THIRD AMENDMENT TO CREDIT
                            AND GUARANTY AGREEMENT


      THIS THIRD AMENDMENT,  dated as of February 16, 1998 (this "Amendment") to
the Existing Credit Agreement  referred to below is among IMO INDUSTRIES INC., a
Delaware  corporation  (the  "Borrower"),   II  ACQUISITION  CORP.,  a  Delaware
corporation (the "Parent") and the Lenders (as defined below) parties hereto.


                             W I T N E S S E T H:

      WHEREAS,  the Borrower,  the Parent,  certain financial  institutions from
time to time parties thereto  (collectively,  the  "Lenders"),  The Bank of Nova
Scotia, as the Administrative  Agent and NationsBanc  Capital Markets,  Inc., as
Syndication Agent have entered into the Credit and Guaranty Agreement,  dated as
of August 29, 1997 (as amended, supplemented,  amended and restated or otherwise
modified  prior to the date hereof,  the  "Existing  Credit  Agreement"  and, as
amended by, and together with, this Amendment, the "Credit Agreement"); and

      WHEREAS,  the  Borrower  and the Parent have  requested  that the Existing
Credit Agreement be amended in certain respects,  and the Lenders have agreed to
amend the Existing Credit Agreement (subject to the terms and conditions of this
Amendment);

      NOW, THEREFORE,  in consideration of the premises and the other provisions
herein contained, the parties hereto hereby agree as follows.


                                    PART I
                                   DEFINITIONS

      SUBPART I.1. Use of Defined Terms.  Unless otherwise defined herein or the
context otherwise requires, terms used in this Amendment, including its preamble
and recitals,  have the respective  meanings  provided  therefor in the Existing
Credit Agreement.


                                     PART II
                                  AMENDMENTS TO
                          THE EXISTING CREDIT AGREEMENT



      Effective  upon (and  subject to) the  occurrence  of the Third  Amendment
Effective Date (as defined in Subpart 3.1),  certain terms and provisions of the
Existing  Credit  Agreement  are hereby  amended in  accordance  with this Part.
Except as so amended, the Existing Credit Agreement shall continue in full force
and effect in accordance with its terms.

      SUBPART  II.1.  Amendment to Article I.  Article I of the Existing  Credit
Agreement is hereby amended in accordance with Subparts 2.1.1 and 2.1.2.

      SUBPART  II.1.1.  Section 1.1 of the Existing  Credit  Agreement is hereby
amended by inserting the following  definitions in the appropriate  alphabetical
order:

            "Amendment No. 3" means the Third Amendment, dated as of February
      16, 1998, to this Agreement among the Borrower, the Parent and the
      Lenders parties thereto.

            "Governmental  Refund" means the amount  received by the Borrower or
      any of its  Subsidiaries  from the  United  States Air Force  ("USAF")  in
      settlement of Contract  Number  F09603-86-C-2278,  dated October 23, 1986,
      between Varo,  Inc. (now known as VHC, Inc., a Subsidiary of the Borrower)
      and the USAF.

            "Third Amendment Effective Date" is defined is Subpart 3.1 of
      Amendment No. 3.

      SUBPART  II.1.2.  Section 1.1 of the Existing  Credit  Agreement is hereby
further amended as follows:

            (a) the  definition of "Permitted  Amount" is hereby  amended in its
      entirety to read as follows:


