employee
stock options outstanding on the date of the Acquisition Agreement and including
up to 1,250 restricted Shares per quarter issuable to outside directors in
accordance with past practice pursuant to the Stock Option Plans) or (ii) any
assets of the Company or any Subsidiary, except for sales in the ordinary course
of business and in a manner consistent with past practice; (c) declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock, except for such
declarations, set asides, dividends and other distributions made by any
Subsidiary to the Company; (d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division thereof or
any material amount of assets other than in the ordinary course of business
consistent with past practice; (ii) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse, pledge in respect of
or otherwise as an accommodation become responsible for the obligations of any
person, or make any loans or advances, except in the ordinary course of business
and consistent with past practice; (iii) enter into any contract or agreement,
other than any contract or agreement entered into in the ordinary course of
business consistent with past practice and which requires payments by the
Company or its Subsidiaries in an aggregate amount of less than U.S. $250,000;
(iv) terminate, cancel or request any material change in, or agree to any
material change in, any material contract, except in the ordinary course of
business consistent with past practice; or (v) authorize any single capital
expenditure (excluding software development activity) which is in excess of U.S.
$500,000 or capital expenditures which are, in the aggregate, in excess of U.S.
$2,500,000 for the Company and its Subsidiaries taken as a whole; (f) increase
the compensation payable or to become payable to its officers or employees,
except for increases in accordance with past practices in salaries or wages of
employees of the Company or any Subsidiary who are not officers of the Company,
or grant any severance or termination pay to, or enter into any employment or
severance agreement with, any director, officer or other employee of the Company
or any Subsidiary (other than in connection with hiring and terminating
employees in the ordinary course of the Company's business), or establish,
adopt, enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination or severance plan, agreement,
trust, fund, policy or arrangement for the benefit of any director, officer or
employee or circulate to any employee any details of any proposal to adopt or
amend any such plan; (g) take any action, other than reasonable and usual
actions in the ordinary course of business consistent with past practice, with
respect to accounting policies or procedures (including, without limitation,
procedures with respect to the payment of accounts payable and collection of
accounts receivable); (h) make any material tax election or settle or compromise
any material federal, state, local or foreign income tax liability; (i) pay,
discharge or satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice, of liabilities reflected or reserved against on the Company's
consolidated balance sheet included in its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 or subsequently incurred in the ordinary course of
business and consistent with past practice; or (j) settle or comprise any
pending or threatened suit, action or claim that is material or which relates to
any of the transactions contemplated by the Acquisition Agreement; or (k)
announce an intention, enter into any formal or informal agreement, or otherwise
make a commitment, to do any of the foregoing.
 
     Designation of Directors.  The Acquisition Agreement provides that,
promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser will be entitled to designate up to such
number of directors, rounded up to the next whole number, on the Board as shall
give Purchaser representation on the Board equal to the product of the total
number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
at such time bears to the total number of Shares then outstanding. Pursuant to
the Acquisition Agreement, the Company agrees, at such time of purchase, to
promptly take all actions necessary to cause Purchaser's designees to be elected
as directors of the Company, including increasing the size of the Board or
securing the resignations of incumbent
 
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directors or both. The Acquisition Agreement also provides that, at such times,
the Company will use all reasonable efforts to cause persons designated by
Purchaser to constitute the same percentage as persons designated by Purchaser
shall constitute of the Board with respect to (a) each committee of the Board
(some of whom may be required to be independent as required by applicable law or
requirements of the New York Stock Exchange), (b) each board of directors of
each Subsidiary and (c) each committee of each such board, in each case only to
the extent permitted by applicable law. Notwithstanding the foregoing, the
Acquisition Agreement provides that until the time Purchaser acquires a majority
of the then outstanding Shares on a fully diluted basis, the Company will use
all reasonable efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of the Subsidiaries as of
the date thereof who are not employees of the Company shall remain members of
the Board and of such boards and committees.
 
     Amendments.  The Acquisition Agreement provides that following the election
or appointment of Purchaser's designees in accordance with the immediately
preceding paragraph and prior to the Consummation Date, any amendment of the
Acquisition Agreement or the Constituent Documents of the Company, any
termination of the Acquisition Agreement by the Company, any extension by the
Company of the time for the performance of any of the obligations or other acts
of Purchaser or any waiver of any of the Company's rights thereunder will
require the concurrence of a majority of those directors of the Company then in
office other than directors designated by Purchaser or directors who are
employees of the Company or, if no such directors are then in office, no such
amendment, termination, extension or waiver shall be effected which is
materially adverse to the holders of Shares (other than Purchaser and its
affiliates).
 
     Access to Information; Confidentiality.  Pursuant to the Acquisition
Agreement, from the date of the Acquisition Agreement to the consummation of the
Offer, the Company agrees to, and to cause its Subsidiaries to, afford the
officers, employees and agents of Purchaser and persons providing or committing
to provide Purchaser or its affiliates with financing for the transactions
contemplated by the Acquisition Agreement (the "Transactions") complete access
at all reasonable times to the officers, employees, agents, properties, offices,
plants and other facilities, books and records of the Company and each
Subsidiary and to furnish Purchaser and persons providing or committing to
provide Purchaser with financing for the Transactions with all financial,
operating and other data and information as Purchaser or its affiliates, through
its officers, employees or agents, may reasonably request. Purchaser agreed in
the Acquisition Agreement to keep all such information obtained by Purchaser or
its affiliates in connection with entering into the Acquisition Agreement
confidential in accordance with the confidentiality agreement, dated May 19,
1997 (the "Confidentiality Agreement"), between Constellation Capital Partners
LLC, an affiliate of Purchaser ("Constellation"), and the Company.
 
     No Solicitation of Transactions.  The Company has agreed that neither the
Company nor any Subsidiary will, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any Material Subsidiary or any business combination with the Company
or any Material Subsidiary or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing and
the Company has agreed to immediately cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. Notwithstanding the foregoing, the Acquisition
Agreement permits the Board to furnish information to, or enter into discussions
or negotiations with, any person in connection with an unsolicited (from the
date of the Acquisition Agreement) proposal in writing by such person to acquire
the Company pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially all
of the assets of the Company or any of its Subsidiaries, if, and only to the
extent that, (a) the Board, after consultation with independent legal counsel
(which may include its regularly engaged independent legal counsel), determines
in good faith that such action is required for the Board to comply with its
fiduciary duties to stockholders imposed by Delaware Law and (b) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person, the Company uses its reasonable efforts to obtain from such
person an executed confidentiality agreement on terms no less favorable to the
Company than those contained in the Confidentiality Agreement. Moreover, the
Company agreed (1) to notify Purchaser promptly
 
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if any such proposal or offer, or any inquiry or contact with any person with
respect thereto, is made and to inform Purchaser of the terms and conditions of
any such proposal or offer or the details of any such inquiry or contact and (2)
not to release any third party from, or waive any provision of, any
confidentiality or, subject to the fiduciary duties of the Board, standstill
agreement to which the Company is or may become a party.
 
     Treatment of Stock Options.  The Acquisition Agreement provides that all
stock options granted under the Company's Amended and Restated Equity Incentive
Plan for Key Employees, the Company's Amended and Restated 1988 Equity Incentive
Plan for Outside Directors or the Company's 1995 Equity Incentive Plan for
Outside Directors (collectively, the "Stock Option Plans"), shall, at the
Consummation Date, to the extent permitted by the applicable Stock Option Plan
and stock option agreement (if any) be cancelled and each holder of a cancelled
option shall be entitled to receive, on the Consummation Date after the purchase
of Shares pursuant to the Offer or as soon as practicable thereafter, from the
Company (or from the Purchaser if payment by the Company would not be permitted
under the Credit Agreement (as defined herein) or the Indenture) in
consideration for the cancellation of such option, an amount (subject to any
applicable withholding tax) in cash equal to the product of (a) the number of
Shares previously subject to such option and (b) the excess, if any, of the Per
Share Amount over the exercise price per Share previously subject to such option
(the "Option Spread Amount"). To the extent the cancellation of any options
described above is not permitted by the Stock Option Plan or stock option
agreement applicable to such options, Purchaser has agreed in the Acquisition
Agreement to pay to the holder thereof the Option Spread Amount upon surrender
of such options. Payment therefor will be made at such time as payment is made
in respect of the Shares purchased in the Offer.
 
     Indemnification and Insurance.  Pursuant to the Acquisition Agreement, the
Certificate of Incorporation and By-Laws of the Company shall contain provisions
no less favorable with respect to indemnification than are set forth in Article
XIII of the By-Laws of the Company at the date of the Acquisition Agreement,
which provisions shall not be amended, repealed or otherwise modified for a
period of six years from the Consummation Date in any manner that would affect
adversely the rights thereunder of individuals who at any time from and after
the date of the Acquisition Agreement to and including the Consummation Date
were directors, officers, employees, fiduciaries or agents (collectively
"Representatives") of the Company in respect of acts or omissions occurring at
or prior to the Consummation Date (including, without limitation, the matters
contemplated by the Acquisition Agreement), unless such modification is required
by law. Moreover, from and after the Purchaser's Election Date, the Acquisition
Agreement prohibits the Company from making any amendment, repeal or other
modification of the indemnification and advancement of expenses provisions of
Article XIII of the By-Laws of the Company or the Constituent Documents of any
of its Subsidiaries in any manner that would adversely affect the rights
thereunder of individuals who at any time from and after the date of this
Agreement and to and including the Consummation Date were Representatives of the
Company or any of its subsidiaries in respect of acts or omissions occurring at
or prior to the Consummation Date (including, without limitation, the matters
contemplated by the Acquisition Agreement), unless such modification is required
by law.
 
     The Acquisition Agreement also provides that the Company shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless each
present and former Representative of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Consummation Date), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as a
Representative, whether occurring before or after the Consummation Date, for a
period of six years after the date of the Acquisition Agreement (and shall pay
any expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, and, with respect to Indemnified Parties who are or were directors
or officers of the Company, upon receipt from the Indemnified Party to whom
expenses are advanced of any undertaking to repay such advances required under
Delaware Law).
 
     Pursuant to the Acquisition Agreement, the Company, for a period of six
years after the Consummation Date, shall maintain in effect, insurance coverage,
if available, equivalent to that provided by the directors' and
 
                                        7
   9
 
officers' liability insurance policies currently maintained by the Company
(provided that the Company may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring on or prior to the Consummation
Date; provided, however, that in no event shall the Company be required to
expend more than an amount per year equal to 250% of current annual premiums
paid by the Company for such insurance (which annual premiums the Company has
represented in the Acquisition Agreement to be approximately $300,000).
 
     The Acquisition Agreement provides that in the event the Company or the
Purchaser or any of their respective successors or assigns (a) consolidates with
or merges into any other person (including a merger or consolidation of the
Company with or into Purchaser) and shall not be the continuing or surviving
corporation or entity of such consolidation or merger or (b) transfers all or
substantially all of its properties and assets to any person, then, and in each
such case, proper provision shall be made so that the successors and assigns of
the Company or the Purchaser, as the case may be, shall assume the obligations
described above. The Acquisition Agreement provides that the obligations
described above shall survive the Consummation Date.
 
     Employee Benefits.  Pursuant to the Acquisition Agreement, for a period of
one year from the Consummation Date, Purchaser has agreed to maintain (or cause
the Company to maintain) the employee benefit plans (other than the Stock Option
Plans) which the Company maintains for the benefit of, or which are open to, a
majority of the employees of the Company on the terms in effect on the date of
the Acquisition Agreement, or such other plans, arrangements or programs as will
provide employees with benefits that in the aggregate are substantially
equivalent to, and no less favorable than, those provided under the employee
benefit plans (other than the Stock Option Plans) as in effect on the date of
the Acquisition Agreement. In addition, in the event of a merger or
consolidation between Purchaser or any affiliate of Purchaser and the Company,
Purchaser shall, or shall cause the surviving corporation of such merger or
consolidation to, assume and agree to perform specified "Change of Control
Agreements" in the same manner and to the same extent that the Company is
required to perform such agreements. Such Change of Control Agreements provide
for payments to certain officers and other employees of the Company upon
termination of employment, diminution of responsibility or salary or other
circumstances following a change of control of the Company. If Purchaser
consummates the Offer, a change in control will occur under the Change of
Control Agreements.
 
     Provision of Funds.  In the Acquisition Agreement, Purchaser represented
that it has received bank commitment letters and has entered into a preferred
stock subscription agreement with an affiliate relating to the provision of
sufficient funds (a) to satisfy the Company's obligations under Section 4.10 of
the Indenture arising as a result of the consummation of the Offer, and (b) to
refinance the Credit Agreement, dated as of April 29, 1996 (the "Credit
Agreement"), among the Company, Varo Inc., Warren Pumps Inc., the lenders from
time to time party thereto, the issuing banks from time to time party thereto
and Citicorp USA, Inc., as Agent, as amended.
 
     Representations and Warranties.  The Acquisition Agreement contains various
representations and warranties of the parties thereto, including representations
by the Company as to the Company's filings with the Commission, consolidated
financial statements of the Company and its Subsidiaries, the absence of certain
changes or events concerning the Company's business, compliance with law and
certain contracts, litigation, insurance, licenses and permits, employee benefit
plans, labor matters, ownership of assets, trademarks, patents and copyrights,
environmental matters, brokers, taxes, absence of certain business practices and
letters of credit, surety bonds and guarantees.
 
     The Company also represented in the Acquisition Agreement that the Board,
at a meeting duly called and held on July 25, 1997, unanimously (i) determined
to withdraw its recommendation of the UDI Agreement and the transactions
contemplated thereby and recommend that the Company's stockholders not tender
their Shares pursuant to the UDI Offer, (ii) determined that the Acquisition
Agreement and the transactions contemplated thereby, including the Offer, are
fair to and in the best interests of the stockholders of the Company, (iii)
approved and adopted the Acquisition Agreement and the transactions contemplated
thereby, and such approval constitutes approval of the foregoing for purposes of
Section 203 of Delaware Law, (iv) took all action to avoid the occurrence of a
"Distribution Date" or a "Triggering Event" (each as defined in the Rights
Agreement) with respect to the Rights in connection with the Offer, (v)
recommended that the stockholders of the Company accept the Offer and approve
and adopt the Acquisition Agreement and the
 
                                        8
   10
 
transactions contemplated thereby and (vi) approved, for purposes of Article X
of the Company's Certificate of Incorporation, a Business Combination (as
defined therein) between Purchaser (or any affiliate of Purchaser) and the
Company, whereby each Share (other than dissenting Shares and Shares owned by
Purchaser or its affiliates) outstanding at the time of such Business
Combination would be cancelled and the holder thereof would be entitled to
receive an amount in cash equal to, (I) if such Business Combination occurs
within one year of the date of the Acquisition Agreement, not less than the Per
Share Amount or (II) if such Business Combination occurs after one year from the
date of the Acquisition Agreement, an amount that is not less than the Per Share
Amount and that, in the opinion of a nationally recognized investment bank, is
fair from a financial point of view to such holders.
 
     Purchaser represented and warranted to the Company in the Acquisition
Agreement, among other things, that Purchaser has sufficient funds to permit
Purchaser to acquire all the outstanding Shares in the Offer, written evidence
of which has been provided to the Company, and such funds will remain in
Purchaser, available to be used to consummate the Offer, for as long as the
Offer remains outstanding and has not been terminated in accordance with the
terms of the Acquisition Agreement or of the Offer.
 
     Termination.  The Acquisition Agreement may be terminated and the Offer and
the other transactions contemplated by the Acquisition Agreement may be
abandoned at any time prior to the Consummation Date, (a) by mutual written
consent duly authorized by the Boards of Directors of Purchaser and the Company
prior to Purchaser's Election Date; (b) by Purchaser or the Company if (i) the
Consummation Date shall not have occurred on or before December 31, 1997 (so
long as the party seeking such termination has not failed to fulfill any
obligation under the Acquisition Agreement, which failure has been the cause of,
or resulted in, the failure of the Consummation Date to occur on or before such
date) or (ii) any court of competent jurisdiction in the United States or other
governmental authority shall have issued an order, decree, ruling or taken any
other action restraining, enjoining or otherwise prohibiting the Offer and such
order, decree, ruling or other action shall have become final and nonappealable;
(c) by Purchaser if (i) due to an occurrence or circumstance that would result
in a failure to satisfy any condition to the Offer, Purchaser shall have (A)
failed to commence the Offer within five business days following the date of
public announcement of the execution of the Acquisition Agreement, (B)
terminated the Offer without having accepted any Shares for payment thereunder
or (C) failed to pay for Shares pursuant to the Offer within 90 days following
the commencement thereof; unless such action or inaction under (A), (B) or (C)
shall have been caused by or resulted from the failure of Purchaser to perform
in any material respect any material covenant or agreement applicable to it
contained in the Acquisition Agreement or the material breach by Purchaser of
any material representation or warranty applicable to it contained in the
Acquisition Agreement or (ii) prior to the purchase of Shares pursuant to the
Offer, the Board or any committee thereof shall have withdrawn or modified in a
manner adverse to Purchaser its approval or recommendation of the Offer or the
Acquisition Agreement or shall have recommended another merger, consolidation,
business combination with, or acquisition of, the Company or its assets or
another tender offer or exchange offer for Shares, or shall have resolved to do
any of the foregoing; or (d) by the Company, upon approval of the Board if (i)
Purchaser shall have (A) failed to commence the Offer within five business days
following the date of public announcement of the execution of the Acquisition
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer within
90 days following the commencement thereof, unless such action or inaction under
(A), (B) or (C) shall have been caused by or resulted from the failure of the
Company to perform in any material respect any material covenant or agreement of
it contained in the Acquisition Agreement or the material breach by the Company
of any material representation or warranty of it contained in the Acquisition
Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the
Board shall have withdrawn or modified in a manner adverse to Purchaser its
approval or recommendation of the Offer or the Acquisition Agreement in order to
approve the execution by the Company of a definitive agreement providing for the
acquisition of the Company or any of its assets by a sale, merger or other
business combination or in order to approve a tender offer or exchange offer for
Shares by a third party, in either case, as the Board determines in good faith
that such action is required for the Board to comply with its fiduciary duties
to stockholders, after consultation with its independent legal counsel and
financial advisers, and is on terms more favorable to the Company's stockholders
than the Offer; provided, however, that (x) the Company shall have given notice
to Purchaser advising Purchaser that the Company has
 
                                        9
   11
 
received a proposal for such a transaction from a third party, specifying the
material terms and conditions (including the identity of the third party) and
that the Company intends to terminate the Acquisition Agreement in accordance
with this provision and either (q) Purchaser shall not have revised the terms of
its offer to acquire the Company within two business days from the date on which
such notice is deemed to have been given to Purchaser or (r) if the expiration
date of the Offer would otherwise occur within the period in which the Company
is prohibited by this proviso from terminating the Acquisition Agreement, the
Purchaser shall not have extended such expiration date until 12 hours after the
end of such two business day period, and given the Company timely notice of such
extension or (s) if within such two business day period Purchaser shall have
revised such terms, the Board of the Company, after receiving advice from the
Company's financial adviser, shall have determined in good faith that the third
party's proposal is superior to Purchaser's revised terms (this provision of the
Acquisition Agreement, together with the provision described in clause (c)(ii)
of this sentence, are collectively referred to as the "Fiduciary Out Clause");
and (y) such termination under this clause (ii) shall not be effective until the
Company has made payment to Purchaser of the Fee (as hereinafter defined)
required to be paid pursuant to the Acquisition Agreement and has deposited with
a mutually acceptable escrow agent $12.0 million for reimbursement of Expenses
(as hereinafter defined).
 
     In the event of the termination of the Acquisition Agreement, the
Acquisition Agreement provides that it shall forthwith become void, and there
shall be no liability on the part of any party hereto, except under the
provisions of the Acquisition Agreement related to fees and expenses described
below and confidentiality and except for liability of any party for breach of
the Acquisition Agreement prior to its termination.
 
     Fees and Expenses.  The Acquisition Agreement provides that in the event
that (a) any person (including, without limitation, the Company or any affiliate
thereof), other than Purchaser or any affiliate of Purchaser, shall have become
the beneficial owner of more than 20% of the then outstanding Shares, the
Acquisition Agreement shall have been terminated (other than pursuant to the
Fiduciary Out Clause) and within 12 months of such termination a Third Party
Acquisition (as defined hereinafter) shall occur; or (b) any person shall have
commenced, publicly proposed or communicated to the Company a proposal that is
publicly disclosed for a tender or exchange offer for 25% or more of the then
outstanding shares (or which, assuming the maximum amount of securities that
could be purchased, would result in any person beneficially owning 25% or more
of the then outstanding Shares) or otherwise for the direct or indirect
acquisition of the Company or all or substantially all of its assets for per
Share consideration having a value greater than the Per Share Amount and (i) the
Offer shall have remained open for at least 20 business days, (ii) the Minimum
Condition shall not have been satisfied and (iii) the Acquisition Agreement
shall have been terminated (other than pursuant to the Fiduciary Out Clause) and
(iv) within 12 months of such termination a Third Party Acquisition shall occur;
or (c) if the Minimum Condition shall not have been satisfied on or prior to the
date that is 60 days from the date of commencement of the Offer, Purchaser
desires to extend the Offer beyond such 60 day period but the Company declines
to consent to such extension, the Acquisition Agreement is terminated (other
than pursuant to the Fiduciary Out Clause) and within 12 months of such
termination a Third Party Acquisition shall occur; or (d) the Acquisition
Agreement is terminated pursuant to the Fiduciary Out Clause, then, in any such
event, provided that Purchaser is not in material breach of its obligations
under the Acquisition Agreement, the Company shall pay Purchaser promptly (but
in no event later than one business day after (i) the consummation of the Third
Party Acquisition, with respect to the events described in clauses (a), (b) or
(c), or (ii) such termination with respect to clause (d)) a fee of U.S. $8
million (the "Fee"), plus "Expenses" (as defined below).
 
     The Acquisition Agreement also provides that so long as Purchaser is not in
material breach of its obligations under the Acquisition Agreement and Purchaser
is not entitled to the Fee pursuant to the preceding paragraph, if (a) the
Acquisition Agreement is terminated as described in clause (c) of the third
preceding paragraph due to the material breach of the Company's obligations
under the Acquisition Agreement or (b) the Acquisition Agreement is terminated
as described in clause (c) of the third preceding paragraph because of the
occurrence of the condition set forth in paragraph (f) of the Conditions of the
Offer set forth below, then, in either case (a) or (b), the Company shall
promptly reimburse Purchaser for all Expenses.
 
                                       10
   12
 
     "Expenses" is defined in the Acquisition Agreement to mean the sum of (i)
all reasonable out-of-pocket expenses and fees up to $2.0 million in the
aggregate (including, without limitation, reasonable fees and expenses payable
to all banks, investment banking firms, other financial institutions and other
persons and their respective agents and counsel for arranging, committing to
provide or providing any financing for the Offer or structuring the Offer and
all reasonable fees of counsel, accountants, experts and consultants to
Purchaser and its affiliates, and all printing and advertising expenses)
actually incurred by Purchaser or its affiliates or on their behalf in
connection with the Offer, including, without limitation, the financing thereof,
and actually incurred by banks, investment banking firms, other financial
institutions and other persons and assumed by Purchaser and its affiliates in
connection with the negotiation, preparation, execution and performance of the
Acquisition Agreement, the structuring and financing of the Offer and any
financing commitments or agreements relating thereto and (ii) all amounts paid
by Purchaser to UDI or its affiliates on behalf of the Company in connection
with the termination of the UDI Agreement. In the event that the Company shall
fail to pay the Fee or any Expenses when due, the term "Expenses" will be deemed
to include the reasonable costs and expenses actually incurred or accrued by
Purchaser (including, without limitation, fees and expenses of counsel) in
connection with the collection under and enforcement of the fees and expenses
provision of the Acquisition Agreement, together with interest on such unpaid
Fee and Expenses, commencing on the date that the Fee or such Expenses became
due, at a per annum rate equal to the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York, from time to time, in the City of New
York, as such bank's prime rate plus 1%.
 
     "Third Party Acquisition" is defined in the Acquisition Agreement to mean
the occurrence of any of the following events: (i) the acquisition of the
Company by merger, consolidation or other business combination transaction by
any person other than Purchaser or any affiliate thereof (a "Third Party"); (ii)
the acquisition by any Third Party of all or substantially all of the assets of
the Company and its Subsidiaries, taken as a whole; (iii) the acquisition by a
Third Party of 50% or more of the outstanding Shares whether by tender offer,
exchange offer or otherwise; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; or (v)
the repurchase by the Company or any of its Subsidiaries of 50% or more of the
outstanding Shares.
 
     Except as set forth above, all costs and expenses incurred by Purchaser and
the Company in connection with the Acquisition Agreement and the transactions
contemplated by the Acquisition Agreement shall be paid by the party incurring
such expenses, whether or not any such transaction is consummated.
 
     Conditions of the Offer.  Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or pay for any Shares
tendered pursuant to the Offer, and may terminate or amend the Offer and may
postpone the acceptance for payment of and payment for Shares tendered, if (i)
the Minimum Condition shall not have been satisfied, (ii) any applicable waiting
period under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer or (iii) at any time on or after the date of the
Acquisition Agreement, and prior to the acceptance for payment of Shares, any of
the following conditions shall exist:
 
          (a) there shall have been instituted or be pending any action or
     proceeding brought by any governmental, administrative or regulatory
     authority or agency, domestic or foreign, before any court or governmental,
     administrative or regulatory authority or agency, domestic or foreign, (i)
     challenging or seeking to make illegal, materially delay or otherwise
     directly or indirectly restrain or prohibit or make materially more costly
     the making of the Offer, the acceptance for payment of, or payment for, any
     Shares by Purchaser pursuant to the Offer, or seeking to obtain material
     damages in connection with the Offer; (ii) seeking to prohibit or limit
     materially the ownership or operation by the Company, the Purchaser or any
     of Purchaser's affiliates of all or any material portion of their business,
     or to compel the Company, Purchaser or any of Purchaser's affiliates to
     dispose of or hold separate all or any material portion of its business, in
     each case as a result of the Offer; (iii) seeking to impose or confirm
     limitations on the ability of Purchaser to exercise effectively full rights
     of ownership of any Shares, including, without limitation, the right to
     vote any Shares acquired by Purchaser pursuant to the Offer, or otherwise
     on all matters properly presented to the Company's stockholders, including,
     without limitation, the approval and adoption of the Acquisition Agreement
     and the transactions contemplated thereby; or (iv) seeking to
 
                                       11
   13
 
     require divestiture by Purchaser of any Shares; provided that Purchaser
     shall have used all reasonable efforts to cause any such action or
     proceeding described in this paragraph (a) to be dismissed or withdrawn;
 
          (b) there shall have been issued any injunction, order or decree by
     any court or governmental, administrative or regulatory authority or
     agency, domestic or foreign, resulting from any action or proceeding
     brought by any person other than any governmental, administrative or
     regulatory authority or agency, domestic or foreign, that (i) restrains or
     prohibits the making of the Offer; (ii) prohibits or limits ownership or
     operation by the Company, Purchaser or any of Purchaser's affiliates of all
     or any material portion of its business or assets, or compels the Company,
     Purchaser or any of Purchaser's affiliates to dispose of or hold separate
     all or any material portion of its business or assets, in each case as a
     result of the Offer; (iii) imposes limitations on the ability of Purchaser
     to exercise effectively full rights of ownership of any Shares, including,
     without limitation, the right to vote any Shares acquired by Purchaser
     pursuant to the Offer, or otherwise on all matters properly presented to
     the Company's stockholders, or (iv) requires divestiture by Purchaser of
     any Shares; provided that Purchaser shall have used all reasonable efforts
     to cause any such injunction, order or decree described in this paragraph
     (b) to be vacated or lifted;
 
          (c) there shall have been any action taken, or any statute, rule,
     regulation, order or injunction enacted, entered, enforced, promulgated,
     amended, issued or deemed applicable to (i) Purchaser, the Company or any
     subsidiary or affiliate of Purchaser or the Company or (ii) the Offer, by
     any legislative body, court, government or governmental, administrative or
     regulatory authority or agency, domestic or foreign, in the case of both
     (i) and (ii) other than the routine application of the waiting period
     provisions of the HSR Act to the Offer, that results in any of the
     consequences referred to in clauses (i) through (iv) of paragraph (b)
     above; provided that Purchaser shall have used all reasonable efforts to
     cause any such action, order or injunction described in this paragraph (c)
     to be vacated or lifted;
 
          (d) there shall have occurred (i) any general suspension of, or
     limitation on prices for, trading in securities of the Company on the New
     York Stock Exchange, (ii) any decline, measured from the date hereof, in
     the Standard & Poor's 500 Index by an amount in excess of 30%, (iii) a
     declaration of a banking moratorium or any suspension of payments in
     respect of banks in the United States, (iv) any limitation (whether or not
     mandatory) by any government or governmental, administrative or regulatory
     authority or agency, domestic or foreign, on the extension of credit by
     banks or other lending institutions, (v) a commencement of a war or armed
     hostilities or other national or international calamity directly or
     indirectly involving the United States or (vii) in the case of any of the
     foregoing existing on the date hereof, a material acceleration or worsening
     thereof;
 
          (e) (i) it shall have been publicly disclosed or Purchaser shall have
     otherwise learned that beneficial ownership (determined for the purposes of
     this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
     Act) of 20% or more of the then outstanding Shares has been acquired by any
     person, other than Purchaser or (ii) (A) the Board or any committee thereof
     shall have withdrawn or modified in a manner adverse to Purchaser the
     approval or recommendation of the Offer or the Agreement or approved or
     recommended any takeover proposal or any other acquisition of Shares other
     than the Offer or (B) the Board or any committee thereof shall have
     resolved to do any of the foregoing;
 
          (f) (i) any representation or warranty of the Company in the
     Acquisition Agreement shall not be true and correct; or
 
             (ii) there shall have occurred, since the date of the Acquisition
        Agreement, a change in the business, operations, financial condition,
        assets or liabilities of the Company or any Subsidiary with the effect
        that such failure of any such representation or warranty to be true and
        correct or such change, when taken together with all other such failures
        of such representations and warranties to be true and correct (both
        favorable and adverse) and all other such changes (both favorable and
        adverse), in the aggregate would have, a Material Adverse Effect;
        provided, however that, for the purpose of the foregoing condition, in
        determining whether any such representation or warranty is
 
                                       12
   14
 
        true or correct, any qualification as to materiality or Material Adverse
        Effect contained in any such representation and warranty shall be deemed
        not to apply;
 
          (g) the Company shall have failed to perform in any material respect
     any material obligation or to comply in any material respect with any
     material agreement or material covenant of the Company to be performed or
     complied with by it under the Acquisition Agreement;
 
          (h) the Acquisition Agreement shall have been terminated in accordance
     with its terms; or
 
          (i) Purchaser and the Company shall have agreed that Purchaser shall
     terminate the Offer or postpone the acceptance for payment of or payment
     for Shares thereunder; which, in the sole judgment of Purchaser, in any
     such case, and regardless of the circumstances (including any action or
     inaction by Purchaser or any of its affiliates) giving rise to any such
     condition, makes it inadvisable to proceed with such acceptance for payment
     or payment.
 
     The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in their sole discretion. The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
 
  The Rights Agreement
 
     The following is a summary of the material terms of the Rights Agreement
(including Amendment No. 2 thereto executed as of July 25, 1997). This summary
is not a complete description of the terms and conditions of the Rights
Agreement and is qualified in its entirety by reference to the full text of the
Rights Agreement, which is incorporated by reference. A copy of the Rights
Agreement and Amendment Nos. 1 and 2 thereto have been filed as Exhibits H, I
and J, respectively, to this Schedule 14D-9.
 
     On April 30, 1997, the Board declared a dividend distribution of one Right
for each outstanding share of Company Common Stock to stockholders of record at
the close of business on May 4, 1997. Each Right entitles the registered holder
to purchase from the Company a unit consisting of one one-hundredth of a share
(a "Unit") of Series B Junior Participating Preferred Stock, par value $1.00 per
share (the "Series B Preferred Stock"), at a purchase price of $15 per Unit (the
"Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in the Rights Agreement. The Rights Agreement was amended
as of June 25, 1997 in order to, among other things, not cause a Distribution
Date or a Triggering Event (each as defined below) to occur as a result of the
Offer.
 
     Initially, the Rights were and continue to be attached to all Common Stock
and no separate certificates evidencing the Rights (the "Rights Certificate")
were or have been distributed. The Rights will separate from the Common Stock
and a "Distribution Date" will occur upon the earlier of (i) 10 days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(the "Stock Acquisition Date") or (ii) 10 business days following the
commencement of a tender offer or exchange offer that would result in a person
or group beneficially owning 15% or more of such outstanding shares of Common
Stock, unless such tender offer or exchange offer is for all outstanding shares
of Common Stock at a price and on terms determined by at least a majority of the
Board who are not representatives, affiliates or associates of such Acquiring
Person, after receiving advice from one or more investment banking firms to be
at a price which is fair to the Company's stockholders and otherwise in the best
interest of the Company and its stockholders or, (a) if such determination by
the Board is withdrawn, (b) and at least a majority of the Board who are not
representatives, affiliates or associates of an Acquiring Person explicitly
determines that such withdrawal shall be deemed to trigger a Distribution Date,
the 10th business day after such determination is withdrawn. Until the
Distribution Date, (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with such Common Stock certificates, (ii)
new Common
 
                                       13
   15
 
Stock certificates issued after May 4, 1997 will contain a notation
incorporating the Rights Agreement by reference and (iii) the surrender for
transfer of any certificates for Common Stock outstanding will also constitute
the transfer of the Rights associated with the Common Stock represented by such
certificate.
 
     The Rights are not exercisable until the Distribution Date and will expire
at the close of business on May 4, 2007, unless earlier redeemed by the Company
as described below.
 
     As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board, and except in certain circumstances described in the Rights
Agreement, only shares of Common Stock issued prior to the Distribution Date
will be issued with Rights.
 
     In the event that, at any time following the Distribution Date, (i) the
Company is the surviving corporation in a merger with an Acquiring Person and
its Common Stock is not changed or exchanged, or (ii) a Person becomes the
beneficial owner of more than 15% of the then outstanding shares of Common Stock
other than pursuant to an offer for all outstanding shares of Common Stock that
the independent directors determine to be fair to, and otherwise in the best
interests of, stockholders, each holder of a Right will thereafter have the
right to receive, upon exercise, Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a value equal to two
times the exercise price of the Right. Notwithstanding any of the foregoing,
following the occurrence of the events set forth in this paragraph, all Rights
that are, or (under certain circumstances specified in the Rights Agreement)
were, beneficially owned by any Acquiring Person will be null and void. However,
Rights are not exercisable following the occurrence of either of the events set
forth above until such time as the Rights are no longer redeemable by the
Company as set forth below.
 
     For example, at an exercise price of $15 per Right, each Right not owned by
an Acquiring Person (or by certain related parties) following an event set forth
in the preceding paragraph would entitle its holder to purchase $30 worth of
Common Stock (or other consideration, as noted above) for $15. Assuming that the
Common Stock had a per share value of $6 at such time, the holder of each valid
Right would be entitled to purchase five shares of Common Stock for $15.
 
     In the event that, any time following to Stock Acquisition Date, (i) the
Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger
described in the second preceding paragraph or a merger which follows an offer
described in the second preceding paragraph), or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights that previously have been voided as set forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Triggering Events."
 
     The Purchase Price payable, and the number of Units of Series B Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series B Preferred Stock, (ii) if holders of the Series B Preferred Stock are
granted certain rights or warrants to subscribe for Series B Preferred Stock or
convertible securities at less than the current market price of the Series B
Preferred Stock, or (iii) upon the distribution to holders of the Series B
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
 
     With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series B Preferred Stock on
the last trading date prior to the date of exercise.
 
     At any time until 10 days following the Stock Acquisition Date, the Company
may redeem the Rights in whole, but not in part, at a price of $.01 per Right,
payable in cash or stock. After the redemption period has
 
                                       14
   16
 
expired, the Company's right of redemption may be reinstated if an Acquiring
Person reduces his beneficial ownership to 10% or less of the outstanding shares
of Common Stock in a transaction or series or transactions not involving the
Company. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the Rights will terminate and the only right of the
holders of Rights will be to receive the $.01 redemption price.
 
     Until a Right is exercised, the holder hereof, as such, will have no rights
as a stockholder of the Company, including, without limitation, the right to
vote or to receive dividends.
 
     Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights; provided, however, that no amendment
to adjust the time period governing redemption shall be made at such time as the
Rights are not redeemable.
 
     THE BOARD UNANIMOUSLY HAS DETERMINED, BASED IN PART ON THE OPINION OF CSFB,
THAT THE OFFER IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS. AS A RESULT OF SUCH DETERMINATION, THE COMMENCEMENT OF THE OFFER
AND THE ACQUISITION OF THE SHARES PURSUANT THERETO BY PURCHASER WILL NOT CAUSE A
DISTRIBUTION DATE TO OCCUR OR GIVE RISE TO A TRIGGERING EVENT.
 
ITEM 4.  THE SOLICITATION OR RECOMMENDATION
 
     (a) Board Recommendation.  On July 25, 1997, the Board, by unanimous vote,
(i) determined that the Offer was fair to and in the best interest of the
Company and its stockholders and was more favorable than the UDI Offer, (ii)
determined to withdraw its recommendation of the UDI Agreement and the
transactions contemplated thereby, and recommended that the Company's
stockholders not tender their shares pursuant to the UDI Offer, (iii) determined
to terminate the UDI Agreement, (iv) approved the Acquisition Agreement and the
Offer and (v) recommended acceptance of the Offer by holders of the Shares. The
Board unanimously recommends that all of the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer.
 
     (b) Background of and Reasons for the Board Recommendation.
 
     Background to Purchaser's Offer following execution of UDI Agreement
 
     On June 26, 1997, after receiving Board approval, the Company entered into
the UDI Agreement pursuant to which UD Delaware, a wholly owned subsidiary of
UDI, commenced on July 2, 1997 an offer to purchase all of the Shares, together
with the Rights, at a purchase price of $6.00 per Share, net to the seller in
cash (the "UDI Offer"). See "Background of the UDI Offer" below.
 
     On May 13, 1997, Constellation was invited by CSFB to participate in a
private auction of the Company. See "Background of the UDI Offer" below. On June
27, 1997, CSFB received an unsolicited letter from John A. Young, Vice President
of Constellation, reaffirming Constellation's desire to acquire the Shares at a
price of $6.00-$7.50 per Share, subject to diligence, and requesting prompt
access to the Company's management, facilities and confidential information
provided to UDI. This letter expressed Constellation's desire to proceed
quickly, subject to Board approval, to conclude an agreement for a transaction
that would produce greater value for the Company's stockholders than the UDI
Agreement.
 
     The Board met on June 30, 1997 to consider Constellation's request to be
provided such access in light of the terms of the Constellation proposal and the
provisions in the UDI Agreement that allowed the Board to grant such access. The
Board, after consulting with independent legal counsel, unanimously concluded
that allowing Constellation such access was required to comply with its
fiduciary duties to stockholders. Constellation conducted its due diligence
review from July 2, 1997 to July 23, 1997.
 
     On July 22, 1997, counsel to the Company received from counsel to Purchaser
a draft of the agreement that Purchaser would propose if the Board determined to
release Purchaser from the standstill provisions
 
                                       15
   17
 
contained in the Confidentiality Agreement and if Purchaser determined to make a
proposal to acquire the Shares. The draft agreement did not include a price for
the Shares and reflected only what changes Purchaser would propose to make to
the UDI Agreement to make it suitable for a tender offer for all of the Shares
that did not provide for a merger involving the Company after successful
completion of the tender offer and did not contemplate an offer to purchase the
Notes or a solicitation of consents to amend the Indenture. Counsel to Purchaser
indicated that Purchaser's purpose in delivering such a draft agreement was to
expedite the Board's review of any offer made by Purchaser if the Board
determined to release Purchaser from the standstill provisions contained in the
Confidentiality Agreement.
 
     During the course of the next two days, counsel to Purchaser and counsel to
the Company discussed (i) the fact that the draft agreement did not reflect the
commitment of a demonstrably financially responsible party, (ii) the fact that
the draft agreement did not contemplate a payment by Purchaser of the funds
needed to terminate the UDI Agreement, (iii) possible approaches under the
Rights Agreement should the Board withdraw its recommendation of the UDI
Agreement and (iv) the "fair price" provisions of the Company's Certificate of
Incorporation with respect to certain "Business Combinations" that would apply
since Purchaser had indicated that any offer it might make would not contemplate
a merger. Each of these issues was discussed in the context of what would need
to be addressed in the event that the Board determined to release Purchaser from
the standstill provisions contained in the Confidentiality Agreement and
Purchaser determined to make a proposal to acquire the Shares.
 
     In the late afternoon of July 24, 1997 after the close of the NYSE, Philip
W. Knisely, the President and Chief Executive Officer of Purchaser, delivered to
the Company a letter indicating that, if the Board released Purchaser from the
standstill provisions of the Confidentiality Agreement, Purchaser was willing to
offer to purchase all of the outstanding Shares at $7.05 per Share. This letter
indicated that Purchaser was prepared to enter into a share purchase agreement
in the form delivered to counsel to the Company on July 22, with the changes set
forth in a July 23 memorandum to the Company's counsel from Purchaser's counsel.
Purchaser stated that it was not proposing a merger following successful
completion of the tender offer and its tender offer would not be contingent on
any refinancing, repurchase or consent solicitation relating to the Notes or
other Company debt. Purchaser also represented that it had deposited funds in an
account with an investment bank sufficient to consummate the Offer and referred
to an undertaking to be delivered to the Company from the controlling
stockholders of Purchaser to keep such funds available if a definitive share
purchase agreement was signed by the Company and Purchaser. The Company promptly
notified UDI of this proposal and provided them with a copy of such letter. The
letter indicated that Purchaser's proposal would expire at 9:00 p.m. unless
accepted by the Company. After delivery of this letter, counsel to the Company
and counsel to Purchaser held additional discussions regarding the terms of the
share purchase agreement that they had discussed but which did not appear to be
contemplated in Purchaser's July 24 letter.
 
     The Board met in the evening of July 24 to consider Purchaser's proposal.
The Board considered the terms of the Acquisition Agreement and how such terms
differed from those contained in the UDI Agreement. The Board sought to
understand the risks to stockholders of the Company if the Board elected to
terminate the UDI Agreement and accept a new share purchase agreement with
Purchaser. The Board noted that, although the consideration offered by Purchaser
was approximately 17% higher than the consideration offered by UDI, the
representations and covenants contained in the UDI Agreement were delivered by
an established publicly-traded corporation with significant assets, the
applicable waiting periods under the HSR Act with respect to the transactions
contemplated by the UDI Agreement had expired and UDI had obtained the requisite
consents to amend the Indenture that UDI had made a condition to the UDI Note
Offer. The Board believed there was a high degree of assurance that the UDI
Offer could be consummated in less than a week.
 
     The Board confirmed that Purchaser had on deposit sufficient funds to
consummate the Offer but had questions regarding the need for assurances from a
demonstrably financially responsible party that such funds would remain with
Purchaser until the Shares were purchased in the Offer. CSFB also indicated that
it had certain questions regarding the terms of the commitment letters provided
by Purchaser relating to the refinancing of the Credit Agreement and the
financing of the change in control offer that the Company would be required to
make with respect to the Notes. The Board also indicated that it would like
additional time to
 
                                       16
   18
 
discuss with counsel whether the HSR Act or other antitrust regulations posed a
significant risk to completion of a transaction with Purchaser. In addition, the
Board expressed concern with the ability of the Company to obtain the funds to
pay UDI an $8 million termination fee and secure the Company's reimbursement
obligation for UDI's out-of-pocket expenses of up to $2 million, the payment of
which was necessary to terminate the UDI Agreement. The Board considered that
the Company's liquidity would be significantly and adversely impacted were these
funds not provided by Purchaser on the Company's behalf and that Purchaser had
not offered to provide these funds notwithstanding the Company's request
therefor. The Board also considered Purchaser's proposals regarding debt or
equity issuances by the Company in order to obtain the funds that would be
required to be paid to UDI. As a result of the foregoing factors, the Board
notified Purchaser that it needed more time to consider the proposal and
recessed the meeting.
 
     After being notified of the Board's decision, Purchaser extended until
12:00 midnight the time by which a decision as to its proposal had to be made,
provided the Company did not solicit any competing offers during such extension
period. The Board meeting was reconvened prior to 12:00 midnight on July 24,
1997, after receiving this notice of extension and, as a further inducement to
the Company executing and delivering the Acquisition Agreement, Steven M. Rales
and Mitchell P. Rales, the controlling stockholders of Purchaser, represented
and warranted in writing to the Company that (i) Purchaser will have sufficient
funds to consummate the purchase of the Shares pursuant to the Offer and (ii)
the Company will be provided with sufficient funds to pay for all Notes which
may be put to the Company as a result of the change in control caused by the
Offer. After having an additional opportunity to review the undertakings offered
by the controlling stockholders of Purchaser with respect to the availability of
funds to finance the Offer and the commitment letters regarding both the
refinancing of the Credit Agreement and the financing of a change in control
offer with respect to the Notes, the Board concluded that there was a high
degree of assurance as to the certainty of such funds. In addition, after
further reviewing the risks under applicable antitrust regulations with respect
to pursuing a transaction with Purchaser, the Board concluded that antitrust
concerns did not appear to pose a significant risk to completion of the
transaction. The Board remained concerned, however, with the source of funds for
the payments to UDI required upon termination of the UDI Agreement. The Board
determined that, if the Company were to pay such fee, the Company's liquidity
would be severely constrained in that its ability to make future borrowings
under its revolving credit facility would be greatly reduced and that
alternative debt or equity issuances to obtain such funds would require
amendments to the Credit Agreement. As a result, the Board unanimously
determined not to proceed with Purchaser's proposal unless Purchaser agreed to
pay the termination fee and expenses to UDI on the Company's behalf.
 
     After being notified of the Board's position, Purchaser notified the Board
that it was not prepared to pay the fee and expenses to UDI and negotiations
were terminated at 3:00 in the morning of July 25, 1997.
 
     A number of additional discussions among the financial and legal advisors
to the Company and Purchaser were held in the late morning and early afternoon
of July 25 with no resolution. The Board then received in the late afternoon of
the same day a letter from Purchaser confirming that Purchaser was willing to
enter into a definitive share purchase agreement, in the form submitted but with
the changes discussed with its counsel, and that Purchaser agreed to pay the
termination fee and expenses of UDI on the Company's behalf if the Company
agreed to reimburse Purchaser for such fee and expenses if the Acquisition
Agreement were terminated by the Company as a result of the Company's receipt of
an offer superior to the Offer or, if prior to consummation of the Offer,
Purchaser terminated the Offer because of a material adverse change in the
business, assets or financial condition of the Company or a material
misrepresentation by the Company.
 
     The Board met later in the afternoon of July 25 to consider the revised
proposal from Purchaser. At this meeting, the Board again reviewed the
differences in the Acquisition Agreement from the UDI Agreement, including the
absence of a second step merger, a tender offer for the Notes, a solicitation
relating to an amendment to the Indenture and a financially responsible parent
confirming all of the Purchaser's representations and warranties and that
covenants in the Acquisition Agreement including those regarding director and
officer liability insurance and indemnification were covenants of the Company
only and not joined in by the ultimate parent of Purchaser. The Board also
recognized that risks are associated with respect to satisfying the conditions
necessary to obtain the funds to consummate the refinancing of the Credit
Agreement and the change in control offer with respect to the Notes, but
determined that the conditions to consummating such
 
                                       17
   19
 
transactions contemplated by the commitment letters relating thereto appeared to
be customary. The Board also discussed the amount of the termination fee and
expenses that Purchaser required be paid to it if the Acquisition Agreement were
terminated and under what circumstances such fees and expenses would be payable.
The Board recognized that the size of the termination fee and reimbursement
obligation required by Purchaser could significantly impede or deter other
competing bids for the Company. The Board discussed that UDI had been informed
promptly of all actions taken by Purchaser, including that the termination fee
and reimbursement obligation being required by Purchaser if the Acquisition
Agreement were to be terminated was significantly higher than that payable to
UDI, and that UDI had declined to increase its offer for the Shares. The Board
also discussed that no party other than the Purchaser and UDI had manifested an
interest in acquiring the Company since the execution of the UDI Agreement and
that CSFB had solicited indications of interest from a great number of potential
acquirors prior to the execution of the UDI Agreement. See "Background of UDI
Offer" below. In light of these factors, and the significantly higher
consideration offered by Purchaser for the Shares, the Board agreed to
Purchaser's required terms for a termination fee and the reimbursement of its
expenses.
 
     CSFB then delivered its oral opinion to the Board, subsequently confirmed
in writing (a copy of which is attached hereto as Exhibit F and is incorporated
herein by reference), to the effect that, as of such date, the consideration to
be received by the Company's stockholders that tendered their Shares pursuant to
the Offer was fair to such stockholders from a financial point of view. The
Board voted unanimously to release Constellation and the Purchaser from the
standstill provisions of the Confidentiality Agreement, to withdraw its
recommendation of the UDI Offer and the transactions contemplated thereby, to
terminate the UDI Agreement, to approve the Acquisition Agreement and the Offer
and to recommend that all of the Company's stockholders tender their Shares
pursuant to the Offer.
 
     In rendering its decision, the Board did not find it practicable to, and
did not, quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
Board may have given different weights to different factors.
 
     On the same day, the Company notified UDI that it was terminating the UDI
Agreement. Simultaneously therewith, Purchaser, on behalf of the Company,
deposited $10 million in an account with Credit Suisse First Boston Corporation
and provided Credit Suisse First Boston Corporation with irrevocable payment
instructions to disburse $8 million of such funds to UDI upon UDI's request and
to disburse the remaining funds to UDI for reimbursement of its expenses, all in
accordance with the terms of the UDI Agreement. The Acquisition Agreement was
executed and delivered in the evening of July 25, 1997, and the Company and
Purchaser announced the execution of such agreement later that evening.
 
     On July 28, 1997, the Company filed an amendment to its
Solicitation/Recommendation Statement on Schedule 14D-9, filed with the
Commission on July 2, 1997 in response to the UDI Offer, reflecting the
withdrawal of the Board's recommendation of the UDI Offer. On July 29, 1997, UDI
terminated the UDI Offer and the UDI Note Offer.
 
     Background of the UDI Offer
 
     In January 1996, the Board determined to sell the Company's Roltra-Morse
business unit through a private auction process that involved several interested
parties. In the fall of 1996, a capable buyer offering an attractive price was
identified and negotiations commenced in order to execute a definitive sale
agreement. These negotiations were terminated in November 1996 because threats
made by an unsuccessful bidder for the Roltra-Morse business to revoke certain
license agreements made it impossible for the Company to receive fair value for
the business. The Company is currently in litigation with the unsuccessful
bidder that made such threats in order to resolve this matter.
 