            "Permitted  Amount" means in the case of (a) the  permitted  maximum
      amount of Revolving Loans which may be applied by the Borrower to purchase
      outstanding  Senior  Subordinated  Notes "put" to the Borrower pursuant to
      the "put"  provision  contained  in the Senior  Subordinated  Notes in the
      event of a Change of Control (as defined therein) pursuant to the terms of
      Section 4.10,  $40,000,000,  (b) the permitted maximum amount of Revolving
      Loans which may be applied by the  Borrower to open  market  purchases  or
      redemptions of outstanding Senior Subordinated Notes pursuant to the terms
      of Section  4.10,  the sum of (I)  $50,000,000  (payable in respect of the
      face amount of Senior  Subordinated Notes purchased or redeemed) plus (ii)
      an amount  (referred to as the "Additional  Amount") payable in respect of
      any  premium  over  the  face  amount  of the  Senior  Subordinated  Notes
      purchased  or redeemed by it in the open market  (with the payment of such
      Additional  Amount being in all events subject to the terms of clause (iv)
      of Section  4.10),  (c) the permitted  maximum  amount of Revolving  Loans
      which  may be  applied  by the  Borrower  to make  intercompany  loans  to
      Non-U.S.  Subsidiaries to refinance existing Indebtedness of such Non-U.S.
      Subsidiaries,  $40,000,000, which amount shall automatically be reduced to
      $25,000,000  following the sale of Roltra Morse and (d)  guarantees by the
      Borrower of  Indebtedness  of Non-U.S.  Subsidiaries,  in an amount not to
      exceed $20,000,000;  provided,  however, that the sum of clauses (a), (b),
      (c) and (d) above  shall not at any time exceed  $50,000,000  plus (in the
      case of clause (b) only), the Additional Amount.

      SUBPART II.2. Amendment to Article III. Article III of the Existing Credit
Agreement is hereby amended in accordance with Subparts 2.2.1 and 2.2.2.

      SUBPART II.2.1. The first proviso contained in clause (c) of Section 3.1.2
of the Existing  Credit  Agreement is hereby  amended in its entirety to read as
follows:

            (provided,  however, in the case of the disposition of Roltra Morse,
            if the net cash  proceeds  received  from such sale are in excess of
            $15,000,000  (after the  repayment of  outstanding  Indebtedness  of
            Roltra Morse),  then $8,000,000 of such net proceeds shall be deemed
            to be Net Disposition  Proceeds that shall be required to be applied
            as a prepayment of the Term Loans)

      SUBPART II.2.2.  Section 3.1.2 of the Existing Credit Agreement is further
amended by (I) deleting the word "and" at the end of clause (c),  (ii)  changing
clause (d) to become  clause (e) and (iii)  adding a new clause  (d), to read in
its entirety as follows:

            (d) the  Borrower  shall  promptly  (and in any event  within  three
            Business  Days)  following the receipt of Net  Disposition  Proceeds
            from the sale of Roltra  Morse make a  mandatory  prepayment  of the
            outstanding  principal  amount  of  Revolving  Loans  with  such Net
            Disposition Proceeds in excess of $8,000,000; and

      SUBPART II.3.  Amendment to Article IV. Clause (iv) of Section 4.10 of the
Existing  Credit  Agreement and the remaining  portion of such Section is hereby
amended in its entirety to read as follows:


            "(iv) to refinance up to $40,000,000 (or if less than such amount at
            any time, the Permitted  Amount) (the  "Subordinated  Debt Refunding
            Availability") of the Borrower's Senior  Subordinated  Notes through
            redemptions  pursuant to the put  provision  contained in the Senior
            Subordinated  Notes in the event of a Change of Control  (as defined
            therein) or subject to certain conditions,  open market purchases or
            redemptions  in an amount up to the lesser of (A) the then  existing
            Permitted  Amount and (B)  $50,000,000  (which  amount shall only be
            applicable to the face amount of Senior Subordinated Notes purchased
            or redeemed, it being agreed that such amount in this clause (iv)(B)
            may be increased  (subject to the terms of the following proviso) by
            the Additional  Amount);  provided,  that the average purchase price
            paid  pursuant  to any such open  market  purchases  or  redemptions
            (which for purposes of this calculation  shall include both the face
            amount of the Senior  Subordinated  Notes  purchased or redeemed and
            any premium paid over such face amount),  when  aggregated with such
            purchase  price  (and  premium)  paid  for  all  prior  open  market
            purchases and  redemptions  made by the Borrower or another  Obligor
            since the Effective  Date,  shall not exceed 115% of the face amount
            of such Senior  Subordinated Notes previously  purchased or redeemed
            and  then  being  purchased  or  redeemed  (the  "Subordinated  Debt
            Refunding");  provided,  further,  that on a pro forma  basis  after
            giving effect to each  Subordinated Debt Refunding and the aggregate
            amount  of  Revolving  Loans  used to  make  intercompany  loans  to
            Non-U.S. Subsidiaries, the Borrower must maintain availability under
            the  Revolving  Loan  Commitment  of no less  than  $15,000,000  (as
            increased,  Dollar for  Dollar,  by the  amount of the  Governmental
            Refund received by the Borrower or any other Obligor).  The Borrower
            shall  apply  the Term  Loans  to  refinance  the term  loans of the
            Borrower outstanding under the Existing Credit Facility."