     Following the decision to withdraw Roltra-Morse from sale, the Board
reevaluated the ability of the Company to operate profitably and maintain
sufficient liquidity in light of market conditions and its financial resources.
In connection therewith, the Board contacted CSFB to review alternatives for
long-term maximization of stockholder value. CSFB made preliminary presentations
covering this topic at the Board's regularly scheduled meetings held on November
20, 1996 and February 20, 1997. These presentations included
 
                                       18
   20
 
exploring sales of individual assets or business segments, the sale of an equity
stake in the Company and a sale or merger of the Company.
 
     In February 1997, representatives of an affiliate of Purchaser met with
representatives of CSFB to discuss, among other things, Purchaser's interest in
acquiring the Company. CSFB indicated that the Company was evaluating its
options at that time.
 
     In March 1997, a manufacturer of industrial products initiated discussions
with the Company concerning a possible investment in the Company. Management
determined not to pursue this possible transaction because it believed the terms
of the investment proposed by such party would not have provided appropriate
value for the Company's stockholders.
 
     Another manufacturer of industrial products also approached the Company in
early 1997 concerning a possible transaction. Following this contact, CSFB and
certain executive officers of the Company met on two occasions with
representatives of this interested party to discuss such party's interest in a
potential business combination with the Company and to review the Company's
operations, financial conditions and prospects.
 
     On March 14, 1997, this party made a preliminary proposal to the Company to
acquire all of the Shares for $5.00 per Share in cash or such party's stock,
plus shares in a liquidating trust to be established for the disposal of the
Roltra-Morse business. This proposal was subject to completion of extensive due
diligence, successful tender for at least 50% of the Notes at a price of 110% of
face amount thereof, and certain other conditions. The Company informed this
party it would review its proposal with the Board.
 
     On March 19, 1997, prior to the Board's review of this proposal, this party
made a revised, alternative proposal for a joint venture between the two
companies' pump businesses, pursuant to which this interested party would have
retained operating control and a majority ownership interest in such venture,
and the Company would have received cash and a 25% retained equity interest in
the venture.
 
     On March 20, 1997, the Board reviewed the proposals of this interested
party and determined not to proceed with either possible transaction with such
party because of the uncertainty of completion, concern with the ability of such
party to finance either transaction and because it believed that neither
transaction would have provided appropriate value for the Company's
stockholders. At such meeting, CSFB made another presentation to the Board
regarding alternatives for enhancing stockholder value and the Board engaged
CSFB as its exclusive financial advisor to assist the Company in evaluating
strategic alternatives for enhancing stockholder value and reducing leverage,
including the possible merger or sale of the Company. The Company announced this
decision in a press release issued on March 21, 1997.
 
     Following this public announcement, CSFB initiated contact with a number of
parties concerning their possible interest in acquiring the Company or one or
more of its individual business segments, including Constellation. In addition,
a substantial number of parties contacted CSFB regarding potential acquisition
opportunities with respect to the Company as a whole as well as individual
business segments of the Company. During April of 1997, CSFB spoke with over 100
interested parties and distributed copies of the Company's publicly-filed
information to over 70 parties in order to assist such parties in their due
diligence investigation of the Company.
 
     On April 8, 1997, William M. Brown, Executive Vice President and Chief
Financial Officer of the Company, met with representatives of UDI after being
advised by Schroder Wertheim & Co., a representative of UDI, that UDI was
interested in the acquisition of one or more industrial manufacturing businesses
of the Company.  Mr. Brown met with Richard Bearse, Senior Vice President and
head of strategic planning for UDI, and discussed the Company's financial
condition and its prospects. Mr. Bearse expressed interest in further
discussions.
 
     On April 29, 1997, at the request of UDI, Mr. Bearse and Jan K. Ver Hagen,
President and Chief Operating Officer of UDI, met with Donald K. Farrar,
Chairman of the Board, President and Chief Executive Officer of the Company, Mr.
Brown and representatives from CSFB and discussed the Company's operations,
financial condition and prospects.
 
                                       19
   21
 
     In addition to meetings with UDI, a number of other meetings were held in
March and April 1997 between representatives of the Company and various parties
expressing an interest in pursuing a possible transaction with the Company. No
formal proposals were submitted by such parties.
 
     Commencing in late April 1997, CSFB distributed to approximately 60
interested parties (including Constellation and UDI), each of which executed a
confidentiality agreement with the Company, a confidential Information
Memorandum with respect to the Company's operations.
 
     On May 1, 1997, UDI submitted an oral expression of interest to acquire the
Company and discussed UDI's desire to preempt any attempt to sell the Company
through a process that sought bids from several interested parties. UDI was
informed that the Company planned to proceed with discussions with other
parties. As part of this process, CSFB requested that UDI submit an expression
of interest specifying a tentative price by June 2, 1997, at which time the
Company would evaluate all such expressions of interest and proceed with
discussions among a smaller group of potential candidates. Preliminary
indications of interest were received during the week of June 2, 1997, including
an indication from UDI that it was interested in acquiring the Company at a
price of $4.50 per Share and an indication from Constellation that, in
partnership with Danaher Corporation ("Danaher"), it was interested in acquiring
the Company at a price of $6.00-$7.50 per Share. Constellation's indication of
interest, however, contemplated an extended period of due diligence and was
premised upon a sale of one of the Company's divisions to Danaher with no
suggestion that the terms of such sale had been agreed. Moreover, the proposal
did not address the refinancing of the Company's debt. The Company received
seven indications of interest from parties interested in acquiring all of the
Shares of the Company and numerous indications of interest from parties
interested in purchasing an individual business segment or a combination of
business segments of the Company. Most of the preliminary indications of
interest contained a wide range of value and contemplated an extended period of
due diligence. The Company evaluated the preliminary indications of interest and
invited those parties that it believed had expressed appropriate preliminary
indications of value to conduct further due diligence investigations of the
Company. The Company declined to invite UDI at such time to participate in such
due diligence investigations based on its initial indication of value for the
Company. On June 6, 1997, CSFB sent a letter to Mr. Young inviting Constellation
and Danaher to attend due diligence presentations at the Company on June 18 and
19, 1997.
 
     On June 4, 1997, UDI revised its indication of interest to a per Share
range between $4.50 and $6.00. After receiving this revised indication, the
Company invited UDI to participate in the further round of due diligence
sessions. On June 12, 1997, UDI notified CSFB that it declined to participate
because other potential bidders were also conducting due diligence.
 
     On June 13, 1997, Mr. Bearse contacted Mr. Farrar to discuss the reasons
for UDI's withdrawal of its expression of interest. In subsequent conversations
that day among Mr. Bearse, Mr. Farrar and representatives of CSFB, the Company
encouraged UDI to continue to participate in the process being conducted by
CSFB. Mr. Bearse reiterated UDI's position that it did not want to continue in a
process that involved several interested parties and that UDI would proceed with
discussions only if it was granted an exclusive period to examine the Company
and negotiate a definitive agreement. Later that day, following discussions
involving William R. Holland, UDI's Chairman and Chief Executive Officer, UDI
and the Company orally agreed that UDI would continue discussions and, upon
UDI's tentative agreement to increase its proposed price to $7.00 per Share, the
Company would provide UDI an exclusive period to examine the Company and
negotiate a definitive agreement. The $7.00 per Share price was among the
highest values in the indications of interests submitted to CSFB.
 
     On June 16, 1997, the Company and UDI entered into an agreement granting
UDI the exclusive right until June 30, 1997 (or June 25, 1997 if UDI's Board of
Directors did not determine to proceed with the transaction by that date) to
complete its due diligence and negotiate a definitive merger agreement. This
agreement did not contain a price at which UDI was willing to acquire the
Company and the execution and delivery of a definitive merger agreement was
subject to UDI's satisfactory completion of its due diligence review. UDI's due
diligence investigation began on June 16, 1997. During the next week and a half,
UDI, Purchaser, the Company, their financial advisors and legal counsel
negotiated the terms of a potential acquisition. In addition, during a portion
of that period UDI and its financial advisors and legal counsel
 
                                       20
   22
 
conducted a business review and due diligence investigation at various Company
sites. On June 17, 1997, CSFB informed Mr. Young that Constellation would have
to delay its due diligence review, scheduled for June 18 and 19, until the week
of July 7, 1997.
 
     On June 23, 1997, UDI notified the Company that, in conjunction with the
UDI Offer, it proposed to conduct a tender offer for all of the Notes and a
consent solicitation (collectively, the "UDI Note Offer") to amend certain
restrictive covenants in the Indenture (including a covenant that would prohibit
a merger involving the Company). UDI informed the Company that it would require
consent from a majority of the noteholders in order to effect such amendments
prior to the consummation of the Offer. During the early evening of June 23,
1997, representatives of UDI and CSFB discussed the feasibility of a successful
Note Tender Offer.
 
     On June 24, 1997, Mr. Holland informed Mr. Farrar that UDI would not be
able to proceed at $7.00 per Share as a result of its due diligence
investigation (including UDI's assessment of the Company's potential trailing
liabilities with respect to disposed business units and potential environmental
liabilities) and the substantial premium that UDI believed would be necessary to
complete a successful UDI Note Offer. Mr. Holland stated that, as a result of
the foregoing, UDI was prepared to acquire the Company at $5.00 per Share.
 
     In the morning of June 25, 1997, the Board convened at a meeting that had
previously been scheduled to consider an acquisition proposal from UDI. Mr.
Farrar informed the other members of the Board of UDI's revised proposal
received the previous night and the Board determined that an offer of $5.00 per
Share was unacceptable. The Board meeting was temporarily adjourned so that Mr.
Farrar could contact Mr. Holland to inform him of the Board's decision.
 
     Mr. Farrar informed Mr. Holland of the Board's decision to reject the $5.00
offer but told him that he was prepared to recommend to the Board an offer by
UDI of $6.00 per Share that was not conditioned upon successful completion of
the Note Tender Offer. Mr. Holland then offered a price of $6.00 per Share and
informed Mr. Farrar that UDI would tender for the Notes at 120% of their
principal amount, but refused to eliminate the condition of a successful UDI
Note Offer prior to consummation of the UDI Offer. Mr. Farrar informed Mr.
Holland that he would relay the revised proposal to the Board.
 
     The Board reconvened later in the day on June 25, 1997 to consider the
revised proposal from UDI and the other final terms of the UDI Agreement,
including the "no-shop covenant" contained therein and the circumstances under
which the Board could respond to any additional requests for information from
third parties, the amount of the break-up fee and expenses that UDI required be
payable to UDI if the UDI Agreement were terminated under certain circumstances,
the circumstances under which UDI or the Company could terminate the UDI
Agreement and the conditions to the consummation of the Merger. At that meeting,
CSFB delivered its oral opinion to the Board, subsequently confirmed in writing,
to the effect that, as of such date, the consideration to be received by the
Company's stockholders pursuant to the UDI Offer and the subsequent merger of UD
Delaware into the Company (the "UDI Merger") was fair, from a financial point of
view, to such stockholders. The Board voted unanimously (one director was not
present at this reconvened meeting but he subsequently endorsed the vote) to
approve the UDI Agreement and the UDI Offer and to recommend that all of the
Company's stockholders tender their Shares pursuant to the UDI Offer and approve
and adopt the UDI Agreement.
 
     Following such approval, in the early morning of June 26, 1997, the
Company, UDI and Purchaser entered into the UDI Agreement.
 
     In approving the UDI Offer, the Board considered a number of factors,
including without limitation the matters referred to above in this item 4(b) and
the following:
 
          (i) The Company's existing competitive and market position, including
     the Company's ability to compete effectively with companies having
     significantly greater financial resources than the Company.
 
                                       21
   23
 
          (ii) The projected results of operations of the Company, a summary of
     which is included at Item 7 of the Offer to Purchase, including the impact
     thereon on the Company's lack of significant liquidity.
 
          (iii) The alternatives available to the Company in light of the
     consideration proposed to be received for the Shares pursuant to the UDI
     Offer and the UDI Merger, including continuing to maintain the Company as
     an independent company or the sale of one or more of the individual
     businesses of the Company.
 
          (iv) The average market prices for the Shares and the significant
     premium which the $6.00 per Share price represents over these average
     prices.
 
          (v) The indications of interest submitted by other bidders for the
     Company, and the views of management and CSFB regarding the likelihood of
     these indications yielding a superior transaction, including with respect
     to certainty of completing such a transaction. At the time of the June 25,
     1997 Board meeting, CSFB had received two indications of interest with
     ranges of prices which included prices exceeding $6.00 per Share, including
     Constellation's preliminary indication of interest. The other indication of
     interest, made by a newly-formed financial buyout firm with limited
     available financing, ranged from $4.00 - $8.00 per Share and was
     conditioned upon completion of an extended due diligence examination and
     receipt of financing on terms acceptable to the prospective buyers. As
     noted above, Constellation's indication of interest was at a range of $6.00
     - $7.50 per Share but was premised upon a sale of one division to Danaher
     with no suggestion that the terms of such sale had been agreed, and the
     proposal did not address the refinancing of the Company's debt, was
     conditioned on completion of an extended due diligence examination and was
     explicitly stated to be subject to refinement based on an analysis of the
     Company's contingent liabilities.
 
          (vi) The likely need for any purchaser to refinance the Company's bank
     debt and to tender for the Notes, requiring an additional up front
     expenditure of more than $340 million, and UDI's commitment to refinance
     the Company's bank debt and to tender for the Company's Notes at a premium
     to par value.
 
          (vii) UDI's financial condition and perceived ability to meet its
     obligations under the UDI Agreement, as well as its perceived commitment to
     acquire the Company. The fact that UDI's and Purchaser's obligations under
     the UDI Offer were not subject to any financing condition.
 
          (viii) The provisions of the Acquisition Agreement, including the
     no-shop covenant and provisions which permit the Company to terminate the
     Acquisition Agreement upon payment to UDI of a break-up fee of $8 million,
     together with expenses not to exceed $2 million, in the event that the
     Board determines to withdraw its recommendation that stockholders accept
     the UDI Offer based on the Board's determination that such action is
     necessary to comply with its duties under applicable law, and other matters
     described in Item 3(b)(2) above.
 
          (ix) The valuation of the Shares prepared by CSFB based on (a) market
     prices for other companies in businesses believed to be comparable to those
     of the Company, (b) prices paid in other acquisitions of businesses
     believed to be comparable to those of the Company and (c) a discounted cash
     flow analysis prepared by CSFB based on the above-referenced projections.
 
          (x) The oral opinion of CSFB (subsequently confirmed in writing) to
     the effect that, as of June 25, 1997, the consideration to be received by
     the Company's stockholders in the UDI Offer and the UDI Merger was fair to
     such holders from a financial point of view.
 
          (xi) Legal matters relating to the UDI Offer and the UDI Merger,
     including the review provided for under the HSR Act with respect to the
     antitrust implications of the UDI Offer and the terms of the UDI Offer and
     the UDI Agreement related thereto.
 
     The foregoing discussion of the information and factors considered and
given weight by the Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the UDI Offer
and the UDI Merger, the Board did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination. In addition, individual members of the Board may
have given different weights to different factors.
 
                                       22
   24
 
     On July 2, 1997, UD Delaware commenced the UDI Offer and UD Note Corp., a
wholly owned subsidiary of UDI, commenced the UDI Note Offer. On July 29, 1997,
UDI terminated the UD Offer and the UDI Note Offer.
 
ITEM 5.  PERSONS RETAINED, EMPLOYED, OR TO BE COMPENSATED
 
     The Company has retained CSFB to act as financial advisor to the Company
with respect to the matters referenced to in Item 4 hereof. Pursuant to the
terms of the engagement letter, dated March 21, 1997 (a copy of which is filed
as Exhibit G hereto and is incorporated herein by this reference), the Company
has agreed to pay CSFB (i) a financial advisory fee of $350,000 (which amount is
to be credited against the fee payable pursuant to clause (ii)) and (ii) in
connection with the consummation of a transaction involving the acquisition of
substantially all of the Shares, an additional transaction fee of 1.0% of the
"Aggregate Consideration" (which includes the total amount of cash and the fair
market value of other consideration paid or payable to the Company's
stockholders and creditors). The fee payable to CSFB pursuant to the terms of
its engagement letter, assuming consummation of the Offer on the terms described
herein, is estimated to be approximately $4.35 million. The Company has also
agreed to reimburse CSFB for its reasonable out-of-pocket expenses, including
fees and disbursements of counsel and other advisors retained by CSFB.
 
     Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer.
 
ITEM 6.  RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
 
     (a) Share Transactions in Last 60 Days.  There have been no transactions in
Shares which were effected during the last 60 days by the Company, or, to the
knowledge of the Company, by any executive officer, director, affiliate or
subsidiary of the Company, other than purchases of Shares on behalf of the
Company's executive officers pursuant to the Company's Employees Stock Savings
Plan and grants and awards under the Company's 1995 Equity Incentive Plan for
Outside Directors pursuant to which each outside director of the Company
received, on May 21, 1997, non-qualified stock options exercisable for the
purchase of 4,000 Shares and, on July 1, 1997, 250 restricted Shares.
 
     (b) Intent to Tender.  To the knowledge of the Company, (i) each of its
executive officers and directors presently intend to tender Shares to Purchaser
pursuant to the Offer and (ii) none of such persons presently intends to
otherwise sell any Shares which are owned beneficially or held of record by such
persons prior to the consummation of the Offer. The foregoing does not include
any Shares over which, or with respect to which, any such person acts in a
fiduciary or representative capacity or is subject to instructions from a third
party, as to which Shares, to the Company's knowledge, no determination has been
made.
 
ITEM 7.  CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
 
     (a) Certain Negotiations.  Except as referred to in Item 3(b) or Item 4
hereof, as of the date hereof, no negotiation is being undertaken or is underway
by the Company in response to the Offer which relates to or would result in (i)
an extraordinary transaction, such as a merger or reorganization involving the
Company or any subsidiary of the Company, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company, (iii)
a tender offer for or other acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
 
     (b) Certain Transactions.  Except as described in Item 3(b), there are no
transactions, board resolutions, agreements in principle, or signed contracts
which relate or would result in one or more of the matters referred to in Item
7(a).
 
ITEM 8.  ADDITIONAL INFORMATION TO BE FURNISHED
 
     State Takeover Laws; Antitakeover Provisions in Certificate of
Incorporation.  A number of states have adopted laws and regulations applicable
to attempts to acquire securities of corporations that are incorporated,
 
                                       23
   25
 
or have substantial assets, stockholders, principal executive offices or
principal places of business, or whose business operations otherwise have
substantial economic effect, in such states. In Edgar v. MITE Corp., the Supreme
Court of the United States invalidated on unconstitutional grounds the Illinois
Business Takeover Statute, which, as a matter of state securities law, made
takeovers of corporations meeting certain requirements more difficult. However,
in 1987 in CTS Corp. v. Dynamic Corp. of America, the Supreme Court held that
the State of Indiana could, as a matter of corporate law, and in particular,
with respect to those aspects of corporate laws concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without the prior approval of the remaining stockholders. The
state law before the Supreme Court was by its terms applicable only to
corporations that had a substantial number of stockholders in the state and were
incorporated there. Subsequently, in TLX Acquisition Corp. v. Telex Corp., a
federal district court in Oklahoma ruled that certain Oklahoma corporate
governance statutes were unconstitutional insofar as they applied to
corporations incorporated outside Oklahoma because they could subject such
corporations to inconsistent regulations. Similarly, in Tyson Foods, Inc. v.
McReynolds, a federal district court in Tennessee ruled that the four Tennessee
takeover statutes were unconstitutional as applied to corporations outside
Tennessee. This decision was affirmed by the United States Court of Appeals for
the Sixth Circuit. In December 1988, a federal district court in Florida held in
Grand Metropolitan PLC v. Butterworth that the provisions of the Florida
Affiliated Transactions Act and the Florida Control Share Acquisition Act were
unconstitutional as applied to corporations incorporated outside of Florida.
 
     The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws such as those described above. Purchaser has informed the Company
that it does not know whether any of these laws will, by their terms, apply to
the Offer and has not necessarily complied with any such laws. Should any person
seek to apply any state takeover law, Purchaser has informed the Company that it
will take such action as then appears desirable, which may include challenging
the validity or applicability of any such statute in appropriate court
proceedings. In the event it is asserted that one or more state takeover laws
are applicable to the Offer, and an appropriate court does not determine that it
is inapplicable or invalid as applied to the Offer, Purchaser has informed the
Company that it might be required to file certain information with, or receive
approvals for, the relevant state authorities. In addition, if enjoined,
Purchaser has informed the Company that it might be unable to accept for payment
any Shares tendered pursuant to the Offer, or be delayed in continuing or
consummating the Offer. In such case, Purchaser has informed the Company that it
may not be obligated to accept for payment any Shares tendered.
 
     Section 203 of Delaware Law limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of the outstanding voting stock of the
corporation) unless, among other things, the corporation's board of directors
has given its prior approval to either the business combination or the
transaction which resulted in the stockholder becoming an "interested
stockholder." The Company's Board of Directors has approved, among other things,
the Offer for purposes of Section 203 of the DGCL.
 
     Article Ten of the Company's Certificate of Incorporation provides that,
except as described below, the affirmative vote not less than a majority of the
votes entitled to be cast by the holders of all the then outstanding shares of
voting stock of the Company, excluding voting stock beneficially owned by any
entity who has announced or publicly disclosed a plan to be come the beneficial
owner of twenty percent of the voting stock of the Company (an "Interested
Stockholder"), is required to approve a "Business Combination" (defined to
include, among other things, any merger of the Company with any Interested
Stockholder or any agreement providing for such a merger). The vote requirement,
however, does not apply if either (a) the merger is approved by a majority of
the "Continuing Directors" then in office or (b) certain price and procedural
requirements are met. The phrase "Continuing Directors" is defined to include
any director of the Company who is not an affiliate, associate or representative
of the Interested Stockholder and who was a member of the Board prior to the
time that the Interested Stockholder became an Interested Stockholder, and any
successor who is not an affiliate, associate or representative of the Interested
Stockholder and is recommended or elected to succeed a Continuing Director by a
majority of the Continuing Directors then in office. The Board, at a meeting
duly called and held on July 25, 1997, has unanimously approved, for purposes
 
                                       24
   26
 
of Article Ten of the Company's Certificate of Incorporation, a Business
Combination between Purchaser (or any affiliate of Purchaser) and the Company,
whereby each Share (other than dissenting Shares and Shares owned by Purchaser
or its affiliates) outstanding at the time of such Business Combination would be
cancelled and the holder thereof would be entitled to receive an amount in cash
equal to, (I) if such Business Combination occurs within one year of the date of
the Acquisition Agreement, not less than the Per Share Amount, or (II) if such
Business Combination occurs after one year from the date of the Acquisition
Agreement, an amount that is not less than the Per Share Amount and that, in the
opinion of a nationally recognized investment bank addressed to the Board, is
fair from a financial point of view to such holders.
 
     Antitrust.  Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and the
FTC and certain waiting period requirements have been satisfied. The acquisition
of Shares by Purchaser pursuant to the Offer is subject to such requirements.
 
     Pursuant to the HSR Act, Purchaser filed on July 29, 1997 a Premerger
Notification and Report Form in connection with the purchase of Shares pursuant
to the Offer with the Antitrust Division and the FTC. Under the provisions of
the HSR Act applicable to the Offer, the purchase of Shares pursuant to the
Offer may not be consummated until the expiration of a 15-calendar day waiting
period following the filing by Purchaser. Accordingly, it is anticipated that
the waiting period under the HSR Act applicable to the purchase of Shares
pursuant to the Offer will expire at 11:59 p.m., New York City time, on
Wednesday, August 13, 1997, unless such waiting period is earlier terminated by
the FTC and the Antitrust Division or extended by a request from the FTC or the
Antitrust Division for additional information or documentary material prior to
the expiration of the waiting period. Pursuant to the HSR Act, Purchaser has
informed the Company that it will request early termination of the waiting
period applicable to the Offer. There can be no assurance, however, that the
15-day HSR Act waiting period will be terminated early. If either the FTC or the
Antitrust Division were to request additional information or documentary
material from Purchaser with respect to the Offer, the waiting period with
respect to the Offer would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by Purchaser with
such request. Thereafter, the waiting period could be extended only by court
order. If the acquisition of Shares is delayed pursuant to a request by the FTC
or the Antitrust Division for additional information or documentary material
pursuant to the HSR Act, subject to the terms of the Acquisition Agreement, the
Offer may, but need not, be extended by Purchaser and, Purchaser has informed
the Company that in any event, the purchase of and payment for Shares will be
deferred until 10 days after the request is substantially complied with, unless
the extended period expires on or before the date when the initial 15-day period
would otherwise have expired, or unless the waiting period is sooner terminated
by the FTC or the Antitrust Division. Only one extension of such waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder, except by court order. It is a condition
to the consummation of the Offer that the waiting period applicable under the
HSR Act to the Offer expire or be terminated.
 
     The FTC or the Antitrust Division frequently scrutinizes the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Purchaser, the Company or
their respective subsidiaries. Private parties and state attorneys general may
also bring legal action under federal or state antitrust laws under certain
circumstances. Based upon an examination of information available to Purchaser
relating to the businesses in which Purchaser, the Company and their respective
subsidiaries are engaged, Purchaser has informed the Company that it believes
that the Offer will not violate the antitrust laws. Nevertheless, there can be
no assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, what the result would be.
 
     Other Foreign Approvals.  The Company owns property and conducts business
in a number of foreign countries and jurisdictions. In connection with the
acquisition of the Shares pursuant to the Offer, the laws of certain of those
foreign countries and jurisdictions may require the filing of information with,
or the obtaining
 
                                       25
   27
 
of the approval of, governmental authorities in such countries and
jurisdictions. The governments in such countries and jurisdictions might attempt
to impose additional conditions on the Company's operations conducted in such
countries and jurisdictions as a result of the acquisition of the Shares
pursuant to the Offer or the Merger. There can be no assurance that Purchaser
will be able to cause the Company or its subsidiaries to satisfy or comply with
such laws or that compliance or non-compliance will not have adverse
consequences for the Company or any subsidiary after purchase of the Shares
pursuant to the Offer or the Merger.
 
     Information Statement.  The Information Statement attached as Schedule I
hereto is being furnished in connection with the possible designation by
Purchaser, pursuant to the Acquisition Agreement, of certain persons to be
appointed to the Board other than at a meeting of the Company's stockholders.
 
ITEM 9.  MATERIAL TO BE FILED AS EXHIBITS
 
           
Exhibit A     Offer to Purchase*
Exhibit B     Letter of Transmittal*
Exhibit C     Acquisition Agreement
Exhibit D     Press Release issued on July 25, 1997
Exhibit E     Information under the captions "Ownership by Directors and Executive Officers,"
              "Director Compensation" and "EXECUTIVE COMPENSATION" as set forth in the 1997
              Proxy Statement(1)
Exhibit F     Opinion of CSFB, dated July 25, 1997*
Exhibit G     Engagement Letter, dated March 21, 1997, between CSFB and the Company(2)
Exhibit H     Rights Agreement, dated as of April 30, 1997, between the Company and First
              Chicago Trust Company of New York(3)
Exhibit I     Amendment No. 1 to the Rights Agreement, dated as of June 25, 1997(4)
Exhibit J     Amendment No. 2 to the Rights Agreement, dated as of July 25, 1997
Exhibit K     Letter to Stockholders of the Company, dated July 25, 1997*


 
- ---------------
 
 *  Included in the materials sent to stockholders of the Company.
 
(1) Filed as Exhibit E to the Company's Solicitation/Recommendation Statement on
    Schedule 14D-9 filed with the Securities and Exchange Commission on July 2,
    1997 relating to the UDI Offer (the "UDI 14D-9"), and incorporated herein by
    reference.
 
(2) Filed as Exhibit G to the UDI 14D-9 and incorporated herein by reference.
 
(3) Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A
    (Registration No. 1-09294), as filed with the Securities and Exchange
    Commission on May 2, 1997 and incorporated herein by reference.
 
(4) Filed as Exhibit I to the UDI 14D-9 and incorporated herein by reference.
 
                                       26
   28
 
                                   SIGNATURE
 
     After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
 
                                          IMO INDUSTRIES INC.
 
                                          By: /s/ DONALD K. FARRAR
                                          --------------------------------------
                                          Donald K. Farrar
                                          Chairman, President and Chief
                                          Executive Officer
 
Dated: July 31, 1997
 
                                       27
   29
 
                                                                      SCHEDULE I
 
                              IMO INDUSTRIES INC.
                                1009 LENOX DRIVE
                               BUILDING FOUR WEST
                            LAWRENCEVILLE, NJ 08648
 
                INFORMATION STATEMENT PURSUANT TO SECTION 14(f)
              OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
                           AND RULE 14f-1 THEREUNDER
 
     This Information Statement is being mailed on or about July 31, 1997 as
part of Imo Industries Inc.'s (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") to the holders of record of
shares of Common Stock, par value $1.00 per share, of the Company (the "Shares")
at the close of business on or about July 24, 1997. You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser (as defined below) to a majority of the seats of the
board of the Company (the "Board").
 
     On July 25, 1997, the Company and II Acquisition Corp. ("Purchaser"),
entered into a Share Purchase Agreement, dated as of July 25, 1997 (the
"Acquisition Agreement"), pursuant to which (and subject to the conditions
thereof) Purchaser has agreed to commence a tender offer (the "Offer") for all
outstanding Shares, together with the associated preferred stock purchase
rights, at a price of $7.05 per Share, net to the seller in cash.
 
     The Acquisition Agreement provides that promptly upon the purchase by
Purchaser of Shares pursuant to the Offer, and from time to time thereafter,
Purchaser will be entitled to designate (the "Purchase Designees") up to such
number of directors, rounded up to the next whole number, on the Board as will
give Purchaser representation on the Board equal to the product of the total
number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
at such time bears to the total number of Shares then outstanding (the "Board
Percentage"), and the Company will, at such time, promptly take all actions
necessary to cause Purchaser's designees to be elected as directors of the
Company, including increasing the size of the Board or securing the resignations
of incumbent directors or both. At such times, the Company has agreed in the
Acquisition Agreement to use all reasonable efforts to cause persons designated
by Purchaser to constitute the same percentage as persons designated by
Purchaser shall constitute of the Board with respect to (i) each committee of
the Board (some of whom may be required to be independent as required by
applicable law or requirements of the New York Stock Exchange), (ii) each board
of directors of each subsidiary of the Company and (iii) each committee of each
such board, in each case only to the extent permitted by applicable law.
 
     The Acquisition Agreement further provides that the Company will promptly
take all actions required pursuant to Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations described above and will include
this Information Statement containing such information with respect to the
Company and its officers and directors as is required under Section 14(f) and
Rule 14f-1 as an annex to the Schedule 14D-9 to fulfill such obligations.
 
     Following the election or appointment of the Purchaser Designees pursuant
to the Acquisition Agreement and prior to the Consummation Date, any amendment
of the Acquisition Agreement or the Certificate of Incorporation or By-Laws of
the Company, any termination of the Acquisition Agreement by the Company, any
extension by the Company of the time for the performance of any of the
obligations or other acts of Purchaser or waiver of any of the Company's rights
thereunder shall require the concurrence of a majority of the directors of the
Company then in office who neither were designated by Purchaser nor are
employees of the Company or if no such directors are then in office, no such
amendment, termination, extension or waiver shall be effected which is
materially adverse to the holders of Shares (other than Purchaser and its
affiliates).
 
                                       I-1
   30
 
     This Information Statement is required by Section 14(f) of the Exchange Act
and Rule 14f-1 thereunder. YOU ARE URGED TO READ THIS INFORMATION STATEMENT
CAREFULLY. YOU ARE NOT, HOWEVER, REQUIRED TO TAKE ANY ACTION. Capitalized terms
used herein and not otherwise defined shall have the meaning set forth in the
Schedule 14D-9.
 
     Pursuant to the Acquisition Agreement, Purchaser commenced the Offer on
July 31, 1997. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on Wednesday, August 27, 1997 unless the Offer is extended.
 
     The following information contained in this Information Statement
concerning Purchaser and the Purchaser Designees has been furnished to the
Company by Purchaser, and the Company assumes no responsibility for the accuracy
or completeness of such information.
 
            BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
 
     The Board currently consists of three classes with six directors in total,
designated as Class I, Class II and Class III. At each annual meeting of
stockholders, the successors to the class of directors whose term expires at the
annual meeting are elected for three-year terms. The classes are staggered so
that the term of one class expires each year. The terms of the Class III
directors expire in 1998 and each third year thereafter; the terms of the Class
I directors expire in 1999, and each third year thereafter; and the terms of the
Class II directors expire in 2000 and each third year thereafter. The officers
serve at the discretion of the Board.
 
     Pursuant to the Acquisition Agreement, promptly upon the purchase by
Purchaser of at least a majority of the outstanding shares of Common Stock, and
from time to time thereafter, Purchaser shall be entitled to designate, subject
to compliance with Section 14(f) of the Exchange Act, such number of Purchaser
Designees equal to the Board Percentage and the Company shall, subject to
Section 14(f) of the Exchange Act, as promptly as practicable, satisfy the Board
Percentage by (i) increasing the size of the Board of Directors of the Company
or (ii) securing the resignations of such number of directors as is necessary to
enable the Purchaser Designees to be elected to the Board.
 
     Purchaser has informed the Company that the Purchaser Designees will be the
persons set forth in the following table. The following table sets forth the
name, age, present principal occupation and employment and five year employment
history for each of the persons whom Purchaser has designated pursuant to the
Acquisition Agreement as the Purchaser Designees. The business address of
Mitchell P. Rales and Steven M. Rales is 1250 24th Street, N.W., Suite 800,
Washington, D.C. 20037. The business address for Philip W. Knisely is 9211
Forest Hill Avenue, Suite 109, Richmond, Virginia 23235. Each of the persons
listed below is a citizen of the United States.
 
                                       I-2
   31
 


                              CLASS OF DIRECTOR             PRESENT PRINCIPAL OCCUPATION OR
         NAME           AGE    TO BE APPOINTED        EMPLOYMENT AND FIVE YEAR EMPLOYMENT HISTORY
- ----------------------  ---   -----------------   ---------------------------------------------------
                                         
Steven M. Rales.......  46          Class I       Mr. Rales is Chairman of the Board of Danaher
                                                  Corporation, a manufacturer of tools and
                                                  process/environmental controls products, and has
                                                  held that position since 1984. Mr. Rales is also a
                                                  General Partner of Equity Group Holdings, a general
                                                  partnership located in Washington, D.C., with
                                                  interests in manufacturing companies, media
                                                  operations, and publicly traded securities, and has
                                                  been since 1979. Mr. Rales is also a director of
                                                  Colfax Capital Corp., Janelia Farm Corp. and
                                                  American Enterprises MPT Corp. and has held those
                                                  directorships from 1997, 1988 and 1996, respec-
                                                  tively. Mr. Rales is also a Member of the Board of
                                                  Managers of Constellation Capital Partners LLC. Mr.
                                                  Rales is also a founder and has been Chairman of
                                                  Colfax Communications, Inc. since 1991. He is also
                                                  a founder of Wabash National Corporation and was
                                                  its Chairman of the Board of Directors until 1994.
Mitchell P. Rales.....  40         Class II       Mr. Rales has been a director of Danaher
                                                  Corporation since 1984 and has been Chairman of its
                                                  Executive Committee since 1990. He is also a
                                                  General Partner of Equity Group Holdings and has
                                                  been since 1979. Mr. Rales is also a director of
                                                  Colfax Capital Corp., Janelia Farm Corp. and
                                                  American Enterprises MPT Corp. and has held those
                                                  directorships from 1997, 1988 and 1996,
                                                  respectively. Mr. Rales is also a Member of the
                                                  Board of Managers of Constellation Capital Partners
                                                  LLC. Mr. Rales is also a founder and has been a
                                                  Director of Colfax Communications, Inc., since
                                                  1991. He is also a founder of Wabash National
                                                  Corporation and was a Director until 1994.
Philip W. Knisely.....  42        Class III       Since 1995, Mr. Knisely has been on the Board of
                                                  Managers and has been President of Constellation
                                                  Capital Partners LLC, a private equity firm. He has
                                                  also been Director and President of American
                                                  Enterprises MPT Corp. since 1996. From 1988 to
                                                  1995, he was President of AMF Industries, a
                                                  privately held diversified manufacturing company at
                                                  8100 AMF Drive, Mechanicsville, VA 23111.

 
     Mr. Steven M. Rales and Mr. Mitchell P. Rales are brothers. Purchaser has
informed the Company that each of the Purchaser Designees has consented to act
as a director of the Company. None of the Purchaser Designees (i) is currently a
director of, or holds any position with, the Company, (ii) has a familial
relationship with any of the directors or officers of the Company or (iii) to
the best knowledge of Purchaser, except for 5,000 Shares beneficially owned by
Mr. Knisely and purchased in November 1995, beneficially owns any securities (or
rights to acquire any securities) of the Company. The Company has been advised
by Purchaser that, to the best of Purchaser's knowledge, none of the Purchaser
Designees has been involved in any transaction with the Company or any of its
directors, executive directors or affiliates which are required to be disclosed
pursuant to the rules and regulations of the Commission, except as may be
disclosed herein or in the Schedule 14D-9.
 
     It is expected that the Purchaser Designees may assume office at any time
following the purchase by the Purchaser of a majority of outstanding Shares, and
that upon assuming office, the Purchaser Designees will thereafter constitute at
least a majority of the Board.
 
                                       I-3
   32
 
CURRENT DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth certain information regarding the directors
(including the year his term is scheduled to expire) and executive officers of
the Company (ages at April 1, 1997):
 


NAME                                                AGE                     POSITION
- -------------------------------------------------   ----   ------------------------------------------
                                                     
Donald K. Farrar*................................     58   Chairman, Chief Executive Officer and
                                                           President (1998)
James B. Edwards.................................     67   Director (2000)
Richard J. Grosh.................................     69   Director (1999)
Carter P. Thacher................................     70   Director (2000)
Donald C. Trauscht...............................     63   Director (1998)
Arthur E. Van Leuven.............................     71   Director (1999)
Thomas J. Bird...................................     53   Executive Vice President, General Counsel
                                                           and Secretary
William M. Brown.................................     54   Executive Vice President, Chief Financial
                                                           Officer and Corporate Controller
John J. Carr.....................................     54   Executive Vice President
Donald N. Rosenberg..............................     56   Senior Vice President, Human Resources
Robert A. Derr II................................     51   Vice President and Treasurer
Frederick W. Wojtowicz...........................     45   Vice President and Director of Tax
David R. Harris..................................     46   President, Morse Controls
Reinhold J. Pabers...............................     62   President, Gems Sensors
Roger A. Pennycook...............................     54   President, Boston Gear

 
- ---------------
* This executive officer is a director of the Company whose current term as a
  director will expire in 1998.
 
     DONALD K. FARRAR has served as the Chief Executive Officer and President of
the Company since September 1993 and as the Company's Chairman of the Board
since June 1994. From 1985 to December 1989, Mr. Farrar served as Senior
Executive Vice President, Operations and a director of Textron, Inc. Prior
thereto, he served in various positions, including President, Chief Operating
Officer and a director of the Avco Corporation group of companies until its 1985
acquisition by Textron. From January 1990 until joining the Company, Mr. Farrar
was a private investor.
 
     JAMES B. EDWARDS is the President of the Medical University of South
Carolina located in Charleston, South Carolina. Prior to assuming this position
in November 1982, Dr. Edwards served as Governor of the State of South Carolina
from January 1975 through January 1979. From February 1979 through December
1981, Dr. Edwards was in private practice as a maxiofacial surgeon. In January
1981, Dr. Edwards was named United States Secretary of Energy and held that
position until November 1982. Dr. Edwards serves as a director of Phillips
Petroleum Company, WMX Technologies, Inc., National Data Corporation, and G.S.
Industries, Inc.
 
     RICHARD J. GROSH is an independent consultant. From 1976 to 1987 he served
as Chairman and Chief Executive Officer of Ranco, Inc., a manufacturer of
automated controls located in Columbus, Ohio.
 
     CARTER P. THACHER is the Chairman of Wilbur-Ellis Company, an export/import
company based in San Francisco, California, the principal business of which is
the domestic sale and distribution of agricultural chemical products. Mr.
Thacher has served in this position since January 1967, and from January 1967 to
December 1988 he also served as Chief Executive Officer.
 
     DONALD C. TRAUSCHT is the Chairman of BW Capital Corporation, an investment
company. From 1967 to 1996, Mr. Trauscht held various positions with Borg-Warner
Corporation, including Chairman and Chief Executive Officer and various
positions with Borg-Warner Security Corporation, including Chairman and Chief
Executive Officer and other executive positions in finance and strategy. Prior
to joining Borg-Warner Corporation, he served as President of Langevin Company,
a California electronics manufacturer.
 
                                       I-4
   33
 
Mr. Trauscht is also a director of Borg-Warner Security Corp., Baker Hughes
Incorporated, Esco Electronics Corporation, Borg-Warner Automotive, Inc.,
Thiokol Corporation and Blue Bird Corporation.
 
     ARTHUR E. VAN LEUVEN is retired. From 1977 to 1990, Mr. Van Leuven served
as Chairman and Chief Executive Officer of Transamerica Finance Group, Inc., and
from 1984 to 1990 he was additionally an Executive Vice President and a director
of Transamerica Corporation, an insurance and financial services company based
in San Francisco, California. From 1992 to 1993, Mr. Van Leuven served as the
Chairman and President of IGYS Systems, Inc., located in Los Alamitos,
California.
 
     THOMAS J. BIRD was promoted to his current position in October 1994. Mr.
Bird served as Senior Vice President, General Counsel and Secretary from June
1992 to October 1994, and as Vice President and Associate General Counsel from
July 1990 to June 1992. Prior to joining the Company in July 1990, Mr. Bird held
various positions with General Electric Company for 18 years, most recently as
Group Counsel, RCA Aerospace and Defense division from August 1987 to February
1988 and as General Counsel to GE Aerospace of General Electric Company from
February 1988 until joining the Company.
 
     WILLIAM M. BROWN joined the Company as Executive Vice President and Chief
Financial Officer in June 1992, and assumed the additional responsibility of
Corporate Controller in January 1996. Prior to joining the Company, Mr. Brown
held various positions with ITT Corporation for 25 years, most recently as
Corporate Assistant Controller and General Auditor from December 1986 to April
1991 and as Corporate Vice President and Assistant Controller from April 1991
until joining the Company.
 
     JOHN J. CARR was promoted to his current position in July 1989. From July
1985 to July 1989, Mr. Carr was a Group Vice President of the Company. Mr. Carr
is responsible for the Morse Controls, Pumps, Power Transmission and
Instrumentation business segments of the Company.
 
     DONALD N. ROSENBERG joined the company in his current position in May 1996.
Previously, he was Director, Global Compensation, Benefits and HR Systems for
Halliburton Energy Services from 1995 to May 1996. From 1992 to 1995, Mr.
Rosenberg was an independent human resources consultant, with Jostens Inc. as a
primary client. Prior to 1992, Mr. Rosenberg held various positions with Xerox
Corporation for 25 years, most recently as Corporate Manager, U.S. and
International Compensation.
 
     ROBERT A. DERR II joined the Company as Vice President and Corporate
Controller in 1988. Mr. Derr was promoted to Vice President and Treasurer in
January 1996. Prior to joining the Company, Mr. Derr held various positions with
The Stanley Works for nine years, most recently as Director of Corporate
Accounting from 1982 to 1986 and as the Controller of the Vidmar Division of The
Stanley Works from 1986 until joining the Company.
 
     FREDERICK W. WOJTOWICZ was promoted to his current position in October
1994. Mr. Wojtowicz served as Executive Director of Tax from July 1988 to
October 1994. Prior to joining the Company in July 1988, Mr. Wojtowicz held
various positions with Ernst & Young LLP, most recently as Senior Tax Manager.
 
     DAVID R. HARRIS joined the Company in March 1997 as President of Morse
Controls. Prior to joining the Company, Mr. Harris held various positions with
United Technologies Automotive for eight years, most recently as Vice President
and General Manager.
 
     REINHOLD J. PABERS was promoted to his current position in March 1997. Mr.
Pabers joined the Company in 1952 and has held various positions since that
time, including Group Vice President of the Controls Group and General Manager
of Gems Sensors.
 
     ROGER A. PENNYCOOK was promoted to his current position in March 1997. Mr.
Pennycook has served at Boston Gear as Group Vice President from September 1991
to March 1997 and as Vice President and General Manager from January 1989 to
September 1991.
 
     Each executive officer identified above will hold office until his
successor is chosen and qualifies or until his earlier resignation or removal.
Any officer may be removed at any time by the Board of Directors without
prejudice to any contract rights that he may have.
 
                                       I-5
   34
 
     During 1996, the Board of Directors held 11 meetings. None of the directors
attended fewer than 75% of the aggregate of the total number of meetings of the
Board of Directors plus the total number of meetings of all committees of the
Board of Directors on which he served that were held during 1996.
 
DIRECTOR COMPENSATION
 
     In addition to expenses of attendance, which are paid to all directors,
directors of the Company who are not also employees of the Company are currently
paid an annual retainer of $12,000 for their services, a fee of $1,000 for each
Board of Directors meeting attended, and a fee of $850 for each committee
meeting attended, except that directors who attend more than one committee
meeting in any one day are paid the fee for a single committee meeting, and
directors who attend Board or committee meetings by telephone conference are
entitled to receive one-half of the respective fee per meeting attended.
Chairmen of committees are paid an additional annual fee of $2,000. Under the
1995 Director Plan, each outside director also receives, on an annual basis,
restricted stock awards of 1,000 shares of the Company's Common Stock and
non-qualified stock options exercisable for the purchase of 4,000 shares of the
Company's Common Stock. Directors who are also employees of the Company are not
separately compensated for services rendered as directors. In 1996, Messrs.
Edwards, Grosh, Thacher, Trauscht and Van Leuven were each granted options to
purchase 4,000 shares of the Company's Common Stock at an exercise price of
$7.875 per share and restricted stock awards of 1,000 shares of the Company's
Common Stock under the 1995 Director Plan.
 
     Under the 1988 Director Plan, each person who was an outside director prior
to July 1, 1990 was granted an option to purchase 80,000 shares of the Company's
Common Stock, and each person who became an outside director after that date and
prior to March 23, 1996 was granted an option to purchase 40,000 shares. The
exercise price of each option granted under the 1988 Director Plan was equal to
100% of the fair market value of a share of the Company's Common Stock on a date
five business days after the option was granted. Options for the purchase of
80,000 shares of the Company's Common Stock have been granted to four of the
Company's outside directors at an exercise price of $16.1875 per share, and
options for the purchase of 40,000 shares of the Company's Common Stock have
been granted to another outside director at an exercise price of $10.375 per
share. Outside directors who join the Board after March 22, 1995 are not
entitled to receive stock options under the 1988 Director Plan.
 
COMMITTEES OF THE BOARD OF DIRECTORS
 
     The Board of Directors has the following committees:
 
     Audit Committee.  The Audit Committee is comprised of not fewer than three
members of the Board of Directors, all of whom must be outside directors. Its
primary functions are to: (i) recommend the appointment of independent auditors
and review the fees charged by them; (ii) consult with independent auditors with
regard to the scope and timing of the annual audit; (iii) review the audited
financial statements, audit report and management letter; (iv) consult with
independent auditors and internal audit management with regard to the adequacy
of internal controls; (v) consult with Company management regarding the
performance and adequacy of the internal auditing staff; and (vi) perform such
collateral advisory and consulting services as the Board of Directors may
request or the Audit Committee deems appropriate for the purpose of maintaining
sound and adequate financial reporting and auditing practices. The members of
the Audit Committee are Mr. Thacher, Chairman, Dr. Grosh and Mr. Trauscht.
During 1996, the Audit Committee held four meetings.
 
     Compensation Committee.  The Compensation Committee is comprised of not
fewer than three members of the Board of Directors, all of whom must be outside
directors. Its primary functions are to: (i) recommend and approve compensation
philosophy and guidelines for the Company's executive and managerial group,
including the Company's chief executive officer; (ii) approve an appropriate
compensation level for the chief executive officer based on personal performance
and responsibilities as well as compensation practices for like executives in
competitive industries and other industries, subject to final approval of the
Board of Directors; (iii) review and approve the chief executive's
recommendations for the compensation of individuals in the management group,
subject to final approval of the Board of Directors; (iv) perform all of the
foregoing with respect to the adoption and implementation of any bonus system or
a stock option plan
 
                                       I-6
   35
 
applicable to the executive and managerial group; (v) review and advise the
Board of Directors on management succession planning; (vi) undertake studies
with Company employees or outside consultants to determine the competitiveness
of Company benefit plans as to content and cost; (vii) make recommendations to
the Board of Directors and management, as appropriate, as to amendments,
discontinuations and initiations of benefit plans; (viii) independently, or with
the cooperation of the Audit Committee, maintain an active level of knowledge as
to the funding status of the various pension plans of the Company as well as the
performance of the investment mediums for those plans; and (ix) perform such
collateral advisory and consulting services as the Board of Directors may
request or the Compensation Committee deems appropriate to its stated purposes.
The members of the Compensation Committee are Dr. Grosh, Chairman, Dr. Edwards
and Mr. Van Leuven. During 1996, the Compensation Committee held three meetings.
 
     Executive Committee.  The Executive Committee is comprised of not fewer
than three members of the Board of Directors, one of whom must be the Chairman
of the Board and the majority of whom must be outside directors. Its function is
to act on behalf of the full Board of Directors between Board meetings, and it
has commensurate authority to so act by majority vote. The Executive Committee
does not have the power to amend the Certificate of Incorporation, amend the
By-Laws, declare dividends, issue stock, or authorize or recommend to the
stockholders the merger or dissolution of the Company. Likewise, the Executive
Committee does not have the power to sell, lease or exchange all or
substantially all of the property and assets of the Company or to recommend such
action to the stockholders. The members of the Executive Committee are Mr. Van
Leuven, Chairman, Mr. Farrar and Mr. Trauscht. During 1996, the Executive
Committee held one meeting.
 
     Nominating Committee.  The Nominating Committee is comprised of not fewer
than three members. Its primary functions are to: (i) recommend to the Board of
Directors individuals to fill Board vacancies; (ii) develop specifications and
criteria for Board membership; (iii) consider and advise the Board of Directors
on matters relating to the composition and organization of the Board of
Directors, including the formation, composition and function of committees of
the Board; and (iv) perform such collateral advisory and consulting services as
the Board of Directors may request or the Nominating Committee deems appropriate
to its stated purposes. The members of the Nominating Committee are Dr. Edwards,
Chairman, Mr. Thacher and Mr. Trauscht. During 1996, the Nominating Committee
held two meetings.
 
     The Board of Directors may from time to time by resolution create such
other committees for such purposes and with such powers and duties as the Board
of Directors prescribes by resolution.
 
                                       I-7
   36
 
                      BENEFICIAL OWNERSHIP OF COMMON STOCK
 
GENERAL
 
     The Shares are the only class of outstanding voting securities of the
Company. Each Share entitles the holder thereof to one vote. As of June 24,
1997, there were 17,126,609 Shares issued and outstanding.
 
CERTAIN BENEFICIAL OWNERS
 
     The following table sets forth, as of February 28, 1997, the amount and
percentage of the Company's Common Stock beneficially owned by each person who
is known to the Company to be the beneficial owner of more than 5% of the
Company's outstanding Common Stock.
 


                                                                                       PERCENTAGE
                                                                        SHARES             OF
                                                                     BENEFICIALLY     OUTSTANDING
NAME AND ADDRESS                                                        OWNED         COMMON STOCK
- -------------------------------------------------------------------  ------------     ------------
                                                                                
State of Wisconsin Investment Board................................     1,657,000(1)       9.7%
P.O. Box 7842 Madison, WI 53707
The Prudential Insurance Company of America........................     1,632,720(2)       9.4%
Prudential Plaza Newark, NJ 07102-3777
C.S. McKee & Co....................................................     1,344,150(3)       7.8%
1 Gateway Center Pittsburgh, PA 15222
The TCW Group, Inc.                                )
865 South Figueroa Street Los Angeles, CA 90017    ) ..............     1,102,300(4)       6.4%
Robert Day                                         )
200 Park Avenue, Suite 2200                        )
New York, NY 10166                                 )

 
- ---------------
(1) As reported by State of Wisconsin Investment Board as of December 31, 1996
    in a filing made with the Securities and Exchange Commission.
 
(2) As reported to the Company by The Prudential Insurance Company of America
    ("Prudential") as of February 28, 1997. Of these shares, 200,000 shares are
    purchasable upon exercise of a currently exercisable warrant and 1,432,720
    shares are shares over which Prudential may have direct or indirect voting
    and/or investment discretion held for the benefit of its clients by its
    separate accounts, externally managed accounts, registered investment
    companies, subsidiaries and/or other affiliates.
 
(3) As reported to the Company by C.S. McKee as of February 28, 1997.
 
(4) As reported to the Company by The TCW Group, Inc. and Robert Day as of
    February 28, 1997. According to such information, Mr. Day may be deemed a
    controlling person of The TCW Group, Inc.
 
                                       I-8
   37
 
OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
 
     The following table sets forth the amount and percentage of the Company's
outstanding Common Stock beneficially owned on February 28, 1997 by each
director, nominee for director and executive officer named in the Summary
Compensation Table set forth below under "Executive Compensation" and by all
directors and executive officers as a group.
 


                                                                    SHARES        PERCENTAGE OF
                       NAME OF INDIVIDUAL                          BENEFICIALLY    OUTSTANDING
                      OR IDENTITY OF GROUP                         OWNED(1)      COMMON STOCK(2)
- -----------------------------------------------------------------  ---------     ---------------
                                                                           
Donald K. Farrar.................................................    594,998(3)        3.4%
James B. Edwards.................................................     83,750(4)         --
Richard J. Grosh.................................................     83,606(5)         --
Carter P. Thacher................................................    117,750(4)         --
Donald C. Trauscht...............................................      3,250(6)         --
Arthur E. Van Leuven.............................................     58,750(7)         --
William M. Brown.................................................     70,595(8)         --
John J. Carr.....................................................     56,788(9)         --
Brian Lewis......................................................     83,005(10)        --
Thomas J. Bird...................................................     42,886(11)        --
All directors and executive officers as a group (13 persons).....  1,227,027(12)       6.9%

 
- ---------------
 (1) Information furnished by the directors and executive officers. Unless
     otherwise indicated, such persons have sole voting and sole investment
     power with respect to these shares. The number of shares reported as owned
     through the Company's Employees Stock Savings Plan has been calculated
     based upon such person's percentage interest in the total number of units
     outstanding in the Company's Common Stock fund under such plan.
 
 (2) Less than 1% unless otherwise indicated.
 
 (3) This total includes 93,000 shares owned by Mr. Farrar pursuant to
     restricted stock awards under the Company's Amended and Restated Equity
     Incentive Plan for Key Employees (the "Equity Incentive Plan"), 132,500
     shares as to which Mr. Farrar holds currently exercisable options to
     acquire under the Equity Incentive Plan and 192,498 shares owned by Mr.
     Farrar through the Company's Employees Stock Savings Plan.
 
 (4) This total includes 81,000 shares as to which the named individual holds
     currently exercisable options to acquire under the Company's Amended and
     Restated Equity Incentive Plan for Outside Directors (the "1988 Director
     Plan") and the Company's 1995 Equity Incentive Plan for Outside Directors
     (the "1995 Director Plan") and 1,750 shares owned by such person pursuant
     to restricted stock awards under the 1995 Director Plan.
 
 (5) This total includes 81,000 shares as to which Dr. Grosh holds currently
     exercisable options to acquire under the 1988 Director Plan and the 1995
     Director Plan and 1,750 shares owned by Dr. Grosh pursuant to restricted
     stock awards under the 1995 Director Plan. This total also includes 400
     shares that are held by Dr. Grosh's wife, and Dr. Grosh disclaims
     beneficial ownership of these shares.
 
 (6) This total includes 1,000 shares as to which Mr. Trauscht holds currently
     exercisable options to acquire under the 1995 Director Plan and 1,750
     shares owned by Mr. Trauscht pursuant to restricted stock awards under the
     1995 Director Plan.
 
 (7) This total includes 41,000 shares as to which Mr. Van Leuven holds
     currently exercisable options to acquire under the 1988 Director Plan and
     the 1995 Director Plan, 16,000 shares held by a trust of which Mr. Van
     Leuven is trustee and settlor and 1,750 shares owned by Mr. Van Leuven
     pursuant to restricted stock awards under the 1995 Director Plan.
 
 (8) This total includes 52,570 shares as to which Mr. Brown holds currently
     exercisable options to acquire under the Equity Incentive Plan and 5,525
     shares owned by Mr. Brown through the Company's Employees Stock Savings
     Plan.
 
                                       I-9
   38
 
 (9) This total includes 37,500 shares as to which Mr. Carr holds currently
     exercisable options to acquire under the Equity Incentive Plan and 7,188
     shares owned by Mr. Carr through the Company's Employees Stock Savings
     Plan.
 
(10) This total includes 82,005 shares as to which Mr. Lewis holds currently
     exercisable options to acquire under the Equity Incentive Plan.
 
(11) This total includes 36,301 shares as to which Mr. Bird holds currently
     exercisable options to acquire under the Equity Incentive Plan and 6,585
     shares owned by Mr. Bird through the Company's Employees Stock Savings
     Plan.
 
(12) This total includes the shares purchasable upon the exercise of the options
     referred to in footnotes (3) through (11) above and an additional 22,736
     shares purchasable upon the exercise of options by other executive officers
     included in this group. This total also includes 2,000 shares that one of
     the other executive officers included in this group holds jointly with his
     wife.
 
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
     Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Based solely on its
review of the copies of such forms received by it, and written representations
from certain reporting persons that no year-end reports on Form 5 under Section
16(a) of the Exchange Act were required for those persons, the Company believes
that, during the period January 1, 1996 through December 31, 1996, all Section
16(a) filing requirements applicable to its officers and directors were complied
with.
 
                             EXECUTIVE COMPENSATION
 
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
 
     The Compensation Committee of the Company's Board of Directors (the
"Committee") has furnished the following report on compensation with respect to
the executive officers of the Company, as defined under the rules of the
Securities and Exchange Commission.
 
     The Committee is comprised of the non-employee directors of the Company
listed at the end of this Executive Compensation report. No member of the
Committee has any insider or interlocking relationship with the Company, as
these terms are defined under rules of the Securities and Exchange Commission.
The Committee is responsible for developing and recommending the Company's
executive compensation principles, policies and programs to the Board of
Directors. In addition, the Committee recommends to the Board of Directors, on
an annual basis, the compensation to be paid to the Chief Executive Officer (the
"CEO") and, with advice from the CEO, to each of the other executive officers of
the Company, including the executive officers named below in the Summary
Compensation Table.
 
     The Committee works with an outside compensation consultant that provides
the Committee with analyses of published annual compensation surveys and
periodically conducts special peer group surveys.
 
COMPENSATION PHILOSOPHY
 
     This Executive Compensation report reflects the Company's compensation
philosophy as adopted by the Committee and endorsed by the Board of Directors.
The Company's compensation programs have been designed to support and reinforce
its long-term business strategy and link compensation to stockholder value. The
programs provide executive officers and other key employees with the opportunity
to earn market competitive salaries and market competitive incentive
compensation opportunities. The objectives of the
 
                                      I-10
   39
 
Company's executive compensation program, as developed by the Committee and
subject to periodic review, are to:
 
     - Attract and retain high-quality executives with experience in the
       Company's markets.
 
     - Align compensation with the goals and expectations of the Company and
       each business unit.
 
     - Vary individual compensation based on performance as measured by
       corporate and business unit financial results, strategic achievements and
       individual contributions.
 
     - Align executives' interests with the long-term interests of stockholders
       by enabling significant Company stock ownership.
 
     The Company achieves these goals through a compensation strategy that
provides for competitive: salary ranges, annual incentive targets, and stock
option grant guidelines.
 
     Section 162(m) of the Internal Revenue Code (the "Code") precludes tax
deductions for compensation paid in excess of $1 million to certain executive
officers unless specified conditions are met. Based on current pay levels and
the design of existing compensation plans, the Committee believes that any tax
deductions that may be lost by reason of Section 162(m) for such compensation
would not be material for the foreseeable future. No tax deductions were lost in
1996 due to Section 162(m). The Equity Incentive Plan conforms to Section 162(m)
conditions that permit tax deductions.
 
PAY POSITIONING
 
     The Committee's executive compensation program is designed to provide a
median competitive compensation opportunity (adjusted for the Company's size)
for comparable executive position responsibilities, relative to a peer group,
through base salary, annual incentive awards and long-term stock-based
incentives. Each of these three compensation components is described below. The
mix between fixed and performance-based compensation is substantially the same
as in the peer group. Total cash compensation is sufficiently variable so that
performance that is above targeted performance, as approved annually by the
Board, will result in pay that is above median competitive levels of total cash
compensation, and performance that is below targeted levels will result in pay
that is below median competitive levels of total cash compensation.
 
     The peer group, which is comprised of 34 companies, serves as the
comparison group for determining median competitive pay levels. Selection of a
company for the peer group is based upon the following five criteria: (i) the
company's stock is publicly traded, (ii) the company operates with multiple
lines of business, (iii) the company manufactures engineered industrial
products, (iv) the company operates globally, with a mix of domestic and
international businesses, and (v) the company has overall revenues within a
range of $170 million to $10 billion. The pay levels determined from these 34
companies are adjusted to reflect the Company's revenue size. The Committee's
compensation consultants have determined that a special survey of the Company's
peer group is required only periodically, and that published surveys are
statistically sufficient for determining pay levels within the Company's peer
group during interim years. The last special peer group survey was conducted in
1994, and the Committee expects to conduct another special survey in 1997.
 
     Of the 34 companies in the peer group, three are included in the S&P
SmallCap 600(R) Index and six are included in the S&P Manufacturing (Diversified
Industrials) Index, which are the Company's comparison groups for total return
on investment performance (change in year-end stock price plus reinvested
dividends) for purposes of the performance comparisons that appear in the
performance graph below. The Committee believes that comparison to these pay and
performance groups is appropriate.
 
PAY MIX AND MEASUREMENT FOR EXECUTIVE OFFICERS
 
     The three components of compensation for executive officers of the Company
are: (i) base salary, (ii) annual incentive cash bonuses ("Executive Incentive
Compensation"), and (iii) long-term incentive compensation in the form of stock
equity awards under the Company's Equity Incentive Plan. In general, the
 
                                      I-11
   40
 
proportion of an executive's compensation that is in the form of incentives
increases with the level of responsibility of the officer.
 
  Base Salaries
 
     The Committee seeks to set base salaries for the Company's executive
officers at levels that are competitive with median levels for executives with
comparable roles and responsibilities, within the peer group. The Company
maintains an executive salary administration program which uses external and
internal comparisons to set salary grades and ranges based on these median
competitive levels. Individual executive officer salaries are reviewed annually
by the Committee, which may approve increases from time to time based on an
assessment of individual contribution to the Company and the positioning of the
individual's salary within the approved range.
 
     Base salary increases were granted in 1996 to all executive officers
serving in January of that year, excluding the CEO. The average increase was
6.1%, which reflects that two such executive officers received no salary
increase in 1994 and 1995, and two other such executive officers received salary
increases in only one of those years. Overall, base salaries of executive
officers are somewhat above median competitive levels due to the reduction in
the size of the Company during 1994, 1995, and 1996. Because the Company
divested certain businesses, the median competitive levels of pay declined, but
to retain its key executives, the Committee has determined not to reduce
executive salaries to match the size-adjusted median competitive levels.
 
  Executive Incentive Compensation
 
     The Committee administers an annual cash incentive program for executive
officers, as well as other management employees. Each year the Committee
recommends to the Company's Board of Directors an individual and aggregate
target cash bonus amount for executive officers that reflects the approximate
median competitive levels of the peer group companies. The aggregate target
amount is designed to be paid if the Company achieves its net income goal for
the year. The goal is established by the Committee and approved by the Board of
Directors. For net income performance above and below threshold, the Committee
determines the size of the aggregate payment. For net income performance below
threshold, the Committee normally recommends no incentive payments for the year.
For 1996, the Committee determined that net income fell short of the threshold.
However, due to the following exceptional circumstances, the Committee
recommended, and the Board approved, annual incentive payments to all
executives: (i) the Company completed a successful financial restructuring, (ii)
certain other key strategic objectives were achieved, and (iii) the potential
loss of executive officers if an annual incentive bonus was not awarded would
jeopardize the future prospects of the Company.
 
     Once the aggregate pool is established by the Committee and approved by the
Board of Directors, actual awards vary for executive officers based on their
individual contribution to the Company's net income performance and achievement
of individual non-financial strategic objectives. These assessments are made
subjectively by the Committee without assigning particular weight to any factor.
 
     Overall, the 1996 incentive compensation awards were substantially less
than target, and less than those awarded with respect to 1995. Actual awards
approved for executive officers, excluding the CEO, expressed as a percentage of
target award, ranged from 33% to 58%, with an average of approximately 45% of
target award.
 
  Equity Incentive Plan
 
     The Company's Equity Incentive Plan authorizes the Committee to award stock
options (both non-qualified and incentive options), stock appreciation rights
and restricted stock or restricted stock unit awards to key executives.
 
     Awards under the Company's Equity Incentive Plan are designed to strengthen
the alignment of the long-term interests of the Company's executives with those
of its stockholders by directly linking executive compensation to stockholder
return. Since the adoption of the Company's Equity Incentive Plan, non-qualified
options have been granted from time to time, including during 1996, at an
exercise price per share that was not
 
                                      I-12
   41
 
less than fair market value of the Company's Common Stock on the date of grant.
Both the size of such grants and the proportion relative to the total number of
option shares granted are a function of the recipient's level of responsibility
within the Company, stock option (and/or long-term incentive) grants provided to
comparable executives within the peer group companies and the judgment of the
Committee.
 
     The value of stock option grants in 1996 was below median competitive grant
levels. The Committee believes the number of shares of the Company's Common
Stock required to provide fully competitive stock option grants would result in
unwarranted levels of share utilization. The total number of option shares
granted to all employees in 1996 was approximately 1.5% of the total number of
shares outstanding, which results in a median competitive level of share
utilization. The average number of option shares granted to executive officers,
excluding the CEO, in 1996 was 16,142 shares.
 
CHIEF EXECUTIVE OFFICER COMPENSATION
 
     The principles guiding compensation for the CEO are substantially the same
as those set forth for other executive officers.
 
     No change was made to Mr. Farrar's base salary in 1996. Mr. Farrar has not
received a salary increase since he was hired in 1993. Mr. Farrar's salary was
decreased in 1995 in order to shift his total compensation package towards
equity-based incentives. In lieu of a salary increase in 1996, Mr. Farrar
received a combination stock option award to purchase 45,000 shares of the
Company's Common Stock (in addition to his normal stock option grant) and a
restricted stock award of 35,000 shares of the Company's Common Stock. The
combined value of the stock option and restricted stock shares is approximately
equivalent to the present value of a 10% salary increase (assuming Mr. Farrar
remains employed until retirement at age 65) and the value of the economic loss
from other forms of compensation tied to his salary level (i.e., annual
incentive, the Company's supplemental executive retirement plan, and life
insurance). The Committee believes this stock-based award instead of a salary
increase further aligns the CEO with the interests of the Company's
stockholders.
 
     Based solely on the Company's financial performance, Mr. Farrar would not
have received an annual incentive bonus in 1996. However, the Committee and the
Board awarded Mr. Farrar a cash incentive of $80,000 (which is 36% of his median
competitive target award) to acknowledge Mr. Farrar's leadership and individual
performance relative to the Company's restructuring and other strategic
corporate objectives. As with other executive officers, no specific relative
importance was assigned to any one factor in making this decision. Mr. Farrar
also received a normal grant of 70,000 option shares under the Equity Incentive
Plan. The value of this normal stock option grant is less than a median
competitive grant.
 
                                          Submitted by the Compensation
                                          Committee of the Company's Board of
                                          Directors:
 
                                          Richard J. Grosh, Chairman
                                          James B. Edwards
                                          Arthur E. Van Leuven
 
                                      I-13
   42
 
PERFORMANCE GRAPH
 
     The following graph sets forth a comparison of five-year cumulative total
return among the Company, the S&P 500(R) Index, the S&P Manufacturing
(Diversified Industrials) Index and the S&P SmallCap 600(R) Index. The
comparison of total return on investment (change in year-end stock price plus
reinvested dividends) for each of the periods assumes that $100 was invested on
December 31, 1991 in each of the Company, the S&P 500(R) Index, the S&P
Manufacturing (Diversified Industrials) Index and the S&P SmallCap 600(R) Index.
 


                                                                      S&P
                                                                 Manufacturing         S&P
                                                     S&P          (Diversified     600(Register
     Measurement Period        Imo Industries    500(Register     Industrials)    Mark) SmallCap
   (Fiscal Year Covered)            Inc.         Mark) Index         Index            Index
                                                                      
Dec-91                              100              100              100              100
Dec-92                               62              108              108              121
Dec-93                               89              118              132              144
Dec-94                              118              120              136              137
Dec-95                               66              165              192              178
Dec-96                               30              203              264              216

 
                                      I-14
   43
 
     The following table sets forth certain information with respect to
compensation paid or accrued by the Company during each of the three fiscal
years ended December 31, 1996, December 31, 1995 and December 31, 1994 to the
chief executive officer of the Company and the other four most highly
compensated executive officers of the Company who served in 1996.
 
                           SUMMARY COMPENSATION TABLE
 


                                                                 LONG-TERM COMPENSATION
                                                                         AWARDS
                                                               --------------------------
                                        ANNUAL COMPENSATION    RESTRICTED      SECURITIES
                                        --------------------     STOCK         UNDERLYING         ALL OTHER
  NAME AND PRINCIPAL POSITION    YEAR   SALARY($)   BONUS($)   AWARDS($)       OPTIONS(#)     COMPENSATION($)(1)
- -------------------------------  ----   ---------   --------   ---------       ----------     ------------------
                                                                            
Donald K. Farrar...............  1996   $ 450,000   $ 80,000   $196,875 (2)(3)   115,000(3)        $ 10,350
Chairman, President and          1995     450,000     90,000         --           70,000              8,359
Chief Executive Officer          1994     450,000    210,000    390,000 (2)      150,000              9,000
John J. Carr...................  1996     260,000     60,000         --           25,000              9,270
Executive Vice President         1995     240,000     65,000         --           25,000                245
                                 1994     240,000     85,000         --           25,000              6,480
William M. Brown...............  1996     255,000     50,000         --           20,000              9,135
Executive Vice President,        1995     230,000     55,000         --           20,000              7,105
Chief Financial Officer and      1994     230,000     85,000         --           25,000              6,210
Corporate Controller
Brian Lewis(4).................  1996     243,820     30,000         --               --            262,254(5)
Executive Vice President         1995     216,000     35,000         --           20,000              3,800
                                 1994     198,900     70,000         --           25,000              3,167
Thomas J. Bird.................  1996     208,000     40,000         --           20,000              7,866
Executive Vice President,        1995     200,000     40,000         --           20,000              5,796
General Counsel and Secretary    1994     179,167     70,000         --           22,000              4,876

 
- ---------------
(1) For 1996, the amounts set forth in this column consist of a $2,250
    contribution by the Company to the Employees Stock Savings Plan account of
    each named individual, except Mr. Lewis who was not a participant, plus the
    following amounts of life insurance premiums paid by the Company on behalf
    of such persons: Mr. Farrar, $8,100; Mr. Carr, $7,020; Mr. Brown, $6,885;
    Mr. Lewis, $4,573; and Mr. Bird, $5,616.
 
(2) Mr. Farrar's 1994 restricted stock award for 40,000 shares vested as to 20%
    of the shares, or 8,000 shares, on December 31, 1995 and 10% of the shares,
    or 4,000 shares, on December 31, 1996, and will vest in increments of 10% of
    the shares, or 4,000 shares, each December 31 thereafter commencing December
    31, 1997 and ending December 31, 2003, except that all shares covered by
    such award will vest in any event on the first day of the month preceding
    Mr. Farrar's 65th birthday (i.e., on May 1, 2003) if he remains an employee
    of the Company or one of its affiliates until that date. Mr. Farrar's 1996
    restricted stock award for 35,000 shares vests in five annual increments of
    7,000 shares, commencing August 2, 1997. Any dividends paid on the shares of
    restricted stock during the respective restriction periods will be paid to
    Mr. Farrar. As of December 31, 1996, the 93,000 shares of restricted stock
    held by Mr. Farrar had a value of $290,625 based upon the $3.125 closing
    price of the Company's Common Stock on the New York Stock Exchange on
    December 31, 1996.
 
(3) In lieu of a salary increase in 1996, Mr. Farrar was granted options to
    purchase 45,000 shares of the Company's Common Stock and was granted a
    restricted stock award of 35,000 shares of the Company's Common Stock.
 
(4) Mr. Lewis was employed and paid by Imo Industries (UK) Limited, a United
    Kingdom subsidiary of the Company, locally in pounds sterling, translated to
    U.S. dollars in this table at an exchange rate of 1.67 for 1996, 1.54 for
    1995 and 1.53 for 1994.
 
(5) Mr. Lewis' employment with Imo Industries (UK) Limited terminated on
    December 31, 1996, pursuant to a Severance Agreement. Severance payments of
    $257,681 were accrued to Mr. Lewis in 1996 in accordance with the Severance
    Agreement. See the description of Mr. Lewis' Severance Agreement and
 
                                      I-15
   44
 
    also the Consulting Agreement subsequently entered into between Mr. Lewis
    and the Company under "Employment-Related and Other Agreements" below.
 
     The following table sets forth information with respect to options granted
to the persons named in the Summary Compensation Table during the fiscal year
ended December 31, 1996.
 
                       OPTION GRANTS IN LAST FISCAL YEAR
 
INDIVIDUAL GRANTS
 


                             NUMBER OF        % OF TOTAL
                            SECURITIES         OPTIONS
                            UNDERLYING        GRANTED TO      EXERCISE OR
                              OPTIONS        EMPLOYEES IN     BASE PRICE      EXPIRATION         GRANT DATE
          NAME             GRANTED(#)(1)     FISCAL YEAR        ($/SH)           DATE        PRESENT VALUE($)(2)
- -------------------------  -------------     ------------     -----------     ----------     -------------------
                                                                              
Donald K. Farrar.........      45,000             18%           $ 5.625          8/02/06          $ 154,406
                               70,000             28%             3.375         11/27/06            144,123
John J. Carr.............      25,000             10%             3.375         11/27/06             51,469
William M. Brown.........      20,000              8%             3.375         11/27/06             41,175
Brian Lewis..............          --             --                 --               --                 --
Thomas J. Bird...........      20,000              8%             3.375         11/27/06             41,175

 
- ---------------
(1) Each option becomes exercisable in increments of 25% of the shares
    underlying such options commencing on the first, second, third and fourth
    anniversaries of the date of the option grant. All unvested options will
    vest in full upon the determination by the committee administering the
    Equity Incentive Plan that a change in control of the Company has occurred
    or upon the liquidation or dissolution of the Company.
 
(2) The Black-Scholes model, a widely used and accepted formula for valuing
    traded stock options, was used to determine the grant date present value of
    the executive stock options. The Black-Scholes value used in this table is
    the same value used to report the expense associated with stock options in
    the Company's audited financial statements in accordance with FAS 123. The
    following assumptions were used to calculate the Black-Scholes value: a
    seven-year option term, 52.8% stock price volatility, 6.16% risk-free rate
    of return, annual dividend yield of 0% and an exercise price equal to stock
    price on the date of grant. The Company has used the historical annual
    dividend yield and stock price volatility rate as assumptions for the
    Black-Scholes model. These are not projections, and therefore there is no
    guarantee that these assumptions will be the actual annual dividend yield or
    stock price volatility rate over the next seven years. There is no gain to
    executives, however, if the per share market price of the Company's Common
    Stock does not increase or declines.
 
                                      I-16
   45
 
     The following table sets forth information with respect to options held at
December 31, 1996 by the persons named in the Summary Compensation Table.
 
                AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
                      AND FISCAL YEAR-END OPTION VALUES(1)
 


                                                 NUMBER OF SECURITIES              VALUE OF UNEXERCISED
                                                UNDERLYING UNEXERCISED             IN-THE-MONEY OPTIONS
                                                 OPTIONS AT FY-END(#)                AT FY-END ($)(2)
                                             -----------------------------     -----------------------------
                   NAME                      EXERCISABLE     UNEXERCISABLE     EXERCISABLE     UNEXERCISABLE
- -------------------------------------------  -----------     -------------     -----------     -------------
                                                                                   
Donald K. Farrar...........................    132,500          327,500            $ 0              $ 0
John J. Carr...............................     77,500           62,500              0                0
William M. Brown...........................     52,570           52,000              0                0
Brian Lewis................................     82,005                0              0                0
Thomas J. Bird.............................     36,301           51,000              0                0

 
- ---------------
(1) No options were exercised by the named executive officers during the year
    ended December 31, 1996.
 
(2) No value indicated inasmuch as the exercise prices of all such options were
    above the market value of the Company's Common Stock as of December 31,
    1996.
 
EMPLOYMENT-RELATED AND OTHER AGREEMENTS
 
     The Company has termination agreements with various executive officers of
the Company, including Messrs. Farrar, Carr, Brown and Bird, in order to
reinforce and encourage the continued dedication and attention of such persons
to their assigned duties without distractions arising from a potential change in
control. The termination agreements are operative upon the occurrence of a
"change in control" of the Company, which would be deemed to occur if (i) any
person is or becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 35% or more of the combined voting power of the
Company's then outstanding securities, (ii) individuals who constituted the
Board of Directors of the Company at the beginning of the term of such
agreement, including any new director whose election or nomination for election
by the Company's stockholders was approved by a vote of at least two-thirds of
the directors still in office who were directors at the beginning of the term of
such agreement or their successors cease, for any reason, to constitute a
majority thereof or (iii) more than 50% of the assets of the Company, including
the business for which such executive's services are principally performed, are
disposed of by the Company pursuant to a partial or complete liquidation of the
Company, a sale of assets or otherwise. As part of the termination agreements,
each executive has agreed that, subject to the terms of his termination
agreement, in the event of a "potential change in control" of the Company the
executive will remain in the employ of the Company or its subsidiaries during
the pendency of any such "potential change in control" and for a period of one
year after the occurrence of an actual "change in control." A "potential change
in control" would be deemed to occur if (i) the Company enters into an
agreement, the consummation of which would result in a "change in control" of
the Company, (ii) any person, including the Company, publicly announces an
intention to take or to consider taking actions which if consummated would
constitute a "change in control" or (iii) the Board of Directors adopts a
resolution to the effect that a "potential change in control" has occurred. If
an executive's employment is terminated within three years of a change in
control (i) by the Company other than for cause, retirement or disability or
(ii) by the executive for "good reason," the executive will be entitled to a
lump sum payment equal to 2.99 times his average taxable compensation from the
Company during the five fiscal years of the Company immediately preceding the
change in control, as well as bonuses declared but not yet paid, amounts in
settlement of outstanding stock options, a lump sum payment of certain
retirement benefits and continuing life, disability, accident and health
insurance coverage for a three-year period after such termination. "Good reason"
is broadly defined in the agreements to include any change in duties or
responsibilities, reduction in compensation or benefits or relocation. The
agreements, however, provide that no amount is to be paid to any person which
would result in such a payment being subject to an excise tax under the Code and
being nondeductible by the Company for federal income tax purposes. If the
employment of all of the above-named executive officers were to be terminated
under
 
                                      I-17
   46
 
circumstances requiring payments under such agreements, such officers would
currently be entitled to receive approximately $5,084,898.
 
     Brian Lewis resigned from his position as Executive Vice President of the
Company, and his employment by Imo Industries (UK) Limited terminated, effective
December 31, 1996. In connection with the termination of employment, Mr. Lewis
entered into a Severance Agreement with Imo Industries (UK) Limited pursuant to
which Mr. Lewis was paid $10,521 as a statutory termination payment required to
be paid under United Kingdom law, $243,820 as a termination compensation payment
and $3,340 for a confidentiality and cooperation agreement. Additionally, under
the Severance Agreement, all of his options to purchase shares of the Company's
Common Stock vested immediately, his life assurance and medical insurance will
be continued to January 1999, and Imo Industries (UK) Limited agreed to pay
reasonable legal and tax service fees in connection with the termination of his
employment. Mr. Lewis was also provided a pension plan enhancement described
below under "Pension Plans." Mr. Lewis agreed to release any claims against Imo
Industries (UK) Limited, the Company and its affiliates regarding his
termination. Subsequently, Mr. Lewis entered into a Consultancy Agreement with
the Company, which provides that the Company will pay Mr. Lewis a fee of $1,670
per day for consulting work performed on behalf of the Company, which is
expected to be performed an average of one day per week during the first three
months of 1997. Payments to Mr. Lewis under the Severance Agreement and the
Consultancy Agreement are denominated in pounds sterling, and are translated
above into U.S. dollars at a 1.67 exchange rate.
 
PENSION PLANS
 
     The following table shows the estimated maximum annual retirement benefits
payable to a covered participant under the Imo Industries Inc. U.S. Salaried
Plan (the "Salaried Plan") and under a non-qualified supplemental executive
retirement plan (the "Supplemental Plan"), which provides benefits that would
otherwise be denied to participants by reason of certain Code limitations on
qualified plan benefits, upon normal retirement at December 31, 1996 after
selected periods of service (collectively referred to hereinafter as the
"Salaried Pension Plans"). Benefits were calculated assuming participants and
their spouses elect a straight-life annuity rather than a joint and survivor or
other form of annuity, in which case benefits would generally be lower than
shown in the table. Benefits are not subject to any deduction for Social
Security or other offset amounts.
 
                               PENSION PLAN TABLE
 


   FINAL                                   YEARS OF SERVICE
  AVERAGE      -------------------------------------------------------------------------
 EARNINGS      10 YEARS     15 YEARS     20 YEARS     25 YEARS     30 YEARS     35 YEARS
- -----------    --------     --------     --------     --------     --------     --------
                                                              
$   100,000    $ 16,208     $ 24,311     $ 32,415     $ 40,519     $ 43,967     $ 47,416
    150,000      25,208       37,811       50,415       63,019       68,467       73,916
    200,000      34,208       51,311       68,415       85,519       92,967      100,416
    250,000      43,208       64,811       86,415      108,019      117,467      126,916
    300,000      52,208       78,311      104,415      130,519      141,967      153,416
    350,000      61,208       91,811      122,415      153,019      166,467      179,916
    400,000      70,208      105,311      140,415      175,519      190,967      206,416
    450,000      79,208      118,811      158,415      198,019      215,467      232,916
    500,000      88,208      132,311      176,415      220,519      239,967      259,416
    550,000      97,208      145,811      194,415      243,019      264,467      285,916
    600,000     106,208      159,311      212,415      265,519      288,967      312,416
    700,000     124,208      186,311      248,415      310,519      337,967      365,416
    800,000     142,208      213,311      284,415      355,519      386,967      418,416
    900,000     160,208      240,311      320,415      400,519      435,967      471,416
  1,000,000     178,208      267,311      356,415      445,519      484,967      524,416
  1,100,000     196,208      294,311      392,415      490,519      533,967      577,416

 
                                      I-18
   47
 
     Final average earnings are based upon the highest five consecutive years of
compensation during the participant's last ten years of service. The annual
compensation taken into account under the Salaried Pension Plans is the monthly
salary in effect on January 1 of each year multiplied by 12 (or, if fewer, the
number of months of employment in that year), plus the amount of any bonus
earned during the previous year. This compensation differs from the annual
compensation set forth in the Summary Compensation Table, which includes bonuses
earned in the same salary year. With respect to the year ended December 31,
1996, covered compensation under the Salaried Pension Plans for the persons
named in the Summary Compensation Table did not differ by more than 10% from
their respective annual compensation shown in such table.
 
     As of December 31, 1996, the persons named in the Summary Compensation
Table had the following years of benefit service as defined under the Salaried
Pension Plans: Mr. Farrar, 3.3 years; Mr. Brown, 4.6 years; Mr. Carr, 30.3
years; and Mr. Bird, 6.5 years. Effective January 1, 1992, Mr. Lewis was
transferred to the Morse Controls Limited Pension and Life Assurance Plan (the
"Morse Controls Plan"), a United Kingdom pension plan. The Morse Controls Plan,
to which both Imo Industries (UK) Limited and Mr. Lewis contributed, provides a
normal retirement pension of 1/45th of the final average salary, which includes
his executive incentive bonus minus a portion of United Kingdom social security
benefits, for each year of pensionable service. Mr. Lewis' employment with Imo
Industries (UK) Limited terminated as of December 31, 1996. As described under
"Employment-Related and Other Agreements" above, Mr. Lewis has entered into a
Severance Agreement with Imo Industries (UK) Limited, which includes a provision
for a pension plan enhancement based upon an increase to Mr. Lewis' number of
years of pensionable service plus an adjustment. Therefore, Mr. Lewis' annual
pension benefit, which comprises his benefit under the Morse Controls Plan and
the Salaried Plan plus the enhancement under the Severance Agreement, will be
pounds 108,000 in the aggregate, or $180,360 assuming an exchange rate to U.S.
dollars of 1.67.
 
     While the Company was a wholly owned subsidiary of Transamerica
Corporation, the Company's employees participated in the Pension Plan for
Salaried U.S. Employees of Transamerica Corporation and Affiliates (the
"Transamerica Pension Plan"). The Transamerica Pension Plan provides that
employees of the Company will continue to vest in their benefits accrued prior
to December 31, 1986, as calculated under the Transamerica Pension Plan, taking
into account only benefit service credited and compensation earned prior to
December 31, 1986, and will continue to receive credit toward the service
requirement for subsidized early retirement benefits and pre-retirement death
benefits, based upon their service with the Company after December 31, 1986.
Accrued benefits under the Salaried Plan will be offset by any vested benefits
under the Transamerica Pension Plan.
 
     The benefits shown in the Pension Plan Table do not reflect the applicable
limitations imposed by Sections 415 and 401(a)(17) of the Code. Benefits payable
pursuant to the Salaried Pension Plans are restricted in accordance with the
limitations of Sections 415 and 401(a)(17) of the Code; however, the Company
maintains the Supplemental Plan under which the Company makes supplemental
pension payments to employees whose benefits under the Salaried Plan are reduced
by the limitations imposed under Section 415 and 401(a)(17) of the Code. The
Company is responsible for all liabilities with respect to supplemental benefit
payments accrued by employees of the Company. In July 1991, the Company's Board
of Directors approved the establishment of a grantor trust (the "Trust") under
Section 671 of the Code. The purpose of the Trust is to satisfy the Company's
obligations to pay benefits to those entitled thereto under the Supplemental
Plan. Pursuant to the terms of the Trust, the Company will from time to time
irrevocably transfer to the Trust assets that will be held in the Trust, subject
to the claims of the Company's creditors, until paid to participants and
beneficiaries of the Supplemental Plan in accordance with the terms of the
Supplemental Plan. During fiscal 1996, the Company did not transfer any amount
to the Trust.
 
                                      I-19
   48
 
                     CREDIT SUISSE FIRST BOSTON CORPORATION
                             ELEVEN MADISON AVENUE
                         NEW YORK, NEW YORK 10010-3629
                             TELEPHONE 212-325-2000
 
JULY 25, 1997
 
BOARD OF DIRECTORS
IMO INDUSTRIES INC.
1009 LENOX DRIVE
BUILDING FOUR WEST
LAWRENCEVILLE, NEW JERSEY 08648
 
Dear Sirs:
 
     You have asked Credit Suisse First Boston Corporation ("CSFB", "we" or
"us") to advise you with respect to the fairness to the tendering holders of
common stock, par value $1.00 per share ("Company Common Stock"), of Imo
Industries Inc. (the "Company") from a financial point of view of the
consideration to be received by such holders pursuant to the terms of the Share
Purchase Agreement (the "Acquisition Agreement"), among the Company and II
Acquisition Corp. (the "Purchaser"). The Acquisition Agreement provides that
Purchaser will make a cash tender offer (the "Offer") to acquire all the issued
and outstanding shares of Company Common Stock, together with the associated
preferred stock purchase rights, for $7.05 per share, net to the seller in cash.
The Offer is conditioned upon the valid tender of more than eighty percent (80%)
of the outstanding shares of Company Common Stock. There is no merger agreement
between the Company and Purchaser, such that stockholders who do not tender
their shares in the Offer may own such shares indefinitely, and you have not
asked us to express, and we are not expressing, any view with respect to
fairness to such stockholders.
 
     In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company. We have also
reviewed certain other information, including financial forecasts, provided to
us by the Company, and have met with the Company's management to discuss the
business and prospects of the Company. In addition, at the Company's request, we
have solicited and received indications of interest in acquiring the Company or
individual business segments of the Company from prospective acquirors.
 
     We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to those of the Company, and we have
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that we deemed relevant.
 
     In connection with our review we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not assumed any
responsibility for making, an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof.
 
     We have acted as financial advisor to the Company in connection with the
Offer and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Offer. CSFB and its
   49
 
affiliates have previously performed certain investment banking and other
services for the Company and have received customary fees therefor.
 
     In the ordinary course of our business, CSFB and its affiliates may
actively trade the debt and equity securities of the Company for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
 
     It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Offer and
is not to be quoted or referred to, in whole or in part, in any registration
statement, or in any other document used in connection with the offering or sale
of securities, nor shall this letter be used for any other purposes, without our
prior written consent.
 
     Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the tendering holders of
Company Common Stock in the Offer is fair to such holders from a financial point
of view.
 
Very truly yours,
 
CREDIT SUISSE FIRST BOSTON CORPORATION
 
By:       /s/ ALAN H. HOWARD
 
    ----------------------------------
              Alan H. Howard
   50




EXHIBIT NUMBER                                        EXHIBIT
- --------------     -----------------------------------------------------------------------------
                
Exhibit A          Offer to Purchase*
Exhibit B          Letter of Transmittal*
Exhibit C          Acquisition Agreement
Exhibit D          Press Release issued on July 25, 1997
Exhibit E          Information under the captions "Ownership by Directors and Executive
                   Officers," "Director Compensation" and "EXECUTIVE COMPENSATION" as set forth
                   in the 1997 Proxy Statement(1)
Exhibit F          Opinion of CSFB, dated July 25, 1997*
Exhibit G          Engagement Letter, dated March 21, 1997, between CSFB and the Company(2) 
Exhibit H          Rights Agreement, dated as of April 30, 1997, between the Company and First
                   Chicago Trust Company of New York(3)
Exhibit I          Amendment No. 1 to the Rights Agreement, dated as of June 25, 1997(4)
Exhibit J          Amendment No. 2 to the Rights Agreement, dated as at July 25, 1997
Exhibit K          Letter to Stockholders of the Company, dated July 31, 1997*

 
- ---------------
 
 *  Included in the materials sent to stockholders of the Company.

(1) Filed as Exhibit E to the Company's Solicitation/Recommendation Statement on
    Schedule 14D-9 filed with the Securities and Exchange Commission on July 2,
    1997 relating to the UDI Offer. (the "UDI 14D-9"), and incorporated herein
    by reference.

(2) Filed as Exhibit G to the UDI 14D-9 and incorporated herein by reference.
 
(3) Filed as Exhibit 1 to the Company's Registration Statement on Form 8-A
    (Registration No. 1-09294), as filed with the Securities and Exchange
    Commission on May 2, 1997 and incorporated herein by reference.

(4) Filed as Exhibit I to the UDI 14D-9 and incorporated herein by reference.

EX-99.A

   1
 
                           OFFER TO PURCHASE FOR CASH
 
                     ALL OUTSTANDING SHARES OF COMMON STOCK
                             AND ASSOCIATED RIGHTS
                                       OF
 
                              IMO INDUSTRIES INC.
                                       AT
                              $7.05 NET PER SHARE
                                       BY
 
                              II ACQUISITION CORP.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, AUGUST 27, 1997, UNLESS THE OFFER IS EXTENDED. THE OFFER IS
CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY TENDERED AND NOT
WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER MORE THAN EIGHTY PERCENT (80%) OF
THE THEN OUTSTANDING SHARES AND (II) THE EXPIRATION OR TERMINATION OF ANY
APPLICABLE ANTITRUST WAITING PERIODS.
 
     The Board of Directors of Imo Industries Inc. (the "Company") has
unanimously determined that the Offer is fair to and in the best interests of
the Company and its stockholders, and recommends that stockholders accept the
Offer and tender their shares pursuant to the Offer.
 
                                   IMPORTANT
 
     Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock, par value $1.00 per share (the "Common Stock"), of the
Company, and associated rights to purchase shares of the Company's Series B
Junior Participating Preferred Stock (individually, a "Right" and collectively,
the "Rights") issued pursuant to the Rights Agreement, dated as of April 30,
1997, as amended, between the Company and First Chicago Trust Company of New
York (such shares of Common Stock and the Rights collectively referred to as the
"Shares"), should either (1) complete and sign the Letter of Transmittal (or a
facsimile thereof) in accordance with the instructions in the Letter of
Transmittal and mail or deliver it together with the certificate(s) evidencing
tendered Shares, and any other required documents, to the Depositary or tender
such Shares pursuant to the procedure for book-entry transfer set forth in
Section 3 or (2) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder.
Any stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee if such stockholder
desires to tender such Shares.
 
     A stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedure for book-entry transfer on a timely basis, may tender such Shares
by following the procedure for guaranteed delivery set forth in Section 3.
 
     Questions or requests for assistance may be directed to the Information
Agent or to the Dealer Manager at their respective addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Additional copies
of this Offer to Purchase, the Letter of Transmittal and the Notice of
Guaranteed Delivery may also be obtained from the Information Agent or from
brokers, dealers, commercial banks or trust companies.
 
                      THE DEALER MANAGER FOR THE OFFER IS:
 
                              SCHRODER & CO. INC.
   2
 
                               TABLE OF CONTENTS
 
                                                                                    
INTRODUCTION............................................................................    1
 1.   TERMS OF THE OFFER; EXPIRATION DATE...............................................    2
 2.   ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.....................................    3
 3.   PROCEDURES FOR TENDERING SHARES...................................................    4
 4.   WITHDRAWAL RIGHTS.................................................................    7
 5.   CERTAIN FEDERAL INCOME TAX CONSEQUENCES...........................................    7
 6.   PRICE RANGE OF SHARES; DIVIDENDS..................................................    8
 7.   CERTAIN INFORMATION CONCERNING THE COMPANY........................................    8
 8.   CERTAIN INFORMATION CONCERNING PURCHASER..........................................   11
 9.   FINANCING OF THE OFFER............................................................   13
10.   BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE SHARE PURCHASE
      AGREEMENT.........................................................................   15
11.   PURPOSE OF THE OFFER; PLANS FOR THE COMPANY AFTER THE OFFER.......................   26
12.   DIVIDENDS AND DISTRIBUTIONS.......................................................   28
13.   EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NYSE LISTING AND EXCHANGE ACT
      REGISTRATION......................................................................   28
14.   CERTAIN CONDITIONS OF THE OFFER...................................................   30
15.   CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS....................................   31
16.   FEES AND EXPENSES.................................................................   34
17.   MISCELLANEOUS.....................................................................   34


 
                                        i
   3
 
July 31, 1997
 
To the Holders of Common Stock of
  IMO INDUSTRIES INC.:
 
                                  INTRODUCTION
 
     II Acquisition Corp., a Delaware corporation ("Purchaser") and an affiliate
of Constellation Capital Partners LLC ("Constellation"), a private investment
firm, hereby offers to purchase all outstanding shares of common stock, par
value $1.00 per share (the "Common Stock"), of Imo Industries Inc., a Delaware
corporation (the "Company"), and each associated right to purchase shares of the
Company's Series B Junior Participating Preferred Stock (individually, a "Right"
and collectively, the "Rights") issued pursuant to the Rights Agreement dated as
of April 30, 1997, as amended, between the Company and First Chicago Trust
Company of New York (the "Rights Agreement") (such shares of Common Stock and
the Rights collectively referred to as the "Shares"), at a price of $7.05 per
Share, net to the seller in cash, without interest thereon, upon the terms and
subject to the conditions set forth in this Offer to Purchase and in the related
Letter of Transmittal (which, as amended from time to time, together constitute
the "Offer").
 
     Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, stock transfer taxes with respect to the purchase of Shares by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
Schroder & Co. Inc., who is acting as Dealer Manager for the Offer (in such
capacity, the "Dealer Manager"), First Chicago Trust Company of New York (the
"Depositary") and D.F. King & Co., Inc. (the "Information Agent") incurred in
connection with the Offer. See Section 16.
 
     THE BOARD OF DIRECTORS OF THE COMPANY (THE "BOARD") HAS UNANIMOUSLY
DETERMINED THAT THE OFFER IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY
AND ITS STOCKHOLDERS, AND RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND
TENDER THEIR SHARES PURSUANT TO THE OFFER.
 
     Credit Suisse First Boston Corporation ("Credit Suisse First Boston"), the
Company's financial advisor, has delivered to the Company's Board of Directors
its written opinion that, as of the date of such opinion, the consideration to
be received by the tendering holders of Shares pursuant to the Offer is fair to
such holders of Shares from a financial point of view. A copy of the opinion of
Credit Suisse First Boston is contained in the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which is being mailed to stockholders herewith.
 
     THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (I) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THE
NUMBER OF SHARES THAT SHALL CONSTITUTE MORE THAN EIGHTY PERCENT (80%) OF THE
SHARES THEN OUTSTANDING (THE "MINIMUM CONDITION"), AND (II) THE EXPIRATION OR
TERMINATION OF ANY APPLICABLE ANTITRUST WAITING PERIODS. SEE SECTION 14, WHICH
SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. THE OFFER IS NOT CONDITIONED ON
OBTAINING FINANCING.
 
     The Offer is being made pursuant to a Share Purchase Agreement, dated as of
July 25, 1997 (the "Share Purchase Agreement"), between Purchaser and the
Company. Pursuant to the Share Purchase Agreement, Purchaser is making the Offer
for all outstanding Shares. THE OFFER IS NOT CONDITIONED ON FINANCING OR ON THE
RECEIPT OF CONSENTS FROM HOLDERS OF THE COMPANY'S 11 3/4% SENIOR SUBORDINATED
NOTES DUE MAY 1, 2006 (THE "NOTES"). THE SHARE PURCHASE AGREEMENT DOES NOT
CONTEMPLATE A MERGER OR CONSOLIDATION BETWEEN THE COMPANY AND PURCHASER. It is
expected that the Company will remain a separate entity after the consummation
of the Offer. The Share Purchase Agreement provides, however, that, promptly
upon the purchase by Purchaser of Shares pursuant to the Offer and from time to
time thereafter, Purchaser shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Board as will give
Purchaser representation on the Board equal to the product of the number of the
total directors on the Board (giving effect to the directors to be elected as
described in this sentence) multiplied by the percentage
   4
 
that the aggregate number of Shares then beneficially owned by Purchaser and its
affiliates following such purchase bears to the total number of Shares then
outstanding. In the Share Purchase Agreement, the Company has agreed to take all
actions necessary to cause Purchaser's designees to be elected as directors of
the Company, including increasing the size of the Board or securing the
resignations of incumbent directors or both. The Share Purchase Agreement is
more fully described in Section 10.
 
     On July 2, 1997, UD Delaware Corp. ("UDDC"), an indirect wholly owned
subsidiary of United Dominion Industries Limited ("UDI"), commenced a tender
offer to purchase all of the outstanding Shares of the Company at $6.00 net per
Share (the "UDI Offer"). The UDI Offer was made pursuant to an Agreement and
Plan of Merger, dated as of June 26, 1997 (the "UDI Agreement"), among UDDC, UDI
and the Company, and was subject to, among other things, in addition to the
conditions that are applicable to Purchaser's Offer, the receipt of consents
from holders of a majority of the outstanding principal amount of the Notes to
amend certain provisions of the indenture governing the Notes so that such
provisions would not be applicable to a merger between UDDC and the Company (the
"UDI Merger"). Such consents were being solicited in connection with a tender
offer dated July 2, 1997, for any and all of the Notes (the "UDI Note Offer").
 
     On July 25, 1997, the Company terminated the UDI Agreement and the Board
unanimously withdrew its recommendation of the UDI Offer and the UDI Merger. In
accordance with the terms of the UDI Agreement, UDI received the sum of $8
million as a "Termination Fee", and $2 million was deposited into an escrow
account for payment of certain expenses incurred by UDI and UDDC. On July 29,
1997, UDI and UDDC terminated the UDI Offer and the UDI Note Offer.
 
     The Company has advised Purchaser that as of July 29, 1997, 17,126,609
Shares were issued and outstanding and that (i) no Shares were held by the
subsidiaries of the Company and (ii) 2,882,657 Shares were reserved for future
issuance to present or former employees or directors pursuant to employee and
director stock options granted pursuant to the Company's stock option plans. As
a result, as of the date of this Offer to Purchase, the Minimum Condition would
be satisfied if Purchaser acquired pursuant to the Offer 16,007,413 Shares
(assuming that all Shares reserved for issuance pursuant to the Company's stock
option plans are outstanding at the Expiration Date (as hereinafter defined)).
 
     THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
 
     1.  TERMS OF THE OFFER; EXPIRATION DATE.  Upon the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of such extension or amendment), Purchaser will accept for
payment and pay for all Shares validly tendered prior to the Expiration Date (as
hereinafter defined) and not withdrawn as permitted by Section 4. The term
"Expiration Date" means 12:00 midnight, New York City time, on Wednesday, August
27, 1997, unless and until Purchaser, in its sole discretion (but subject to the
terms and conditions of the Share Purchase Agreement), shall have extended the
period during which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date at which the Offer, as so extended by
Purchaser, shall expire.
 