      SUBPART II.4. Amendment to Article VII. Article VII of the Existing Credit
Agreement is hereby amended in accordance with Subparts 2.4.1 and 2.4.2.

      SUBPART II.4.1.  Section 7.1.1 of the Existing Credit  Agreement is hereby
amended by (I) deleting the word "and" at the end of clause (j),  (ii)  changing
clause (k) to become  clause (m) and (iii)  adding new  clauses  (k) and (l), to
read as follows:

            "(k)  promptly,  and in any event within one Business Day  following
            receipt,  notify the Administrative  Agent of the receipt and amount
            of the Governmental Refund;

            (l) on the  date of  delivery  of (and  as part  of) the  Compliance
            Certificate  delivered  pursuant to clause (b), a report stating (I)
            the face  amount of such  Senior  Subordinated  Notes  purchased  or
            redeemed  and the premium  (or amount in excess of the face  amount)
            (if any) paid in respect  thereof  during the Fiscal Quarter that is
            covered by such  Compliance  Certificate and (ii) the aggregate face
            amount of all Senior Subordinated Notes purchased or redeemed by the
            Obligors since the Effective Date through the last day of the Fiscal
            Quarter reported on such Compliance Certificate and a calculation of
            the  Additional  Amount from the Effective Date through the last day
            of the Fiscal Quarter reported on such Compliance Certificate; and"

      SUBPART  II.4.2.  Clause  (b) of  Section  7.2.6  of the  Existing  Credit
Agreement is hereby amended in its entirety to read as follows:

            "(b) purchase or redeem Senior  Subordinated  Notes in a face amount
            not in excess  of the  lesser of (I) the  Permitted  Amount  then in
            effect and  (ii)$50,000,000 (in respect of the face amount of Senior
            Subordinated Notes) plus the Additional Amount,  through open market
            purchases or  redemptions  so long as the average  purchase price of
            such Senior  Subordinated  Notes  purchased  or redeemed  remains in
            compliance with clause (iv) of Section 4.10."


                                   PART III
                           CONDITIONS TO EFFECTIVENESS

      SUBPART  III.1.  This  Amendment  shall become  effective on the date (the
"Third Amendment Effective Date") when all of the following conditions have been
satisfied to the satisfaction of the Administrative Agent.

      SUBPART III.1.1. Execution of Counterparts. The Administrative Agent shall
have  received  copies of this  Amendment,  duly  executed and  delivered by the
Borrower, the Parent and the Required Lenders.

      SUBPART III.1.2.  Affirmation and Comment.  The Administrative Agent shall
have received an affirmation  and consent in form and substance  satisfactory to
it, duly executed and delivered by the Parent and each other Guarantor.

      SUBPART III.1.3. Payment of Fees, etc. The Administrative Agent shall have
received evidence  satisfactory to it that all fees and expenses of Mayer, Brown
& Platt arising in connection with the Existing Credit  Agreement have been paid
in full.