     Subject to the applicable regulations of the Securities and Exchange
Commission (the "Commission"), Purchaser also expressly reserves the right, in
its sole discretion (but subject to the terms and conditions of the Share
Purchase Agreement), at any time and from time to time, (i) to delay acceptance
for payment of, or, regardless of whether such Shares were theretofore accepted
for payment, payment for, any Shares pending receipt of any regulatory approval
specified in Section 15, (ii) to terminate the Offer and not accept for payment
any Shares upon the occurrence of any of the conditions specified in Section 14
and (iii) to waive any condition or otherwise amend the Offer in any respect, by
giving oral or written notice of such delay, termination, waiver or amendment to
the Depositary and by making a public announcement thereof. The Share Purchase
Agreement provides that, without the consent of the Company, Purchaser will not
(i) decrease the price per Share payable pursuant to the Offer, (ii) change the
form of consideration payable pursuant to the Offer, (iii) reduce the maximum
number of Shares sought pursuant to the Offer, (iv) extend the expiration date
of the Offer (except that Purchaser may extend the expiration date of the Offer
(a) as
 
                                        2
   5
 
required to comply with any rule, regulation or interpretation of the Commission
or (b) for one or more times each for an aggregate period of up to 15 days (and
not to exceed 60 days from the commencement of the Offer) for any reason other
than those specified in the immediately preceding clause (a)) or (v) impose
conditions to the Offer in addition to those set forth in Section 14. During any
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering stockholder to withdraw his
or her Shares. See Section 4. Purchaser acknowledges that (i) Rule 14e-1(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires Purchaser to pay the consideration offered or return the Shares
tendered promptly after the termination or withdrawal of the Offer and (ii)
Purchaser may not delay acceptance for payment of, or payment for (except as
provided in clause (i) of the first sentence of this paragraph), any Shares upon
the occurrence of the conditions specified in Section 14 without extending the
period of time during which the Offer is open.
 
     Any such extension, delay, termination, waiver or amendment will be
followed as promptly as practicable by public announcement thereof, such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c) and
14d-6(d) under the Exchange Act, which requires that material changes be
promptly disseminated to stockholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which Purchaser may
choose to make any public announcement, Purchaser shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
 
     If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, Purchaser will extend the Offer to the extent
required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act.
 
     Subject to applicable law, if, prior to the Expiration Date, Purchaser
should decide to increase the consideration being offered in the Offer, such
increase in the consideration being offered will be applicable to all
stockholders whose Shares are accepted for payment pursuant to the Offer and,
if, at the time notice of any such increase in the consideration being offered
is first published, sent or given to holders of such Shares, the Offer is
scheduled to expire at any time earlier than the period ending on the tenth
business day from and including the date that such notice is first so published,
sent or given, the Offer will be extended at least until the expiration of such
ten-business-day period.
 
     The Company has provided Purchaser with the Company's stockholder list and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal and
other related materials will be mailed to record holders of Shares whose names
appear on the Company's stockholder list and will be furnished, for subsequent
transmittal to beneficial owners of Shares, to brokers, dealers, commercial
banks, trust companies and similar persons whose names, or the names of whose
nominees, appear on the stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing.
 
     2.  ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.  Upon the terms and
subject to the conditions of the Offer (including, if the Offer is extended or
amended, the terms and conditions of any such extension or amendment), Purchaser
will accept for payment all Shares validly tendered prior to the Expiration Date
and not withdrawn promptly after the latest to occur of (i) the Expiration Date,
(ii) the expiration or termination of any applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and (iii) the satisfaction or waiver of the other conditions to the Offer
set forth in Section 14, and will promptly pay for all Shares accepted for
payment subject to the expiration or termination of any applicable waiting
periods under the HSR Act. Subject to applicable rules of the Commission,
Purchaser expressly reserves the right to delay acceptance for payment of, or
payment for, Shares pending receipt of any regulatory approvals specified in
Section 15 or in order to comply in whole or in part with any other applicable
law.
 
     In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of (i) the
certificates evidencing such Shares (the "Share Certificates") or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares
 
                                        3
   6
 
into the Depositary's account at The Depository Trust Company or the
Philadelphia Depository Trust Company (each, a "Book-Entry Transfer Facility"
and, collectively, the "Book-Entry Transfer Facilities") pursuant to the
procedures set forth in Section 3, (ii) the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (as defined below) in connection
with a book-entry transfer and (iii) any other documents required under the
Letter of Transmittal.
 
     The term "Agent's Message" means a message, transmitted by a Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that the
Purchaser may enforce such agreement against such participant.
 
     Purchaser has filed with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division"), on
July 29, 1997, a Premerger Notification and Report Form under the HSR Act in
connection with the purchase of Shares pursuant to the Offer. Accordingly, it is
anticipated that the waiting period under the HSR Act applicable to the Offer
will expire at 11:59 p.m., New York City time, on Wednesday, August 13, 1997.
Prior to the expiration or termination of such waiting period, the FTC or the
Antitrust Division may extend such waiting period by requesting additional
information or documentary material from Purchaser. If such a request is made
with respect to the purchase of Shares in the Offer, the waiting period will
expire at 11:59 p.m., New York City time, on the tenth calendar day after
substantial compliance by Purchaser with such a request. Thereafter, the waiting
period may only be extended by court order. The waiting period under the HSR Act
may be terminated prior to its expiration by the FTC and the Antitrust Division.
Purchaser will request early termination of the waiting period, although there
can be no assurance that this request will be granted. Pursuant to the Share
Purchase Agreement, Purchaser may, but need not, extend the Offer for one or
more periods of 15 days (not to exceed 60 days from the date hereof) if the
applicable waiting period under the HSR Act shall not have expired or been
terminated prior to the initial Expiration Date. See Section 15 for additional
information regarding the HSR Act.
 
     For purposes of the Offer, Purchaser will be deemed to have accepted for
payment (and thereby purchased) Shares validly tendered and not withdrawn as, if
and when Purchaser gives oral or written notice to the Depositary of Purchaser's
acceptance for payment of such Shares pursuant to the Offer. Upon the terms and
subject to the conditions of the Offer, payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price therefor
with the Depositary, which will act as agent for tendering stockholders for the
purpose of receiving payments from Purchaser and transmitting such payments to
tendering stockholders whose Shares have been accepted for payment. Under no
circumstances will interest on the purchase price for Shares be paid, regardless
of any delay in making such payment.
 
     If any tendered Shares are not accepted for payment for any reason pursuant
to the terms and conditions of the Offer, or if Share Certificates are submitted
evidencing more Shares than are tendered, Share Certificates evidencing
unpurchased Shares will be returned, without expense to the tendering
stockholder (or, in the case of Shares tendered by book-entry transfer into the
Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure
set forth in Section 3, such Shares will be credited to an account maintained at
such Book-Entry Transfer Facility), as promptly as practicable following the
expiration or termination of the Offer.
 
     3.  PROCEDURES FOR TENDERING SHARES.  In order for a holder of Shares
validly to tender Shares pursuant to the Offer, the Letter of Transmittal (or a
facsimile thereof), properly completed and duly executed, together with any
required signature guarantees, or an Agent's Message in connection with a book-
entry delivery of Shares, and any other documents required by the Letter of
Transmittal, must be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase and either (i) the Share
Certificates evidencing tendered Shares must be received by the Depositary at
such address or such Shares must be tendered pursuant to the procedure for
book-entry transfer described below and a Book-Entry Confirmation must be
received by the Depositary, in each case prior to the Expiration Date, or (ii)
the tendering stockholder must comply with the guaranteed delivery procedures
described below.
 
                                        4
   7
 
     THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER, AND THE DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
 
     Book-Entry Transfer.  The Depositary will establish accounts with respect
to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer
within two business days after the date of this Offer to Purchase. Any financial
institution that is a participant in the system of any Book-Entry Transfer
Facility may make a book-entry delivery of Shares by causing such Book-Entry
Transfer Facility to transfer such Shares into the Depositary's account at such
Book-Entry Transfer Facility in accordance with such Book-Entry Transfer
Facility's procedures for such transfer. However, although delivery of Shares
may be effected through book-entry transfer at a Book-Entry Transfer Facility,
the Letter of Transmittal (or a facsimile thereof), properly completed and duly
executed, together with any required signature guarantees, or an Agent's Message
in connection with a book-entry transfer, and any other required documents,
must, in any case, be received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the tendering stockholder must comply with the guaranteed delivery procedure
described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
 
     Signature Guarantees.  Signatures on all Letters of Transmittal must be
guaranteed by a firm that is a member of the New York Stock Exchange Medallion
Signature Guarantee Program, or by any other "eligible guarantor institution,"
as such term is defined in Rule 17Ad-15 under the Exchange Act (each of the
foregoing being referred to as an "Eligible Institution"), except in cases where
Shares are tendered (i) by a registered holder of Shares who has not completed
either the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution. If a Share Certificate is registered in the
name of a person other than the person who or which signs the Letter of
Transmittal, or if payment is to be made or a Share Certificate not accepted for
payment or not tendered is to be returned to a person other than the registered
holder(s), then the Share Certificate must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the Share Certificate, with the signature(s) on
such Share Certificate or stock powers guaranteed by an Eligible Institution.
See Instructions 1 and 5 of the Letter of Transmittal.
 
     Guaranteed Delivery.  If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's Share Certificates evidencing such Shares are
not immediately available or such stockholder cannot deliver the Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date, or such stockholder cannot complete the procedure for delivery
by book-entry transfer on a timely basis, such Shares may nevertheless be
tendered, provided that all the following conditions are satisfied:
 
          (i) such tender is made by or through an Eligible Institution;
 
          (ii) a properly completed and duly executed Notice of Guaranteed
     Delivery, substantially in the form made available by Purchaser, is
     received prior to the Expiration Date by the Depositary as provided below;
     and
 
          (iii) the Share Certificates (or a Book-Entry Confirmation) evidencing
     all tendered Shares, in proper form for transfer, in each case together
     with the Letter of Transmittal (or a facsimile thereof), properly completed
     and duly executed, with any required signature guarantees (or, in the case
     of a book-entry transfer, an Agent's Message), and any other documents
     required by the Letter of Transmittal are received by the Depositary within
     three trading days on the New York Stock Exchange after the date of
     execution of such Notice of Guaranteed Delivery.
 
                                        5
   8
 
     The Notice of Guaranteed Delivery may be delivered by hand or mail or
transmitted by facsimile transmission to the Depositary and must include a
guarantee, in the form set forth in the form of Notice of Guaranteed Delivery
made available by Purchaser, by a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. or which is a commercial bank or trust company having an office or
correspondent in the United States that is a member in good standing of the
Securities Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program.
 
     In all cases, payment for Shares tendered and accepted for payment pursuant
to the Offer will be made only after timely receipt by the Depositary of the
Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the
delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal.
 
     Determination of Validity.  All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser in its sole discretion, which
determination shall be final and binding on all parties. Purchaser reserves the
absolute right to reject any and all tenders determined by it not to be in
proper form or the acceptance for payment of which may, in the opinion of its
counsel, be unlawful. Purchaser also reserves the absolute right to waive any
condition of the Offer or any defect or irregularity in the tender of any Shares
of any particular stockholder, whether or not similar defects or irregularities
are waived in the case of other stockholders. No tender of Shares will be deemed
to have been validly made until all defects and irregularities have been cured
or waived. None of Purchaser, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification. Purchaser's interpretation of the
terms and conditions of the Offer (including the Letter of Transmittal and the
instructions thereto) will be final and binding.
 
     Other Requirements.  By executing the Letter of Transmittal as set forth
above, a tendering stockholder irrevocably appoints designees of Purchaser as
such stockholder's proxies, each with full power of substitution, in the manner
set forth in the Letter of Transmittal, to the full extent of such stockholder's
rights with respect to the Shares tendered by such stockholder and accepted for
payment by Purchaser (and with respect to any and all other dividends,
distributions, Shares and other securities declared, paid or distributed in
respect of such Shares on or after July 31, 1997). All such proxies shall be
considered coupled with an interest in the tendered Shares. Such appointment
will be effective when, and only to the extent that, Purchaser accepts such
Shares for payment. Upon such acceptance for payment, all prior proxies given by
such stockholder with respect to such Shares (and such other dividends,
distributions, Shares and other securities) will be revoked without further
action, and no subsequent proxies may be given nor any subsequent written
consent executed by such stockholder (and, if given or executed, will not be
deemed to be effective) with respect thereto. The designees of Purchaser will,
with respect to the Shares for which the appointment is effective, be empowered
to exercise all voting and other rights of such stockholder as they in their
sole discretion may deem proper at any annual or special meeting of the
Company's stockholders or any adjournment or postponement thereof, by written
consent in lieu of any such meeting or otherwise. Purchaser reserves the right
to require that, in order for Shares to be deemed validly tendered, immediately
upon Purchaser's payment for such Shares, Purchaser must be able to exercise
full voting rights with respect to such Shares (and such other Shares and
securities).
 
     The acceptance for payment by Purchaser of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and Purchaser upon the terms and subject to the conditions
of the Offer.
 
     UNDER THE FEDERAL INCOME TAX LAWS, THE DEPOSITARY WILL BE REQUIRED TO
WITHHOLD 31 PERCENT OF THE AMOUNT OF ANY PAYMENTS MADE TO CERTAIN STOCKHOLDERS
PURSUANT TO THE OFFER. TO PREVENT SUCH BACKUP FEDERAL INCOME TAX WITHHOLDING
WITH RESPECT TO PAYMENT TO CERTAIN STOCKHOLDERS OF THE PURCHASE PRICE OF SHARES
PURCHASED PURSUANT TO THE OFFER, EACH SUCH STOCKHOLDER MUST PROVIDE THE
DEPOSITARY WITH SUCH STOCKHOLDER'S COR-
 
                                        6
   9
 
RECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH STOCKHOLDER IS NOT
SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE
FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 OF THE LETTER OF
TRANSMITTAL.
 
     4.  WITHDRAWAL RIGHTS.  Tenders of Shares made pursuant to the Offer are
irrevocable except that such Shares may be withdrawn by the tendering
stockholder at any time prior to the Expiration Date and, unless theretofore
accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn
by such stockholder at any time after September 28, 1997. If Purchaser extends
the Offer, is delayed in its acceptance for payment of Shares or is unable to
accept Shares for payment pursuant to the Offer for any reason, then, without
prejudice to Purchaser's rights under the Offer, the Depositary may,
nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares
may not be withdrawn except to the extent that tendering stockholders are
entitled to withdrawal rights as described in this Section 4. Any such delay
will be by an extension of the Offer to the extent required by law.
 
     For a withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth on the back cover page of this Offer to Purchase. Any such
notice of withdrawal must specify the name of the person who tendered the Shares
to be withdrawn, the number of Shares to be withdrawn and the name of the
registered holder of such Shares, if different from that of the person who
tendered such Shares. If Share Certificates evidencing Shares to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Share Certificates, the serial numbers shown on
such Share Certificates must be submitted to the Depositary and the signature(s)
on the notice of withdrawal must be guaranteed by an Eligible Institution,
unless such Shares have been tendered for the account of an Eligible
Institution. If Shares have been tendered pursuant to the procedure for
book-entry transfer as set forth in Section 3, any notice of withdrawal must
also specify the name and number of the account of the Book-Entry Transfer
Facility to be credited with the withdrawn Shares, in which case a notice of
withdrawal will be effective if delivered to the Depositary by any method of
delivery described in the first sentence of this paragraph. Withdrawals of
Shares may not be rescinded. Any Shares properly withdrawn will thereafter be
deemed not to have been validly tendered for purposes of the Offer. However,
withdrawn Shares may be re-tendered at any time prior to the Expiration Date by
following one of the procedures described in Section 3.
 
     All questions as to the form and validity (including time of receipt) of
any notice of withdrawal will be determined by Purchaser, in its sole
discretion, whose determination will be final and binding. None of Purchaser,
the Dealer Manager, the Depositary, the Information Agent or any other person
will be under any duty to give notification of any defects or irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification.
 
     5.  CERTAIN FEDERAL INCOME TAX CONSEQUENCES.  The receipt of cash for
Shares pursuant to the Offer will be a taxable transaction for federal income
tax purposes and may also be a taxable transaction under applicable state, local
or foreign tax laws. In general, a stockholder will recognize gain or loss for
federal income tax purposes equal to the difference between the amount of cash
received in exchange for the Shares sold and such stockholder's adjusted tax
basis in such Shares. Gain or loss will be calculated separately for each
identifiable block of Shares sold. For federal income tax purposes, such gain or
loss will be capital gain or loss if the Shares are capital assets in the hands
of such stockholder, and will be long-term capital gain or loss if such Shares
have been held for more than one year. A stockholder's ability to deduct capital
losses may be limited.
 
     Withholding.  Unless a stockholder complies with certain reporting and/or
certification procedures or is an exempt recipient under applicable provisions
of the Internal Revenue Code of 1986, as amended, and Treasury Regulations
promulgated thereunder, such stockholder may be subject to backup withholding at
a rate of 31% with respect to any consideration received pursuant to the Offer.
See Section 3. Stockholders should consult their brokers to ensure compliance
with such procedures. Foreign stockholders should consult with their own tax
advisors regarding withholding taxes.
 
                                        7
   10
 
     THE FOREGOING DISCUSSION MAY NOT BE APPLICABLE TO CERTAIN TYPES OF
STOCKHOLDERS, INCLUDING FINANCIAL INSTITUTIONS, BROKER-DEALERS, STOCKHOLDERS WHO
ACQUIRED SHARES PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE
AS COMPENSATION, INDIVIDUALS WHO ARE NOT CITIZENS OR RESIDENTS OF THE UNITED
STATES AND FOREIGN CORPORATIONS.
 
     THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND IS BASED UPON PRESENT LAW. STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE
OFFER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND
FOREIGN TAX LAWS.
 
     6.  PRICE RANGE OF SHARES; DIVIDENDS.  The Shares are listed and
principally traded on the New York Stock Exchange. The following table sets
forth, for the fiscal quarters indicated, the high and low sales prices per
Share on the New York Stock Exchange as reported by the Dow Jones News Service
since January 1, 1995 and the cash dividends per share declared during such
periods.
 


                                                                                    QUARTERLY CASH
                                                                   HIGH     LOW       DIVIDENDS
                                                                   ----     ---     --------------
                                                                           
Fiscal 1995:
  First Quarter..................................................  $11  1/2 $6  1/4       --
  Second Quarter.................................................    9  1/8  6  1/2       --
  Third Quarter..................................................    9  7/8  8  1/4       --
  Fourth Quarter.................................................    9       5  3/4       --
Fiscal 1996:
  First Quarter..................................................    7  5/8  5  3/4       --
  Second Quarter.................................................    8  1/8  5  3/8       --
  Third Quarter..................................................    5  7/8  4  7/8       --
  Fourth Quarter.................................................    5  1/2  2  3/4       --
Fiscal 1997:
  First Quarter..................................................    3  7/8  3  1/8       --
  Second Quarter.................................................    5  7/8  2  1/4       --
  Third Quarter (through July 30, 1997)..........................    7       5  3/4       --

 
     On June 25, 1997, the last full trading day prior to the announcement of
the execution of the UDI Agreement and of UDI's intention to commence the UDI
Offer, the closing price per Share as reported on the New York Stock Exchange
was $3 1/4. On July 25, 1997, the last full trading day prior to the
announcement of the execution of the Share Purchase Agreement and of Purchaser's
intentions to commence the Offer, the closing price per Share as reported on the
New York Stock Exchange was $5 15/16. On July 30, 1997, the closing price per
Share as reported on the New York Stock Exchange was $6 13/16.
 
     STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES.
 
     7.  CERTAIN INFORMATION CONCERNING THE COMPANY.  Except as otherwise set
forth herein, the information concerning the Company contained in this Offer to
Purchase, including financial information, has been furnished by the Company or
has been taken from or based upon publicly available documents and records on
file with the Commission and other public sources. Neither Purchaser nor the
Dealer Manager assumes any responsibility for the accuracy or completeness of
the information concerning the Company furnished by the Company or contained in
such documents and records or for any failure by the Company to disclose events
that may have occurred or may affect the significance or accuracy of any such
information but that are unknown to Purchaser or the Dealer Manager.
 
     General.  The Company is a Delaware corporation with its principal
executive offices located at 1009 Lenox Drive, Building Four West,
Lawrenceville, New Jersey 08648. The Company is an integrated
 
                                        8
   11
 
multinational industrial manufacturer of a broad range of industrial products
through its five core business segments -- Power Transmission, Pumps,
Instrumentation, Morse Controls and Roltra-Morse. The Company's products are
designed to regulate and control motion, transfer liquids and monitor fluids.
The Company markets its products on a worldwide basis to a diverse customer
base. In November 1996, the Company announced that it was withdrawing
Roltra-Morse from divestiture because threats made by an unsuccessful bidder
made it impossible for the Company to receive fair value for the business. As a
result of this announcement, Roltra-Morse has been reclassified as a continuing
operation and the Company has re-focused its operations on its five core
business segments, as follows:
 
     The Power Transmission business segment designs and produces electronic
adjustable-speed motor drives, gears and speed reducers.
 
     The Pumps business segment designs and produces a broad range of rotary
pumps, including a proprietary line of two and three-screw pumps.
 
     The Instrumentation business segment designs and produces transducers and
switches for sensing, measuring and controlling pressure, temperature and liquid
level and flow.
 
     The Morse Controls business segment designs and produces push-pull cable
and remote control systems.
 
     The Roltra-Morse business segment designs and produces automotive products
including actuators, window controls, latches and door panels/assemblies.
 
     Financial Information.  Set forth below is certain selected consolidated
financial information relating to the Company and its subsidiaries which has
been excerpted or derived from the audited financial statements contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
unaudited financial statements contained in the Company's Quarterly Reports on
Form 10-Q for the periods ended March 31, 1997 and 1996 (collectively, the
"Company's Reports"). More comprehensive financial information is included in
the Company's Reports and other documents filed by the Company with the
Commission. The financial information that follows is qualified in its entirety
by reference to such reports and other documents, including the financial
statements and related notes contained therein. Such reports and other documents
may be examined and copies may be obtained from the offices of the Commission in
the manner set forth below.
 
                              IMO INDUSTRIES INC.
                                AND SUBSIDIARIES
 
                  SELECTED CONSOLIDATED FINANCIAL INFORMATION
                      (IN THOUSANDS EXCEPT PER SHARE DATA)
 


                                                          YEAR ENDED          THREE MONTHS ENDED
                                                         DECEMBER 31,             MARCH 31,
                                                     --------------------    --------------------
                                                       1996      1995(1)       1997      1996(2)
                                                     --------    --------    --------    --------
                                                                                 (UNAUDITED)
                                                                             
INCOME STATEMENT DATA:
Net sales.........................................   $468,645    $472,367    $119,546    $121,415
Gross profit......................................    132,628     131,898      35,459      35,558
Selling, general and administrative expenses......     95,232      87,875      23,931      22,332
Research and development expenses.................      9,290       7,736       2,267       2,275
Unusual items.....................................     24,573      10,208      12,900          --
Interest expense..................................     33,317      31,463       8,402       8,290
Income (loss) from continuing operations before
  extraordinary item..............................    (41,773)     12,529     (12,842)      1,940
Discontinued operations net of taxes..............     (8,142)     21,625          --          --
Extraordinary item -- loss on extinguishment of
  debt............................................     (8,455)     (4,444)         --          --
Net income (loss).................................   $(58,370)   $ 29,710    $(12,842)   $  1,940

 
                                        9
   12
 


                                                          YEAR ENDED          THREE MONTHS ENDED
                                                         DECEMBER 31,             MARCH 31,
                                                     --------------------    --------------------
                                                       1996      1995(1)       1997      1996(2)
                                                     --------    --------    --------    --------
                                                                                 (UNAUDITED)
                                                                             
Earnings (loss) per share:
  Continuing operations before extraordinary
     item.........................................   $  (2.44)   $   0.73    $  (0.75)   $   0.11
  Discontinued operations.........................       (.48)       1.27          --          --
  Extraordinary item..............................       (.49)       (.26)         --          --
  Net income (loss)...............................      (3.41)       1.74        (.75)        .11
Weighted average number of shares outstanding.....     17,100      17,049      17,125      17,085

 
- ---------------
(1) Restated to conform to 1996 presentation.
 
(2) Restated to conform to 1997 presentation.
 


                                                                AT                         AT
                                                    ---------------------------   ---------------------
                                                    DECEMBER 31,   DECEMBER 31,   MARCH 31,   MARCH 31,
                                                        1996         1995(1)       1997(2)     1996(2)
                                                    ------------   ------------   ---------   ---------
                                                                                       (UNAUDITED)
                                                                                  
BALANCE SHEET DATA:
Working capital...................................    $ 44,125       $ 62,777     $  33,839   $  87,974
Total current assets..............................     202,507        205,015       212,409     169,852
Total assets......................................     411,614        434,922       407,957     387,805
Total current liabilities.........................     158,382        142,238       178,570      81,878
Long-term debt....................................     251,860        231,561       246,324     249,203
Total liabilities.................................     465,544        428,374       478,449     378,623
Total shareholders' equity (deficit)..............     (54,884)         5,342       (71,328)      9,182

 
- ---------------
(1) Restated to conform to 1996 presentation.
 
(2) The March 31, 1996 balance sheet data treat the Roltra-Morse business
    segment of the Company as a discontinued operation, while the March 31, 1997
    balance sheet data treat the Roltra-Morse business segment as a continuing
    operation of the Company.
 
     In connection with Purchaser's review of the Company and in the course of
the negotiations between Purchaser and the Company described in Section 10, the
Company provided Purchaser with certain business and financial information,
including unaudited financial data for the six months ended June 30, 1997,
including sales of $246.2 million, earnings before interest and income taxes of
$7.8 million and net loss of $10.4 million.
 
     The Company has advised Purchaser that it does not as a matter of course
make public forecasts as to future performance or earnings. However, in
connection with Purchaser's due diligence review of the Company described in
Section 10, the Company provided to Purchaser certain projections relating to
the Company's forecasted operating results for future periods, including 1997,
1998 and 1999. Purchaser has been advised that such information was prepared by
the Company solely as part of the Company's annual planning process, independent
of the Company's potential sale to Purchaser. Such projections included
forecasts of sales of $485.9 million, $521.0 million and $564.0 million, gross
profit of $146.1 million, $163.9 million and $181.1 million, income from
operations of $22.7 million, $41.3 million and $53.1 million and net income
(loss) of $(13.6 million), $5.1 million and $16.1 million for 1997, 1998 and
1999, respectively.
 
     PROJECTED INFORMATION OF THIS TYPE IS BASED ON ESTIMATES AND ASSUMPTIONS
THAT ARE INHERENTLY SUBJECT TO SIGNIFICANT ECONOMIC AND COMPETITIVE
UNCERTAINTIES AND CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT AND MANY
OF WHICH ARE BEYOND THE COMPANY'S CONTROL. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THESE PROJECTIONS. THESE
 
                                       10
   13
 
PROJECTIONS REFLECT NUMEROUS ASSUMPTIONS, ALL MADE BY MANAGEMENT OF THE COMPANY,
WITH RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND
FINANCIAL CONDITIONS AND OTHER MATTERS INCLUDING ASSUMED INTEREST EXPENSE AND
EFFECTIVE TAX RATES CONSISTENT WITH HISTORICAL LEVELS FOR THE COMPANY, ALL OF
WHICH ARE DIFFICULT TO PREDICT, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL
AND NONE OF WHICH WERE SUBJECT TO APPROVAL BY PURCHASER. ACCORDINGLY, THERE CAN
BE NO ASSURANCE THAT THE PROJECTED RESULTS WILL BE REALIZED OR THAT ACTUAL
RESULTS WILL NOT BE SIGNIFICANTLY HIGHER OR LOWER THAN THOSE SET FORTH ABOVE. IN
ADDITION, THESE PROJECTIONS WERE NOT PREPARED WITH A VIEW TO PUBLIC DISCLOSURE
OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE GUIDELINES
ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING
PROJECTIONS AND FORECASTS AND ARE INCLUDED IN THIS OFFER TO PURCHASE ONLY
BECAUSE SUCH INFORMATION WAS MADE AVAILABLE TO PURCHASER BY THE COMPANY. NONE OF
PURCHASER, THE COMPANY, THEIR FINANCIAL ADVISORS OR ANY OTHER ENTITY OR PERSON
ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OR VALIDITY OF THE FOREGOING
PROJECTIONS. NONE OF PURCHASER, THE COMPANY OR ANY OF THEIR FINANCIAL ADVISORS
HAS MADE, OR MAKES, ANY REPRESENTATION TO ANY PERSON REGARDING THE INFORMATION
CONTAINED IN THESE PROJECTIONS AND NONE OF THEM INTENDS TO UPDATE OR OTHERWISE
REVISE THESE PROJECTIONS TO REFLECT CIRCUMSTANCES EXISTING AFTER THE DATE WHEN
MADE OR TO REFLECT THE OCCURRENCE OF FUTURE EVENTS EVEN IN THE EVENT THAT ANY OR
ALL OF THE ASSUMPTIONS UNDERLYING THESE PROJECTIONS ARE SHOWN TO BE IN ERROR.
 
     The Shares are listed on the New York Stock Exchange and are registered
pursuant to Section 12(b) of the Exchange Act. Accordingly, the Company is
subject to the informational filing requirements of the Exchange Act and, in
accordance therewith, is required to file periodic reports, proxy statements and
other information with the Commission relating to its business, financial
condition and other matters. Information as to particular dates concerning the
Company's directors and officers, their remuneration, stock options granted to
them, the principal holders of the Company's securities and any material
interest of such persons in transactions with the Company is required to be
disclosed in proxy statements distributed to the Company's stockholders and
filed with the Commission. Such reports, proxy statements and other information
should be available for inspection at the public reference facilities maintained
by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and also should be available for inspection at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials may also be obtained by mail, upon
payment of the Commission's customary fees. Requests should be directed to the
Commission's Public Reference Branch, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material may also be accessed electronically by
means of the Commission's home page on the Internet (http://www.sec.gov). Such
information may also be inspected and copied at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005.
 
     8.  CERTAIN INFORMATION CONCERNING PURCHASER.  Purchaser, a newly
incorporated Delaware corporation organized in connection with the Offer, has
not carried on any activities other than in connection with the Offer. The
principal offices of Purchaser are located at 9211 Forest Hill Avenue, Suite
109, Richmond, Virginia 23235. Purchaser, an affiliate of Constellation, is a
corporation controlled by Mitchell P. Rales and Steven M. Rales (the
"Controlling Stockholders").
 
     Until immediately prior to the time that Purchaser will purchase Shares
pursuant to the Offer, it is not anticipated that Purchaser will have any
significant operating assets or liabilities or engage in activities other than
those incident to its formation and capitalization and the transactions
contemplated by the Offer. Because Purchaser is newly formed, no meaningful
operating information regarding Purchaser is available. However, a balance sheet
of Purchaser is set forth below. The Controlling Stockholders have represented
and warranted to the Company that for so long as the Offer remains outstanding,
they will cause the funds with
 
                                       11
   14
 
which Purchaser is currently capitalized to remain in Purchaser, available to be
used to consummate the purchase of Shares in the Offer. Notwithstanding any
other provision contained in this Offer to Purchase or the Letter of
Transmittal, at any time prior to the payment for Shares accepted for payment in
the Offer, Purchaser may assign its right to purchase Shares to any entity
directly or indirectly wholly owned by the Controlling Stockholders.
 
     Steven M. Rales and Mitchell P. Rales beneficially and directly own 92% of
the outstanding common stock of Purchaser. The Controlling Stockholders also own
100% of Constellation, a private investment firm, and of Colfax Capital
Corporation ("Colfax"), a private investment firm. Approximately 39.4% of the
outstanding common stock of Danaher Corporation (the "Asset Purchaser") is
beneficially owned by the Controlling Stockholders, directly or through certain
limited liability companies. The Controlling Stockholders are directors of
Colfax, the Asset Purchaser and Purchaser, and are members of the Board of
Managers of Constellation. The offices of the Controlling Stockholders are
located at 1250 24th Street, N.W., Suite 800, Washington, D.C. 20037.
 
     The name, citizenship, residence or business address, principal occupation
or employment, and five-year employment history for the Controlling
Stockholders, and each of the directors and executive officers of Purchaser and
certain other information are set forth in Schedule I hereto.
 
     Except as described below or elsewhere in this Offer to Purchase, including
Schedule I hereto, (i) none of Purchaser, the Controlling Stockholders, nor, to
the best knowledge of Purchaser, any of the persons listed in Schedule I to this
Offer to Purchase, or any associate or majority-owned subsidiary of Purchaser,
the Controlling Stockholders or any of the persons so listed, beneficially owns
or has any right to acquire, directly or indirectly, any Shares and (ii) neither
Purchaser nor the Controlling Stockholders nor, to the best knowledge of
Purchaser, any of the persons or entities referred to above, nor any director,
executive officer or subsidiary of any of the foregoing, has effected any
transaction in the Shares during the past 60 days. Mr. Philip W. Knisely,
President and Chief Executive Officer of Purchaser, beneficially owns 3,000
Shares jointly with his wife and an additional 2,000 Shares held through an
individual retirement account. In addition, Mr. John A. Young, Vice President
and Secretary of Purchaser, beneficially owns 1,500 Shares through an individual
retirement account. Neither Mr. Knisely nor Mr. Young owns more than 1% of the
Shares.
 
     Except as provided in the Share Purchase Agreement and as otherwise
described in this Offer to Purchase, none of Purchaser, the Controlling
Stockholders nor, to the best knowledge of Purchaser, any of the persons listed
in Schedule I to this Offer to Purchase, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
such securities, finder's fees, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss, guaranties of
profits, division of profits or loss or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, since January 1, 1994, neither
Purchaser nor the Controlling Stockholders nor, to the best knowledge of
Purchaser, any of the persons listed on Schedule I hereto, has had any business
relationship or transaction with the Company or any of its executive officers,
directors or affiliates that is required to be reported under the rules and
regulations of the Commission applicable to the Offer. Except as set forth in
this Offer to Purchase, since January 1, 1994, there have been no contacts,
negotiations or transactions between any of Purchaser, the Controlling
Stockholders, or any of their respective subsidiaries or, to the best knowledge
of Purchaser, any of the persons listed in Schedule I to this Offer to Purchase,
on the one hand, and the Company or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or other
acquisition of securities, an election of directors or a sale or other transfer
of a material amount of assets.
 
     Financial Information of Purchaser.  Set forth below is selected balance
sheet data of Purchaser as of July 24, 1997. Purchaser was incorporated on July
22, 1997, and has conducted no operations since then.
 
                                       12
   15
 
                              II ACQUISITION CORP.
 
                            SELECTED FINANCIAL DATA
                                 (IN THOUSANDS)
 


                                                                                       AT
                                                                                    JULY 24,
                                                                                      1997
                                                                                    --------
                                                                                 
BALANCE SHEET DATA:
Cash and cash equivalents.........................................................  $130,000
Total assets......................................................................   130,000
Long-term debt....................................................................   125,000
Total liabilities.................................................................   125,000
Total shareholders' equity........................................................     5,000

 
     9.  FINANCING OF THE OFFER.  The total amount of funds required by
Purchaser to consummate the Offer and to pay related fees and expenses is
estimated to be approximately $130 million. Purchaser has obtained all of such
funds from the Controlling Stockholders and their affiliates. Purchaser has
issued a Senior Note in the amount of $50,000,000 (the "JFC Note") to Janelia
Farm Corp., a Virginia corporation that is wholly owned by the Controlling
Stockholders. The JFC Note, which will mature on May 15, 2007, bears interest at
a variable rate per annum equal to the sum of (a) the rate published from time
to time in the Wall Street Journal, as its "prime" rate, determined with respect
to the date that is two business days prior to the applicable interest payment
date ("Prime") and (b) 0.25%, payable on the fifteenth day of November and May
of each year. At the option of Purchaser, interest will be payable by adding to
the principal amount of the JFC Notes through May 15, 2002, after which time
interest will be payable solely in cash.
 
     In addition, Purchaser has issued Subordinated Notes in the aggregate
amount of $75,000,000 to the Controlling Stockholders (the "Subordinated
Notes"). The Subordinated Notes will mature on May 15, 2007, and bear interest
at a variable rate per annum equal to the sum of (a) Prime and (b) 0.375%,
payable on the fifteenth day of November and May of each year. At the option of
Purchaser, interest will be payable by adding to the principal amount of the
Subordinated Notes through May 15, 2002, after which time interest will be
payable solely in cash. The Subordinated Notes are subordinated in right of
payment to the JFC Note.
 
     Purchaser anticipates that indebtedness incurred under the JFC and
Subordinated Notes will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by affiliates of
Purchaser, bank financing and the public or private sale of debt or equity
securities. No decision has been made concerning the method Purchaser will
employ to repay such indebtedness. Such decision will be made based on
Purchaser's review from time to time of the advisability of particular actions,
as well as on prevailing interest rates and financial and other economic
conditions and such other factors as Purchaser may deem appropriate.
 
     Purchaser currently intends to refinance the Company's obligations under
the Credit Agreement, dated as of April 29, 1996 (as amended, the "Credit
Agreement"), among the Company, Varo Inc., Warren Pumps Inc., the lenders from
time to time party thereto, the issuing banks from time to time party thereto
and Citicorp USA, Inc., as Agent. Purchaser currently intends to obtain such
funds pursuant to new credit facilities (the "Credit Facilities") of up to
$147,400,000 of senior, secured financing consisting of (a) a $70,000,000
revolving credit facility (the "Revolving Facility") and (b) a $77,400,000 term
loan facility (the "Term Facility") for which Purchaser has received a
commitment from The Bank of Nova Scotia ("Scotia") and NationsBank, N.A.
("NationsBank") (collectively, the "Managing Agents") pursuant to a commitment
letter (the "Commitment Letter") dated July 24, 1997 among Scotia, NationsBank,
Constellation and Purchaser. The Revolving Facility will also be used for the
general corporate and working needs of the Company and its Subsidiaries, to
refinance up to $40,000,000 of the Notes and, in an amount not to exceed
$20,000,000, to pay fees and expenses arising in connection with the acquisition
of the Company and certain other related transactions.
 
     The Credit Facilities will (a) be secured by (i) a lien on all the capital
stock of the Company acquired by Purchaser in the Offer and in each of the
Company's Subsidiaries, (ii) all property and assets of the Company
 
                                       13
   16
 
and its domestic subsidiaries and (iii), subject to certain limits, a pledge of
all notes evidencing intercompany indebtedness owing to the Company or its
domestic subsidiaries and (b) be guaranteed by Purchaser.
 
     The loans under the Credit Facilities will bear interest at the Company's
option either at (a) Scotia's alternative base rate or (b) Scotia's
reserve-adjusted LIBO rate plus, in each case, a margin determined by reference
to the Company's leverage ratio.
 
     The obligation of the Managing Agents to provide the Credit Facilities and
the initial extension of credit is subject to a number of conditions including,
without limitation, (a) certain conditions customary to commitments of this
nature; (b) review and satisfaction of the final structure and documents related
to the transactions referred to in the Commitment Letter (including the Offer),
and the source and uses of proceeds used to consummate the transactions referred
to in the Commitment Letter; (c) Purchaser having acquired in the Offer the
higher of (i) 80% of the Shares outstanding on July 24, 1997 and (ii) a
sufficient number of Shares to control the Company's Board of Directors; (d)
Purchaser being obligated to purchase preferred stock of the Company in an
amount of $156,550,000 to redeem all Notes that can potentially be put to the
Company as a result of the change in control caused by the Offer and that
Purchaser is committed to purchase preferred stock of the Company in an amount
of not less than $40,000,000 (the "Initial Capital Contribution") within 60 days
following the date definitive documents relating to the Credit Facilities are
delivered by the Company and the lenders (the "Bank Closing Date") if the
Initial Sale (as defined below) has not been consummated; and (e) the Company
having a committed unsecured line of credit (the "Unsecured Line") in an amount
of $10,000,000 which shall be converted into preferred equity of the Company if
the Initial Sale does not occur within 60 days of the Bank Closing Date.
 
     The Commitment Letter provides that in addition to the fee to be paid to
each of Scotia and NationsBank in accordance with the terms of a fee letter,
there is also to be a fee payable to the lenders with a commitment to make
Revolving Loans in the amount equal to the applicable LIBO rate margin which
will accrue on the daily average unused portion of all outstanding letters of
credit payable quarterly in arrears. In addition, the Commitment Letter provides
that a non-refundable fee will accrue on the daily average unused portion of the
Revolving Facility commitments payable quarterly in arrears and on the final
maturity of the Revolving Facility in an amount determined by the Company's
leverage ratio.
 
     The definitive credit agreement for the Credit Facilities is expected to
provide for various representations, warranties and covenants. In addition to
customary affirmative covenants, the definitive credit agreement will provide
for (a) the sale of assets within 60 days following the Bank Closing Date
resulting in net cash proceeds to the Company of no less than $85,000,000 (the
"Initial Sale") and (b) a covenant from Purchaser to (i) purchase preferred
stock of the Company in an amount sufficient to pay for all Notes which may be
put to the Company resulting from the change in control caused by the Offer and
(ii) make the Initial Capital Contribution if the Initial Sale does not occur
within 60 days of the Bank Closing Date.
 
     The definitive credit agreement will also provide for customary negative
and financial covenants including (a) additional indebtedness, (b) dividends and
similar distributions, (c) liens and encumbrances, (d) asset dispositions and
similar transfers, (e) investments, acquisitions and capital expenditures, (f)
mergers, consolidations and similar combinations, (g) transactions with
affiliates, and (h) financial ratios.
 
     Although Purchaser expects that the Credit Facilities will be available to
provide funds in accordance with their respective terms, there can be no
assurance that the Credit Facilities will be consummated.
 
     Purchaser intends to provide an unsecured line of credit in the amount of
$10,000,000 to the Company. Loans made pursuant thereto would mature on the
earlier of 60 days following the Bank Closing Date or the consummation of the
Initial Sale. If the consummation of the Initial Sale does not occur within 60
days following the Bank Closing Date all outstanding debt thereunder would be
converted into preferred stock of the Company having terms identical to the
terms of the preferred stock to be issued as described in the next paragraph and
having a liquidation preference equal to the principal amount of the loans to be
exchanged. This unsecured line of credit is intended to satisfy the condition in
the Commitment Letter that the Unsecured Line be in place.
 
                                       14
   17
 
     Purchaser does not intend to prepay or refinance the Notes at this time.
However, under Section 4.10 of the indenture governing the Notes (the "Notes
Indenture"), if the Offer is consummated, each holder of Notes will have the
right to require the Company to purchase such Notes at a price equal to 101% of
the aggregate principal amount of the Notes to be so purchased. In order to
facilitate any required purchase of Notes and the potential need to make the
Initial Capital Contribution, Purchaser has entered into a Stock Subscription
Agreement, dated as of July 23, 1997, with Colfax (the "Colfax Agreement"),
pursuant to which Colfax has agreed to purchase up to 2,000 shares of preferred
stock, par value $0.01 per share, of Purchaser ("Purchaser Preferred Stock"), at
$100,000 per share, or up to an aggregate of $200,000,000. The Purchaser
Preferred Stock would pay cumulative dividends at the rate of 7% per annum,
payable only when declared, and would be subject to mandatory redemption on
December 31, 2001. Pursuant to the terms of the Colfax Agreement, Colfax has
agreed to purchase the Purchaser Preferred Stock when requested to do so by
Purchaser. Purchaser and the Company will enter into a comparable agreement
providing for the purchase by Purchaser of up to $200,000,000 of preferred stock
of the Company paying cumulative dividends of 7% per annum, payable only when
declared. Such preferred stock would be issued and sold when called for by the
Company after the consummation of the Offer made hereunder in an aggregate
amount not in excess of the amount needed to fund the purchase price payable by
the Company for Notes required to be purchased pursuant to Section 4.10 of the
Notes Indenture and to the fund the Initial Capital Contribution. The funds made
available pursuant to the Colfax Agreement would enable the Company to purchase
Notes as discussed above.
 
     Copies of the Commitment Letter and the Colfax Agreement have been filed as
Exhibits to the Schedule 14D-1 and the foregoing summary is qualified in its
entirety by reference to such Exhibits.
 
     10.  BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE SHARE PURCHASE
AGREEMENT.
 
     Background of the Offer; Contacts with the Company.   In July, 1995, an
affiliate of Purchaser contacted the Company and expressed interest in the power
transmission business of the Company. The Company responded that it was not
interested in selling the power transmission business at that time and there
were no further contacts with respect to such business.
 
     In February, 1997, representatives of an affiliate of Purchaser met with
representatives of Credit Suisse First Boston to discuss, among other things,
Purchaser's interest in acquiring the Company. Credit Suisse First Boston
indicated that the Company was evaluating its options at that time.
 
     On March 21, 1997, the Company announced that it had engaged Credit Suisse
First Boston to assist it in evaluating strategic alternatives for enhancing
stockholder value and reducing leverage, including the possible merger or sale
of the Company. On May 13, 1997, Constellation was invited to participate in a
private auction of the Company. On May 19, 1997, Constellation entered into a
confidentiality agreement with the Company agreeing to keep certain information
confidential and not to take certain action to obtain control of the Company.
See "Confidentiality Agreement" in this Section 10.
 
     On June 2, 1997, after reviewing the limited information contained in an
information memorandum prepared by Credit Suisse First Boston provided to
Constellation, Mr. John A. Young, Vice President of Constellation, informed the
Company by letter that Constellation, in partnership with the Asset Purchaser,
was interested in acquiring the Company at $6.00 to $7.50 per Share, payable in
cash and based on the information contained in the information memorandum and on
Constellation's internal review of the Company's publicly filed information. Mr.
Young stated in his letter that any definitive offer would not be subject to
financing.
 
     On June 6, 1997, John M. Glazer of Credit Suisse First Boston, sent a
letter to Mr. Young inviting Constellation and the Asset Purchaser to attend due
diligence presentations at the Company on June 18 and 19, 1997.
 
     On June 17, 1997, representatives of Credit Suisse First Boston informed
Mr. Young that Constellation would have to delay its due diligence review,
scheduled for June 18 and 19, until the week of July 7, 1997.
 
                                       15
   18
 
     On June 26, 1997, the Company announced that it had entered into the UDI
Agreement, which provided, among other things, for the UDI Offer to purchase all
outstanding Shares at $6.00 per Share, and for the UDI Note Offer.
 
     On June 27, 1997, Mr. Young sent a letter (the "June 27 Letter") to Messrs.
Alan H. Howard and Jonathan K. Rouner of Credit Suisse First Boston indicating
Constellation's disappointment that the Company had entered into the UDI
Agreement without affording Constellation and the Asset Purchaser an opportunity
to conduct due diligence. The June 27 Letter requested that Constellation be
given access to management, the Company's facilities and the confidential
information provided to UDI and indicated that Constellation was prepared to
move quickly to conclude an agreement that would provide greater value to the
Company's stockholders than the UDI Offer even taking into account the breakup
fee payable to UDI under the UDI Agreement.
 
     On June 30, 1997, Constellation was informed by representatives of Credit
Suisse First Boston that the Company's Board of Directors agreed to provide
Constellation and its representatives access to the same information and people
as was provided to UDI. Constellation conducted its due diligence review from
July 2, 1997 to July 23, 1997.
 
     On July 22, 1997, counsel for Purchaser sent to counsel for the Company a
draft of the agreement that Purchaser would propose if the Board of Directors of
the Company determined to release Purchaser from the standstill provisions
contained in the Confidentiality Agreement and if Purchaser determined to make a
proposal to acquire the Shares. The draft agreement did not include a price for
the Shares. The differences between the draft agreement and the UDI Agreement
principally reflected the absence of a merger involving the Company after
successful completion of the Offer and an offer to purchase the Notes or a
solicitation of consents to amend the indenture governing the Notes. Purchaser's
purpose in delivering such a draft agreement was to expedite the Board's review
of any offer made by Purchaser if the Board determined to release Purchaser from
the standstill provisions contained in the Confidentiality Agreement.
 
     On July 24, 1997, Philip W. Knisely, President and Chief Executive Officer
of Purchaser, sent a letter (the "July 24 Letter") to the Company's Board of
Directors indicating that if the Board were to release Constellation from the
standstill provisions of the Confidentiality Agreement, it would be willing to
offer $7.05 per Share in cash for the Company. The full text of the July 24
Letter follows:
 
     July 24, 1997
 
     Imo Industries Inc.
     1009 Lenox Drive
     Lawrenceville, NJ 08648-0550
 
     Attention: Mr. Donald K. Farrar
            Chairman and Chief Executive Officer
 
     Dear Mr. Farrar:
 
     Our review of Imo Industries ("Imo") has confirmed our interest in a
     transaction with Imo, on a basis that represents a superior opportunity for
     Imo's shareholders, employees, suppliers and customers.
 
     If Imo's Board of Directors releases us from the standstill provisions of
     our letter agreement dated May 19, 1997, we are prepared to propose an
     all-cash acquisition of Imo, not conditioned on financing, at a price of
     $7.05 per share.
 
     Our proposal would take the form of a tender offer by a new company, II
     Acquisition Corp. ("Purchaser"), that is wholly owned by Steven and
     Mitchell Rales. Our offer would not be contingent on any kind of
     refinancing, repurchase or consent solicitation relating to the Senior
     Subordinated Notes or other Imo debt. Our offer would be for all Imo
     shares, so that all shareholders would have the opportunity to participate
     in it. Subject only to these changes, any agreement we would enter into
     with you would closely track the United Dominion Industries Limited ("UDI")
     Merger Agreement, including the provisions as to a termination fee and
     payment of expenses.
 
                                       16
   19
 
     We are prepared to enter into the Share Purchase Agreement sent to your
     counsel on July 21 by our counsel, with the changes set forth in the July
     23 memorandum to your counsel, responding to your comments. We have sent
     you earlier today a complete copy of the Share Purchase Agreement that
     incorporates those changes.
 
     As stated, our offer would not be subject to financing. Purchaser has on
     hand the funds needed to complete the tender offer. The funds are in
     Purchaser's account (No. RAAFF) at Credit Suisse First Boston Corporation.
     We enclose a letter from the Rales brothers to Imo, undertaking that if the
     Share Purchase Agreement is signed, the funds will remain available to
     complete the tender offer in accordance with its terms.
 
     We understand that Imo's credit agreement and note indenture contain
     acceleration or put provisions in the event of a change of control of Imo.
     In this connection, we have sent to you earlier today: (1) a bank
     commitment letter as to the refinancing of Imo's credit agreement; (2) a
     subscription agreement between Purchaser and an affiliate, Colfax Capital
     Corporation, by which Colfax Capital agrees to purchase preferred stock of
     Purchaser in an amount sufficient to enable Purchaser to fund Imo's payment
     of the notes; and (3) a balance sheet of Colfax Capital.
 
     We believe that the transaction we have outlined represents an opportunity
     for your shareholders, and is in fact on terms substantially more favorable
     to your shareholders than the UDI offer. The price we would be prepared to
     offer represents a premium of 116.9% over the market price of Imo's stock
     prior to the announcement of the UDI offer and is 17.5% higher than the
     price offered by UDI.
 
     We are prepared to move quickly to execute and close an agreement. We hope
     that you and your fellow directors will view our willingness to make the
     offer described above as we do -- an excellent opportunity for the
     shareholders of Imo to realize full value for their shares.
 
     We trust that Imo's Board of Directors will give prompt and serious
     consideration to the proposal outlined above, and will not take any actions
     that would adversely affect your shareholders' ability to receive the
     benefits of this proposed transaction. Our desire is to work together with
     you to reach agreement on a transaction which can be presented to your
     shareholders as the joint effort of the directors and managements of both
     companies.
 
     In light of the timing of the UDI offer, it is very important that we hear
     from you as promptly as practicable. Moreover, we have previously furnished
     to you and your counsel the form of the transaction agreement, as well as
     the commitment letter and subscription agreement referred to above, so that
     essentially the only issue before the Board is the per share price.
     Accordingly, please be advised that we are not prepared to make the
     proposal referred to in this letter unless the proposal can be made and
     accepted as contemplated by 9:00 P.M., EDT tonight.
 
     We appreciate the courtesies and professionalism from you and your
     colleagues during our recent due diligence review process. That process has
     enabled us to confirm our favorable view of Imo.
 
     We look forward to hearing from you, and to working together. I will be
     available from 4:00 P.M. to 9:00 P.M. at 804-560-4072 to answer any
     questions you may have regarding our offer.
 
     Sincerely,
 
     /s/ PHILIP W. KNISELY
     Philip W. Knisely
     President
 
     Prior to 9:00 p.m. on July 24, 1997, Mr. Farrar informed Mr. Knisely that
the Company's Board of Directors would need until Sunday afternoon, July 27,
1997, to consider and react to the July 24 Letter. Representatives of Purchaser
informed representatives of the Company that the July 24 Letter would be
extended until midnight on July 24, 1997, provided the Company agreed not to
solicit any competing offers during such extension period. At midnight, certain
issues remained unresolved, and the parties negotiated for several more hours
that night. Negotiations were terminated at 3:00 in the morning on July 25,
1997. A
 
                                       17
   20
 
number of additional discussions among the financial and legal advisors to the
Company and Purchaser were held in the late morning and early afternoon on July
25 without resolution. At approximately 5:00 p.m. on July 25, 1997,
Constellation was informed that the Company's Board of Directors had released
Constellation from the standstill provisions in the Confidentiality Agreement to
the extent necessary to permit Constellation and Purchaser to make the proposal
discussed in the July 24 Letter. After such release on July 25, 1997, the Board
of Directors of the Company approved the Share Purchase Agreement and the Offer.
The Board of Directors of the Company also withdrew its recommendation of the
UDI Offer and UDI Merger.
 
     On the same day, the Company notified UDI that it was terminating the UDI
Agreement. Simultaneously therewith, Purchaser, on behalf of the Company,
deposited $10 million in an account with Credit Suisse First Boston and provided
Credit Suisse First Boston with irrevocable payment instructions to disburse $8
million of such funds to UDI and to disburse the remaining funds to UDI for
reimbursement of its expenses, all in accordance with the terms of the UDI
Agreement. The UDI Agreement was terminated when these actions were completed.
The Share Purchase Agreement was executed and delivered in the evening of July
25, 1997, and the Company and Purchaser announced the execution of such
agreement later that evening.
 
     On July 28, 1997, the Company filed an amendment to its
Solicitation/Recommendation Statement on Schedule 14D-9, filed with the
Commission on July 2, 1997 in response to the UDI Offer, reflecting the
withdrawal of the Board's recommendation of the UDI Offer. On July 29, 1997, UDI
terminated the UDI Offer and the UDI Note Offer.
 
     The Share Purchase Agreement.  The following is a summary of the Share
Purchase Agreement, a copy of which has been filed as an Exhibit to the Schedule
14D-1 filed by Purchaser with the Commission in connection with the Offer. Such
summary is qualified in its entirety by reference to the Share Purchase
Agreement. Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed thereto in the Share Purchase Agreement.
 
     The Offer.  The Share Purchase Agreement provides for the commencement of
the Offer as promptly as reasonably practicable, but in no event later than five
business days after the first public announcement of the execution of the Share
Purchase Agreement. The obligation of Purchaser to accept for payment Shares
tendered pursuant to the Offer is subject to the satisfaction of the Minimum
Condition and certain other conditions that are described in Section 14 hereof.
Purchaser has expressly reserved the right to waive any such condition, to
increase the price per Share payable in the Offer, and to make any other changes
in the terms and conditions of the Offer; provided, however, that Purchaser has
agreed with the Company that, without the consent of the Company, no change in
the Offer may be made that decreases the price per Share payable in the Offer,
that changes the form of consideration payable in the Offer, that reduces the
maximum number of Shares sought pursuant to the Offer, that extends the
expiration date of the Offer (except that Purchaser may extend the expiration
date of the Offer (a) as required to comply with any rule, regulation or
interpretation of the Commission or (b) for one or more times each for an
aggregate period of up to 15 days (and not to exceed 60 days from the date of
commencement) for any reason other than those specified in the immediately
preceding clause (a)), or that imposes conditions to the Offer in addition to
those set forth in Section 14 hereof.
 
     Termination of the UDI Offer.  The Share Purchase Agreement provides that
the Company has given or is simultaneously giving notice to UDI of the
termination of the UDI Agreement and has effected payment to UDI of the $8
million fee contemplated by Section 8.03(a) of the UDI Agreement and the deposit
in escrow of $2 million for payment to UDI in reimbursement of "Expenses" (as
defined in the UDI Agreement) by Purchaser having deposited such sums in an
account with a recognized commercial or investment bank and providing
irrevocable instructions for transmission of such funds to UDI upon its request
and, in the case of the funds for reimbursement of Expenses, submission of
evidence of the incurrence hereof. The Share Purchase Agreement provides that
upon the happening of the foregoing, the termination of the UDI Agreement shall
have become effective.
 
     The Company represents that the Company's Board of Directors has
unanimously withdrawn its recommendation of the UDI Agreement and the
transactions contemplated thereby and recommends that the Company's stockholders
not tender their Shares pursuant to the tender offer commenced by UDI pursuant
to
 
                                       18
   21
 
the UDI Agreement. Within two business days of the date of the Share Purchase
Agreement, the Company has agreed to amend its outstanding Schedule 14D-9 dated
July 2, 1997, filed with the Commission in response to the UDI Offer, to reflect
the recommendations of the Company's Board of Directors described above, and to
file such amendment with the Commission and distribute it to the Company's
stockholders.
 
     Certain Actions of the Company.  In the Share Purchase Agreement, the
Company has represented that the Board, at a meeting duly called and held on
July 25, 1997, has, among other things, unanimously taken all action to avoid
the occurrence of a "Distribution Date" or a "Triggering Event" (each as defined
in the Rights Agreement) with respect to the purchase of Shares by Purchaser
pursuant to the Offer, and approved, for purposes of Article X of the Company's
Certificate of Incorporation, a Business Combination (as defined therein)
between Purchaser (or any affiliate of Purchaser) and the Company, whereby each
Share (other than dissenting Shares and Shares owned by Purchaser or its
affiliates) outstanding at the time of such Business Combination would be
cancelled and the holder thereof would be entitled to receive an amount in cash
equal to, (I) if such Business Combination occurs within one year of the date of
the Share Purchase Agreement, not less than $7.05, or (II) if such Business
Combination occurs after one year from the date of the Share Purchase Agreement,
an amount that is not less than $7.05 and that, in the opinion of a nationally
recognized investment bank addressed to the Board, is fair from a financial
point of view to such holders.
 
     Rights Agreement.  The Company represented in the Share Purchase Agreement
that as a result of the Board's withdrawal of its recommendation of the UDI
Agreement and the transactions contemplated thereby, any acquisition of Shares
that results in UDI becoming an "Acquiring Person" (as defined in the Rights
Agreement) shall constitute a "Triggering Event" under the Rights and the Rights
Agreement.
 
     Stock Options.  The Share Purchase Agreement provides that all stock
options granted under the Stock Option Plans shall, at the Consummation Date, to
the extent permitted by the applicable Stock Option Plan and stock option
agreement (if any), be canceled, and the holder thereof shall be entitled to
receive from the Company (or from Purchaser, if payment by the Company would not
be permitted under the Credit Agreement or the Indenture dated as of April 15,
1996, between the Company and IBJ Schroder Bank & Trust Company, as Trustee), on
the Consummation Date after the purchase of Shares pursuant to the Offer, or as
soon as practicable thereafter, in consideration for the cancellation of such
option, an amount in cash (subject to any applicable withholding tax) equal to
the product of (a) the number of Shares previously subject to such option and
(b) the excess, if any, of the Per Share Amount over the exercise price per
Share previously subject to such option (the "Option Spread Amount"). If the
cancellation of any option described above is not permitted by the Stock Option
Plan or stock option agreement applicable to such options (the "Inapplicable
Options"), then Purchaser agreed to pay to holders of such Inapplicable Options
an amount in cash equal to the applicable Option Spread Amount upon surrender of
such Inapplicable Options by such holders.
 
     Conduct of Business.  Pursuant to the Share Purchase Agreement, the Company
has covenanted and agreed that, between the date of the Share Purchase Agreement
and the election or appointment of Purchaser's designees to serve on the
Company's Board of Directors (the "Purchaser's Election Date"), unless Purchaser
shall otherwise agree in writing, each of the Company and its Subsidiaries shall
conduct its business only in, and the Company and its Subsidiaries shall not
take any action except in, the ordinary course of business consistent with past
practice; and the Company shall use all reasonable efforts to preserve
substantially intact the business organization of the Company and its
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and its Subsidiaries and to preserve the current
relationships of the Company and its Subsidiaries with customers, suppliers and
other persons with which the Company or any Subsidiary has significant business
relations. The Share Purchase Agreement also provides that, except with the
prior written consent of Purchaser or as contemplated by the Share Purchase
Agreement, the Company agrees that neither the Company nor any Subsidiary shall,
between the date of the Share Purchase Agreement and the Purchaser's Election
Date, directly or indirectly do, or propose to do, any of the following: (a)
amend or otherwise change its Certificate of Incorporation or Bylaws or
equivalent organizational documents, each as amended to date (the "Constituent
Documents"); (b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares
of capital stock of any class of the Company or any Subsidiary, or any options,
warrants,
 
                                       19
   22
 
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company or any Subsidiary (except for the issuance
of a maximum of 2,000,000 Shares issuable pursuant to Stock Option Plans
outstanding on the date thereof) or (ii) any assets of the Company or any
Subsidiary, except for sales in the ordinary course of business and in a manner
consistent with past practice; (c) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock, except for such declarations, set asides,
dividends and other distributions made by any Subsidiary to the Company; (d)
reclassify, combine, split, subdivide or redeem, purchase or otherwise acquire,
directly or indirectly, any of its capital stock; (e)(i) acquire (including,
without limitation, by merger, consolidation, or acquisition of stock or assets
or any other business combination) any corporation, partnership, other business
organization or any division thereof or any material amount of assets other than
in the ordinary course of business consistent with past practice; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, pledge in respect of or otherwise as an accommodation
become responsible for the obligations of any person, or make any loans or
advances, except in the ordinary course of business and consistent with past
practice; (iii) enter into any contract or agreement, other than any contract or
agreement entered into in the ordinary course of business consistent with past
practice and which requires payments by the Company or its Subsidiaries in an
aggregate amount of less than $250,000; (iv) terminate, cancel or request any
material change in, or agree to any material change in, any Material Contract,
except in the ordinary course of business consistent with past practice; or (v)
authorize any single capital expenditure (excluding software development
activity) which is in excess of $500,000 or capital expenditures which are, in
the aggregate, in excess of $2,500,000 for the Company and its Subsidiaries
taken as a whole; (f) increase the compensation payable or to become payable to
its officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any Subsidiary who
are not officers of the Company, or grant any severance or termination pay to,
or enter into any employment or severance agreement with, any director, officer
or other employee of the Company or any Subsidiary (other than in connection
with hiring and terminating employees in the ordinary course of the Company's
business), or establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination or severance
plan, agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee or circulate to any employee any details of any
proposal to adopt or amend any such plan; (g) take any action, other than
reasonable and usual actions in the ordinary course of business consistent with
past practice, with respect to accounting policies or procedures (including,
without limitation, procedures with respect to the payment of accounts payable
and collection of accounts receivable); (h) make any material tax election or
settle or compromise any material federal, state, local or foreign income tax
liability; (i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities reflected or reserved against on
the Company's consolidated balance sheet included in its Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997 or subsequently incurred in the
ordinary course of business and consistent with past practice; or (j) settle or
comprise any pending or threatened suit, action or claim that is material or
which relates to any of the transactions contemplated by the Share Purchase
Agreement (the "Transactions"); or (k) announce an intention, enter into any
formal or informal agreement, or otherwise make a commitment, to do any of the
foregoing.
 
     Designation of Directors.  The Share Purchase Agreement provides that,
promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board as
shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
at such time bears to the total number of Shares then outstanding. Pursuant to
the Share Purchase Agreement, the Company agrees, at such time of purchase, to
promptly take all actions necessary to cause Purchaser's designees to be elected
as directors of the Company, including increasing the size of the Board or
securing the resignations of incumbent directors or both. The Share Purchase
Agreement also provides that, at such times, the Company
 
                                       20
   23
 
shall use all reasonable efforts to cause persons designated by Purchaser to
constitute the same percentage as persons designated by Purchaser shall
constitute of the Board with respect to (a) each committee of the Board (some of
whom may be required to be independent as required by applicable law or
requirements of the New York Stock Exchange, Inc. (the "New York Stock
Exchange")), (b) each board of directors of each Subsidiary and (c) each
committee of each such board, in each case only to the extent permitted by
applicable law. Notwithstanding the foregoing, the Share Purchase Agreement
provides that until the time Purchaser acquires a majority of the then
outstanding Shares on a fully diluted basis, the Company shall use all
reasonable efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of the Subsidiaries as of
the date thereof who are not employees of the Company shall remain members of
the Board and of such boards and committees.
 
     Amendments.  The Share Purchase Agreement provides that following the
election or appointment of Purchaser's designees in accordance with the
immediately preceding paragraph, any amendment of the Share Purchase Agreement
or the Constituent Documents of the Company, any termination of the Share
Purchase Agreement by the Company, any extension by the Company of the time for
the performance of any of the obligations or other acts of Purchaser or any
waiver of any of the Company's rights thereunder will require the concurrence of
a majority of those directors of the Company then in office other than directors
designated by Purchaser or directors who are employees of the Company or, if no
such directors are then in office, no such amendment, termination, extension or
waiver shall be effected which is materially adverse to the holders of Shares
(other than Purchaser and its affiliates).
 
     Access to Information; Confidentiality.  Pursuant to the Share Purchase
Agreement, from the date of the Share Purchase Agreement to the consummation of
the Offer, the Company agreed to, and to cause its Subsidiaries to, afford the
officers, employees and agents of Purchaser and persons providing or committing
to provide Purchaser or its affiliates with financing for the Transactions
complete access at all reasonable times to the officers, employees, agents,
properties, offices, plants and other facilities, books and records of the
Company and each Subsidiary and to furnish Purchaser and persons providing or
committing to provide Purchaser or its affiliates with financing for the
Transactions with all financial, operating and other data and information as
Purchaser, through its officers, employees or agents, may reasonably request.
Purchaser agreed in the Share Purchase Agreement to keep all such information
obtained in accordance with this paragraph confidential in accordance with the
confidentiality agreement, dated May 19, 1997 (the "Confidentiality Agreement"),
between Constellation Capital Partners LLC and the Company.
 
     No Solicitation of Transactions.  The Company has agreed that neither the
Company nor any Subsidiary shall, directly or indirectly, through any officer,
director, agent or otherwise, solicit, initiate or encourage the submission of
any proposal or offer from any person relating to any acquisition or purchase of
all or any material portion of the assets of, or any equity interest in, the
Company or any Material Subsidiary or any business combination with the Company
or any Material Subsidiary or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person to do or seek any of the foregoing and
the Company has agreed to immediately cease and cause to be terminated all
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. Notwithstanding the foregoing, the Share
Purchase Agreement permits the Board to furnish information to, or enter into
discussions or negotiations with, any person in connection with an unsolicited
(from the date of the Share Purchase Agreement) proposal in writing by such
person to acquire the Company pursuant to a merger, consolidation, share
exchange, business combination or other similar transaction or to acquire all or
substantially all of the assets of the Company or any of its Subsidiaries, if,
and only to the extent that, (a) the Board, after consultation with independent
legal counsel (which may include its regularly engaged independent legal
counsel), determines in good faith that such action is required for the Board to
comply with its fiduciary duties to stockholders imposed by Delaware Law and (b)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person, the Company uses its reasonable efforts to
obtain from such person an executed confidentiality agreement on terms no less
favorable to the Company than those contained in the Confidentiality Agreement.
Moreover, the Company agreed (x) to notify Purchaser promptly if any such
proposal or offer, or any inquiry or contact with any person with respect
thereto, is made and shall
 
                                       21
   24
 
inform Purchaser of the terms and conditions of any such proposal or offer of
the details of any such inquiry or contact and (y) not to release any third
party from, or waive any provision of, any confidentiality or, subject to the
fiduciary duties of the Board, standstill agreement to which the Company is or
may become a party.
 
     Indemnification and Insurance.  Pursuant to the Share Purchase Agreement,
the Certificate of Incorporation and Bylaws of the Company shall, for a period
of six years from the Consummation Date, contain provisions no less favorable
with respect to indemnification than are currently set forth in Article XIII of
the Bylaws of the Company, which provisions shall not be amended, repealed or
otherwise modified for such period in any manner that would affect adversely the
rights thereunder of individuals who at any time from and after the date of the
Share Purchase Agreement to and including the Consummation Date were directors,
officers, employees, fiduciaries or agents (collectively "Representatives") of
the Company in respect of acts or omissions occurring at or prior to the
Consummation Date (including, without limitation, the matters contemplated by
the Share Purchase Agreement), unless such modification shall be required by
law. Moreover, from and after the Purchaser's Election Date, the Share Purchase
Agreement prohibits the amendment, repeal or other modification of the
indemnification and advancement of expenses provisions of Article XIII of the
Bylaws of the Company or the Constituent Documents of any of its Subsidiaries in
any manner that would adversely affect the rights thereunder of individuals who
at any time from and after the date of this Agreement and to and including the
Consummation Date were Representatives of the Company or any of its Subsidiaries
in respect of acts or omissions occurring at or prior to the Consummation Date
(including, without limitation, the matters contemplated by the Share Purchase
Agreement), unless such modification is required by law.
 
     The Share Purchase Agreement also provides that the Company shall, to the
fullest extent permitted under applicable law, indemnify and hold harmless, each
present and former Representative of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Consummation Date), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as a
Representative, whether occurring before or after the Consummation Date, for a
period of six years after the date of the Share Purchase Agreement (and shall
pay any expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted under
Delaware Law, and, with respect to Indemnified Parties who are or were directors
or officers of the Company, upon receipt from the Indemnified Party to whom
expenses are advanced of any undertaking to repay such advances required under
Delaware Law).
 
     Pursuant to the Share Purchase Agreement, the Company for a period of six
years after the Consummation Date, agreed to maintain in effect, insurance
coverage, if available, equivalent to that provided by the directors' and
officers' liability insurance policies currently maintained by the Company
(provided that the Company may substitute therefor policies of at least the same
coverage containing terms and conditions which are not materially less
favorable) with respect to matters occurring on or prior to the Consummation
Date; provided, however, that in no event shall the Company be required to
expend more than an amount per year equal to 250% of current annual premiums
paid by the Company for such insurance (which annual premiums the Company has
represented in the Share Purchase Agreement to be approximately $300,000).
 
     The Share Purchase Agreement provides that in the event the Company,
Purchaser or any of their respective successors or assigns (a) consolidates with
or merges into any other person (including a merger of the Company with or into
Purchaser) and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (b) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or
Purchaser, as the case may be, shall assume the obligations described above.
 
     Employee Benefits.  Pursuant to the Share Purchase Agreement, for a period
of one year from the Consummation Date, Purchaser has agreed to, or to cause the
Company, to, maintain the employee benefit plans (other than the Stock Option
Plans) which the Company maintains for the benefit of, or which are open to, a
majority of the employees of the Company on the terms in effect on the date of
the Share Purchase
 
                                       22
   25
 
Agreement, or such other plans, arrangements or programs as will provide
employees with benefits that in the aggregate are substantially equivalent to,
and no less favorable than, those provided under the employee benefit plans
(other than the Stock Option Plans) as in effect on the date of the Share
Purchase Agreement. In addition, in the event of a merger or consolidation
between Purchaser or any affiliate of Purchaser and the Company, Purchaser
shall, or shall cause the surviving corporation of such merger or consolidation
to, assume and agree to perform specified "Change of Control Agreements" in the
same manner and to the same extent that the Company is required to perform such
agreements. Such Change of Control Agreements provide for payments to certain
officers and other employees of the Company upon termination of employment,
diminution of responsibility or salary or other circumstances following a change
of control of the Company. If Purchaser consummates the Offer, a change in
control will occur under the Change of Control Agreements.
 
     Provision of Funds.  Pursuant to the Share Purchase Agreement, the
Purchaser represented that it has received bank commitment letters and has
entered into a preferred stock subscription agreement with an affiliate relating
to the provision of sufficient funds (a) to satisfy the Company's obligations
under Section 4.10 of the Indenture with respect to the Notes; and (b) to
refinance the Credit Agreement. The Purchaser also represented that, in each
case, such funds will be provided to the Company substantially on the terms set
forth in the commitment letters and subscription agreement that have been
provided to the Company.
 
     Representations and Warranties.  The Share Purchase Agreement contains
various representations and warranties of the parties thereto, including
representations by the Company as to the Company's filings with the Commission,
consolidated financial statements of the Company and its Subsidiaries, the
absence of certain changes or events concerning the Company's business,
compliance with law and certain contracts, litigation, insurance, licenses and
permits, employee benefit plans, labor matters, ownership of assets, trademarks,
patents and copyrights, environmental matters, brokers, taxes, absence of
certain business practices and letters of credit, surety bonds and guarantees.
 
     Purchaser represented and warranted to the Company in the Share Purchase
Agreement, among other things, that Purchaser has sufficient funds to permit
Purchaser to acquire all the outstanding Shares in the Offer, written evidence
of which has been provided to the Company and that such funds will remain in
Purchaser, available to be used to consummate the Offer, for as long as the
Offer remains outstanding and has not been terminated in accordance with the
terms of the Share Purchase Agreement or of the Offer.
 
     Termination.  The Share Purchase Agreement may be terminated and the Offer
may be abandoned at any time prior to the Consummation Date, notwithstanding any
requisite approval and adoption of the Share Purchase Agreement and the
transactions contemplated thereby by the stockholders of the Owners and the
Company: (a) by mutual written consent duly authorized by the Boards of
Directors of Purchaser and the Owners, the Company prior to Purchaser's Election
Date; (b) by Purchaser or the Company if (i) the Consummation Date shall not
have occurred on or before December 31, 1997 (so long as the party seeking such
termination has not failed to fulfill any obligation under the Share Purchase
Agreement, which failure has been the cause of, or resulted in, the failure of
the Consummation Date to occur on or before such date) or (ii) any court of
competent jurisdiction in the United States or other governmental authority
shall have issued an order, decree, ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Offer and such order,
decree, ruling or other action shall have become final and nonappealable; (c) by
Purchaser if (i) due to an occurrence or circumstance that would result in a
failure to satisfy any condition to the Offer, Purchaser shall have (A) failed
to commence the Offer within five business days following the date of public
announcement of the execution of the Share Purchase Agreement, (B) terminated
the Offer without having accepted any Shares for payment thereunder or (C)
failed to pay for Shares pursuant to the Offer within 90 days following the
commencement thereof; unless such action or inaction under (A), (B) or (C) shall
have been caused by or resulted from the failure of Purchaser to perform in any
material respect any material covenant or agreement contained in the Share
Purchase Agreement or the material breach by Purchaser of any material
representation or warranty applicable to it contained in the Share Purchase
Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the
Board or any committee thereof shall have withdrawn or modified in a manner
adverse to Purchaser its approval or recommendation of the Offer or the Share
Purchase Agreement, or shall have recommended another merger, consolidation,
business combination with, or acquisition of, the Company or its assets or
another tender offer or exchange offer for Shares, or shall
 
                                       23
   26
 
have resolved to do any of the foregoing; or (d) by the Company, upon approval
of the Board if (i) Purchaser shall have (A) failed to commence the Offer within
five business days following the date of public announcement of the execution of
the Share Purchase Agreement, (B) terminated the Offer without having accepted
any Shares for payment thereunder or (C) failed to pay for Shares pursuant to
the Offer within 90 days following the commencement thereof, unless such action
or inaction under (A), (B) or (C) shall have been caused by or resulted from the
failure of the Company to perform in any material respect any material covenant
or agreement of it contained in the Share Purchase Agreement or the material
breach by the Company of any material representation or warranty of it contained
in the Share Purchase Agreement or (ii) prior to the purchase of Shares pursuant
to the Offer, the Board shall have withdrawn or modified in a manner adverse to
Purchaser its approval or recommendation of the Offer or the Share Purchase
Agreement in order to approve the execution by the Company of a definitive
agreement providing for the acquisition of the Company or any of its assets by a
sale, merger or other business combination or in order to approve a tender offer
or exchange offer for Shares by a third party, in either case, as the Board
determines in good faith that such action is required for the Board to comply
with its fiduciary duties to stockholders, after consultation with its
independent legal counsel and financial advisers, and is on terms more favorable
to the Company's stockholders than the Offer (this provision of the Share
Purchase Agreement, together with the provision described in clause (c)(ii) of
this sentence, are collectively referred to as the "Fiduciary Out Clause");
provided, however, that (x) the Company shall have given notice to Purchaser
advising Purchaser that the Company has received a proposal for such a
transaction from a third party, specifying the material terms and conditions
(including the identity of the third party) and that the Company intends to
terminate the Share Purchase Agreement in accordance with this paragraph (d) and
either (q) Purchaser shall not have revised the terms of its offer to acquire
the Company within two business days from the date on which such notice is
deemed to have been given to Purchaser or (r) if the Expiration Date would
otherwise occur within the period in which the Company is prohibited by this
proviso from terminating the Share Purchase Agreement, the Purchaser shall not
have extended the Expiration Date until 12 hours after the end of such two
business day period, and given the Company timely notice of such extension or
(s) if within such two business day period Purchaser shall have revised such
terms, the Board of the Company, after receiving advice from the Company's
financial adviser, shall have determined in good faith that the third party's
proposal is superior to Purchaser's revised terms and (y) such termination under
this clause (ii) shall not be effective until the Company has made payment to
Purchaser of the Fee (as hereinafter defined) required to be paid pursuant to
the Share Purchase Agreement and has deposited with a mutually acceptable escrow
agent $12.0 million for reimbursement of Expenses (as hereinafter defined).
 
     In the event of the termination of the Share Purchase Agreement, the Share
Purchase Agreement provides that it shall forthwith become void, and there shall
be no liability on the part of any party hereto, except under the provisions of
the Share Purchase Agreement related to fees and expenses described below and
confidentiality and except for liability of any party for breach of the Share
Purchase Agreement prior to its termination.
 
     Fees and Expenses.  The Share Purchase Agreement provides that in the event
that (a) any person (including, without limitation, the Company or any affiliate
thereof), other than Purchaser or any affiliate of Purchaser, shall have become
the beneficial owner of more than 20% of the then outstanding Shares, the Share
Purchase Agreement shall have been terminated (other than pursuant to the
Fiduciary Out Clause) and within 12 months of such termination a Third Party
Acquisition (as defined hereinafter) shall occur; or (b) any person shall have
commenced, publicly proposed or communicated to the Company a proposal that is
publicly disclosed for a tender or exchange offer for 25% or more of the then
outstanding shares (or which, assuming the maximum amount of securities that
could be purchased, would result in any person beneficially owning 25% or more
of the then outstanding Shares) or otherwise for the direct or indirect
acquisition of the Company or all or substantially all of its assets for per
Share consideration having a value greater than the Per Share Amount and (i) the
Offer shall have remained open for at least 20 business days, (ii) the Minimum
Condition shall not have been satisfied and (iii) the Share Purchase Agreement
shall have been terminated (other than pursuant to the Fiduciary Out Clause) and
(iv) within 12 months of such termination a Third Party Acquisition shall occur;
or (c) if the Minimum Condition shall not have been satisfied on or prior to the
date that is 60 days from the date of commencement of the Offer, Purchaser
desires to extend the Offer
 
                                       24
   27
 
beyond such 60 day period but the Company declines to consent to such extension,
the Share Purchase Agreement is terminated (other than pursuant to the Fiduciary
Out Clause) and within 12 months of such termination a Third Party Acquisition
shall occur; or (d) the Share Purchase Agreement is terminated pursuant to the
Fiduciary Out Clause, then, in any such event, provided that Purchaser is not in
material breach of its obligations under the Share Purchase Agreement, the
Company shall pay Purchaser promptly (but in no event later than one business
day after (i) the consummation of the Third Party Acquisition, with respect to
the events described in clauses (a), (b) or (c), or (ii) such termination with
respect to clause (d)) a fee of $8 million (the "Fee") which amount shall be
payable in immediately available funds, plus "Expenses" (as defined below).
 
     The Share Purchase Agreement also provides that so long as Purchaser is not
in material breach of its obligations under the Share Purchase Agreement and
Purchaser is not entitled to the Fee pursuant to the preceding paragraph, if (a)
the Share Purchase Agreement is terminated as described in clause (c) of the
third preceding paragraph due to the occurrence of the condition set forth in
paragraph (g) under Section 14 set forth below or (b) the Share Purchase
Agreement is terminated as described in clause (c) of the third preceding
paragraph because of the occurrence of the condition set forth in paragraph (f)
under Section 14 set forth below, then, in either case (a) or (b), the Company
shall promptly reimburse Purchaser for all Expenses.
 
     "Expenses" is defined in the Share Purchase Agreement to mean the sum of
(i) all reasonable out-of-pocket expenses and fees up to $2.0 million in the
aggregate (including, without limitation, reasonable fees and expenses payable
to all banks, investment banking firms, other financial institutions and other
persons and their respective agents and counsel for arranging, committing to
provide or providing any financing for the Offer or structuring the Offer and
all reasonable fees of counsel, accountants, experts and consultants to
Purchaser and its affiliates, and all printing and advertising expenses)
actually incurred by Purchaser or its affiliates or on their behalf in
connection with the Offer, including, without limitation, the financing thereof,
and actually incurred by banks, investment banking firms, other financial
institutions and other persons and assumed by Purchaser and its affiliates in
connection with the negotiation, preparation, execution and performance of the
Share Purchase Agreement, the structuring and financing of the Offer and any
financing commitments or agreements relating thereto and (ii) all amounts paid
by Purchaser to UDI or its affiliates on behalf of the Company in connection
with the termination of the UDI Agreement. In the event that the Company shall
fail to pay the Fee or any Expenses when due, the term "Expenses" is deemed to
include the reasonable costs and expenses actually incurred or accrued by
Purchaser (including, without limitation, reasonable fees and expenses of
counsel) in connection with the collection under and enforcement of the fees and
expenses provision of the Share Purchase Agreement, together with interest on
such unpaid Fee and Expenses, commencing on the date that the Fee or such
Expenses became due, at a per annum rate equal to the rate of interest publicly
announced by Morgan Guaranty Trust Company of New York, from time to time, in
the City of New York, as such bank's prime rate plus 1%.
 
     "Third Party Acquisition" is defined in the Share Purchase Agreement to
mean the occurrence of any of the following events: (i) the acquisition of the
Company by merger, consolidation or other business combination transaction by
any person other than Purchaser or any of its affiliate (a "Third Party"); (ii)
the acquisition by any Third Party of all or substantially all of the assets of
the Company and its Subsidiaries, taken as a whole; (iii) the acquisition by a
Third Party of 50% or more of the outstanding Shares whether by tender offer,
exchange offer or otherwise; (iv) the adoption by the Company of a plan of
liquidation or the declaration or payment of an extraordinary dividend; or (v)
the repurchase by the Company or any of its Subsidiaries of 50% or more of the
outstanding Shares.
 
     Except as set forth above, all costs and expenses incurred in connection
with the Share Purchase Agreement and the Transactions shall be paid by the
party incurring such expenses, whether or not any such Transaction is
consummated.
 
     Confidentiality Agreement.  On May 19, 1997, Constellation entered into a
Confidentiality Agreement with the Company. The following is a summary of the
Confidentiality Agreement, a copy of which has been filed as an Exhibit to the
Schedule 14D-1 filed by Purchaser with the Commission in connection with the
 
                                       25
   28
 
Offer. Such summary is qualified in its entirety by reference to the
Confidentiality Agreement. Under the Confidentiality Agreement, Constellation
agreed to use information furnished by the Company or its representatives,
compiled by Constellation or its representatives from such furnished
information, or gathered by Constellation by inspection of the Company and its
Subsidiaries, that is not otherwise generally available to the public (other
than as a result of disclosure by Constellation or its representatives) (the
"Evaluation Materials") exclusively for the purpose of evaluating an acquisition
transaction with the Company. In addition, Constellation agreed not to disclose
any of the Evaluation Materials other than under certain circumstances. Under
the Confidentiality Agreement, Constellation agreed that (i) for a period of one
year from the date of the Confidentiality Agreement, without the prior written
consent of the Company, it would not solicit for employment any person employed
by the Company on May 19, 1997 as a key employee and (ii) for a period of one
year from the date of the Confidentiality Agreement, without the prior approval
of the Company's Board of Directors, it would not, (A) acquire or make any
proposal to acquire any securities or property of the Company, (B) propose to
enter into any merger or business combination involving the Company or purchase
a material portion of the assets of the Company, (C) make or participate in any
solicitation of proxies to vote, or seek to advise or influence any person with
respect to the voting of any securities of the Company, (D) form, join or
participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any voting securities of the Company, (E) otherwise act to
seek to control or influence the management, the Board or policies of the
Company, (F) disclose any intention, plan or arrangement inconsistent with the
foregoing, or (G) take any action which might require the Company to make a
public announcement regarding the possibility of a business combination or
merger. On July 25, 1997 the Company's Board of Directors approved the Offer.
Pursuant to the Share Purchase Agreement, assuming the Minimum Condition has
been satisfied, upon acceptance for payment of Shares pursuant to the Offer, the
Confidentiality Agreement shall be deemed to have been terminated without
further action by the parties thereunder.
 
     11.  PURPOSE OF THE OFFER; PLANS FOR THE COMPANY AFTER THE OFFER.
 
     Purpose of the Offer.  The purpose of the Offer is for Purchaser to acquire
control of the Company and to purchase as many Shares as are tendered in the
Offer. Upon consummation of the Offer, the Company will become a direct
subsidiary of Purchaser. In the event 100% of the Shares outstanding on the
Expiration Date are not validly tendered and not withdrawn pursuant to the
Offer, a minority interest of the Company will remain outstanding. Purchaser
currently intends to purchase Shares not tendered in the Offer after the
consummation of the Offer in order to eliminate any such minority interest;
however, no assurance can be given that such purchases will be made. Any such
purchases could be effected at prices that may be higher or lower than the price
per Share offered pursuant to the Offer. Following the consummation of the
Offer, Purchaser intends to deregister and delist the Shares, if permitted by
applicable law. See Section 13. The Offer is being made pursuant to the Share
Purchase Agreement.
 
     Although the Share Purchase Agreement does not provide for a merger between
Purchaser and the Company, Purchaser currently believes that such a merger would
be beneficial to its stockholders. Purchaser currently intends to consummate
such a merger in the future if and when practicable, although no assurance can
be made that such a merger would ever be consummated.
 
     The indentures governing the Notes and the Credit Agreement contain certain
provisions limiting the ability of Purchaser to consummate a merger or other
consolidation with the Company. Purchaser intends to cause the Company to
refinance the Credit Agreement promptly upon the consummation of the Offer and
has entered into a commitment letter to that effect (see Section 9), but it has
no current intention of having the Company refinance the Notes. Consequently,
Purchaser has no current plans to effect a merger or business consolidation
between the Company and Purchaser. Purchaser may, however, explore the
possibility of purchasing the Notes and soliciting consents from holders of
Notes, but expects it would purchase Notes only at a price materially below the
price that had been offered by UDI in the UDI Note Offer. The Notes by their
terms cannot be redeemed by the Company until May 1, 2001, and then at premiums
starting at 6% and declining to 0% on May 1, 2004. Purchaser currently expects
that if the Notes are still outstanding on May 1, 2001, and the indenture
governing the Notes has not been amended by such date as contemplated by the UDI
Note Offer, Purchaser would seek to cause the Company to redeem the Notes at
such time in order to
 
                                       26
   29
 
facilitate a merger between Purchaser and the Company. However, no assurance can
be given that Purchaser would cause the Company to redeem the Notes at that time
or that such a merger would be consummated.
 
     In addition to limitations imposed by the indentures governing the Notes
and the Credit Agreement, Article X of the Company's Certificate of
Incorporation limits the ability of Purchaser to effect a merger or business
combination with the Company unless certain requirements are met. See Section
15. In order to satisfy the requirements of Article X and permit a future merger
between Purchaser and the Company, on July 25, 1997, the Board of Directors of
the Company approved a business combination between Purchaser and the Company,
provided that if such business combination occurs (a) within one year of the
date of the Share Purchase Agreement, holders of Shares would receive an amount
in cash that is not less than $7.05 per Share, and (b) after one year from the
date of the Share Purchase Agreement, an amount in cash that is not less than
$7.05 per Share and that, in the opinion of a nationally recognized investment
bank addressed to the Board of Directors of the Company, is fair from a
financial point of view to such holders.
 
     If Purchaser purchases Shares pursuant to the Offer, the Share Purchase
Agreement provides that Purchaser shall be entitled to designate representatives
to serve on the Company's Board of Directors in proportion to Purchaser's
ownership of Shares following such purchase. See Section 10. Purchaser expects
that such representation would permit Purchaser to exert substantial influence
over the Company's conduct of its business and operations.
 
     Appraisal Rights; Going Private Transactions.  No appraisal rights are
available in connection with the Offer. However, pursuant to general principles
of the corporate law of the State of Delaware, the Board of Directors of the
Company will continue to owe fiduciary duties to the minority stockholders of
the Company. Moreover, under Delaware corporate law, Purchaser, as a majority
stockholder of the Company, may also owe fiduciary duties to the minority
stockholders in certain circumstances.
 
     The Commission has adopted Rule 13e-3 under the Exchange Act, which is
applicable to certain "going private" transactions and which may under certain
circumstances be applicable to a business combination following the purchase of
Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining
Shares not held by it. Rule 13e-3 requires, among other things, that certain
financial information concerning the Company and certain information relating to
the fairness of the proposed transaction and the consideration offered to
minority stockholders in such transaction be filed with the Commission and
disclosed to stockholders prior to consummation of the transaction.
 
     Plans for the Company.  It is currently expected that, following
consummation of the Offer, initially the business and operations of the Company
will, except as set forth in this Offer to Purchase (including the sale of
assets as described below), be continued by the Company substantially as they
are currently being conducted. Purchaser will continue to evaluate the business
and operations of the Company during the pendency of the Offer and after the
consummation of the Offer, and will take such actions as it deems appropriate
under the circumstances then existing. Purchaser intends to seek additional
information about the Company during this period. Thereafter, Purchaser intends
to review such information as part of a comprehensive review of the Company's
business, operations, capitalization and management with a view to maximizing
the Company's potential in conjunction with Purchaser's affiliates' businesses.
 
     On July 30, 1997, Purchaser entered into a Letter of Intent (the "Asset
Letter") with the Asset Purchaser. A copy of the Asset Letter has been filed as
an Exhibit to the Schedule 14D-1 filed by Purchaser in connection with the
Offer. The Asset Purchaser is a publicly traded corporation with total assets as
of June 30, 1997 of $1,819 million, net revenues and net earnings for the fiscal
year ended December 31, 1996, of $1,812 million and $207 million, respectively,
and for the six months ended June 30, 1997, $969 million and $70 million,
respectively. Pursuant to the non-binding Asset Letter, Purchaser agrees to
cause the Company as soon as practicable after the consummation of the Offer to
sell to the Asset Purchaser, and the Asset Purchaser agrees to buy, all of the
Company's right, title and interest in the properties, assets and rights of the
Company principally relating to, or used, held for use or intended to be used in
connection with, the operations of the Company's Instrumentation division
("Instruments"), other than certain specifically excluded assets (the "Assets").
In the Asset Letter, the Asset Purchaser agrees to buy the Assets from the
Company for the sum of $85,000,000 plus the assumption of certain liabilities
related to the operations of Instruments. The
 
                                       27
   30
 
transaction is subject, among other things, to the execution of definitive
documentation, approval of the boards of directors of the Company and the Asset
Purchaser and receipt by the Board of Directors of the Company of a fairness
opinion from a nationally recognized investment bank. The Offer is not
conditioned on completion of the sale of the Assets to the Asset Purchaser. In
addition, Purchaser is evaluating its options with regard to the Company's
investment in its Roltra-Morse assets.
 
     Except as indicated above or in this Offer to Purchase, Purchaser does not
have any present plans or proposals that relate to or would result in an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the Company or any Subsidiary, a sale or transfer of a
material amount of assets of the Company or any Subsidiary or any material
change in the Company's capitalization or dividend policy or any other material
changes in the Company's corporate structure or business, or the composition of
the Board or the Company's management.
 
     12.  DIVIDENDS AND DISTRIBUTIONS.  The Share Purchase Agreement provides
that the Company shall not, between the date of the Share Purchase Agreement and
the Consummation Date, without the prior written consent of Purchaser, (a)
issue, sell, pledge, dispose of, grant, encumber, or authorize the issuance,
sale, pledge, disposition, grant or encumbrance of any shares of capital stock
of any class of the Company or any Subsidiary, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of the Company or any Subsidiary (except for the issuance
of a maximum of 2,000,000 Shares issuable pursuant to employee stock options
outstanding on the date of the Share Purchase Agreement and including up to
1,250 restricted Shares per quarter issuable to outside directors in accordance
with past practice pursuant to the Stock Option Plans), (b) declare, set aside,
make or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock, except for such
declarations, set asides, dividends and other distributions made by any
Subsidiary to the Company or (c) reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock. See Section 10. If, however, the Company should, during the
pendency of the Offer, (i) split, combine or otherwise change the Shares or its
capitalization, (ii) acquire or otherwise cause a reduction in the number of
outstanding Shares or (iii) issue or sell any additional Shares (other than
pursuant to outstanding employee and director options, shares of any other class
or series of capital stock, other voting securities or any securities
convertible into, or options, rights, or warrants, conditional or otherwise, to
acquire, any of the foregoing, then, without prejudice to Purchaser's rights
under Section 14, Purchaser may (subject to the provisions of the Share Purchase
Agreement) make such adjustments to the purchase price and other terms of the
Offer (including the number and type of securities to be purchased) as it deems
appropriate to reflect such split, combination or other change, acquisition,
reduction, issuance or sale.
 
     If, on or after July 31, 1997, the Company should declare or pay any
dividend on the Shares or make any other distribution (including the issuance of
additional shares of capital stock pursuant to a stock dividend or stock split,
the issuance of other securities or the issuance of rights for the purchase of
any securities) with respect to the Shares that is payable or distributable to
stockholders of record on a date prior to the transfer to the name of Purchaser
or its nominee or transferee on the Company's stock transfer records of the
Shares purchased pursuant to the Offer then, without prejudice to Purchaser's
rights under Section 14, (i) the purchase price per Share payable by Purchaser
pursuant to the Offer will be reduced (subject to the Share Purchase Agreement)
to the extent any such dividend or distribution is payable in cash and (ii) any
non-cash dividend, distribution or right shall be received and held by the
tendering stockholder for the account of Purchaser and will be required to be
promptly remitted and transferred by each tendering stockholder to the
Depositary for the account of Purchaser, accompanied by appropriate
documentation of transfer. Pending such remittance and subject to applicable
law, Purchaser will be entitled to all the rights and privileges as owner of any
such non-cash dividend, distribution or right and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by Purchaser in its sole discretion.
 
     13.  EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, NYSE LISTING AND
EXCHANGE ACT REGISTRATION.  The purchase of Shares by Purchaser pursuant to the
Offer will reduce the number of Shares that might otherwise trade publicly and
will reduce the number of holders of
 
                                       28
   31
 
Shares, which could adversely affect the liquidity and market value of the
remaining Shares held by the public.
 
     Depending upon the number of Shares purchased pursuant to the Offer, the
Shares may no longer meet the requirements of the New York Stock Exchange for
continued listing and may be delisted from the New York Stock Exchange and
deregistered under Section 12(d) of the Exchange Act. Purchaser intends to cause
the delisting by the New York Stock Exchange and deregistration of the Shares
following consummation of the Offer.
 
     According to published guidelines, the New York Stock Exchange would
consider delisting the Shares if, among other things, the number of holders of
Shares should fall below 400 (or below 1,200, if trading volume falls below
100,000 Shares for the most recent 12 months), the number of publicly held
Shares (exclusive of holdings of officers, directors and their families and
other concentrated holdings of 10 percent or more ("NYSE Excluded Holdings"))
should fall below 600,000 or the aggregate market value of publicly held Shares
(exclusive of NYSE Excluded Holdings) should fall below $8,000,000. The Company
has advised Purchaser that, as of July 29, 1997, there were 17,126,609 Shares
outstanding, held by approximately 18,000 holders of record. If, as a result of
the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer
meet the requirements of the New York Stock Exchange for continued listing and
the listing of the Shares is discontinued, the market for the Shares could be
adversely affected.
 
     If the New York Stock Exchange were to delist the Shares, it is possible
that the Shares would continue to trade on another securities exchange or in the
over-the-counter market and that price or other quotations would be reported by
such exchange or through the Nasdaq Stock Market ("Nasdaq") or other sources.
The extent of the public market therefor and the availability of such quotations
would depend, however, upon such factors as the number of stockholders and/or
the aggregate market value of such securities remaining at such time, the
interest in maintaining a market in the Shares on the part of securities firms,
the possible termination of registration under the Exchange Act as described
below, and other factors. Purchaser cannot predict whether the reduction in the
number of Shares that might otherwise trade publicly would have an adverse or
beneficial effect on the market price for or marketability of the Shares.
 
     The Shares are currently "margin securities," as such term is defined under
the rules of the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board"), which has the effect, among other things, of allowing banks to
extend credit on the collateral of such securities. Depending upon factors
similar to those described above regarding listing and market quotations,
following the Offer it is possible that the Shares might no longer constitute
"margin securities" for purposes of the margin regulations of the Federal
Reserve Board, in which event such Shares might no longer be eligible as
collateral for loans made by banks.
 
     The Shares are currently registered under the Exchange Act. Registration of
the Shares under the Exchange Act may be terminated upon application of the
Company to the Commission if the Shares are not listed on a national securities
exchange and there are fewer than 300 record holders of the Shares. Termination
of registration of the Shares under the Exchange Act, assuming there are no
other securities of the Company subject to registration, would substantially
reduce the information required to be furnished by the Company to its
stockholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing profit recovery provisions of Section
16(b), the requirement of furnishing a proxy statement in connection with
stockholders' meetings pursuant to Section 14(a), and the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions, no
longer applicable to the Company. Furthermore, if the Purchaser acquires a
substantial number of Shares, the ability of "affiliates" of the Company and
persons holding "restricted securities" of the Company to dispose of such
securities pursuant to Rule 144 or 144A promulgated under the Securities Act of
1933, as amended, may be impaired or eliminated. If registration of the Shares
under the Exchange Act were terminated, the Shares would no longer be "margin
securities" or be eligible for NASDAQ reporting.
 
     It is the present intention of the Purchaser to seek to cause the Company
to make an application for termination of registration of the Shares under the
Exchange Act as soon as possible following the Offer if the requirements for
termination of registration are met.
 
                                       29
   32
 
     14.  CERTAIN CONDITIONS OF THE OFFER.  Notwithstanding any other provision
of the Offer, Purchaser shall not be required to accept for payment or pay for
any Shares tendered pursuant to the Offer, and may terminate or amend the Offer
and may postpone the acceptance for payment of and payment for Shares tendered,
if (i) the Minimum Condition shall not have been satisfied, (ii) any applicable
waiting period under the HSR Act shall not have expired or been terminated prior
to the expiration of the Offer or (iii) at any time on or after the date of the
Share Purchase Agreement, and prior to the acceptance for payment of Shares, any
of the following conditions shall exist:
 
          (a) there shall have been instituted or be pending any action or
     proceeding brought by any governmental, administrative or regulatory
     authority or agency, domestic or foreign, before any court or governmental,
     administrative or regulatory authority or agency, domestic or foreign, (i)
     challenging or seeking to make illegal, materially delay or otherwise
     directly or indirectly restrain or prohibit or make materially more costly
     the making of the Offer, the acceptance for payment of, or payment for, any
     Shares by Purchaser, pursuant to the Offer, or seeking to obtain material
     damages in connection with the Offer; (ii) seeking to prohibit or limit
     materially the ownership or operation by the Company, Purchaser or any of
     Purchaser's affiliates of all or any material portion of their business, in
     each case as a result of the Offer; (iii) seeking to impose or confirm
     limitations on the ability of Purchaser to exercise effectively full rights
     of ownership of any Shares, including, without limitation, the right to
     vote any Shares acquired by Purchaser pursuant to the Offer, or otherwise
     on all matters properly presented to the Company's stockholders, including,
     without limitation, the approval and adoption of the Share Purchase
     Agreement and the transactions contemplated thereby; or (iv) seeking to
     require divestiture by Purchaser of any Shares; provided that Purchaser
     shall have used all reasonable efforts to cause any such action or
     proceeding described in this paragraph (a) to be dismissed or withdrawn;
 
          (b) there shall have been issued any injunction, order or decree by
     any court or governmental, administrative or regulatory authority or
     agency, domestic or foreign, resulting from any action or proceeding
     brought by any person other than any governmental, administrative or
     regulatory authority or agency, domestic or foreign, that (i) restrains or
     prohibits the making of the Offer; (ii) prohibits or limits ownership or
     operation by the Company, Purchaser or any of Purchaser's affiliates of all
     or any material portion of its business or assets, or compels the Company,
     Purchaser or any of Purchaser's affiliates to dispose of or hold separate
     all or any material portion of its business or assets, in each case as a
     result of the Offer; (iii) imposes limitations on the ability of Purchaser
     to exercise effectively full rights of ownership of any Shares, including,
     without limitation, the right to vote any Shares acquired by Purchaser
     pursuant to the Offer, or otherwise on all matters properly presented to
     the Company's stockholders; or (iv) requires divestiture by Purchaser of
     any Shares; provided that Purchaser shall have used all reasonable efforts
     to cause any such injunction, order or decree described in this paragraph
     (b) to be vacated or lifted;
 
          (c) there shall have been any action taken, or any statute, rule,
     regulation, order or injunction enacted, entered, enforced, promulgated,
     amended, issued or deemed applicable to (i) Purchaser, the Company or any
     subsidiary or affiliate of Purchaser or the Company or (ii) the Offer, by
     any legislative body, court, government or governmental, administrative or
     regulatory authority or agency, domestic or foreign, in the case of both
     (i) and (ii) other than the routine application of the waiting period
     provisions of the HSR Act to the Offer, that results in any of the
     consequences referred to in clauses (i) through (iv) of paragraph (b)
     above; provided that Purchaser shall have used all reasonable efforts to
     cause any such action, order or injunction described in this paragraph (c)
     to be vacated or lifted;
 
          (d) there shall have occurred (i) any general suspension of, or
     limitation on prices for, trading in securities of the Company on the New
     York Stock Exchange, (ii) any decline, measured from the date hereof, in
     the Standard & Poor's 500 Index by an amount in excess of 30%, (iii) a
     declaration of a banking moratorium or any suspension of payments in
     respect of banks in the United States, (iv) any limitation (whether or not
     mandatory) by any government or governmental, administrative or regulatory
     authority or agency, domestic or foreign, on the extension of credit by
     banks or other lending institutions, (v) a commencement of a war or armed
     hostilities or other national or international calamity directly or
 
                                       30
   33
 
     indirectly involving the United States or (vii) in the case of any of the
     foregoing existing on the date hereof, a material acceleration or worsening
     thereof;
 
          (e) (i) it shall have been publicly disclosed or Purchaser shall have
     otherwise learned that beneficial ownership (determined for the purposes of
     this paragraph as set forth in Rule 13d-3 promulgated under the Exchange
     Act) of 20% or more of the then outstanding Shares has been acquired by any
     person, other than Purchaser or (ii)(A) the Board or any committee thereof
     shall have withdrawn or modified in a manner adverse to Purchaser the
     approval or recommendation of the Offer or the Share Purchase Agreement or
     approved or recommended any takeover proposal or any other acquisition of
     Shares other than the Offer or (B) the Board or any committee thereof shall
     have resolved to do any of the foregoing;
 
             (f)(i) any representation or warranty of the Company in the Share
        Purchase Agreement shall not be true and correct; or
 
             (ii) there shall have occurred, since the date of the Share
        Purchaser Agreement, a change in the business, operations, financial
        condition, assets or liabilities of the Company or any Subsidiary
 
     with the effect that such failure of any such representation or warranty to
     be true and correct or such change, when taken together with all other such
     failures of such representations and warranties to be true and correct
     (both favorable and adverse) and all other such changes (both favorable and
     adverse), in the aggregate would have, a Material Adverse Effect; provided,
     however that, for the purpose of the foregoing condition, in determining
     whether any such representation or warranty is true or correct, any
     qualification as to materiality or Material Adverse Effect contained in any
     such representation and warranty shall be deemed not to apply;
 
          (g) the Company shall have failed to perform in any material respect
     any material obligation or to comply in any material respect with any
     material agreement or material covenant of the Company to be performed or
     complied with by it under the Share Purchase Agreement;
 
          (h) the Share Purchase Agreement shall have been terminated in
     accordance with its terms; or
 
          (i) Purchaser and the Company shall have agreed that Purchaser shall
     terminate the Offer or postpone the acceptance for payment of or payment
     for Shares thereunder;
 
which, in the sole judgment of Purchaser, in any such case, and regardless of
the circumstances (including any action or inaction by Purchaser or any of its
affiliates) giving rise to any such condition, makes it inadvisable to proceed
with such acceptance for payment or payment.
 
     The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances giving rise to any such
condition or may be waived by Purchaser in whole or in part at any time and from
time to time in their sole discretion. The failure by Purchaser at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.
 
     15.  CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS.
 
     State Takeover Laws; Antitakeover Provisions in Certificate of
Incorporation.  A number of states have adopted laws and regulations applicable
to attempts to acquire securities of corporations that are incorporated, or have
substantial assets, stockholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. In Edgar v. MITE Corp., the Supreme Court of
the United States invalidated on constitutional grounds the Illinois Business
Takeover Statute, which, as a matter of state securities law, made takeovers of
corporations meeting certain requirements more difficult. However, in 1987 in
CTS Corp. v. Dynamics Corp. of America, the Supreme Court held that the State of
Indiana could, as a matter of corporate law and, in particular, with respect to
those aspects of corporate law concerning corporate governance, constitutionally
disqualify a potential acquiror
 
                                       31
   34
 
from voting on the affairs of a target corporation without the prior approval of
the remaining stockholders. The state law before the Supreme Court was by its
terms applicable only to corporations that had a substantial number of
stockholders in the state and were incorporated there. Subsequently, in TLX
Acquisition Corp. v. Telex Corp., a federal district court in Oklahoma ruled
that certain Oklahoma corporate governance statutes were unconstitutional
insofar as they applied to corporations incorporated outside Oklahoma because
they could subject such corporations to inconsistent regulations. Similarly, in
Tyson Foods, Inc. v. McReynolds, a federal district court in Tennessee ruled
that four Tennessee takeover statutes were unconstitutional as applied to
corporations incorporated outside Tennessee. This decision was affirmed by the
United States Court of Appeals for the Sixth Circuit. In December 1988, a
federal district court in Florida held in Grand Metropolitan PLC v. Butterworth
that the provisions of the Florida Affiliated Transactions Act and the Florida
Control Share Acquisition Act were unconstitutional as applied to corporations
incorporated outside of Florida.
 
     The Company, directly or through subsidiaries, conducts business in a
number of states throughout the United States, some of which have enacted
takeover laws such as those described above. Purchaser does not know whether any
of these laws will, by their terms, apply to the Offer and has not necessarily
complied with any such laws. Should any person seek to apply any state takeover
law, Purchaser will take such action as then appears desirable, which may
include challenging the validity or applicability of any such statute in
appropriate court proceedings. In the event it is asserted that one or more
state takeover laws are applicable to the Offer, and an appropriate court does
not determine that it is inapplicable or invalid as applied to the Offer,
Purchaser might be required to file certain information with, or receive
approvals from, the relevant state authorities. In addition, if enjoined,
Purchaser might be unable to accept for payment any Shares tendered pursuant to
the Offer, or be delayed in continuing or consummating the Offer. In such case,
Purchaser may not be obligated to accept for payment any Shares tendered. See
Section 14.
 
     Section 203 of Delaware Law limits the ability of a Delaware corporation to
engage in business combinations with "interested stockholders" (defined as any
beneficial owner of 15% or more of outstanding voting stock of the corporation)
unless, among other things, the corporation's board of directors has given its
prior approval to either the business combination or the transaction which
resulted in the stockholder becoming an "interested stockholder." The Company
has approved, among other things, the Offer for purposes of Section 203 of
Delaware Law.
 
     Article Ten of the Company's Certificate of Incorporation provides that,
except as described below, the affirmative vote of not less than a majority of
the votes entitled to be cast by the holders of all the then outstanding shares
of voting stock of the Company, excluding voting stock beneficially owned by any
entity who has announced or publicly disclosed a plan to become the beneficial
owner of twenty percent of the voting stock of the Company (an "Interested
Stockholder"), is required to approve a "Business Combination" (defined to
include, among other things, any merger of the Company with any Interested
Stockholder or any agreement providing for such a merger). However, the vote
requirement does not apply if either (a) the merger is approved by a majority of
the "Continuing Directors" then in office or (2) certain price and procedural
requirements are met. The term "Continuing Directors" is defined to include any
director of the Company who is not an affiliate, associate or representative of
the Interested Stockholder and who was a member of the Board prior to the time
that the Interested Stockholder became an Interested Stockholder, and any
successor who is not an affiliate, associate or representative of the Interested
Stockholder and is recommended or elected to succeed a Continuing Director by a
majority of the Continuing Directors then in office. Although this provision
will not affect the Offer, it may have an adverse effect on the Company's
ability to merge with Purchaser. The Company has represented in the Share
Purchase Agreement that the Board, at a meeting duly called and held on July 25,
1997, has unanimously approved a Business Combination between Purchaser and the
Company, whereby each Share (other than dissenting Shares and Shares owned by
Purchaser or its affiliates) outstanding at the time of such Business
Combination would be cancelled and the holder thereof would be entitled to
receive an amount in cash equal to, (a) if such Business Combination occurs
within one year of the date of the Share Purchase Agreement, not less than $7.05
or (b) if such Business Combination occurs after one year from the date of the
Share Purchase Agreement, an amount that
 
                                       32
   35
 
is not less than $7.05 and that, in the opinion of a nationally recognized
investment bank addressed to the Board, is fair from a financial point of view
to such holders.
 
     Antitrust.  Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and the
FTC and certain waiting period requirements have been satisfied. The acquisition
of Shares by Purchaser pursuant to the Offer is subject to such requirements.
See Section 2.
 
     Pursuant to the HSR Act, on July 29, 1997, Purchaser filed a Premerger
Notification and Report Form in connection with the purchase of Shares pursuant
to the Offer with the Antitrust Division and the FTC. Under the provisions of
the HSR Act applicable to the Offer, the purchase of Shares pursuant to the
Offer may not be consummated until the expiration of a 15-calendar day waiting
period following the filing by Purchaser. Accordingly, it is anticipated that
the waiting period under the HSR Act applicable to the purchase of Shares
pursuant to the Offer will expire at 11:59 p.m., New York City time, on August
13, 1997, unless such waiting period is earlier terminated by the FTC and the
Antitrust Division or extended by a request from the FTC or the Antitrust
Division for additional information or documentary material prior to the
expiration of the waiting period. Pursuant to the HSR Act, Purchaser will
request early termination of the waiting period applicable to the Offer. There
can be no assurance, however, that the 15-day HSR Act waiting period will be
terminated early. If either the FTC or the Antitrust Division were to request
additional information or documentary material from Purchaser with respect to
the Offer, the waiting period with respect to the Offer would expire at 11:59
p.m., New York City time, on the tenth calendar day after the date of
substantial compliance by Purchaser with such request. Thereafter, the waiting
period could be extended only by court order. If the acquisition of Shares is
delayed pursuant to a request by the FTC or the Antitrust Division for
additional information or documentary material pursuant to the HSR Act, the
Offer, subject to the terms of the Share Purchase Agreement, may, but need not,
be extended and, in any event, the purchase of and payment for Shares will be
deferred until 10 days after the request is substantially complied with, unless
the extended period expires on or before the date when the initial 15-day period
would otherwise have expired, or unless the waiting period is sooner terminated
by the FTC and the Antitrust Division. Only one extension of such waiting period
pursuant to a request for additional information is authorized by the HSR Act
and the rules promulgated thereunder, except by court order. It is a condition
to the Offer that the waiting period applicable under the HSR Act to the Offer
expire or be terminated. See Section 2 and Section 14.
 
     The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Shares by
Purchaser pursuant to the Offer. At any time before or after the purchase of
Shares pursuant to the Offer by Purchaser, the FTC or the Antitrust Division
could take such action under the antitrust laws as it deems necessary or
desirable in the public interest, including seeking to enjoin the purchase of
Shares pursuant to the Offer or seeking the divestiture of Shares purchased by
Purchaser or the divestiture of substantial assets of Purchaser, the Company or
their respective affiliates and subsidiaries. Private parties and state
attorneys general may also bring legal action under federal or state antitrust
laws under certain circumstances. Based upon an examination of information
available to Purchaser relating to the businesses in which Purchaser, the
Company and their respective subsidiaries are engaged, the Purchaser believes
that the Offer will not violate the antitrust laws. Nevertheless, there can be
no assurance that a challenge to the Offer on antitrust grounds will not be made
or, if such a challenge is made, what the result would be. See Section 14 for
certain conditions to the Offer, including conditions with respect to
litigation.
 
     Federal Reserve Board Regulations.  The margin regulations promulgated by
the Federal Reserve Board place restrictions on the amount of credit that may be
extended for the purpose of purchasing margin stock (including the Shares) if
such credit is secured directly or indirectly by margin stock. Purchaser
believes that the financing of the acquisition of the Shares will be in full
compliance with or not subject to the margin regulations.
 
     Other Foreign Approvals.  The Company owns property and conducts business
in a number of foreign countries and jurisdictions. In connection with the
acquisition of the Shares pursuant to the Offer, the laws of certain of those
foreign countries and jurisdictions may require the filing of information with,
or the obtaining of the approval of, governmental authorities in such countries
and jurisdictions. The governments in such
 
                                       33
   36
 
countries and jurisdictions might attempt to impose additional conditions on the
Company's operations conducted in such countries and jurisdictions as a result
of the acquisition of the Shares pursuant to the Offer. There can be no
assurance that Purchaser will be able to cause the Company or its subsidiaries
to satisfy or comply with such laws or that compliance or non-compliance will
not have adverse consequences for the Company or any subsidiary after purchase
of the Shares pursuant to the Offer.
 
     16.  FEES AND EXPENSES.  Neither Purchaser, nor any officer, director,
stockholder, agent or other representative of Purchaser or the Controlling
Stockholders will pay any fees or commissions to any broker, dealer or other
person (other than the Dealer Manager, the Information Agent and the Depositary)
for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers,
commercial banks and trust companies and other nominees will, upon request, be
reimbursed by Purchaser for customary mailing and handling expenses incurred by
them in forwarding materials to their customers.
 
     Schroder & Co. Inc. ("Schroder") is acting as Dealer Manager in connection
with the Offer and has provided certain financial advisory services to Purchaser
and its affiliates in connection with the Offer. Purchaser has agreed to pay
Schroder reasonable and customary compensation for such services. In addition,
Purchaser has agreed to reimburse Schroder for reasonable out-of-pocket expenses
related to their engagement, including the reasonable fees and expenses of a
single counsel, and has agreed to indemnify each of Schroder and certain
affiliated persons against certain liabilities and expenses in connection with
its services, including, without limitation, certain liabilities under the
federal securities laws.
 
     Purchaser has retained D.F. King & Co., Inc. as the Information Agent and
First Chicago Trust Company of New York as the Depositary in connection with the
Offer. The Information Agent may contact holders of Shares by mail, telephone,
telex, telecopy, telegraph and personal interview and may request banks,
brokers, dealers and other nominee stockholders to forward materials relating to
the Offer to beneficial owners.
 
     As compensation for acting as Information Agent in connection with the
Offer, D.F. King & Co., Inc. will be paid reasonable and customary compensation
for its services, and will also be reimbursed for certain out-of-pocket expenses
and will be indemnified against certain liabilities and expenses in connection
with the Offer, including certain liabilities under the federal securities laws.
Purchaser will pay the Depositary reasonable and customary compensation for its
services in connection with the Offer, plus reimbursement for out-of-pocket
expenses, and will indemnify the Depositary against certain liabilities and
expenses in connection therewith, including under the federal securities laws.
 
     17.  MISCELLANEOUS.  The Offer is made only by this Offer to Purchase and
the related Letter of Transmittal and is not being made to (nor will tenders be
accepted from or on behalf of) holders of Shares in any jurisdiction in which
the Offer or the acceptance thereof would not be in compliance with the
securities, blue sky or other laws of such jurisdiction. However, Purchaser may,
in its discretion, take such action as it may deem necessary to make the Offer
in any jurisdiction and extend the Offer to holders of Shares in such
jurisdiction. In those jurisdictions where securities laws require the Offer to
be made by a licensed broker or dealer, the Offer shall be deemed to be made on
behalf of Purchaser by Schroder or one or more registered brokers or dealers
licensed under the laws of such jurisdiction.
 
     NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER OR THE COMPANY NOT CONTAINED IN THIS OFFER
TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
 
     Pursuant to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, Purchaser has filed with the Commission the Schedule 14D-1,
together with exhibits, furnishing certain additional information with respect
to the Offer. The Schedule 14D-1 and any amendments thereto, including exhibits,
may be inspected at, and copies may be obtained from, the same places and in the
same manner as set forth in Section 7 (except that they will not be available at
the regional offices of the Commission).
 
                                          II ACQUISITION CORP.
 
July 31, 1997
 
                                       34
   37
 
                                   SCHEDULE I
 
                 DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER
 
     The following table sets forth the name, business address, principal
occupation or employment and material occupations, positions, offices or
employments at the present time and during the last five years, of each director
and executive officer of Purchaser. The business address of Philip W. Knisely
and John A. Young is 9211 Forest Hill Avenue, Suite 109, Richmond, Virginia
23235 and the business address of Mitchell P. Rales, Steven M. Rales, Michael G.
Ryan and Joseph O. Bunting III is 1250 24th Street, N.W., Suite 800, Washington
D.C. 20037. Each officer and executive director is a United States citizen.
Directors are indicated by an asterisk.
 


                                           PRINCIPAL OCCUPATION OR EMPLOYMENT AND
             NAME                         MATERIAL OCCUPATIONS FOR PAST FIVE YEARS
- ------------------------------  -------------------------------------------------------------
                             
Philip W. Knisely*............  Since 1995, Mr. Knisely has been on the Board of Managers and
                                has been President of Constellation Capital Partners LLC, a
                                private equity firm. He has also been Director and President
                                of American Enterprises MPT Corp. since 1996. From 1988 to
                                1995, he was President of AMF Industries, a privately held
                                diversified manufacturing company at 8100 AMF Drive,
                                Mechanicsville, VA 23111.
 
Steven M. Rales*..............  Mr. Rales is Chairman of the Board of Danaher Corporation, a
                                manufacturer of tools and process/environmental controls
                                products, and has held that position since 1984. Mr. Rales is
                                also a General Partner of Equity Group Holdings, a general
                                partnership located in Washington, D.C., with interests in
                                manufacturing companies, media operations, and publicly
                                traded securities, and has been since 1979. Mr. Rales is also
                                a director of Colfax Capital Corp., Janelia Farm Corp. and
                                American Enterprises MPT Corp. and has held those
                                directorships from 1997, 1988 and 1996, respectively. Mr.
                                Rales is also a Member of the Board of Managers of
                                Constellation Capital Partners LLC. Mr. Rales is also a
                                founder and has been Chairman of Colfax Communications, Inc.
                                since 1991. He is also a founder of Wabash National
                                Corporation and was its Chairman of the Board of Directors
                                until 1994.
Mitchell P. Rales*............  Mr. Rales has been a director of Danaher Corporation since
                                1984 and has been Chairman of its Executive Committee since
                                1990. He is also a General Partner of Equity Group Holdings
                                and has been since 1979. Mr. Rales is also a director of
                                Colfax Capital Corp., Janelia Farm Corp. and American
                                Enterprises MPT Corp. and has held those directorships from
                                1997, 1988 and 1996, respectively. Mr. Rales is also a Member
                                of the Board of Managers of Constellation Capital Partners
                                LLC. Mr. Rales is also a founder and has been a Director of
                                Colfax Communications, Inc., since 1991. He is also a founder
                                of Wabash National Corporation and was a Director until 1994.
 
John A. Young.................  Since 1995, Mr. Young has been Vice President of
                                Constellation Capital Partners LLC. Mr. Young has also been
                                the Vice President of American Enterprises MPT Corp. since
                                1996. From 1992 to 1995, he was Director of Corporate
                                Development of AMF Industries located at 8100 AMF Drive,
                                Mechanicsville, VA 23111.

 
                                       35
   38
 


                                           PRINCIPAL OCCUPATION OR EMPLOYMENT AND
             NAME                         MATERIAL OCCUPATIONS FOR PAST FIVE YEARS
- ------------------------------  -------------------------------------------------------------
                             
Michael G. Ryan...............  Mr. Ryan has been Chief Financial Officer of Equity Group
                                Holdings since 1985. Mr. Ryan is Vice President of
                                Constellation Capital Partners LLC, Colfax Communications,
                                Inc. and American Enterprises MPT Corp. and has held those
                                vice presidencies since 1995, 1991 and 1996, respectively. He
                                is also President of Colfax Capital Corp. and Janelia Farm
                                Corp. and has held those presidencies since 1997 and 1988,
                                respectively.
 
Joseph O. Bunting III.........  Mr. Bunting has been Controller of Equity Group Holdings
                                since 1987. He is also a Vice President of Colfax
                                Communications, Inc., Constellation Capital Partners LLC,
                                Colfax Capital Corp., Janelia Farm Corp. and American
                                Enterprises MPT Corp. and has held those vice presidencies
                                since 1991, 1995, 1997, 1988 and 1996, respectively. He was
                                also Vice President of Yield House, Inc. through 1993.

 
     Purchaser.  The name and position with Purchaser of each director and
executive officer of Purchaser are set forth below. The business address,
present principal occupation or employment, five-year employment history and
citizenship of each such person is set forth above.
 


             NAME                                 POSITION WITH PURCHASER
- ------------------------------ --------------------------------------------------------------
                            
Philip W. Knisely............. President, Chief Executive Officer and Director
Steven M. Rales............... Director
Mitchell P. Rales............. Director
John A. Young................. Vice President and Secretary
Michael G. Ryan............... Vice President and Assistant Secretary, Assistant Treasurer
Joseph O. Bunting III......... Vice President and Treasurer

 
                                       36
   39
 
     Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each stockholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of its
addresses set forth below.
 
                        The Depositary for the Offer is:
                    FIRST CHICAGO TRUST COMPANY OF NEW YORK
 
                                                              
           By Mail:                 By Facsimile Transmission:                 By Hand:
 First Chicago Trust Company              (201) 222-4720             First Chicago Trust Company
         of New York                                                         of New York
Attention: Tenders & Exchanges                  or                  Attention: Tenders & Exchanges
  P.O. Box 2569, Suite 4660                                               c/o THE DEPOSITORY
  Jersey City, NJ 07303-2569              (201) 222-4721                    TRUST COMPANY
                                                                       55 Water Street, DTC TAD
                                                                      Vietnam Veterans Memorial
                                                                                Plaza
                                                                          New York, NY 10041
 
    By Overnight Courier:                                            To Confirm Receipt of Notice
                                                                       of Guaranteed Delivery:
 First Chicago Trust Company                                                (201) 222-4707
         of New York
Attention: Tenders & Exchanges
        Suite 4680-IMO
  14 Wall Street, 8th Floor
      New York, NY 10005


 
     Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
 
                    The Information Agent for the Offer is:
                             D.F. KING & CO., INC.
 
                         CALL TOLL FREE: (800) 549-6650
                                       or
                                 CALL COLLECT:
                                 (212) 269-5550
 
                      The Dealer Manager for the Offer is:
 
                              SCHRODER & CO. INC.
 
                              The Equitable Center
                               787 Seventh Avenue
                         New York, New York 10019-6016
                         CALL TOLL FREE: (800) 426-7209
 
July 31, 1997

EX-99.B

   1
 
          STOCKHOLDERS WISHING TO TENDER THEIR SHARES SHOULD USE THIS
                             LETTER OF TRANSMITTAL.
 
                             LETTER OF TRANSMITTAL
 
                        TO TENDER SHARES OF COMMON STOCK
            (INCLUDING THE ASSOCIATED SERIES B JUNIOR PARTICIPATING
                        PREFERRED STOCK PURCHASE RIGHTS)
 
                                       OF
 
                              IMO INDUSTRIES INC.
 
             PURSUANT TO THE OFFER TO PURCHASE DATED JULY 31, 1997
 
                                       BY
 
                              II ACQUISITION CORP.
 
  THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
       TIME, ON WEDNESDAY, AUGUST 27, 1997 UNLESS THE OFFER IS EXTENDED.
 
                        The Depositary for the Offer is:
 
                    FIRST CHICAGO TRUST COMPANY OF NEW YORK
 
                                                                              
                 By Mail:                           By Overnight Courier:                            By Hand:
 First Chicago Trust Company of New York   First Chicago Trust Company of New York   First Chicago Trust Company of New York
      Attention: Tenders & Exchanges            Attention: Tenders & Exchanges            Attention: Tenders & Exchanges
        P.O. Box 2569, Suite 4660                       Suite 4680-IMO                   c/o THE DEPOSITORY TRUST COMPANY
        Jersey City, NJ 07303-2569               14 Wall Street, 8(th) Floor                 55 Water Street, DTC TAD
                                                      New York, NY 10005                 Vietnam Veterans Memorial Plaza
                                                                                                New York, NY 10041


 
                           By Facsimile Transmission:
 
                                 (201) 222-4720
                                       or
                                 (201) 222-4721
 
                             Confirm by Telephone:
 
                                 (201) 222-4707
 
     DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
 
     SIGNATURES MUST BE PROVIDED ON THE INSIDE AND REVERSE BACK COVER. PLEASE
READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
   2
 
     This Letter of Transmittal is to be completed by holders of Shares (as
defined below) either if certificates are to be forwarded herewith or, unless an
Agent's Message (as defined in Section 2 of the Offer to Purchase (as defined
below)) is utilized, if a tender of Shares is to be made by book-entry transfer
into the account of First Chicago Trust Company of New York as Depositary (the
"Depositary"), at The Depository Trust Company ("DTC") or the Philadelphia
Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility" and
collectively the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth in Section 3 of the Offer to Purchase.
 
     Holders of Shares whose certificates for such Shares (the "Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other required documents to the Depositary prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase (as defined
below)), or who cannot complete the procedure for delivery by book-entry
transfer on a timely basis, may nevertheless tender their Shares according to
the guaranteed delivery procedure set forth in Section 3 of the Offer to
Purchase. See Instruction 2. Delivery of documents to a Book-Entry Transfer
Facility does not constitute delivery to the Depositary.
 
[ ]CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN
   ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER FACILITY AND
   COMPLETE THE FOLLOWING:
 
   Name of Tendering Institution:
                                 -----------------------------------------------
 
Check Box of Book-Entry Transfer Facility:
 
     [ ] DTC
 
     [ ] PDTC
 
Account Number:                           Transaction Code Number:
               --------------------------                         --------------
 
[ ] CHECK HERE IF SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
    DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING.
    PLEASE ENCLOSE A PHOTOCOPY OF SUCH NOTICE OF GUARANTEED DELIVERY.
 
   Name(s) of Registered Holder(s):
                                   ---------------------------------------------
 
   Window Ticket Number (if any):
                                 -----------------------------------------------
 
   Date of Execution of Notice of Guaranteed Delivery:
                                                      --------------------------
 
   Name of Institution which Guaranteed Delivery:
                                                 -------------------------------
 


- ----------------------------------------------------------------------------------------------------------
                                      DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------
     NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)                  SHARE CERTIFICATE(S) AND
      (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S)                      SHARE(S) TENDERED
            APPEAR(S) ON SHARE CERTIFICATE(S))                 (ATTACH ADDITIONAL LIST IF NECESSARY)
- ----------------------------------------------------------------------------------------------------------
                                                                                  
                                                                            TOTAL NUMBER
                                                                             OF SHARES
                                                               SHARE        REPRESENTED        NUMBER
                                                            CERTIFICATE       BY SHARE       OF SHARES
                                                             NUMBER(S)*   CERTIFICATE(S)*    TENDERED**
                                                          ------------------------------------------------
 
                                                          ------------------------------------------------
 
                                                          ------------------------------------------------
 
                                                          ------------------------------------------------
 
                                                          ------------------------------------------------
                                                            TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------
  * Need not be completed by Book-Entry Stockholders.
 ** Unless otherwise indicated, it will be assumed that all Shares represented by certificates delivered
    to the Depositary are being tendered. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------

   3
 
LADIES AND GENTLEMEN:
 
     The undersigned hereby tenders to II Acquisition Corp., a Delaware
corporation ("Purchaser") and an affiliate of Constellation Capital Partners
LLC, a private investment firm, the above-described shares of common stock,
$1.00 par value per share (the "Shares"), of Imo Industries Inc., a Delaware
corporation (the "Company"), and the associated Series B Junior Participating
Preferred Stock Purchase Rights (the "Rights;" unless the context otherwise
requires, such Rights are deemed to be included in all references to the
"Shares"), issued pursuant to the Rights Agreement, dated as of April 30, 1997,
as amended, between the Company and First Chicago Trust Company of New York, as
Rights Agent, at a purchase price of $7.05 per Share, net to the seller in cash
without interest thereon, upon the terms and subject to the conditions set forth
in the Offer to Purchase, dated July 31, 1997 (the "Offer to Purchase"), and in
this Letter of Transmittal (which together with the Offer to Purchase,
constitutes the "Offer").
 
     Subject to, and effective upon, acceptance for payment of the Shares
tendered herewith in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, Purchaser all right, title and interest in and to all of the Shares
that are being tendered hereby and any and all dividends, distributions
(including additional Shares) and rights declared, paid or issued with respect
to the tendered Shares on or after July 31, 1997 and payable or distributable to
the undersigned on a date prior to the transfer to the name of Purchaser on the
Company's stock transfer records of the Shares tendered herewith (collectively,
a "Distribution"), and irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares (and any Distributions) with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates for such Shares (and any Distributions) or transfer
ownership of such Shares (and any Distributions) on the account books maintained
by a Book-Entry Transfer Facility, together in either case with appropriate
evidences of transfer, to the Depositary for the account of Purchaser, (b)
present such Shares (and any Distributions) for transfer on the books of the
Company and (c) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Shares (and any Distributions), all in accordance
with the terms and subject to the conditions of the Offer.
 
     The undersigned irrevocably appoints Philip W. Knisely, John A. Young and
Michael G. Ryan, and each of them, or any other designees of Purchaser, as such
shareholder's attorneys-in-fact and proxies, each with full power of
substitution, to the full extent of such stockholder's rights with respect to
the Shares tendered by such stockholder and accepted for payment by Purchaser
and with respect to any and all other shares or other securities issued or
issuable in respect of such Shares on or after July 31, 1997. Such appointment
will be effective upon the acceptance for payment of such Shares by Purchaser in
accordance with the terms of the Offer. Upon such acceptance for payment, all
prior powers of attorney and proxies given by such stockholder with respect to
such Shares (and such other shares and securities) will be revoked without
further action, and no subsequent proxies may be given nor any subsequent
written consents executed (and, if given or executed, will not be deemed
effective). The proxies (or other designees of Purchaser) will be empowered to
exercise all voting and other rights of such stockholder as they in their sole
discretion may deem proper at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof, by consent in lieu of
any such meeting or otherwise. Purchaser reserves the right to require that, in
order for Shares to be deemed validly tendered, immediately upon Purchaser's
payment for such Shares Purchaser must be able to exercise full voting rights
with respect to such Shares.
 
     The undersigned hereby represents and warrants that (a) the undersigned has
full power and authority to tender, sell, assign and transfer the Shares (and
any Distributions) tendered hereby and (b) when the Shares are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title to the Shares (and any Distributions), free and clear of all liens,
restrictions, charges and encumbrances, and the same will not be subject to any
adverse claim. The undersigned, upon request, shall execute and deliver any
signature guarantee or additional documents deemed by the Depositary or
Purchaser to be necessary or desirable to complete the sale, assignment and
transfer of the Shares (and any Distributions) tendered hereby. In addition, the
undersigned shall promptly remit and transfer to the Depositary for the account
of Purchaser any and all Distributions in respect of the Shares tendered hereby,
accompanied by appropriate documentation of transfer, and pending such
remittance or appropriate assurance thereof, Purchaser will be, subject to
applicable law, entitled to all rights and privileges as owner of any such
Distribution and may withhold the entire purchase price or deduct from the
purchase price the amount or value thereof, as determined by Purchaser in its
sole discretion.
 
     No authority herein conferred or agreed to be conferred by this Letter of
Transmittal shall be affected by, and all such authority shall survive the death
or incapacity of the undersigned. All obligations of the undersigned hereunder
shall be binding upon the heirs, executors, administrators, trustees in
bankruptcy, personal and legal representatives, successors and assigns of the
undersigned.
   4
 
     Tenders of Shares made pursuant to the Offer are irrevocable, except that
Shares tendered pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase) and, unless
theretofore accepted for payment by Purchaser pursuant to the Offer, may also be
withdrawn at any time after September 28, 1997. See Section 4 of the Offer to
Purchase.
 
     The undersigned understands that tenders of Shares pursuant to any of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and Purchaser upon the terms and subject to the conditions set forth in the
Offer, including the undersigned's representation and warranty that the
undersigned owns the Shares being tendered.
 
     Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any certificate(s)
for Shares not tendered or not accepted for payment in the name(s) of the
registered holder(s) appearing under "Description of Shares Tendered."
Similarly, unless otherwise indicated herein under "Special Delivery
Instructions," please mail the check for the purchase price and/or any
certificate(s) for Shares not tendered or not accepted for payment (and
accompanying documents, as appropriate) to the address(es) of the registered
holder(s) appearing under "Description of Shares Tendered." In the event that
both the Special Delivery Instructions and the Special Payment Instructions are
completed, please issue the check for the purchase price and/or any
certificate(s) for Shares not tendered or accepted for payment in the name of,
and deliver such check and/or such certificates to, the person or persons so
indicated. Unless otherwise indicated herein under "Special Payment
Instructions," please credit any Shares tendered herewith by book-entry transfer
that are not accepted for payment by crediting the account at the Book-Entry
Transfer Facility designated above. The undersigned recognizes that Purchaser
has no obligation, pursuant to the Special Payment Instructions, to transfer any
Shares from the name(s) of the registered holder(s) thereof if Purchaser does
not accept for payment any of the Shares so tendered.
 
[ ] CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING THE SHARES THAT YOU OWN
    HAVE BEEN LOST OR DESTROYED AND SEE INSTRUCTION 11.
 
    Number of shares represented by the lost or destroyed certificates:
 
    Please fill in the remainder of this Letter of Transmittal.
   5
 
- --------------------------------------------------------------------------------
                                   IMPORTANT:
                             SHAREHOLDERS SIGN HERE
              (ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
 
              X
              ----------------------------------------------------
 
              X
              ----------------------------------------------------
                           SIGNATURE(S) OF HOLDER(S)
 
              Dated:
 
              -------------------------------------------------------
 
              (Must be signed by the registered holder(s) exactly
              as name(s) appear(s) on Share Certificate(s) or on a
              security position listing or by person(s) authorized
              to become registered holders(s) by certificates and
              document transmitted herewith. If signature is by
              trustees, executors, administrators, guardians,
              attorneys-in-fact, officers of corporations or
              others acting in a fiduciary or representative
              capacity, please provide the following information
              and see Instruction 5.)
 
              Name(s):
 
                      --------------------------------------------
 
              ----------------------------------------------------
                                 (PLEASE PRINT)
 
              Capacity (Full Title):
                               -----------------------------------
 
              Address:
                     ---------------------------------------------
 
              ----------------------------------------------------
 
              ----------------------------------------------------
                               (INCLUDE ZIP CODE)
 
              Daytime Telephone Number: (        )
                                     -----------------------------
                                     (AREA CODE)
 
              Tax Identification or Social Security No.:
                                             ---------------------
                   (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
 
                           GUARANTEE OF SIGNATURE(S)
                   (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
 
              Authorized Signature:
                               -----------------------------------
 
              Name:-----------------------------------------------
 
              Name of Firm:
                          ----------------------------------------
 
              Address:
              ----------------------------------------------------
 
              ----------------------------------------------------
 
              ----------------------------------------------------
                               (INCLUDE ZIP CODE)
 
              Daytime Telephone Number: (        )
                                     -----------------------------
                                     (AREA CODE)
              Dated:
 
              ------------------------------------------------------- ,
              1997
 
                                                                                          
                                                                                                SIGN
                                                                                                HERE
                                                                                                -


 
- --------------------------------------------------------------------------------
   6
 
- --------------------------------------------------------------------------------
                                   IMPORTANT:
                             STOCKHOLDERS SIGN HERE
              (ALSO COMPLETE SUBSTITUTE FORM W-9 ON REVERSE SIDE)    
 
            X
            --------------------------------------------------------   SIGN
                                                                       HERE
            X
            --------------------------------------------------------
                           SIGNATURE(S) OF HOLDER(S)
 
            Dated:
                  --------------------------------------------------
 
            (Must be signed by the registered holder(s) exactly as
            name(s) appear(s) on Share Certificate(s) or on a
            security position listing or by person(s) authorized to
            become registered holders(s) by certificates and
            document transmitted herewith. If signature is by
            trustees, executors, administrators, guardians,
            attorneys-in-fact, officers of corporations or others
            acting in a fiduciary or representative capacity, please
            provide the following information and see Instruction
            5.)
 
            Name(s):
                    ------------------------------------------------
 
            --------------------------------------------------------
                                 (PLEASE PRINT)
 
            Capacity (Full Title):
                                  ----------------------------------
 
            Address:
                    ------------------------------------------------
 
            --------------------------------------------------------
 
            --------------------------------------------------------
                               (INCLUDE ZIP CODE)
 
            Daytime Telephone Number: (        )
                                                --------------------
                                     (AREA CODE)
 
            Tax Identification or Social Security No.:
                                                      --------------
                   (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
 
                           GUARANTEE OF SIGNATURE(S)
                   (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5)
 
            Authorized Signature:
                                 -----------------------------------
 
            Name:
                 ---------------------------------------------------
 
            Name of Firm:
                         -------------------------------------------
 
            Address:
                    ------------------------------------------------
 
            --------------------------------------------------------
 
            --------------------------------------------------------
                               (INCLUDE ZIP CODE)
 
            Daytime Telephone Number: (        )
                                 -----------------------------------
                                 (AREA CODE)
            Dated:                                        , 1997
                  ----------------------------------------
   7
 
                                  INSTRUCTIONS
 
             FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
 
     1. GUARANTEE OF SIGNATURES.  No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) of Shares (which term, for purposes of this document, shall
include any participant in a Book-Entry Transfer Facility whose name appears on
a security position listing as the owner of Shares) tendered herewith, unless
such holder(s) has completed either the box entitled "Special Payment
Instructions" or the box entitled "Special Delivery Instructions" above, or (b)
if such Shares are tendered for the account of a firm which is a bank, broker,
dealer, credit union, savings association or other entity which is a member in
good standing of a recognized Medallion Program approved by the Securities
Transfer Association (each of the foregoing being referred to as an "Eligible
Institution"). In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 5 of this Letter
of Transmittal.
 
     2. REQUIREMENTS OF TENDER.  This Letter of Transmittal is to be completed
by stockholders either if certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if tenders are to be made pursuant to the
procedure for tender by book-entry transfer set forth in Section 3 of the Offer
to Purchase. Certificates for all physically tendered Shares or timely
confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such
Shares into the Depositary's account at a Book-Entry Transfer Facility, as well
as a properly completed and duly executed Letter of Transmittal (or a facsimile
hereof), with any required signature guarantees, or an Agent's Message in
connection with a book-entry transfer, and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein prior to the Expiration Date (as defined in Section 1
of the Offer to Purchase).
 
     Stockholders whose certificates for Shares ("Share Certificates") are not
immediately available or who cannot deliver their Share Certificates and all
other required documents to the Depositary prior to the Expiration Date or who
cannot complete the procedure for delivery by book-entry transfer on a timely
basis may tender their Shares by properly completing and duly executing a Notice
of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth
in Section 3 of the Offer to Purchase. Pursuant to such procedure: (i) such
tender must be made by or through an Eligible Institution; (ii) a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form made available by the Purchaser, must be received by the Depositary on or
prior to the Expiration Date; and (iii) the Share Certificates (or a Book-Entry
Confirmation) evidencing all tendered Shares, in proper form for transfer, in
each case together with the Letter of Transmittal (or a facsimile thereof),
properly completed and duly executed, with any required signature guarantees
(or, in the case of a book-entry transfer, an Agent's Message), and any other
documents required by the Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange, Inc. trading days after the
date of execution of such Notice of Guaranteed Delivery.
 
     TENDERING STOCKHOLDERS SHOULD USE THIS LETTER OF TRANSMITTAL AND THE NOTICE
OF GUARANTEED DELIVERY PROVIDED WITH THE OFFER TO PURCHASE. STOCKHOLDERS WILL BE
ABLE TO TENDER (OR WITHDRAW) THEIR SHARES PURSUANT TO THE OFFER UNTIL 12:00
MIDNIGHT, NEW YORK CITY TIME, ON AUGUST 27, 1997 (OR SUCH LATER DATE TO WHICH
THE OFFER MAY BE EXTENDED).
 
     THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
 
     No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. All tendering stockholders, by execution of
this Letter of Transmittal (or a facsimile hereof), waive any right to receive
any notice of the acceptance of their Shares for payment.
 
     3. INADEQUATE SPACE.  If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares and any other required
information should be listed on a separate signed schedule attached hereto.
 
     4. PARTIAL TENDERS.  (Not applicable to stockholders who tender by
book-entry transfer) If fewer than all the Shares evidenced by any certificate
submitted are to be tendered, fill in the number of Shares which are to be
tendered in the box entitled "Number of Shares Tendered." In such cases, new
certificates for the Shares that were evidenced by your old certificates, but
which were not tendered by you, will be sent to you, unless otherwise provided
in the appropriate box on this Letter of Transmittal, as soon as practicable
after the Expiration Date. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
 
     5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.  If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must
   8
 
correspond with the name(s) as written on the face of the certificate(s) without
alteration, enlargement or any change whatsoever.
 
     If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
 
     If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
 
     If this Letter of Transmittal or any certificates or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to Purchaser of their authority to so act must be submitted.
 
     When this Letter of Transmittal is signed by the registered owner(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or not purchased are to be issued in the
name of, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
 
     If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s).
Signatures on such certificates and stock powers must be guaranteed by an
Eligible Institution, unless the signature is that of an Eligible Institution.
 
     6. STOCK TRANSFER TAXES.  Except as otherwise provided in this Instruction
6, Purchaser will pay any stock transfer taxes with respect to the purchase of
Shares pursuant to the Offer. If, however, payment of the purchase price is to
be made to, or if certificate(s) for Shares not tendered or accepted for payment
are to be registered in the name of, any person other than the registered
owner(s), or if tendered certificate(s) are registered in the name of any person
other than the person(s) signing this Letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered owner(s) or such person)
payable on account of the transfer to such person will be deducted from the
purchase price unless satisfactory evidence of the payment of such taxes, or an
exemption therefrom, is submitted.
 
     7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS.  If a check is to be issued
in the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal or if a check and/or such certificates are to be returned
to a person other than the person(s) signing this Letter of Transmittal or to an
address other than that shown in this Letter of Transmittal, the appropriate
boxes on this Letter of Transmittal must be completed. A stockholder who tenders
by book-entry transfer may request that Shares not accepted for payment be
credited to such account maintained at a Book-Entry Transfer Facility as such
stockholder may designate under "Special Payment Instructions." If no such
instructions are given, such Shares not accepted for payment will be returned by
crediting the account at the Book-Entry Transfer Facility designated above.
 
     8. WAIVER OF CONDITIONS.  The conditions of the Offer may be waived by
Purchaser in whole or in part at any time and from time to time in its sole
discretion, subject to the terms of the Share Purchase Agreement, dated as of
July 25, 1997, between the Company and Purchaser.
 
     9. BACKUP WITHHOLDING; SUBSTITUTE FORM W-9.  Under U.S. federal income tax
law, a stockholder whose tendered Shares are accepted for payment is required to
provide the Depositary with such stockholder's correct taxpayer identification
number ("TIN"), generally the stockholder's social security or federal employer
identification number, and certain other information, on Substitute Form W-9
below. If the Depositary is not provided with the correct TIN, the Internal
Revenue Service may subject the stockholder or other payee to a $50 penalty. In
addition, payments that are made to such stockholder or other payee with respect
to Shares purchased pursuant to the Offer may be subject to 31% backup
withholding.
 
     Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9" for more instructions.
 
     If backup withholding applies, the Depositary is required to withhold 31%
of any such payments made to the stockholder or other payee. Backup withholding
is not an additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
 
     The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the
   9
 
stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary.
 
     The stockholder is required to give the Depositary the TIN (e.g., social
security number or employer identification number) of the record owner of the
Shares or of the last transferee appearing on the transfers attached to, or
endorsed on, the Shares. If the Shares are in more than one name or are not in
the name of the actual owner, consult the enclosed "Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9" for additional
guidance on which number to report.
 
     10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.  Questions or requests
for assistance may be directed to the Dealer Manager or the Information Agent at
their respective addresses and telephone numbers set forth below. Additional
copies of the Offer to Purchase, the Supplement, this Letter of Transmittal and
the Notice of Guaranteed Delivery may also be obtained from the Information
Agent or from brokers, dealers, commercial banks or trust companies.
 
     11. LOST, DESTROYED OR STOLEN CERTIFICATES.  If any certificate
representing Shares has been lost, destroyed or stolen, the stockholder should
promptly notify the Depositary by checking the box immediately preceding special
payment/special delivery instructions and indicating the number of Shares lost.
The stockholder will then be instructed as to the steps that must be taken in
order to replace the certificate. This Letter of Transmittal and related
documents cannot be processed until the procedures for replacing lost or
destroyed certificates have been followed.
 
     IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF), TOGETHER
WITH SHARE CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER OR THE NOTICE OF
GUARANTEED DELIVERY, AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE.
   10
 
                 TO BE COMPLETED BY ALL TENDERING STOCKHOLDERS
                              (SEE INSTRUCTION 9)
 

- ----------------------------------------------------------------------------------------------------------
PAYER'S NAME: FIRST CHICAGO TRUST COMPANY OF NEW YORK
- ----------------------------------------------------------------------------------------------------------
                                                                       
 SUBSTITUTE                    PART 1--PLEASE PROVIDE YOUR TIN IN THE BOX   ------------------------------
 FORM W-9                      AT RIGHT AND CERTIFY BY SIGNING AND DATING   Social Security Number
 DEPARTMENT OF THE TREASURY    BELOW      
 INTERNAL REVENUE SERVICE                                                             or
                                                                            
 PAYER'S REQUEST FOR                                                        
 TAXPAYER IDENTIFICATION                                                    ------------------------------
 NUMBER ("TIN")                                                             Employer ID Number
- ----------------------------------------------------------------------------------------------------------

 
 PART 2--CERTIFICATION--Under penalties of perjury, I certify that:
 (1) The number shown on this form is my correct taxpayer identification number
     (or I am waiting for a number to be issued for me), and
 (2) I am not subject to backup withholding because: (a) I am exempt from
     backup withholding, or (b) I have not been notified by the Internal
     Revenue Service ("IRS") that I am subject to backup withholding as a
     result of a failure to report all interest or dividends, or (c) the IRS
     has notified me that I am no longer subject to backup withholding.

 CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been
 notified by the IRS that you are currently subject to backup withholding
 because of under-reporting interest or dividends on your tax return. However,
 if after being notified by the IRS that you were subject to backup withholding
 you received another notification from the IRS that you are no longer subject
 to backup withholding, do not cross out such Item (2).
- --------------------------------------------------------------------------------
 
                                                                                  
 
 SIGNATURE                                                  DATE                        PART 3--AWAITING TIN  [ ]
           -----------------------------------------------      -------------------- 
- ------------------------------------------------------------------------------------------------------------------------------


 
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
      OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
      THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
      NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
 
      YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
      3 OF THE SUBSTITUTE FORM W-9.
   11
 
             CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
 
     I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office, or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all reportable payments made to me will be withheld but that such amounts
will be refunded to me if I then provide a taxpayer identification number within
sixty (60) days.
 
Signature:                                   Date:
          -----------------------------           ------------------------------
 
     Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of the Offer to Purchase, the Letter of
Transmittal and other tender offer materials may be obtained from the
Information Agent as set forth below, and will be furnished promptly at the
Purchaser's expense. You may also contact your broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Offer.
 
                    The Information Agent for the Offer is:
 
                             D.F. KING & CO., INC.
                                77 Water Street
                                   20th Floor
                            New York, New York 10005
                         CALL TOLL FREE: (800) 549-6650
 
                      The Dealer Manager for the Offer is:
                              SCHRODER & CO. INC.
                              The Equitable Center
                               787 Seventh Avenue
                         New York, New York 10019-6016
                         CALL TOLL FREE: (800) 426-7209

EX-99.C

   1
                                                                 Exhibit (c)(1)


        ================================================================


                            SHARE PURCHASE AGREEMENT

                                     between

                              II ACQUISITION CORP.

                                       and

                               IMO INDUSTRIES INC.


                            Dated as of July 25, 1997


        ================================================================
   2

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                    ARTICLE I

                                    THE OFFER

SECTION 1.01 The Offer.........................................................1
SECTION 1.02 Termination of Existing Offer.....................................2
SECTION 1.03 Company Action....................................................3
SECTION 1.04 Stock Options.....................................................5
                                                                              
                                   ARTICLE II
                                                                              
                                    [RESERVED].................................5
                                                                              
                                   ARTICLE III
                                                                              
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY
                                                                              
SECTION 3.01 Organization and Qualification; Subsidiaries......................5
SECTION 3.02 Certificate of Incorporation and Bylaws...........................6
SECTION 3.03 Capitalization....................................................6
SECTION 3.04 Authority Relative to this Agreement..............................7
SECTION 3.05 No Conflict; Required Filings and Consents........................7
SECTION 3.06 Compliance........................................................8
SECTION 3.07 SEC Filings; Financial Statements.................................8
SECTION 3.08 Absence of Certain Changes or Events.............................10
SECTION 3.09 Absence of Litigation............................................10
SECTION 3.10 Employee Benefit Plans...........................................11
SECTION 3.11 Labor Matters....................................................13
SECTION 3.12 Offer Documents; Schedule 14D-9..................................14
SECTION 3.13 Tangible Property; Real Property and Leases......................14
SECTION 3.14 Trademarks, Patents and Copyrights...............................15
SECTION 3.15 Taxes............................................................15
SECTION 3.16 Environmental Matters............................................17
SECTION 3.17 Material Contracts...............................................18
SECTION 3.18 Insurance; Workers' Compensation.................................18
SECTION 3.19 Certain Payments; Absence of Certain Business Practices..........19
SECTION 3.20 Licenses and Permits.............................................19
   3

SECTION 3.21 Letters of Credit, Surety Bonds, Guarantees......................20
SECTION 3.22 Brokers..........................................................20
SECTION 3.23 Rights Agreement.................................................20
                                                                              
                                   ARTICLE IV
                                                                              
                         REPRESENTATIONS AND WARRANTIES
                                  OF PURCHASER
                                                                              
SECTION 4.01 Corporate Organization...........................................20
SECTION 4.02 Authority Relative to This Agreement.............................20
SECTION 4.03 No Conflict; Required Filings and Consents.......................21
SECTION 4.04 Financing........................................................21
SECTION 4.05 Offer Documents..................................................22
                                                                              
                                    ARTICLE V
                                                                              
              CONDUCT OF BUSINESS PENDING CONSUMMATION OF THE OFFER
                                                                              
SECTION 5.01 Conduct of Business by the Company Pending the Consummation of
              the Offer.......................................................22
                                                                              
                                   ARTICLE VI
                                                                              
                              ADDITIONAL AGREEMENTS
                                                                              
SECTION 6.01 [Reserved].......................................................25
SECTION 6.02 [Reserved].......................................................25
SECTION 6.03 Company Board Representation; Section 14(f)......................25
SECTION 6.04 Access to Information; Confidentiality...........................26
SECTION 6.05 No Solicitation of Transactions..................................27
SECTION 6.06 Employee Benefits Matters; Employment Agreements.................27
SECTION 6.07 Directors' and Officers' Indemnification and Insurance...........27
SECTION 6.08 Notification of Certain Matters..................................29
SECTION 6.09 Further Action; Reasonable Efforts...............................29
SECTION 6.10 Public Announcements.............................................30
SECTION 6.11 Confidentiality Agreement........................................30
   4

                                   ARTICLE VII
                                                                              
                                   [RESERVED]
                                                                              
                                  ARTICLE VIII
                                                                              
                        TERMINATION, AMENDMENT AND WAIVER
                                                                              
SECTION 8.01 Termination......................................................31
SECTION 8.02 Effect of Termination............................................32
SECTION 8.03 Fees and Expenses................................................32
SECTION 8.04 Amendment........................................................34
SECTION 8.05 Waiver...........................................................34
                                                                              
                                   ARTICLE IX
                                                                              
                               GENERAL PROVISIONS
                                                                              
SECTION 9.01 Non-Survival of Representations, Warranties and Agreements.......35
SECTION 9.02 Notices..........................................................35
SECTION 9.03 Certain Definitions..............................................36
SECTION 9.04 Severability.....................................................37
SECTION 9.05 Entire Agreement, Assignment.....................................37
SECTION 9.06 Parties in Interest..............................................38
SECTION 9.07 Specific Performance.............................................38
SECTION 9.08 Governing Law....................................................38
SECTION 9.09 Headings.........................................................38
SECTION 9.10 Counterparts.....................................................38
   5

                            GLOSSARY OF DEFINED TERMS

                                                                     Location of
                                                                     Definitions
                                                                     -----------

affiliate........................................................... ss. 9.03(a)
Agreement...........................................................    Preamble
beneficial owner.................................................... ss. 9.03(b)
Blue Sky Laws....................................................... ss. 3.05(b)
Board...............................................................    Recitals
business day........................................................ ss. 9.03(c)
Code................................................................ ss. 3.10(b)
Company.............................................................    Preamble
Confidentiality Agreement........................................... ss. 6.04(b)
Constituent Documents...............................................    ss. 3.02
Consummation Date................................................... ss. 6.07(a)
control............................................................. ss. 9.03(d)
controlled by....................................................... ss. 9.03(d)
Credit Agreement.................................................... ss. 4.04(b)
Credit Suisse First Boston.......................................... ss. 1.03(a)
Disclosure Schedule.................................................    ss. 3.01
Environmental Law................................................... ss. 3.16(a)
ERISA............................................................... ss. 3.10(a)
ERISA Affiliate..................................................... ss. 3.10(c)
ERISA Plan.......................................................... ss. 3.10(b)
Exchange Act........................................................ ss. 1.03(b)
Expenses............................................................ ss. 8.03(c)
Fee................................................................. ss. 8.03(a)
GAAP................................................................ ss. 3.07(b)
Hazardous Substances................................................ ss. 3.16(a)
HSR Act............................................................. ss. 3.05(b)
Indemnified Parties................................................. ss. 6.07(b)
Inapplicable Option.................................................    ss. 1.04
Information Statement...............................................    ss. 3.12
IRS................................................................. ss. 3.10(a)
Material Adverse Effect.............................................    ss. 3.01
Material Contracts..................................................    ss. 3.17
   6

Material Subsidiaries...............................................    ss. 3.01
Minimum Condition................................................... ss. 1.01(a)
Multiemployer Plan.................................................. ss. 3.10(b)
1996 Balance Sheet.................................................. ss. 3.07(c)
Offer...............................................................    Recitals
Offer Documents..................................................... ss. 1.01(b)
Offer to Purchase................................................... ss. 1.01(b)
Option Spread Amount................................................     ss.1.04
Pension Plan........................................................ ss. 3.10(b)
Per Share Amount....................................................    Recitals
person.............................................................. ss. 9.03(e)
Plans............................................................... ss. 3.10(a)
Purchaser...........................................................    Preamble
Purchaser's Election Date...........................................    ss. 5.01
Rights.............................................................. ss. 1.03(a)
Rights Agreement.................................................... ss. 1.03(a)
Schedule 14D-1...................................................... ss. 1.01(b)
Schedule 14D-9...................................................... ss. 1.03(b)
SEC................................................................. ss. 1.01(a)
SEC Reports......................................................... ss. 3.07(a)
Securities Act...................................................... ss. 3.07(a)
Shares..............................................................    Recitals
Stock Option Plans..................................................    ss. 3.03
Subsidiary..........................................................    ss. 3.01
subsidiary.......................................................... ss. 9.03(f)
Tax or Taxes........................................................ ss. 3.15(n)
Third Party......................................................... ss. 8.03(f)
Third Party Acquisition............................................. ss. 8.03(f)
Transactions........................................................    ss. 3.04
UDI.................................................................    ss. 1.02
UDI Agreement.......................................................    ss. 1.02
   7

            SHARE PURCHASE AGREEMENT, dated as of July 25, 1997 (this
"Agreement"), between II ACQUISITION CORP., a Delaware corporation ("Purchaser")
and IMO INDUSTRIES INC., a Delaware corporation (the "Company").

                                   WITNESSETH:

            WHEREAS, the Boards of Directors of Purchaser and the Company have
each determined that it is in the best interests of their respective
stockholders for Purchaser to acquire the Company upon the terms and subject to
the conditions set forth herein; and

            WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer (the "Offer") to acquire all the issued
and outstanding shares of common stock, par value U.S. $1.00 per share, of the
Company (the "Shares"), together with the associated Rights (as hereinafter
defined), for $7.05 per Share (such amount, or any greater amount per Share paid
pursuant to the Offer, being hereinafter referred to as the "Per Share Amount")
net to the seller in cash, subject to withholding of taxes, if applicable, upon
the terms and subject to the conditions of this Agreement and the Offer;

            WHEREAS, the Board of Directors of the Company (the "Board"),
including all the disinterested directors on the Board, has unanimously approved
the making of the Offer and resolved and agreed to recommend that holders of
Shares tender their Shares pursuant to the Offer;

            NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Purchaser and the Company hereby agree as follows:

                                    ARTICLE I

                                    THE OFFER

            SECTION 1.01 The Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.01 and none of the events or
circumstances set forth in Annex A hereto shall have occurred or be existing,
Purchaser agrees to commence the Offer as promptly as reasonably practicable
after the date hereof, but in no event later than five business days after the
first public announcement of the execution hereof. The obligation of Purchaser
to accept for payment and pay for Shares tendered pursuant to the Offer shall be
subject to the condition (the "Minimum
   8

Condition") that the number of Shares validly tendered and not withdrawn prior
to the expiration of the Offer, combined with any Shares already owned by
Purchaser or any of its affiliates, constitute more than 80% of the outstanding
Shares at the expiration of the Offer and also shall be subject to the
satisfaction of the other conditions set forth in Annex A. Purchaser expressly
reserves the right to waive any such condition, to increase the price per Share
payable in the Offer, and to make any other changes in the terms and conditions
of the Offer; provided, however, that Purchaser agrees that no change may be
made without the consent of the Company which decreases the price per Share
payable in the Offer, which changes the form of consideration to be paid in the
Offer, which reduces the maximum number of Shares to be purchased in the Offer,
which extends the expiration date of the Offer (except that Purchaser may extend
the expiration date of the Offer (a) as required to comply with any rule,
regulation or interpretation of the Securities and Exchange Commission (the
"SEC") or (b) for one or more times each for an aggregate period of up to 15
days (and not to exceed 60 days from the date of commencement) for any reason
other than those specified in the immediately preceding clause (a)) or which
imposes conditions to the Offer in addition to those set forth in Annex A
hereto. The Per Share Amount shall, subject to applicable withholding of taxes,
be net to the seller in cash, upon the terms and subject to the conditions of
the Offer. Subject to the terms and conditions of the Offer (including, without
limitation, the Minimum Condition), Purchaser agrees to pay, as promptly as
practicable after expiration of the Offer, for all Shares validly tendered and
not withdrawn.

            (b) As soon as reasonably practicable on the date of commencement of
the Offer, Purchaser will file with the SEC a Tender Offer Statement on Schedule
14D-1 (together with all amendments and supplements thereto, the "Schedule
14D-1") with respect to the Offer, which shall have been provided to the Company
and to which the Company shall not have reasonably objected. The Schedule 14D-1
will contain or will incorporate by reference an offer to purchase (the "Offer
to Purchase") and forms of the related letter of transmittal and any related
summary advertisement (the Schedule 14D-1, the Offer to Purchase and such other
documents, together with all supplements and amendments thereto, being referred
to herein collectively as the "Offer Documents"). Purchaser and the Company
agree to correct promptly any information provided by any of them for use in the
Offer Documents which shall have become false or misleading, and Purchaser
further agrees to take all steps necessary to cause the Schedule 14D-1 as so
corrected to be filed with the SEC and the other Offer Documents as so corrected
to be disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws.

            SECTION 1.02 Termination of Existing Offer. The Company has given or
is simultaneously herewith giving notice to United Dominion Industries Limited


                                       2
   9

("UDI") of the termination of the Agreement and Plan of Merger, dated as of June
26, 1997, among UDI, UD Delaware Corp. and the Company (the "UDI Agreement") and
has effected payment to UDI of the $8 million fee contemplated by Section
8.03(a) of the UDI Agreement and the deposit in escrow of $2 million for payment
to UDI in reimbursement of "Expenses" (as defined in the UDI Agreement) by
Purchaser having deposited such sums in an account with a recognized commercial
or investment bank and providing irrevocable instructions for transmission of
such funds to UDI upon its request and, in the case of the funds for
reimbursement of Expenses, submission of evidence of the incurrence thereof.
Upon the happening of the foregoing, the termination of the UDI Agreement shall
have become effective. The Board of Directors of the Company has unanimously
withdrawn its recommendation of the UDI Agreement and the transactions
contemplated thereby and recommend that the Company's stockholders not tender
their Shares pursuant to the tender offer commenced by UDI pursuant to the UDI
Agreement. Within two business days of the date hereof, the Company shall amend
its existing Schedule 14D-9, filed with the SEC in response to the UDI tender
offer, to reflect the recommendations of the Company's Board of Directors
described above, and shall file such amendment with the SEC and distribute it to
the Company's stockholders.

            SECTION 1.03 Company Action. (a) The Company hereby approves of and
consents to the Offer and represents that (i) the Board, at a meeting duly
called and held on July 25, 1997, has unanimously (A) determined that this
Agreement and the transactions contemplated hereby, including the Offer, are
fair to and in the best interests of the stockholders of the Company, (B)
approved and adopted this Agreement and the transactions contemplated hereby,
and such approval constitutes approval of the foregoing for purposes of Section
203 of Delaware Law, (C) taken all action to avoid the occurrence of a
"Distribution Date" or a "Triggering Event" (each as defined in the Rights
Agreement dated as of April 30, 1997, between the Company and First Chicago
Trust Company of New York, as Rights Agent (the "Rights Agreement")) with
respect to the purchase of Shares pursuant to the Offer, with respect to the
rights to purchase shares of Series B Junior Participating Preferred Stock, par
value $1.00 (the "Rights") issued pursuant to the Rights Agreement, (D)
recommended that the stockholders of the Company accept the Offer and approve
and adopt this Agreement and the transactions contemplated hereby and (E)
approved, for purposes of Article X of the Company's Certificate of
Incorporation, a Business Combination (as defined therein) between Purchaser (or
any affiliate of Purchaser) and the Company, whereby each Share (other than
dissenting Shares and Shares owned by Purchaser or its affiliates) outstanding
at the time of such Business Combination would be cancelled and the holder
thereof would be entitled to receive an amount in cash equal to, (I) if such
Business Combination occurs within one year of the date hereof, not less than
the Per Share Amount, or (II) if such Business Combination occurs after one year
from the date hereof, an amount that is not


                                       3
   10

less than the Per Share Amount and that, in the opinion of a nationally
recognized investment bank addressed to the Board, is fair from a financial
point of view to such holders, and (ii) Credit Suisse First Boston Corporation
("Credit Suisse First Boston") has delivered to the Board a written opinion to
the effect that, as of the date of such opinion, the consideration to be
received by the holders of Shares (other than Purchaser and its affiliates)
pursuant to the Offer is fair to such holders of Shares from a financial point
of view. Subject only to the fiduciary duties of the Board under applicable law
as advised by the Company's counsel, the Company hereby consents to the
inclusion in the Offer Documents of the recommendation of the Board described in
the immediately preceding sentence. The Company represents to Purchaser that the
Company has been advised by each of its directors and executive officers that
they intend either to tender or cause to be tendered all Shares beneficially
owned by them to Purchaser pursuant to the Offer.

            (b) As soon as reasonably practicable on the date of commencement of
the Offer, the Company agrees that it will file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing, subject
only to the fiduciary duties of the Board under applicable law as advised by the
Company's counsel, the recommendation of the Board described in Section 1.03(a)
and shall disseminate the Schedule 14D-9 to the extent required by Rule 14d-9
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any other applicable federal securities laws. The Company and
Purchaser agree to correct promptly any information provided by any of them for
use in the Schedule 14D-9 which shall have become false or misleading, and the
Company further agrees to take all steps necessary to cause the Schedule 14D-9
as so corrected to be filed with the SEC and disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws.

            (c) The Company agrees to promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Shares and
with security position listings of Shares held in stock depositories, each as of
a recent date, together with all other available listings and computer files
containing names, addresses and security position listings of record holders and
beneficial owners of Shares. The Company agrees to furnish Purchaser with such
additional information, including, without limitation, updated listings and
computer files of stockholders, mailing labels and security position listings,
and such other assistance as Purchaser or its agents may reasonably request.
Subject to the requirements of applicable law, and except for such steps as are
necessary to disseminate the Offer Documents and any other documents necessary
to consummate the Offer, Purchaser and its affiliates shall hold in confidence
the information contained in such labels, listings and files, shall use such
information only in connection with the Offer and, if this Agreement shall be
terminated in


                                       4
   11

accordance with Section 8.01, shall deliver to the Company all copies of such
information then in their possession.

            SECTION 1.04 Stock Options. All stock options granted under the
Stock Option Plans (as hereinafter defined) shall, at the Consummation Date (as
hereinafter defined), to the extent permitted by the applicable Stock Option
Plan and stock option agreement (if any), be cancelled, and the holder thereof
shall be entitled to receive from the Company (or from Purchaser if payment by
the Company would not be permitted under the Credit Agreement or the Indenture
dated as of April 15, 1996, between the Company and IBJ Schroder Bank & Trust
Company, as Trustee), on the Consummation Date after the purchase of Shares
pursuant to the Offer or as soon as practicable thereafter, in consideration for
the cancellation of such option, an amount in cash (subject to any applicable
withholding tax) equal to the product of (a) the number of Shares previously
subject to such option and (b) the excess, if any, of the Per Share Amount over
the exercise price per Share previously subject to such option (the "Option
Spread Amount"). To the extent the cancellation of any options described above
is not permitted by the Stock Option Plan or stock option agreement applicable
to such options (the "Inapplicable Options"), Purchaser agrees to pay to the
holders of such Inapplicable Options an amount in cash equal to the applicable
Option Spread Amount upon surrender of such Inapplicable Options by such
holders. Payment therefor shall be made at such time as payment is made in
respect of the Shares purchased in the Offer.

                                   ARTICLE II

                                   [RESERVED]


                                   ARTICLE III

                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

            The Company hereby represents and warrants to Purchaser that:

            SECTION 3.01 Organization and Qualification; Subsidiaries. Each of
the Company and each subsidiary of the Company (a "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite power and authority and
all necessary governmental


                                       5
   12

approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and governmental
approvals would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below). The Company and each Subsidiary is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. When used in connection with the Company or any
Subsidiary, the term "Material Adverse Effect" means any effect that is or is
reasonably likely to be materially adverse to the business, operations,
financial condition, assets or liabilities (including, without limitation,
contingent liabilities) of the Company and the Subsidiaries taken as a whole. A
true and complete list of all the Subsidiaries, together with the jurisdiction
of incorporation of each Subsidiary and the percentage of the outstanding
capital stock of each Subsidiary owned by the Company and each other Subsidiary,
is set forth in Section 3.01 of the Disclosure Schedule, which has been
delivered prior to the date of this Agreement by the Company to Purchaser (the
"Disclosure Schedule"). Except as disclosed in such Section 3.01, the Company
does not directly or indirectly own any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity. The term "Material
Subsidiaries" means the Subsidiaries identified as Material Subsidiaries in
Section 3.01 of the Disclosure Schedule. The Subsidiaries that are not Material
Subsidiaries are not, individually and in the aggregate, material to the
business, operations or financial condition of the Company and all of the
Subsidiaries taken as a whole and do not, individually and in the aggregate,
have any material assets or liabilities (including contingent liabilities) when
considered in relation to the Company and all of the Subsidiaries taken as a
whole.

            SECTION 3.02 Certificate of Incorporation and Bylaws. The Company
has heretofore furnished or made available to Purchaser a complete and correct
copy of the Certificate of Incorporation and the Bylaws or equivalent
organizational documents, each as amended to date (the "Constituent Documents"),
of the Company and each Material Subsidiary. The Constituent Documents of the
Company and its Material Subsidiaries are in full force and effect. Neither the
Company nor any Material Subsidiary is in violation of any provision of its
Constituent Documents.

            SECTION 3.03 Capitalization. The authorized capital stock of the
Company consists of 5,000,000 shares of preferred stock (none of which is issued
and outstanding) and 25,000,000 Shares. As of July 23, 1997, (i) 17,126,609
Shares are 


                                       6
   13

issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no Shares are held by the Subsidiaries, and (iii) 2,882,657
Shares are reserved for issuance pursuant to grants or awards under the
Company's Amended and Restated Equity Incentive Plan for Key Employees, the
Company's Amended and Restated 1988 Equity Incentive Plan for Outside Directors
or the Company's 1995 Equity Incentive Plan for Outside Directors (collectively,
the "Stock Option Plans"). Except as set forth in this Section 3.03 or Section
3.03 of the Disclosure Schedule, there are no options, warrants or other rights,
agreements, arrangements or commitments of any character obligating the Company
or any Material Subsidiary to issue or sell any shares of capital stock of, or
other equity interests in, the Company or any Material Subsidiary. Section 3.03
of the Disclosure Schedule sets forth a list, as of the date hereof, of the
names of each person holding options under the Stock Option Plans, and the
number of shares purchasable under, the exercise price of such options and date
such options were granted. All Shares subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 3.03 of the Disclosure Schedule,
there are no outstanding contractual obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any Shares or any capital
stock of any Subsidiary or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary or any
other person. Each outstanding share of capital stock of each Material
Subsidiary is duly authorized, validly issued, fully paid and nonassessable,
and, except as set forth in Section 3.03 of the Disclosure Schedule, each such
share owned by the Company or another Subsidiary is owned free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on the Company's or such other Subsidiary's voting
rights, charges and other encumbrances of any nature whatsoever.

            SECTION 3.04 Authority Relative to this Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby (the "Transactions"). The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the Transactions.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming the due authorization, execution and delivery by Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.


                                       7
   14

            SECTION 3.05 No Conflict; Required Filings and Consents. (a) Except
as set forth in Section 3.05(a) of the Disclosure Schedule, the execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, (i) conflict with or violate the Constituent
Documents of the Company or any Material Subsidiary, (ii) assuming that required
filings under the HSR Act (as hereinafter defined) are made by the appropriate
parties, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or affected or (iii) result in
any breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance of any nature on any property or asset
of the Company or any Material Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Material Subsidiary is a
party or by which the Company or any Material Subsidiary or any property or
asset of the Company or any Material Subsidiary is bound or affected, except, in
cases of (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate, have a
Material Adverse Effect.

            (b) Except as set forth in Section 3.05(b) of the Disclosure
Schedule, the execution and delivery of this Agreement by the Company do not,
and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Exchange Act, state securities or
"blue sky" laws ("Blue Sky Laws") and state takeover laws and the pre-merger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"), and (ii) where failure to obtain such consents, approvals, authorizations
or permits, or to make such filings or notifications, would not prevent or delay
consummation of the Offer, or otherwise prevent the Company from performing its
obligations under this Agreement, and would not, individually or in the
aggregate, have a Material Adverse Effect.

            SECTION 3.06 Compliance. Except as set forth in Section 3.06 of the
Disclosure Schedule, neither the Company nor any Subsidiary is in default or
violation of (i) any law, rule, regulation, order, judgment or decree applicable
to the Company or any Subsidiary or by which any property or asset of the
Company or any Subsidiary is bound or subject or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any


                                       8
   15

Subsidiary is a party or by which the Company or any Subsidiary or any property
or asset of the Company or any Subsidiary is bound or affected, except for any
such defaults or violations that would not, individually or in the aggregate,
have a Material Adverse Effect.

            SECTION 3.07 SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by it with the SEC
since December 31, 1994, and has heretofore delivered or made available to
Purchaser, in the form filed with the SEC, (i) its Annual Reports on Form 10-K
for the fiscal years ended December 31, 1994, 1995 and 1996, respectively, (ii)
its Quarterly Report on Form 10-Q for the period ended March 31, 1997, (iii) all
proxy statements relating to the Company's meetings of stockholders (whether
annual or special) held since December 31, 1994 and (iv) all other forms,
reports and other registration statements (other than Quarterly Reports on Form
10-Q not referred to in clause (ii) above) filed by the Company with the SEC
since December 31, 1994 (the forms, reports and other documents referred to in
clauses (i), (ii), (iii) and (iv) above being referred to herein, collectively,
as the "SEC Reports"). The SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder and (ii) did not, at the time they were filed (or at the
effective date thereof with respect to registration statements under the
Securities Act), contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. No Subsidiary is required to file any form,
report or other document with the SEC.

            (b) Each of the consolidated financial statements (including, in
each case, any notes thereto) contained in the SEC Reports was prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis ("GAAP") throughout the periods indicated (except as may
be indicated in the notes thereto) and each fairly presents the consolidated
financial position, results of operations and changes in stockholders equity and
cash flows of the Company and the consolidated Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein (subject, in the
case of unaudited statements, to normal and recurring year-end adjustments which
were not and are not expected, individually or in the aggregate, to have a
Material Adverse Effect).

            (c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Subsidiaries as at December
31, 1996 including the notes thereto (the "1996 Balance Sheet"), in Section 3.07
of the Disclosure Schedule or in 


                                       9
   16

any SEC Report filed by the Company after December 31, 1996, neither the Company
nor any Subsidiary has any liability or obligation of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet, or in the notes thereto, prepared in accordance
with GAAP, except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since December 31, 1996.

            (d) The Company has heretofore furnished or made available to
Purchaser complete and correct copies of all amendments and modifications (if
any) that have not been filed by the Company with the SEC to all agreements,
documents and other instruments that previously had been filed by the Company
with the SEC and are currently in effect.

            SECTION 3.08 Absence of Certain Changes or Events. Since December
31, 1996, except as set forth in Section 3.08 of the Disclosure Schedule or as
contemplated by this Agreement or disclosed in any SEC Report filed since
December 31, 1996 and prior to the date of this Agreement, the Company and the
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since December 31, 1996, there has
not been (i) any change in the business, operations, properties, financial
condition, assets or liabilities (including, without limitation, contingent
liabilities) of the Company or any Subsidiary having, individually or in the
aggregate, a Material Adverse Effect, (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to any property or asset of
the Company or any Subsidiary having, individually or in the aggregate, a
Material Adverse Effect, (iii) any material change by the Company in its
accounting methods, principles or practices, (iv) any material revaluation by
the Company of any asset (including, without limitation, any writing down of the
value of inventory or writing off of notes or accounts receivable), (v) any
failure by the Company to revalue any asset in accordance with GAAP, (vi) any
entry by the Company or any Subsidiary into any commitment or transaction
material to the Company and the Subsidiaries taken as a whole, (vii) any
declaration, setting aside or payment of any dividend or distribution in respect
of any capital stock of the Company or any redemption, purchase or other
acquisition of any of its securities, (viii) any increase in or establishment of
any bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other increase in
the compensation payable or to become payable to any officers or key employees
of the Company or any Subsidiary, except in the ordinary course of business
consistent with past practice, or (ix) any entering into, renewal, modification
or extension


                                       10
   17

of, any contract, arrangement or agreement with any other party having,
individually or in the aggregate, a Material Adverse Effect.

            SECTION 3.09 Absence of Litigation. Except as set forth in Section
3.09 of the Disclosure Schedule or as disclosed in the SEC Reports filed prior
to the date of this Agreement, (a) as of the date hereof, there is no claim,
action, proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, or any property or asset of
the Company or any Subsidiary, before any court, arbitrator or administrative,
governmental or regulatory authority or body, domestic or foreign, which (i)
individually or in the aggregate, would have a Material Adverse Effect or (ii)
seeks to, or is reasonably likely to, delay or prevent the consummation of the
Offer and (b) as of the date hereof, neither the Company nor any Subsidiary nor
any property or asset of the Company or any Subsidiary is subject to any order,
writ, judgment, injunction, decree, determination or award having, individually
or in the aggregate, a Material Adverse Effect.

            SECTION 3.10 Employee Benefit Plans. (a) Section 3.10(a) of the
Disclosure Schedule contains a true and complete list of (i) all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement or severance plans, programs
or policies, and all employment, termination or severance contracts to which the
Company or any Subsidiary is a party, with respect to which the Company or any
Subsidiary has any obligation or which are maintained, contributed to or
sponsored by the Company or any Subsidiary for the benefit of any current or
former employee, officer or director of the Company or any Subsidiary
(collectively, the "Plans") and (ii) each employee benefit plan for which the
Company or any Subsidiary could incur liability under Section 4069 of ERISA in
the event such plan were terminated, or under Section 4212(c) of ERISA, or in
respect of which the Company or any Subsidiary remains secondarily liable under
Section 4204 of ERISA. Except as set forth in Section 3.10(a) of the Disclosure
Schedule, no Plan is a "defined benefit plan" within the meaning of Section
3(35) of ERISA and no Plan is subject to Part IV of ERISA. The Company has
previously furnished or made available to Purchaser a true and complete copy of
each Plan and a true and complete copy of each material document prepared in
connection with each Plan, including, without limitation, to the extent
applicable (i) a copy of each trust or other funding arrangement, (ii) each
summary plan description and summary of material modifications, (iii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
recently received IRS determination letter for each such Plan, and (v) the most
recently prepared financial statement in connection with each such Plan. Except
as set forth in Section 3.10(a) of the Disclosure


                                       11
   18

Schedule, neither the Company nor any Subsidiary has made a general written
announcement or entered into an agreement (i) to create or adopt a new benefit
plan or (ii) except in the ordinary course of business consistent with past
practice or as required by applicable law, to amend any Plan.

            (b) All Plans subject to Parts 2, 3 and 4 of Subtitle A, Title I of
ERISA, other than "multiemployer plans" ("Multiemployer Plans"), within the
meaning of Section 3(37) of ERISA (the "ERISA Plans"), are in compliance with
ERISA, except for such non-compliance which would not have, individually or in
the aggregate, a Material Adverse Effect. Except as set forth in Section 3.10 of
the Disclosure Schedule, each ERISA Plan which is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA ("Pension Plan") and which is
intended to be qualified under Section 401(a) of the Internal Revenue Code of
1986, as amended (the "Code") has received a favorable determination letter from
the IRS, and there are no circumstances likely to result in revocation of any
such favorable determination letter which would have, individually or in the
aggregate, a Material Adverse Effect. There is no litigation pending or, to the
knowledge of the Company, threatened relating to the ERISA Plans which would
have, individually or in the aggregate, a Material Adverse Effect. Neither the
Company nor any of the Subsidiaries has engaged in a transaction with respect to
any ERISA Plan that, assuming the taxable period of such transaction expired as
of the date thereof, insofar as may be reasonably foreseen, is likely to subject
the Company or any of the Subsidiaries to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which would
have, individually or in the aggregate, a Material Adverse Effect.

            (c) Neither the Company nor any of the Subsidiaries has any
outstanding liability under Subtitle C or D of Title IV of ERISA with respect to
any ongoing, frozen or terminated "single-employer plan", within the meaning of
Section 4001(a)(15) of ERISA, currently or formerly maintained by any of them,
or the single-employer plan of any entity which is considered one employer with
the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). Neither the Company nor any of the Subsidiaries presently
contributes to a Multiemployer Plan, nor has it contributed to a Multiemployer
Plan within the past five calendar years. No notice of a "reportable event",
within the meaning of Section 4043 of ERISA for which the 30 day reporting
requirement has not been waived, has been required to be filed for any Pension
Plan within the 12-month period ending on the date hereof.

            (d) All contributions required to be made under the terms of any
ERISA Plan have been timely made, except for such failures which, individually
or in the aggregate, would not have a Material Adverse Effect. No Pension Plan
has an


                                       12
   19

"accumulated funding deficiency" (whether or not waived) within the meaning of
Section 412 of the Code or Section 302 of ERISA. Neither the Company nor any of
the Subsidiaries has provided, or is required to provide, security to any
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code.

            (e) Under each Pension Plan which is a single-employer plan, as of
the last day of the most recent plan year ended prior to the date hereof, the
present value of all accrued "benefit liabilities", within the meaning of
Section 4001(a)(16) of ERISA (as determined on the basis of the actuarial
assumptions and methods contained in the Plan's most recent actuarial
valuation), did not exceed the then current value of the assets of such Plan.

            (f) Except as set forth in Section 3.10(f) of the Disclosure
Schedule, neither the Company nor any of the Subsidiaries has any obligation for
retiree health and life benefits under any ERISA Plan.

            (g) Except as set forth in Section 3.10(g) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment of severance or unemployment compensation becoming due to any director
or any employee of the Company or any of the Subsidiaries under any Plan or
otherwise from the Company or any of the Subsidiaries, (ii) increase any
benefits otherwise payable under any Plan, or (iii) result in any acceleration
of the time of payment or vesting of any such benefit.

            (h) Except as disclosed in Section 3.10(h) of the Disclosure
Schedule, the Company and the Material Subsidiaries do not have any unfunded
liabilities under pension, retirement or other employee benefit plans, programs
or arrangements maintained outside the United States by the Company or any of
the Material Subsidiaries for the employees thereof, the payment of which by the
Company or such Material Subsidiary, individually or in the aggregate, would
have a Material Adverse Effect.

            SECTION 3.11 Labor Matters. Except as set forth in Section 3.11(a)
of the Disclosure Schedule and except for those matters that, individually or in
the aggregate, would not have a Material Adverse Effect, (i) there are no
controversies pending or, to the knowledge of the Company, threatened between
the Company or any Subsidiary and any of their respective employees; (ii)
neither the Company nor any Subsidiary has breached or otherwise failed to
comply with any provision of any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Subsidiary
and there are no grievances outstanding against the Company or any


                                       13
   20

Subsidiary under any such agreement or contract; (iii) there are no unfair labor
practice complaints pending against the Company or any Subsidiary before the
National Labor Relations Board or any current union representation questions
involving employees of the Company or any Subsidiary; and (iv) there is no
strike, slowdown, work stoppage or lockout, or, to the knowledge of the Company,
threat thereof, by or with respect to any employees of the Company or any
Subsidiary. Section 3.11(b) of the Disclosure Schedule sets forth each
collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or any domestic Subsidiary and any other
material collective bargaining agreement or labor contract applicable to persons
employed by any foreign Subsidiary. To the knowledge of the Company, there are
no activities or proceedings of any labor union to organize any employees of the
Company or any Subsidiary.

            SECTION 3.12 Offer Documents; Schedule 14D-9. None of the Schedule
14D-9, the information supplied by the Company for inclusion in the Offer
Documents or the information to be filed by the Company in connection with the
Offer pursuant to Rule 14f-1 promulgated under the Exchange Act (the
"Information Statement") shall, at the respective times the Schedule 14D-9, the
Offer Documents, the Information Statement or any amendments or supplements
thereto are filed with the SEC or are first published, sent or given to
stockholders of the Company, as the case may be, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. Notwithstanding the
foregoing, the Company makes no representation or warranty with respect to any
information supplied by Purchaser or any of its representatives which is
contained in any of the foregoing documents or the Offer Documents. The Schedule
14D-9 and the Information Statement shall comply in all material respects as to
form with the requirements of the Exchange Act and the rules and regulations
thereunder.

            SECTION 3.13 Tangible Property; Real Property and Leases. (a) The
Company and the Subsidiaries have sufficient title to all their tangible
properties and assets to conduct their respective businesses as currently
conducted or as contemplated to be conducted, with only such exceptions as,
individually or in the aggregate, would not have a Material Adverse Effect.

            (b) No parcel of real property owned or leased by the Company is
subject to any governmental decree or order to be sold nor is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor, to the knowledge of the Company, has any such
condemnation, expropriation or taking been proposed.


                                       14
   21

            (c) All leases of real property leased for the use or benefit of the
Company or any Subsidiary to which the Company or any Subsidiary is a party
requiring rental payments in excess of U.S. $100,000 during the period of the
lease and all amendments and modifications thereto are in full force and effect
and have not been modified or amended, and there exists no default under any
such lease by the Company or any Subsidiary, nor any event which with notice or
lapse of time or both would constitute a default thereunder by the Company or
any Subsidiary, except as, individually or in the aggregate, would not have a
Material Adverse Effect or as set forth in Section 3.13 of the Disclosure
Schedule.

            SECTION 3.14 Trademarks, Patents and Copyrights. Except as set forth
in Section 3.14(a) of the Disclosure Schedule, the Company and the Subsidiaries
own or possess adequate licenses or other valid rights to use all patents,
patent rights, trademarks, trademark rights, trade names, trade dress, trade
name rights, copyrights, servicemarks, trade secrets, applications for
trademarks and for servicemarks, mask works, know-how and other proprietary
rights and information used or held for use in connection with the business of
the Company and the Subsidiaries as conducted since December 31, 1996, as
currently conducted or as contemplated to be conducted, and the Company is
unaware of any assertion or claim challenging the validity of any of the
foregoing which, individually or in the aggregate, would have a Material Adverse
Effect. Section 3.14(b) of the Disclosure Schedule lists each material patent
owned by the Company or any Subsidiary and specifies the number and date of each
such patent. Section 3.14(c) of the Disclosure Schedule lists each agreement
pursuant to which a material patent is licensed to the Company or any Material
Subsidiary as licensee for use in the business of the Company and the
Subsidiaries as currently conducted. The conduct of the business of the Company
and the Subsidiaries as conducted since December 31, 1996, as currently
conducted and as contemplated to be conducted did not, does not and will not
conflict in any way with any patent, patent right, license, trademark, trademark
right, trade dress, trade name, trade name right, service mark, mask work or
copyright of any third party except for conflicts that, individually or in the
aggregate, would not have a Material Adverse Effect.

            SECTION 3.15 Taxes. Except as set forth in Section 3.15 of the
Disclosure Schedule or as otherwise previously disclosed to Purchaser:

            (a) The Company and the Subsidiaries, and each affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code")) or combined or unitary group of which the Company or any
Subsidiary is or has been a member, has timely filed all federal income Tax
Returns (as defined below), and all other material Tax Returns required to be
filed by them. All such Tax Returns are true and correct in all material
respects. Except to the extent adequately reserved for in 


                                       15
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accordance with GAAP, all material Taxes (as defined below) due and payable by
the Company and the Subsidiaries have been timely paid. The most recent
consolidated financial statements contained in the SEC Reports reflect an
adequate reserve in accordance with GAAP for all Taxes payable by the Company
and its Subsidiaries for all taxable periods and portions thereof through the
date of such financial statements.

            (b) No material deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of the Subsidiaries that have
not been fully paid or adequately provided for in the appropriate financial
statements of the Company and its Subsidiaries, no waivers of the time to assess
any Taxes are outstanding, and no power of attorney granted by the Company or
any Subsidiary with respect to any Taxes is currently in force. No material
issues relating to Taxes have been raised in writing (or, in the case of the
presently pending Federal income tax audit of the Company and the Subsidiaries,
verbally to the knowledge of the Company's Vice President of Taxes) by any
governmental authority during any presently pending audit or examination.

            (c) There are no material liens or encumbrances for Taxes on any of
the assets of the Company or the Subsidiaries (other than for current taxes not
yet due and payable).

            (d) The Company and the Subsidiaries have complied in all material
respects with all applicable laws, rules and regulations relating to the payment
and withholding of Taxes.

            (e) None of the Company or the Subsidiaries has filed a consent
under Section 341(f) of the Code.

            (f) None of the Company or the Subsidiaries is a party to any
agreement that could obligate it to make any payments that would not be
deductible by reason of Section 280G of the Code.

            (g) Neither the Company nor, since the date of its acquisition by
the Company, any Material Subsidiary is a party to any tax allocation, tax
sharing agreement, any closing agreement or similar agreement relating to Taxes
with any taxing authority of the Company.

            (h) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any federal income or material state, local or foreign Taxes or Tax
Returns of the Company or any of the 


                                       16
   23

Subsidiaries and neither the Company nor any of the Subsidiaries has received a
written notice of any pending audit or proceeding.

            (i) Neither the Company nor, since the date of its acquisition by
the Company, any Material Subsidiary has agreed to or is required to make any
material adjustment under Section 481(a) of the Code.

            (j) To the knowledge of the Company, no property owned by the
Company or any Subsidiary (i) is property required to be treated as being owned
by another person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended and in effect immediately prior to the
enactment of the Tax Reform Act of 1986; or (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code.

            (k) The Company has not been (and will not be) a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the 5-year period ending on the consummation of the Offer.

            (l) To the knowledge of the Company, neither the Company nor any
Subsidiary has participated in or cooperated with an international boycott
within the meaning of Section 999 of the Code.

            (m) The Company estimates that, to its knowledge, the fair market
value of the assets of the Company and the Subsidiaries, in the aggregate, is
more than the aggregate adjusted basis of such assets, determined as of the date
of this Agreement.

            (n) For the purpose of this Agreement, (A) the terms "Tax" or
"Taxes" shall mean all taxes, fees, duties, tariffs, levies, imposts, or other
charges of any kind (together with any interest, penalties, additions to tax or
additional amounts imposed by any taxing authority with respect thereto),
including, without limitation, taxes or other charges on or with respect to
income, franchise, gross receipts, property, sales, use, profits, capital stock,
payroll, employment, social security, workers compensation, unemployment
compensation or net worth, taxes or charges in the nature of excise,
withholding, ad valorem, stamp, transfer, value added or gains taxes; license
registration and documentation fees; and customs duties, tariffs and similar
charges of any kind whatsoever, and (B) the term "Tax Return" shall mean any
report, return, document, declaration or any other information or filing
required to be supplied to any taxing authority with respect to Taxes.


                                       17
   24

            SECTION 3.16 Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i) "Hazardous
Substances" means (A) those substances defined as hazardous in or regulated as
hazardous under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation, and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Clean Air Act; (B) any asbestos or
asbestos-containing material, petroleum and petroleum products, including crude
oil and any fractions thereof, natural gas, natural gas liquids, synthetic gas,
polychlorinated biphenyls or radon; or (C) any substance with respect to which a
federal, state or local environmental agency requires environmental
investigation, monitoring, reporting or remediation; and (ii) "Environmental
Law" means any applicable federal, state or local law relating to (A) releases
or threatened releases of Hazardous Substances or materials containing Hazardous
Substances; (B) the manufacture, handling, transport, use, treatment, storage or
disposal of Hazardous Substances or materials containing Hazardous Substances;
or (C) otherwise relating to pollution of the environment.

            (b) Except as described in Section 3.16 of the Disclosure Schedule:
(i) the Company and each Subsidiary is in compliance with all applicable
Environmental Laws, except for noncompliances that individually or in the
aggregate would not have a Material Adverse Effect; (ii) the Company and each
Subsidiary have obtained all permits, licenses and other material governmental
authorizations required under applicable Environmental Laws, and are in
compliance with the terms and conditions thereof, except for failures to obtain
or noncompliance that individually or in the aggregate would not have a Material
Adverse Effect; (iii) neither the Company nor any of its Subsidiaries has
received written notice of, or, to the knowledge of the Company, is the subject
of, any action, cause of action, claim, investigation, demand or notice by any
person or entity alleging liability under or noncompliance with any
Environmental Law that individually or in the aggregate would have a Material
Adverse Effect; and (iv) there is no environmental condition on any of the
properties currently or, to the knowledge of the Company, formerly owned or
leased by the Company or any Subsidiary that individually or in the aggregate
would have a Material Adverse Effect.

            SECTION 3.17 Material Contracts. The SEC Reports reflect each
contract or agreement to which the Company or any of the Material Subsidiaries
is a party not made in the ordinary course of business which is material to the
Company and its Subsidiaries, taken as a whole, and that is to be performed in
whole or part after the date hereof (a "Material Contract"). No condition or
state of facts exists that, with notice or the


                                       18
   25

passage of time, or both, would constitute a material default by the Company or
any Material Subsidiary or to the knowledge of the Company, any third party
under such Material Contracts. The Company or the applicable Material Subsidiary
has duly complied in all material respects with the provision of each Material
Contract to which it is a party.

            SECTION 3.18 Insurance; Workers' Compensation. (a) Section 3.18 of
the Disclosure Schedule sets forth a true, complete and accurate list of each
currently effective material insurance policy issued in favor of the Company and
each Material Subsidiary, setting forth the identity of the respective insurance
carriers and a description of the policy. All premiums due and payable in
respect of such policies have been paid, such policies are in full force and
effect and free from any right granted by the Company of termination on the part
of the insurance carriers, except as provided in the respective policies.
Schedule 3.18 of the Disclosure Schedule sets forth a description, indicating
dates and nature of claims, of the workers' compensation experience as of March
31, 1997 of the Company and each domestic Material Subsidiary since December 31,
1994, or since the dates of their respective acquisition if later than December
31, 1994 in the case of the Material Subsidiaries.

            (b) Neither the Company nor any Material Subsidiary has received any
notice of cancellation with respect to any of its insurance policies, and,
within the three years preceding the date hereof, neither the Company nor any
Material Subsidiary has been refused any insurance coverage sought or applied
for, in each case where such cancellation or refusal, individually or in the
aggregate, would have a Material Adverse Effect.

            SECTION 3.19 Certain Payments; Absence of Certain Business
Practices. To the knowledge of the Company, except as set forth in Section 3.19
of the Disclosure Schedule, no employee or agent of the Company or any
Subsidiary, nor any other person acting on behalf of Company or any Subsidiary,
has within the past five years violated the Foreign Corrupt Practices Act or
made or caused to be made any payments to government officials in violation of
the laws of the United States or any other jurisdiction and, as of the date
hereof, neither the IRS nor any other federal, state, local or foreign
government agency or entity has notified the Company or any Subsidiary of any
pending or threatened investigation of any payment made by or on behalf of the
Company or any Subsidiary of, or alleged to be of, the type described in the
immediately preceding sentence.

            SECTION 3.20 Licenses and Permits. The Company and each Material
Subsidiary have obtained all governmental licenses and permits necessary to
conduct 


                                       19
   26

their respective businesses in accordance with past practice, except for
failures that, individually or in the aggregate, would not have a Material
Adverse Effect. Such licenses and permits are valid and in full force and
effect, and no such licenses or permits will be terminated or materially
impaired or become terminable as a result of the Transactions, except for those
that, individually or in the aggregate, would not have a Material Adverse
Effect.

            SECTION 3.21 Letters of Credit, Surety Bonds, Guarantees. Section
3.21 of the Disclosure Schedule lists, as of the date hereof, all letters of
credit, performance or payment bonds, guaranty arrangements and surety bonds of
any nature involving amounts in excess of $100,000 relating to the Company or
any Subsidiary.

            SECTION 3.22 Brokers. No broker, finder or investment banker (other
than Credit Suisse First Boston) is entitled to any brokerage, finder's or other
fee or commission in connection with the Transactions based upon arrangements
made by or on behalf of the Company. The Company has heretofore furnished to
Purchaser a complete and correct copy of all agreements between the Company and
Credit Suisse First Boston pursuant to which such firm would be entitled to any
payment relating to the Transactions.

            SECTION 3.23 Rights Agreement. As a result of the Board's withdrawal
of its recommendation of the UDI Agreement and the transactions contemplated
thereby pursuant to Section 1.02, any acquisition of Shares (through the tender
offer commenced by UDI pursuant to the UDI Agreement or otherwise) that results
in UDI becoming an "Acquiring Person" (as defined in the Rights Agreement) shall
constitute a "Triggering Event" under the Rights and the Rights Agreement.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES
                                  OF PURCHASER

            Purchaser hereby represents and warrants to the Company that:

            SECTION 4.01 Corporate Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to 


                                       20
   27

have such power, authority and governmental approvals would not, individually or
in the aggregate, have a material adverse effect on the business, operations,
financial condition, assets or liabilities (including, without limitation,
contingent liabilities) of Purchaser.

            SECTION 4.02 Authority Relative to This Agreement. Purchaser has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Transactions. The
execution and delivery of this Agreement by Purchaser and the consummation by
Purchaser of the Transactions have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Purchaser are necessary to authorize this Agreement or to consummate the
Transactions. This Agreement has been duly and validly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of Purchaser
enforceable against Purchaser in accordance with its terms.

            SECTION 4.03 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Purchaser do not, and the
performance of this Agreement by Purchaser will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of Purchaser, (ii) assuming
that required filings under the HSR Act are made by the appropriate parties,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Purchaser or by which any property or asset of Purchaser is bound
or affected, or (iii) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of Purchaser pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser is a party or by which Purchaser or any property
or asset of Purchaser is bound or affected, except, in cases of (ii) and (iii),
for any such conflicts, violations, breaches, defaults or other occurrences
which would not, individually or in the aggregate, have a material adverse
effect on the business, operations, financial condition, assets or liabilities
(including, without limitation, contingent liabilities) of Purchaser.

            (b) The execution and delivery of this Agreement by Purchaser do
not, and the performance of this Agreement by Purchaser will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Exchange Act, Blue Sky Laws and
state takeover laws and the HSR Act and (ii) where failure to obtain such
consents, approvals, authorizations or permits, or to make 


                                       21
   28

such filings or notifications, would not prevent or delay consummation of the
Offer, or otherwise prevent Purchaser from performing its obligations under this
Agreement.

            SECTION 4.04 Financing. (a) Purchaser has sufficient funds to permit
Purchaser to acquire all the outstanding Shares in the Offer, written evidence
of which has been provided to the Company. Such funds will remain in Purchaser,
available to be used to consummate the Offer, for so long as the Offer remains
outstanding and has not been terminated in accordance with the terms hereof or
of the Offer.

            (b) Purchaser has received bank commitment letters and has entered
into a preferred stock subscription agreement with an affiliate relating to the
provision of sufficient funds (a) to satisfy the Company's obligations under
Section 4.10 of the Indenture dated as of April 15, 1996, between the Company
and IBJ Schroder Bank & Trust Company, as Trustee, arising as a result of the
consummation of the Offer, and (b) to refinance the Credit Agreement, dated as
of April 29, 1996 (the "Credit Agreement"), among the Company, Varo Inc., Warren
Pumps Inc., the lenders from time to time party thereto, the issuing banks from
time to time party thereto and Citicorp USA, Inc., as Agent, as amended. In each
case, such funds will be provided to the Company substantially on the terms set
forth in the commitment letters and subscription agreement that have been
provided to the Company.

            SECTION 4.05 Offer Documents. The Offer Documents will not, at the
time such documents are filed with the SEC or are first published, sent or given
to stockholders of the Company, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements made therein, in the light of the circumstances
under which they are made, not misleading. The information supplied by Purchaser
for inclusion in the Schedule 14D-9 or the Information Statement will not, on
the date such document (or any amendment or supplement thereto) is first mailed
to stockholders of the Company and with respect to the Information Statement, at
the time Shares are accepted for payment in the Offer, contain any statement
which, at such time and in light of the circumstances under which it is made, is
false or misleading with respect to any material fact, or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein not false or misleading. Notwithstanding the foregoing,
Purchaser makes no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents. The Offer Documents shall
comply in all material respects as to form with the requirements of the Exchange
Act and the rules and regulations thereunder.


                                       22
   29

                                    ARTICLE V

              CONDUCT OF BUSINESS PENDING CONSUMMATION OF THE OFFER

            SECTION 5.01 Conduct of Business by the Company Pending the
Consummation of the Offer. The Company covenants and agrees that, between the
date of this Agreement and the election or appointment of Purchaser's designees
to the Board pursuant to Section 6.03 upon the purchase by Purchaser of any
Shares pursuant to the Offer (the "Purchaser's Election Date"), unless Purchaser
shall otherwise agree in writing, the businesses of the Company and the
Subsidiaries shall be conducted only in, and the Company and the Subsidiaries
shall not take any action except in, the ordinary course of business consistent
with past practice and the Company shall use all reasonable efforts to preserve
substantially intact the business organization of the Company and the
Subsidiaries, to keep available the services of the current officers, employees
and consultants of the Company and the Subsidiaries and to preserve the current
relationships of the Company and the Subsidiaries with customers, suppliers and
other persons with which the Company or any Subsidiary has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement or by Section 5.01 of the Disclosure Schedule, the Company agrees
that neither the Company nor any Subsidiary shall, between the date of this
Agreement and the Purchaser's Election Date, directly or indirectly do, or
propose to do, any of the following without the prior written consent of
Purchaser:

            (a) amend or otherwise change its Constituent Documents;

            (b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any shares
of capital stock of any class of the Company or any Subsidiary, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any Subsidiary
(except for the issuance of a maximum of 2,000,000 Shares issuable pursuant to
employee stock options outstanding on the date hereof and including up to 1,250
restricted Shares per quarter issuable to outside directors in accordance with
past practice pursuant to the Stock Option Plans) or (ii) any assets of the
Company or any Subsidiary, except for sales in the ordinary course of business
and in a manner consistent with past practice;

            (c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock, 


                                       23
   30

except for such declarations, set asides dividends and other distributions made
by any Subsidiary to the Company;

            (d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;

            (e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or any
division thereof or any material amount of assets other than in the ordinary
course of business consistent with past practice; (ii) incur any indebtedness
for borrowed money or issue any debt securities or assume, guarantee or endorse,
pledge in respect of or otherwise as an accommodation become responsible for the
obligations of any person, or make any loans or advances, except in the ordinary
course of business consistent with past practice; (iii) enter into any contract
or agreement, other than any contract or agreement entered into in the ordinary
course of business consistent with past practice and which requires payments by
the Company or the Subsidiaries in an aggregate amount of less than U.S.
$250,000; (iv) terminate, cancel or request any material change in, or agree to
any material change in, any Material Contract, except in the ordinary course of
business consistent with past practice; or (v) authorize any single capital
expenditure (excluding software development activity) which is in excess of U.S.
$500,000 or capital expenditures which are, in the aggregate, in excess of U.S.
$2,500,000 for the Company and the Subsidiaries taken as a whole;

            (f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past practices in
salaries or wages of employees of the Company or any Subsidiary who are not
officers of the Company, or grant any severance or termination pay to, or enter
into any employment or severance agreement with, any director, officer or other
employee of the Company or any Subsidiary (other than in connection with hiring
and terminating employees in the ordinary course of the Company's business), or
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination or severance plan,
agreement, trust, fund, policy or arrangement for the benefit of any director,
officer or employee or circulate to any employee any details of any proposal to
adopt or amend any such plan;

            (g) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);


                                       24
   31

            (h) make any material tax election or settle or compromise any
material federal, state, local or foreign income tax liability;

            (i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice, of liabilities reflected or reserved against in
the Balance Sheet included in the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 or subsequently incurred in the ordinary course
of business consistent with past practice; or

            (j) settle or comprise any pending or threatened suit, action or
claim that is material or which relates to any of the Transactions; or

            (k) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing.

                                   ARTICLE VI

                              ADDITIONAL AGREEMENTS

            SECTION 6.01 [Reserved]

            SECTION 6.02 [Reserved]

            SECTION 6.03 Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board as
shall give Purchaser representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors elected
pursuant to this sentence) multiplied by the percentage that the aggregate
number of Shares beneficially owned by Purchaser or any affiliate of Purchaser
at such time bears to the total number of Shares then outstanding, and the
Company shall, at such time, promptly take all actions necessary to cause
Purchaser's designees to be elected as directors of the Company, including
increasing the size of the Board or securing the resignations of incumbent
directors or both. At such times, the Company shall use all reasonable efforts
to cause persons designated by Purchaser to constitute the same percentage as
persons designated by Purchaser shall constitute of the Board with respect to
(i) each committee of the Board (some of whom may be required to be independent
as required by applicable law or requirements of the New York Stock 


                                       25
   32

Exchange), (ii) each board of directors of each Subsidiary and (iii) each
committee of each such board, in each case only to the extent permitted by
applicable law. Notwithstanding the foregoing, until the time Purchaser acquires
a majority of the then outstanding Shares on a fully diluted basis, the Company
shall use all reasonable efforts to ensure that all the members of the Board and
each committee of the Board and such boards and committees of the Subsidiaries
as of the date hereof who are not employees of the Company shall remain members
of the Board and of such boards and committees.

            (b) The Company shall promptly take all actions required pursuant to
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder in order
to fulfill its obligations under this Section 6.03 and shall include the
Information Statement containing such information with respect to the Company
and its officers and directors as is required under Section 14(f) and Rule 14f-1
as an annex to the Schedule 14D-9 to fulfill such obligations. Purchaser shall
supply to the Company and be solely responsible for any information with respect
to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1.

            (c) Following the election or appointment of designees of Purchaser
pursuant to this Section 6.03, any amendment of this Agreement or the
Constituent Documents of the Company, any termination of this Agreement by the
Company, any extension by the Company of the time for the performance of any of
the obligations or other acts of Purchaser or waiver of any of the Company's
rights hereunder shall require the concurrence of a majority of the directors of
the Company then in office who neither were designated by Purchaser nor are
employees of the Company or if no such directors are then in office, no such
amendment, termination, extension or waiver shall be effected which is
materially adverse to the holders of Shares (other than Purchaser and its
affiliates).

            SECTION 6.04 Access to Information; Confidentiality. (a) From the
date hereof to the consummation of the Offer, the Company shall, and shall cause
the Subsidiaries to, afford the officers, employees and agents of Purchaser and
persons providing or committing to provide Purchaser or its affiliates with
financing for the Transactions complete access at all reasonable times to the
officers, employees, agents, properties, offices, plants and other facilities,
books and records of the Company and each Subsidiary, and shall furnish
Purchaser and persons providing or committing to provide Purchaser or its
affiliates with financing for the Transactions with all financial, operating and
other data and information as Purchaser, through its officers, employees or
agents, may reasonably request.


                                       26
   33

            (b) Purchaser agrees that all information obtained by Purchaser or
its affiliates pursuant to this Section 6.04 shall be kept confidential, by
Purchaser and by any other party which is to be afforded access pursuant to
Section 6.04(a), in accordance with the confidentiality agreement, dated May 19,
1997 (the "Confidentiality Agreement"), between Constellation Capital Partners
LLC and the Company.

            SECTION 6.05 No Solicitation of Transactions. Neither the Company
nor any Subsidiary shall, directly or indirectly, through any officer, director,
agent or otherwise, solicit, initiate or encourage the submission of any
proposal or offer from any person relating to any acquisition or purchase of all
or any material portion of the assets of, or any equity interest in, the Company
or any Material Subsidiary or any business combination with the Company or any
Material Subsidiary or participate in any negotiations regarding, or furnish to
any other person any information with respect to, or otherwise cooperate in any
way with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person to do or seek any of the foregoing and the Company
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Notwithstanding the foregoing or any other provision hereof, nothing
shall prohibit the Board from furnishing information to, or entering into
discussions or negotiations with, any person in connection with an unsolicited
(from the date of this Agreement) proposal in writing by such person to acquire
the Company pursuant to a merger, consolidation, share exchange, business
combination or other similar transaction or to acquire all or substantially all
of the assets of the Company or any of its Subsidiaries, if, and only to the
extent that, (i) the Board, after consultation with independent legal counsel
(which may include its regularly engaged independent legal counsel), determines
in good faith that such action is required for the Board to comply with its
fiduciary duties to stockholders imposed by Delaware Law and (ii) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person the Company uses its reasonable efforts to obtain from such
person an executed confidentiality agreement on terms no less favorable to the
Company than those contained in the Confidentiality Agreement. The Company shall
notify Purchaser promptly if any such proposal or offer, or any inquiry or
contact with any person with respect thereto, is made, and shall inform
Purchaser of the terms and conditions of any such proposal or offer or the
details of any such inquiry or contact. The Company agrees not to release any
third party from, or waive any provision of, any confidentiality or, subject to
the fiduciary duties of the Board, standstill agreement to which the Company is
or may become a party.

            SECTION 6.06 Employee Benefits Matters; Employment Agreements. Annex
B hereto sets forth certain agreements among the parties hereto with respect to
the Plans and other employee benefits matters.


                                       27
   34

            SECTION 6.07 Directors' and Officers' Indemnification and Insurance.
(a) The Certificate of Incorporation and Bylaws of the Company shall, for a
period of six years from the date of acceptance for payment by Purchaser of
Shares pursuant to the Offer (the "Consummation Date"), contain provisions no
less favorable with respect to indemnification than are currently set forth in
Article XIII of the Bylaws of the Company, which provisions shall not be
amended, repealed or otherwise modified for such period in any manner that would
affect adversely the rights thereunder of individuals who at any time from and
after the date of this Agreement and to and including the Consummation Date were
directors, officers, employees, fiduciaries or agents of the Company in respect
of acts or omissions occurring at or prior to the Consummation Date (including,
without limitation, the matters contemplated by this Agreement), unless such
modification shall be required by law. From and after the Purchaser's Election
Date, the Company shall not amend, repeal or otherwise modify the
indemnification and advancement of expenses provisions of Article XIII of the
Bylaws of the Company or the indemnification or advancement of expenses
provisions in the Constituent Documents of any of the Subsidiaries in any manner
that would adversely affect the rights thereunder of individuals who at any time
from and after the date of this Agreement and to and including the Consummation
Date were directors, officers, employees, fiduciaries or agents of the Company
or any of the Subsidiaries in respect of acts or omissions occurring at or prior
to the Consummation Date (including, without limitation, the matters
contemplated by this Agreement), unless such modification is required by law.

            (b) The Company shall, to the fullest extent permitted under
applicable law, indemnify and hold harmless each present and former director,
officer, employee, fiduciary and agent of the Company and each Subsidiary
(collectively, the "Indemnified Parties") against all costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in connection with any claim,
action, suit, proceeding or investigation (whether arising before or after the
Consummation Date), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any act or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Consummation Date, for a period of six years after the date hereof
(and shall pay any expenses in advance of the final disposition of any such
action or proceeding to each Indemnified Party to the fullest extent permitted
under Delaware Law, and, with respect to Indemnified Parties who are or were
directors or officers of the Company, upon receipt from the Indemnified Party to
whom expenses are advanced of any undertaking to repay such advances required
under Delaware Law). In the event of any such claim, action, suit, proceeding or
investigation, (i) the Company shall pay the reasonable fees and expenses of
counsel selected by the Indemnified Parties, which counsel shall be reasonably
satisfactory to the Company and Purchaser promptly after statements therefor are
received (subject to the provision of an 


                                       28
   35

undertaking as set forth in the prior sentence, if applicable) and (ii) the
Company and Purchaser shall cooperate in the defense of any such matter;
provided, however, that neither the Company nor Purchaser (i) shall be liable
for any settlement effected without its written consent (which consent shall not
be unreasonably withheld); or (ii) shall be obligated pursuant to this Section
6.07(b) to pay the fees and expenses of more than one counsel for all
Indemnified Parties in any single action except to the extent that two or more
of such Indemnified Parties shall have conflicting interests in the outcome of
such action; and provided further that, in the event that any claim for
indemnification is asserted or made within such six-year period, all rights to
indemnification in respect of such claim shall continue until the disposition of
such claim.

            (c) The Company shall maintain in effect for a period of six years
after the Consummation Date insurance coverage, if available, equivalent to that
provided by the directors' and officers' liability insurance policies currently
maintained by the Company with respect to matters occurring on or prior to the
Consummation Date; provided, however, that the Company may substitute therefor
policies of at least the same coverage containing terms and conditions which are
not materially less favorable; and provided further that, in no event shall the
Company be required to expend pursuant to this Section 6.07(c) more than an
amount per year equal to 250% of current annual premiums paid by the Company for
such insurance (which annual premiums the Company represents to be approximately
$300,000).

            (d) In the event the Company, Purchaser or any of their respective
successors or assigns (i) consolidates with or merges into any other person
(including a merger or consolidation of the Company with or into Purchaser) and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of the Company or
Purchaser, as the case may be, shall assume the obligations set forth in this
Section 6.07.

            SECTION 6.08 Notification of Certain Matters. The Company shall give
prompt notice to Purchaser, and Purchaser shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which causes any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect and (ii) any
failure of the Company or Purchaser, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 6.08 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.


                                       29
   36

            SECTION 6.09 Further Action; Reasonable Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act with respect to the Transactions and (ii) use all
reasonable efforts to take, or cause to be taken, all appropriate action, and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
Transactions, including, without limitation, using all reasonable efforts to
obtain all licenses, permits (including, without limitation, environmental
permits), consents, approvals, authorizations, qualifications and orders of
governmental authorities and parties to contracts with the Company and the
Subsidiaries as are necessary for the consummation of the Transactions and to
fulfill the conditions to the Offer (provided that neither Purchaser, its
stockholders nor its affiliates shall be required to dispose of any material
portion of its assets to obtain any such consents, approvals, authorizations,
qualifications or orders), and (iii) except as contemplated by this Agreement,
use all reasonable efforts not to take any action, or enter into any
transaction, which would cause any of its representations or warranties
contained in this Agreement to be untrue or result in a breach of any covenant
made by it in this Agreement. In case at any time after the Consummation Date
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of Purchaser and the Company shall
use all reasonable efforts to take all such action.

            SECTION 6.10 Public Announcements. Purchaser and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or any Transaction and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or foreign securities exchange to which Purchaser
or the Company is a party.

            SECTION 6.11 Confidentiality Agreement. Assuming the Minimum
Condition has been satisfied, the Confidentiality Agreement shall be deemed to
have terminated on the Consummation Date without further action by the parties
thereto.

                                   ARTICLE VII

                                   [RESERVED]


                                       30
   37

                                  ARTICLE VIII

                        TERMINATION, AMENDMENT AND WAIVER

            SECTION 8.01 Termination. This Agreement may be terminated and the
Offer may be abandoned at any time prior to the Consummation Date,
notwithstanding any requisite approval and adoption of this Agreement and the
transactions contemplated hereby by the stockholders of the Company:

            (a) By mutual written consent duly authorized by the Boards of
Directors of Purchaser and the Company prior to Purchaser's Election Date; or

            (b) By Purchaser or the Company if (i) the Consummation Date shall
not have occurred on or before December 31, 1997; provided, however, that the
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Consummation
Date to occur on or before such date or (ii) any court of competent jurisdiction
in the United States or other governmental authority shall have issued an order,
decree, ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Offer and such order, decree, ruling or other action shall have
become final and nonappealable; or

            (c) By Purchaser if (i) due to an occurrence or circumstance that
would result in a failure to satisfy any condition set forth in Annex A, as
applicable, Purchaser shall have (A) failed to commence the Offer within five
business days following the date of public announcement of the execution of this
Agreement, (B) terminated the Offer without having accepted any Shares for
payment thereunder or (C) failed to pay for Shares pursuant to the Offer within
90 days following the commencement thereof; unless such action or inaction under
(A), (B) or (C) shall have been caused by or resulted from the failure of
Purchaser to perform in any material respect any material covenant or agreement
applicable to it contained in this Agreement or the material breach by Purchaser
of any material representation or warranty applicable to it contained in this
Agreement or (ii) prior to the purchase of Shares pursuant to the Offer, the
Board or any committee thereof shall have withdrawn or modified in a manner
adverse to Purchaser its approval or recommendation of the Offer or this
Agreement or shall have recommended another merger, consolidation, business
combination with, or acquisition of, the Company or its assets or another tender
offer or exchange offer for Shares, or shall have resolved to do any of the
foregoing; or


                                       31
   38

            (d) By the Company, upon approval of the Board if (i) Purchaser
shall have (A) failed to commence the Offer within five business days following
the date of public announcement of the execution of this Agreement, (B)
terminated the Offer without having accepted any Shares for payment thereunder
or (C) failed to pay for Shares pursuant to the Offer within 90 days following
the commencement thereof; unless such action or inaction under (A), (B) or (C)
shall have been caused by or resulted from the failure of the Company to perform
in any material respect any material covenant or agreement of it contained in
this Agreement or the material breach by the Company of any material
representation or warranty of it contained in this Agreement or (ii) prior to
the purchase of Shares pursuant to the Offer, the Board shall have withdrawn or
modified in a manner adverse to Purchaser its approval or recommendation of the
Offer or this Agreement in order to approve the execution by the Company of a
definitive agreement providing for the acquisition of the Company or any of its
assets by a sale, merger or other business combination or in order to approve a
tender offer or exchange offer for Shares by a third party, in either case, as
the Board determines in good faith that such action is required for the Board to
comply with its fiduciary duties to stockholders, after consultation with its
independent legal counsel and financial advisers, and is on terms more favorable
to the Company's stockholders than the Offer; provided, however, that (x) the
Company shall have given notice to Purchaser advising Purchaser that the Company
has received a proposal for such a transaction from a third party, specifying
the material terms and conditions (including the identity of the third party)
and that the Company intends to terminate this Agreement in accordance with this
Section 8.01(d) and either (q) Purchaser shall not have revised the terms of its
offer to acquire the Company within two business days from the date on which
such notice is deemed to have been given to Purchaser or (r) if the Expiration
Date of the Offer would otherwise occur within the period in which the Company
is prohibited by this proviso from terminating this Agreement, the Purchaser
shall not have extended the Expiration Date of the Offer until 12 hours after
the end of such two business day period, and given the Company timely notice of
such extension or (s) if within such two business day period Purchaser shall
have revised such terms, the Board of the Company, after receiving advice from
the Company's financial adviser, shall have determined in good faith that the
third party's proposal 


                                       32
   39

is superior to Purchaser's revised terms and (y) such termination under this
clause (ii) shall not be effective until the Company has made payment to
Purchaser of the Fee (as hereinafter defined) required to be paid pursuant to
Section 8.03(a)(iv) and has deposited with a mutually acceptable escrow agent
$12.0 million for reimbursement of Expenses (as hereinafter defined).

            SECTION 8.02 Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void, and there shall be no liability on the part of any party hereto,
except as set forth in Sections 8.03 and 9.01, and nothing herein shall relieve
any party from liability for any breach hereof.

            SECTION 8.03 Fees and Expenses. (a) In the event that

            (i) any person (including, without limitation, the Company or any
affiliate thereof), other than Purchaser or any affiliate of Purchaser, shall
have become the beneficial owner of more than 20% of the then outstanding
Shares, this Agreement shall have been terminated pursuant to Section 8.01
(other than pursuant to Section 8.01(c)(ii) or 8.01(d)(ii)) and within 12 months
of such termination a Third Party Acquisition (as defined hereinafter) shall
occur; or

            (ii) any person shall have commenced, publicly proposed or
communicated to the Company a proposal that is publicly disclosed for a tender
or exchange offer for 25% or more of the then outstanding Shares (or which,
assuming the maximum amount of securities that could be purchased, would result
in any person beneficially owning 25% or more of the then outstanding Shares) or
otherwise for the direct or indirect acquisition of the Company or all or
substantially all of its assets for per Share consideration having a value
greater than the Per Share Amount and (w) the Offer shall have remained open for
at least 20 business days, (x) the Minimum Condition shall not have been
satisfied, (y) this Agreement shall have been terminated pursuant to Section
8.01 (and other than pursuant to Section 8.01(c)(ii) or 8.01(d)(ii)) and (z)
within 12 months of such termination a Third Party Acquisition shall occur; or
(iii) if the Minimum Condition shall not have been satisfied on or prior to the
date that is 60 days from the date of commencement of the Offer, Purchaser
desires to extend the Offer beyond such 60 day period but the Company declines
to consent to such extension pursuant to Section 1.01, this Agreement is
terminated pursuant to Section 8.01 (and other than pursuant to Section
8.01(c)(ii) or 8.01(d)(ii)) and within 12 months of such termination a Third
Party Acquisition shall occur; or


                                       33
   40

            (iv) this Agreement is terminated pursuant to Section 8.01(c)(ii) or
8.01(d)(ii)

then, in any such event, provided that Purchaser is not in material breach of
its obligations under this Agreement, the Company shall pay Purchaser promptly
(but in no event later than one business day after (a) the consummation of the
Third Party Acquisition, with respect to the events described in clauses (i),
(ii) or (iii), or (b) such termination with respect to clause (iv)) a fee of $8
million (the "Fee"), which amount shall be payable in immediately available
funds, plus all Expenses.

            (b) Provided that Purchaser is not in material breach of its
obligations under this Agreement and Purchaser is not entitled to the Fee
pursuant to Section 8.03(a), if (i) this Agreement is terminated pursuant to
Section 8.01(c) due to the occurrence of the condition set forth in paragraph
(g) of Annex A or (ii) this Agreement is terminated pursuant to Section 8.01(c)
because of the occurrence of the condition set forth in paragraph (f) of Annex
A, then, in either case (i) or (ii), the Company shall promptly reimburse
Purchaser for all Expenses.

            (c) "Expenses" means the sum of (i) all reasonable out-of-pocket
expenses and fees up to $2 million in the aggregate (including, without
limitation, reasonable fees and expenses payable to all banks, investment
banking firms, other financial institutions and other persons and their
respective agents and counsel for arranging, committing to provide or providing
any financing for the Offer or structuring the Offer and all reasonable fees of
counsel, accountants, experts and consultants to Purchaser and its affiliates,
and all printing and advertising expenses) actually incurred by Purchaser or its
affiliates or on their behalf in connection with the Offer, including, without
limitation, the financing thereof, and actually incurred by banks, investment
banking firms, other financial institutions and other persons and assumed by
Purchaser and its affiliates in connection with the negotiation, preparation,
execution and performance of this Agreement, the structuring and financing of
the Offer and any financing commitments or agreements relating thereto and (ii)
all amounts paid by Purchaser to UDI or its affiliates on behalf of the Company
in connection with the termination of the UDI Agreement.

            (d) Except as set forth in this Section 8.03, all costs and expenses
incurred in connection with this Agreement and the Transactions shall be paid by
the party incurring such expenses, whether or not any Transaction is
consummated.

            (e) In the event that the Company shall fail to pay the Fee or any
Expenses when due, the term "Expenses" shall be deemed to include the reasonable
costs and expenses actually incurred by Purchaser (including, without
limitation, reasonable fees


                                       34
   41

and expenses of counsel) in connection with the collection under and enforcement
of this Section 8.03, together with interest on such unpaid Fee and Expenses,
commencing on the date that the Fee or such Expenses became due, at a per annum
rate equal to the rate of interest publicly announced by Morgan Guaranty Trust
Company of New York, from time to time, in the City of New York, as such bank's
prime rate plus 1%.

            (f) "Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger, consolidation or
other business combination transaction by any person other than Purchaser or any
of its affiliates (a "Third Party"); (ii) the acquisition by any Third Party of
all or substantially all of the assets of the Company and its Subsidiaries,
taken as a whole; (iii) the acquisition by a Third Party of 50% or more of the
outstanding Shares whether by tender offer, exchange offer or otherwise; (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; or (v) the repurchase by the Company or
any of its Subsidiaries of 50% or more of the outstanding Shares.

            SECTION 8.04 Amendment. Subject to the limitations set forth in
Section 6.03(c), this Agreement may be amended by the parties hereto by action
taken by or on behalf of their respective Boards of Directors at any time prior
to the Consummation Date. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.

            SECTION 8.05 Waiver. Subject to the limitations set forth in Section
6.03(c), at any time prior to the Consummation Date, any party hereto may (i)
extend the time for the performance of any obligation or other act of any other
party hereto, (ii) waive any inaccuracy in the representations and warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any agreement or condition contained herein. Any such extension
or waiver shall be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.

                                   ARTICLE IX

                               GENERAL PROVISIONS

            SECTION 9.01 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Consummation Date or upon the termination of this
Agreement pursuant to Section 8.01, as the case may be, except that the
agreements set forth in Article IX and 


                                       35
   42

Section 6.07 shall survive the Consummation Date indefinitely and those set
forth in Sections 6.04(b), 8.03 and Article IX shall survive termination
indefinitely.

            SECTION 9.02 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 9.02):

      if to Purchaser:

            II Acquisition Corp.
            1250 24th Street, N.W.
            Suite 800
            Washington, D.C. 20037
            Telecopy No.: 202-828-0865
            Attn: Michael G. Ryan

      with a copy to:

            Debevoise & Plimpton
            875 Third Avenue
            New York, New York 10022
            Telecopy No.: 212-909-6836
            Attn: Meredith M. Brown, Esq.

      if to the Company:

            Imo Industries Inc.
            1009 Lenox Drive
            Lawrenceville, New Jersey 08648-0550
            Telecopy No.: 609-896-7633
            Attn: Thomas J. Bird, Esq.


                                       36
   43

      with a copy to:

            Weil, Gotshal and Manges LLP
            767 Fifth Avenue
            New York, New York 10153
            Telecopy No.: 212-310-8007
            Attn: Ronald F. Daitz, Esq.

            SECTION 9.03 Certain Definitions. For purposes of this Agreement,
the term:

            (a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or is
under common control with, such specified person;

            (b) "beneficial owner" with respect to any Shares means a person who
shall be deemed to be the beneficial owner of such Shares (i) that such person
or any of its affiliates or associates (as such term is defined in Rule 12b-2
promulgated under the Exchange Act) beneficially owns, directly or indirectly,
(ii) that such person or any of its affiliates or associates has, directly or
indirectly, (A) the right to acquire (whether such right is exercisable
immediately or subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of consideration rights,
exchange rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) that are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
Shares;

            (c) "business day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;

            (d) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;


                                       37
   44

            (e) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or entity
or government, political subdivision, agency or instrumentality of a government;
and

            (f) "subsidiary" or "subsidiaries" of any person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries.

            SECTION 9.04 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Transactions is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the Transactions be consummated as originally contemplated to the
fullest extent possible.

            SECTION 9.05 Entire Agreement, Assignment. This Agreement and the
undertaking dated the date hereof from Mitchell P. Rales and Steven M. Rales
addressed to the Company constitute the entire agreement among the parties with
respect to the subject matter hereof and supersedes, except as set forth in
Section 6.04(b), all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
This Agreement shall not be assigned by operation of law or otherwise, except
that Purchaser may assign all or any of its rights and obligations hereunder to
any entity that is directly or indirectly wholly owned by Mitchell P. Rales and
Steven M. Rales provided that no such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.

            SECTION 9.06 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, other than Section 6.07 (which is intended to be for the
benefit of the persons covered thereby and may be enforced by such persons).

            SECTION 9.07 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not


                                       38
   45

performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.

            SECTION 9.08 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.

            SECTION 9.09 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.

            SECTION 9.10 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.


                                       39
   46

            IN WITNESS WHEREOF, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.

                                    II ACQUISITION CORP.
                                 
                                 
                                    By:   /s/  PHILIP W. KNISELY
                                    ---------------------------------------
                                    Name:  Philip W. Knisely
                                    Title: President and Chief Executive Officer
                                 
                                 
                                    IMO INDUSTRIES INC.
                                 
                                 
                                     By:   /s/  W. M. BROWN
                                    ---------------------------------------
                                    Name:  W. M. Brown
                                    Title: Chief Financial Officer
   47

                                                                         ANNEX A

                             CONDITIONS TO THE OFFER

            Notwithstanding any other provision of the Offer, Purchaser shall
not be required to accept for payment or pay for any Shares tendered pursuant to
the Offer, and may terminate or amend the Offer and may postpone the acceptance
for payment of and payment for Shares tendered, if (i) the Minimum Condition
shall not have been satisfied, (ii) any applicable waiting period under the HSR
Act shall not have expired or been terminated prior to the expiration of the
Offer or (iii) at any time on or after the date of this Agreement, and prior to
the acceptance for payment of Shares, any of the following conditions shall
exist:

            (a) there shall have been instituted or be pending any action or
proceeding brought by any governmental, administrative or regulatory authority
or agency, domestic or foreign, before any court or governmental, administrative
or regulatory authority or agency, domestic or foreign, (i) challenging or
seeking to make illegal, materially delay or otherwise directly or indirectly
restrain or prohibit or make materially more costly the making of the Offer, the
acceptance for payment of, or payment for, any Shares by Purchaser pursuant to
the Offer, or seeking to obtain material damages in connection with the Offer;
(ii) seeking to prohibit or limit materially the ownership or operation by the
Company, Purchaser or any of Purchaser's affiliates of all or any material
portion of its or their business or to compel the Company, Purchaser or any of
Purchaser's affiliates to dispose of or hold separate all or any material
portion of its or their business, in each case as a result of the Offer; (iii)
seeking to impose or confirm limitations on the ability of the Purchaser to
exercise effectively full rights of ownership of any Shares, including, without
limitation, the right to vote any Shares acquired by Purchaser pursuant to the
Offer, or otherwise on all matters properly presented to the Company's
stockholders, including, without limitation, the approval and adoption of this
Agreement and the transactions contemplated hereby; or (iv) seeking to require
divestiture by Purchaser of any Shares; provided that Purchaser shall have used
all reasonable efforts to cause any such action or proceeding described in this
paragraph (a) to be dismissed or withdrawn;

            (b) there shall have been issued any injunction, order or decree by
any court or governmental, administrative or regulatory authority or agency,
domestic or foreign, resulting from any action or proceeding brought by any
person other than any governmental, administrative or regulatory authority or
agency, domestic or foreign, that (i) restrains or prohibits the making of the
Offer; (ii) prohibits or limits ownership or operation by the Company, Purchaser
or any of Purchaser's affiliates of all or any material portion of its business
or assets or compels the Company, Purchaser or any of


                                      A-1
   48

Purchaser's affiliates to dispose of or hold separate all or any material
portion of its business or assets, in each case as a result of the Offer; (iii)
imposes limitations on the ability of Purchaser to exercise effectively full
rights of ownership of any Shares, including, without limitation, the right to
vote any Shares acquired by Purchaser pursuant to the Offer, or otherwise on all
matters properly presented to the Company's stockholders or (iv) requires
divestiture by Purchaser of any Shares; provided that Purchaser shall have used
all reasonable efforts to cause any such injunction, order or decree described
in this paragraph (b) to be vacated or lifted;

            (c) there shall have been any action taken, or any statute, rule,
regulation, order or injunction enacted, entered, enforced, promulgated,
amended, issued or deemed applicable to (i) Purchaser, the Company or any
subsidiary or affiliate of Purchaser or the Company or (ii) the Offer, by any
legislative body, court, government or governmental, administrative or
regulatory authority or agency, domestic or foreign, in the case of both (i) and
(ii) other than the routine application of the waiting period provisions of the
HSR Act to the Offer, that results in any of the consequences referred to in
clauses (i) through (iv) of paragraph (b) above; provided that Purchaser shall
have used all reasonable efforts to cause any such action, order or injunction
described in this paragraph (c) to be vacated or lifted;

            (d) there shall have occurred (i) any general suspension of, or
limitation on prices for, trading in securities of the Company on the New York
Stock Exchange, (ii) any decline, measured from the date hereof, in the Standard
& Poor's 500 Index by an amount in excess of 30%, (iii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iv) any limitation (whether or not mandatory) by any government
or governmental, administrative or regulatory authority or agency, domestic or
foreign, on the extension of credit by banks or other lending institutions, (v)
a commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States or (vii) in the case
of any of the foregoing existing on the date hereof, a material acceleration or
worsening thereof;

            (e) (i) it shall have been publicly disclosed or Purchaser shall
have otherwise learned that beneficial ownership (determined for the purposes of
this paragraph as set forth in Rule 13d-3 promulgated under the Exchange Act) of
20% or more of the then outstanding Shares has been acquired by any person,
other than Purchaser or (ii) (A) the Board or any committee thereof shall have
withdrawn or modified in a manner adverse to Purchaser the approval or
recommendation of the Offer or the Agreement or approved or recommended any
takeover proposal or any other


                                      A-2
   49

acquisition of Shares other than the Offer or (B) the Board or any committee
thereof shall have resolved to do any of the foregoing;

            (f) (i) any representation or warranty of the Company in the
Agreement shall not be true and correct; or

            (ii) there shall have occurred, since the date of the Agreement, a
change in the business, operations, financial condition, assets or liabilities
of the Company or any Subsidiary with the effect that such failure of any such
representation or warranty to be true and correct or such change, when taken
together with all other such failures of such representations and warranties to
be true and correct (both favorable and adverse) and all other such changes
(both favorable and adverse), in the aggregate would have, a Material Adverse
Effect; provided, however that, for the purpose of the foregoing condition, in
determining whether any such representation or warranty is true or correct, any
qualification as to materiality or Material Adverse Effect contained in any such
representation and warranty shall be deemed not to apply;

            (g) the Company shall have failed to perform in any material respect
any material obligation or to comply in any material respect with any material
agreement or material covenant of the Company to be performed or complied with
by it under the Agreement;

            (h) the Agreement shall have been terminated in accordance with its
terms; or

            (i) Purchaser and the Company shall have agreed that Purchaser shall
terminate the Offer or postpone the acceptance for payment of or payment for
Shares thereunder; which, in the sole judgment of Purchaser, in any such case,
and regardless of the circumstances (including any action or inaction by
Purchaser or any of its affiliates) giving rise to any such condition, makes it
inadvisable to proceed with such acceptance for payment or payment.

            The foregoing conditions are for the sole benefit of Purchaser and
may be asserted by Purchaser regardless of the circumstances giving rise to any
such condition or may be waived by Purchaser in whole or in part at any time and
from time to time in their sole discretion. The failure by Purchaser at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right; the waiver of any such right with respect to particular facts and other
circumstances shall not be deemed a waiver with respect to any other facts and
circumstances; and each such right shall be deemed an ongoing right that may be
asserted at any time and from time to time.


                                      A-3
   50

                                                                         ANNEX B

            For a period of one year from the Consummation Date, Purchaser
shall, or shall cause the Company to, maintain the Plans (other than the Stock
Option Plans) which the Company maintains for the benefit of, or which are open
to, a majority of the employees of the Company on the terms in effect on the
date hereof, or such other plans, arrangements or programs as will provide
employees with benefits that in the aggregate are substantially equivalent to,
and no less favorable than, those provided under the Plans (other than the Stock
Option Plans) as in effect on the date hereof. In addition, in the event of a
merger or consolidation between Purchaser or any affiliate of Purchaser and the
Company, Purchaser shall, or shall cause the surviving corporation of such
merger or consolidation to, assume and agree to perform those Change of Control
Agreements listed in Schedule 6.06 of the Disclosure Schedule in the same manner
and to the same extent that the Company is required to perform such agreements.

EX-99.D

   1
 
                                                                       EXHIBIT D
 
For additional information, contact:
Imo Industries Inc.
R.A. Derr II,
Vice President & Treasurer
Director, Investor Relations
(609) 896-7632
 
II Acquisition Corp.
John A. Young
Vice President
(804) 560-4074
 
NEWS RELEASE
 
FOR IMMEDIATE RELEASE
 
           IMO INDUSTRIES ANNOUNCES SALE TO II ACQUISITION CORP., AN
              AFFILIATE OF CONSTELLATION CAPITAL PARTNERS LLC, AND
                 TERMINATES SALE TO UNITED DOMINION INDUSTRIES
 
     LAWRENCEVILLE, NJ (July 25, 1997) -- Imo Industries Inc. (NYSE:MD)
announced today that it has executed a definitive agreement with II Acquisition
Corp. ("Acquisition Corp."), an affiliate of Constellation Capital Partners LLC,
pursuant to which Acquisition Corp. will commence a cash tender offer for all
outstanding shares of Imo common stock at a price of $7.05 per share, net in
cash.
 
     Imo had previously announced on June 26, 1997 that it had entered into a
merger agreement with United Dominion Industries Limited pursuant to which a
wholly owned subsidiary of United Dominion ("UD") commenced on July 2, 1997 a
cash tender offer for all of the outstanding shares of Imo common stock at a
price of $6 per share. Earlier today, the Imo Board of Directors unanimously
determined that the Acquisition Corp. offer was on terms more favorable to Imo's
stockholders. In addition, Imo withdrew its approval of United Dominion's tender
offer and the other transactions contemplated by the merger agreement with
United Dominion and exercised its right to terminate the merger agreement.
 
     Imo's Board has approved Acquisition Corp.'s tender offer, has determined
that Acquisition Corp.'s tender offer is fair to, and in the best interests of,
Imo's stockholders and recommends that Imo's stockholders accept Acquisition
Corp.'s tender offer. Imo's Board of Directors was advised by Credit Suisse
First Boston Corporation that the consideration to be received by tendering
holders of Imo common stock pursuant to Acquisition Corp.'s tender offer is fair
to such holders from a financial point of view.
 
     Pursuant to the terms of the United Dominion merger agreement, $8 million
is being paid to United Dominion as a result of Imo's termination of the merger
agreement and United Dominion will be reimbursed for up to $2 million of its
expenses incurred in connection with the transactions contemplated by the merger
agreement.
 
     Unlike the UD agreement, the Acquisition Corp. agreement does not
contemplate an offer to purchase Imo's 11 3/4% Senior Subordinated Notes due
2006 or solicit consents from the holders of the notes to amend the indenture
governing the notes or contemplate a merger with Imo following completion of the
tender offer.
 
     Acquisition Corp.'s tender offer for the shares of Imo common stock is
conditioned on the receipt of more than 80% of the outstanding shares. Any
shares not purchased in the tender offer will remain outstanding.
 
     Imo Chairman and Chief Executive Officer Donald K. Farrar said,
"Acquisition Corp.'s offer of $7.05 per share exceeds United Dominion's offer by
more than 17% and does not include any financing condition. Imo's Board of
Directors believes Acquisition Corp.'s offer will provide Imo's stockholders
better value than United Dominion's offer. Acquisition Corp. has also indicated
that, after successful completion of its tender offer, it
   2
 
looks forward to working with us in order to improve our operations and continue
to deliver superior products to our customers."
 
     "Imo has solid operating companies and we look forward to working with our
new associates in their continuous improvement efforts on quality, cost and
service", said Philip W. Knisely, President of Constellation and of Acquisition
Corp.
 
     Acquisition Corp. will commence its tender offer for all the common stock
of Imo on or before August 1, 1997.
 
     IF AN IMO STOCKHOLDER THAT HAS TENDERED SHARES PURSUANT TO UD'S OFFER
WISHES TO WITHDRAW SUCH TENDER, SUCH STOCKHOLDER MUST DELIVER A WRITTEN OR
FACSIMILE TRANSMISSION NOTICE OF WITHDRAWAL TO FIRST CHICAGO TRUST COMPANY OF
NEW YORK PRIOR TO 12:00 MIDNIGHT, NEW YORK CITY TIME, ON JULY 30, 1997, UNLESS
THE UD OFFER IS EXTENDED (IN WHICH CASE A TENDERING STOCKHOLDER CAN WITHDRAW HIS
TENDER AT ANY TIME PRIOR TO THE EXPIRATION OF THE UD OFFER).
 
     IF UD ELECTS TO TERMINATE ITS OFFER, IT IS REQUIRED TO PROMPTLY RETURN ANY
SHARES TENDERED. CERTAIN ADDITIONAL PROCEDURES THAT MUST BE FOLLOWED TO WITHDRAW
SUCH TENDER, AS WELL AS FIRST CHICAGO'S ADDRESS AND FACSIMILE NUMBERS, ARE SET
FORTH IN UD'S OFFER TO PURCHASE DATED JULY 2, 1997 THAT WAS PREVIOUSLY
DISTRIBUTED TO IMO STOCKHOLDERS. STOCKHOLDERS WITH ANY QUESTIONS REGARDING UD'S
OFFER CAN ALSO CONTACT MACKENZIE PARTNERS, THE INFORMATION AGENT FOR UD'S OFFER,
AT 1-800-322-2885.
 
     Imo Industries, with 1996 sales of $469 million, is a diversified
manufacturer of pumps, fluid sensors, motion control products, remote control
systems, and automobile components, with operations worldwide.
 
     Constellation Capital is a private equity firm based in Richmond, VA.
Constellation also owns Ameridrives International, a manufacturer of mechanical
power transmission clutches and couplings.
 
                                      ***
 
                                        2

EX-99.F

   1
 
[CREDIT SUISSE FIRST BOSTON LETTERHEAD]
 
July 25, 1997
 
Board of Directors
Imo Industries Inc.
1009 Lenox Drive
Building Four West
Lawrenceville, New Jersey 08648
 
Dear Sirs:
 
     You have asked Credit Suisse First Boston Corporation ("CSFB", "we" or
"us") to advise you with respect to the fairness to the tendering holders of
common stock, par value $1.00 per share ("Company Common Stock"), of Imo
Industries Inc. (the "Company") from a financial point of view of the
consideration to be received by such holders pursuant to the terms of the Share
Purchase Agreement (the "Acquisition Agreement"), among the Company and II
Acquisition Corp. (the "Purchaser"). The Acquisition Agreement provides that
Purchaser will make a cash tender offer (the "Offer") to acquire all the issued
and outstanding shares of Company Common Stock, together with the associated
preferred stock purchase rights, for $7.05 per share, net to the seller in cash.
The Offer is conditioned upon the valid tender of more than eighty percent (80%)
of the outstanding shares of Company Common Stock. There is no merger agreement
between the Company and Purchaser, such that stockholders who do not tender
their shares in the Offer may own such shares indefinitely, and you have not
asked us to express, and we are not expressing, any view with respect to
fairness to such stockholders.
 
     In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company. We have also
reviewed certain other information, including financial forecasts, provided to
us by the Company, and have met with the Company's management to discuss the
business and prospects of the Company. In addition, at the Company's request, we
have solicited and received indications of interest in acquiring the Company or
individual business segments of the Company from prospective acquirors.
 
     We have also considered certain financial and stock market data of the
Company, and we have compared those data with similar data for other publicly
held companies in businesses similar to those of the Company, and we have
considered the financial terms of certain other business combinations and other
transactions which have recently been effected. We also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that we deemed relevant.
 
     In connection with our review we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to the
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
Company's management as to the future financial performance of the Company. In
addition, we have not been requested to make, and have not assumed any
responsibility for making, an independent evaluation or appraisal of the assets
or liabilities (contingent or otherwise) of the Company, nor have we been
furnished with any such evaluations or appraisals. Our opinion is necessarily
based upon financial, economic, market and other conditions as they exist and
can be evaluated on the date hereof.
 
     We have acted as financial advisor to the Company in connection with the
Offer and will receive a fee for our services, a significant portion of which is
contingent upon the consummation of the Offer. CSFB and its affiliates have
previously performed certain investment banking and other services for the
Company and have received customary fees therefor.
   2
 
     In the ordinary course of our business, CSFB and its affiliates may
actively trade the debt and equity securities of the Company for their own
accounts and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
 
     It is understood that this letter is for the information of the Board of
Directors of the Company in connection with its consideration of the Offer and
is not to be quoted or referred to, in whole or in part, in any registration
statement, or in any other document used in connection with the offering or sale
of securities, nor shall this letter be used for any other purposes, without our
prior written consent.
 
     Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the consideration to be received by the tendering holders of
Company Common Stock in the Offer is fair to such holders from a financial point
of view.
 
                                          Very truly yours,
 
                                          CREDIT SUISSE FIRST BOSTON CORPORATION
 
                                          By:      /s/ ALAN H. HOWARD
 
                                            ------------------------------------
                                                       Alan H. Howard

EX-99.J

   1
                                                                       EXHIBIT J

                      SECOND AMENDMENT TO RIGHTS AGREEMENT

         SECOND AMENDMENT TO RIGHTS AGREEMENT made as of July 25, 1997 between
Imo Industries Inc., a Delaware corporation, (the "Company") and First Chicago
Trust Company of New York, a New York corporation, (the "Rights Agent").

                                    RECITALS:

         WHEREAS, on April 30, 1997, the Board of Directors of the Company
authorized and declared a dividend distribution of one Right for each share of
Common Stock, par value $1.00 per share, of the Company outstanding at the close
of business on the Record Date, May 4, 1997, and has authorized the issuance of
one Right for each share of Common Stock of the Company issued between the
Record Date and the Distribution Date, each Right initially representing the
right to purchase one one-hundredth of a share of Series B Junior Participating
Preferred Stock of the Company (the "Rights"); and

         WHEREAS, on April 30, 1997, the Company and the Rights Agent entered
into a Rights Agreement to set forth certain terms and conditions with respect
to the grant of the Rights, and on June 25, 1997, the Company and the Rights
Agent entered into an Amendment to Rights Agreement to amend Section 3(a) and
Section 11(a)(ii)(B) thereof (as amended, the "Agreement"); and

         WHEREAS, pursuant to Section 26 of the Agreement, the Company has the
right to amend the Agreement, and the Board of Directors of the Company has
approved amendments to Section 3(a) of the Agreement, to provide as set forth in
this Second Amendment.

         NOW, THEREFORE, in consideration of the premises and covenants set
forth herein, and intending to be legally bound hereby, the parties hereto agree
as follows:

         1. DEFINED TERMS. Each capitalized term used in this Second Amendment
and not otherwise defined shall have the meaning assigned to it in the
Agreement, unless the context clearly indicates to the contrary.

         2. AMENDMENT TO SECTION 3(A). Section 3(a) of the Agreement is hereby
amended and restated so as to provide in its entirety as follows:

                  "(a) Until the Distribution Date (as hereinafter defined): (x)
         the Rights will be attached to and, where applicable, evidenced
         (subject to the provisions of paragraph (b) of this Section 3) by the
         certificates for the Common Stock registered in the names of the
         holders of the Common Stock (which certificates for Common Stock shall
         be deemed also to be certificates for the Rights) and not by separate
         certificates, and (y) the Rights will be transferable only in
         connection with the transfer of the underlying shares of Common Stock
         (including a transfer to the Company). As used in this Agreement, the
         "Distribution Date" shall mean the earlier of (i) the close of business
         on the tenth day after the Stock Acquisition Date (or, if the tenth day
         after the Stock Acquisition Date occurs before the Record Date, the
         close of business on the tenth day following the Record Date), or (ii)
         the close of business on the tenth business day after the date that a
         tender or exchange offer by any Person (other than the Company, any
         Subsidiary of the Company, any employee benefit plan of the Company or
         of any Subsidiary of the Company, or any Person or entity organized,
         appointed or established by the Company for or pursuant to the terms of
         any such plan) is first published or sent or given within the meaning
         of Rule 14d- 2(a) of the General Rules and Regulations under the
         Exchange Act, if upon consummation thereof, such Person would be the
         Beneficial Owner of 15% or more of the shares of Common Stock then
         outstanding, unless such tender offer or exchange offer is for all
         outstanding shares of Common Stock at a price and
   2
         on terms determined by at least a majority of the members of the Board
         of Directors who are not officers of the Company and who are not
         representatives, nominees, Affiliates or Associates of an Acquiring
         Person, after receiving advice from one or more investment banking
         firms, to be (x) at a price which is fair to stockholders (taking into
         account all factors which such members of the Board deem relevant
         including, without limitation, prices which could reason ably be
         achieved if the Company or its assets were sold on an orderly basis
         designed to realize maximum value) and (y) otherwise in the best
         interests of the Company and its stockholders, or (iii) if a tender or
         exchange offer had been determined by at least a majority of the
         members of the Board of Directors who are not officers of the Company
         and who are not representatives, nominees, Affiliates or Associates of
         an Acquiring Person to be at a price which is fair to stockholders or
         otherwise in the best interests of the Company and its stock holders as
         contemplated by the immediately preceding clause (ii) of this Section
         3(a) but (A) such determination is subsequently withdrawn and (B) at
         least a majority of the members of the Board of Directors who are not
         officers of the Company and who are not representatives, nominees,
         Affiliates or Associates of an Acquiring Person explicitly determines
         that such withdrawal shall be deemed to trigger a Distribution Date
         under this Section 3(a), the close of business on the tenth day after
         such determination is withdrawn. As soon as practicable after the
         Distribution Date, the Rights Agent will send by first class, insured,
         postage prepaid mail, to each record holder of the Common Stock as of
         the close of business on the Distribution Date, at the address of such
         holder shown on the records of the Company, one or more rights
         certificates, in substantially the form of Exhibit B hereto (the
         "Rights Certificates"), evidencing one Right for each share of Common
         Stock so held, subject to adjustment as provided herein. In the event
         that an adjustment in the number of Rights per share of Common Stock
         has been made pursuant to Section 11(p) hereof, at the time of
         distribution of the Rights Certificates, the Company shall make the
         necessary and appropriate rounding adjustments (in accordance with
         Section 14(a) hereof) so that Rights Certificates representing only
         whole numbers of Rights are distributed and cash is paid in lieu of any
         fractional Rights. As of and after the Distribution Date, the Rights
         will be evidenced solely by such Rights Certificates."

         3. EFFECT OF AMENDMENT. The parties acknowledge and agree that all of
the terms, provisions, covenants and conditions of the Agreement shall hereafter
continue in full force and effect in accordance with the terms thereof except to
the extent amended, modified, deleted or revised herein.

         4. COUNTERPARTS. This Amendment may be executed on separate counter
parts, each of which is deemed to be an original and all of which taken together
shall constitute one and the same agreement.

                                       -2-
   3
         IN WITNESS WHEREOF, the parties have caused this Amendment to be
         executed as of the date first above written.

Attest:                                 IMO INDUSTRIES INC.


By:  /S/ Thomas J. Bird                 By:  /s/ Donald K. Farrar
     ----------------------------            ---------------------------
     Thomas J. Bird, Esquire                 Donald K. Farrar
     Executive Vice President,               Chairman, President
     General Counsel and Secretary           and Chief Executive Officer


Attest:                                 FIRST CHICAGO TRUST COMPANY
                                        OF NEW YORK


By:  /s/ Maurice Lynch                  By:  /s/ James Kuzanish
     -------------------------------         --------------------------- 
     Title: Assistant Vice President         Title: Assistant Vice President
            ------------------------                ------------------------

                                       -3-

EX-99.K

   1
 
                                                                      [IMO LOGO]
 
                                                                   July 31, 1997
 
Dear Stockholder:
 
     On behalf of the Board of Directors of Imo Industries Inc., I am pleased to
inform you that on July 25, 1997, Imo entered into a definitive share purchase
agreement with II Acquisition Corp. ("Acquisition Corp."), an affiliate of
Constellation Capital Partners LLC, pursuant to which Acquisition Corp. will
commence a cash tender offer for all outstanding shares of Imo's common stock
(the "Shares"), together with the associated rights to purchase Imo's Series B
Junior Participating Preferred Stock, at $7.05 per Share (the "Offer").
Acquisition Corp.'s Offer does not contemplate a merger involving Imo following
completion of the Offer. Accordingly, any Shares not purchased in the Offer will
remain outstanding. The Offer is currently scheduled to expire at 12:00
midnight, New York City time, on Wednesday, August 27, 1997.
 
     YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT ACQUISITION CORP.'S
OFFER IS FAIR TO, AND IN THE BEST INTERESTS OF, IMO STOCKHOLDERS. ACCORDINGLY,
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT IMO STOCKHOLDERS ACCEPT THE
OFFER AND TENDER THEIR SHARES OF COMMON STOCK PURSUANT TO THE OFFER.
 
     In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors described in the enclosed
Solicitation/Recommendation Statement on Schedule 14D-9 which is being filed
with the Securities and Exchange Commission. Among other things, the Board of
Directors considered that the Offer was for all of the Shares and that,
accordingly, all stockholders who wanted to could participate in the Offer and
that in the opinion of its financial advisor, Credit Suisse First Boston
Corporation ("CSFB"), the consideration to be received by the tendering holders
of the Shares pursuant to the Acquisition Offer is fair, from a financial point
of view, to such holders. The enclosed Schedule 14D-9 describes the Board of
Directors' decision and contains important financial and other information
relating to that decision. I urge you to read it carefully.
 
     In the event 100% of the Shares outstanding are not purchased pursuant to
the Offer, a minority interest of Imo will remain outstanding. Acquisition Corp.
has indicated in its Offer to Purchase that it intends to purchase Shares not
tendered in the Offer after the consummation of the Offer in order to eliminate
any such minority interest. There can be no assurance, however, if such
purchases will be made or, if they are made, at what prices. Any such purchases
could be effected at prices that may be higher or lower than the $7.05 per Share
price offered pursuant to the Offer. In addition, the purchase of Shares by
Acquisition Corp. pursuant to the Offer will reduce the number of Shares that
might otherwise trade publicly and will reduce the number of holders of Shares,
which could adversely affect the liquidity and market value of the remaining
Shares held by the public following the consummation of the Offer. Acquisition
Corp. also has indicated that it intends to deregister and delist the Shares
following consummation of the Offer, if permitted by applicable law.
ACCORDINGLY, YOUR BOARD OF DIRECTORS URGES YOU TO TENDER YOUR SHARES IN THE
OFFER.
 
     Imo had previously entered into an Agreement and Plan of Merger (the "UD
Agreement") with United Dominion Industries Limited ("UD") and UD Delaware
Corp., an indirectly wholly owned subsidiary of UD ("UD Delaware"), pursuant to
which UD Delaware commenced a tender offer for all of the outstanding shares of
Imo common stock at a price of $6.00 per Share. Acquisition Corp.'s Offer of
$7.05 per share exceeds the UD Delaware offer by more than 17%. Imo's Board of
Directors determined that the terms of Acquisition Corp.'s Offer were more
favorable to Imo's stockholders than UD Delaware's offer, withdrew its approval
of UD Delaware's offer and the other transactions contemplated by the UD
Agreement and
   2
 
terminated the UD Agreement. On July 29, 1997 UD terminated UD Delaware's tender
offer for the Shares. If you previously tendered your Shares in the UD Delaware
tender offer, these Shares will be returned to you.
 
     Accompanying this letter, in addition to the Schedule 14D-9 and CSFB's
fairness opinion, is Acquisition Corp.'s Offer to Purchase, together with
related materials including a letter of transmittal, for use in tendering the
Shares. These documents set forth the terms and conditions of the Offer and
provide instructions as to how to tender your Shares. I urge you to read the
enclosed materials carefully and consider all factors set forth therein before
making your decision with respect to the Offer.
 
     I personally, along with the entire Board of Directors, management and
employees of Imo, thank you for your support.
 
                                          Sincerely,
 
                                          /s/ DONALD K. FARRAR
                                          DONALD K. FARRAR
                                          Chairman, President and Chief
                                            Executive Officer
 
                                     * * *
 
     If you have any questions concerning Shares previously tendered to UD
Delaware, please contact Mackenzie Partners, Inc. at (800) 322-2885.
 
     If you have any questions concerning tendering your Shares in the
Acquisition Corp. Offer, please contact D.F. King & Co., Inc. at (800) 549-6650.