      SUBPART  III.1.4.  Satisfactory  Legal  Form.  All  documents  executed or
submitted  pursuant  hereto shall be  satisfactory  in form and substance to the
Administrative  Agent as counsel. The Administrative Agent and its counsel shall
have received all information and such  counterpart  originals or such certified
or other copies or such materials,  as the  Administrative  Agent or its counsel
may  reasonably  request,  and all legal  matters  incident to the  transactions
contemplated  by this  Amendment  shall be  satisfactory  to the  Administrative
Agents and its counsel.


                                     PART IV
                        REPRESENTATIONS AND WARRANTIES

      In order to induce the Lenders to enter into this Amendment,  the Borrower
and the Parent represent and warrant to the  Administrative  Agent,  each Issuer
and each Lender as set forth in this Part.

      SUBPART  IV.1.   Compliance  with  Warranties.   The  representations  and
warranties set forth herein,  in Article VI of the Credit  Agreement and in each
other Loan Document  delivered in connection  herewith or therewith are true and
correct in all  material  respects  with the same effect as if made on and as of
the date hereof  (unless  stated to relate  solely to an earlier  date, in which
case they were true and correct as of such earlier date).

      SUBPART IV.2. Due  Authorization,  Non-Contravention,  etc. The execution,
delivery and performance by the Borrower,  the Parent and the Guarantors of this
Amendment  and  other  documents   delivered  pursuant  hereto  are  within  the
Borrower's,  the Parent's and the Guarantors'  corporate powers,  have been duly
authorized by all necessary  corporate action,  and do not (I) contravene either
the  Borrower's,  the  Parent's  or  the  Guarantors'  Organic  Documents,  (ii)
contravene  or result in a default  under any  contractual  restriction,  law or
governmental  regulation or court decree or order binding on or affecting either
the Borrower,  the Parent or the Guarantors,  or (iii) result in, or require the
creation or imposition of, any Lien (except as contemplated in or created by the
Loan Documents).

      SUBPART IV.3.  Validity,  etc.  This  Amendment has been duly executed and
delivered by the Borrower and the Parent and  constitutes  the legal,  valid and
binding obligation of the Borrower and the Parent enforceable in accordance with
its terms, subject as to enforcement to bankruptcy, insolvency,  reorganization,
moratorium or other similar laws affecting  creditors'  rights  generally and to
general principles of equity,  regardless of whether  enforcement is sought in a
proceeding at law or in equity.

      SUBPART IV.4.  Compliance With Existing Credit Agreement.  As of the Third
Amendment  Effective  Date,  each of the Borrower  and each other  Obligor is in
compliance  with all the terms and conditions of the Existing  Credit  Agreement
and the other Loan  Documents to be observed or performed by it, and both before
and after giving  effect to the terms of this  Amendment no Default has occurred
and is continuing.


                                    PART V
                           MISCELLANEOUS PROVISIONS

      SUBPART  V.1.   Ratification  of  and  Limited  Amendment  to  the  Credit
Agreement.  This  Amendment  shall be deemed to be an  amendment to the Existing
Credit  Agreement,  and the Existing Credit  Agreement,  as amended  hereby,  is
hereby  ratified,  approved and confirmed in each and every  respect.  Except as
specifically  amended or modified  herein,  the Existing Credit  Agreement shall
continue in full force and effect in accordance with the provisions  thereof and
except as expressly set forth herein the provisions  hereof shall not operate as
a waiver of or amendment of any right,  power or privilege of the Administrative
Agent and the Lenders nor shall the entering into of this Amendment preclude the
Lenders  from  refusing  to enter into any  further or future  amendments.  This
Amendment shall be deemed to be a "Loan Document" for all purposes of the Credit
Agreement.

      SUBPART V.2.  Credit  Agreement,  References,  etc. All  references to the
Credit Agreement in any other document,  instrument,  agreement or writing shall
hereafter be deemed to refer to the Existing Credit Agreement as amended hereby.
As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter",
"hereunder", "hereto" and words of similar import shall mean, from and after the
date hereof, the Existing Credit Agreement as amended by this Amendment.

     SUBPART  V.3.  Expenses.  The  Borrower  agrees  to pay  all  out-of-pocket
expenses   incurred  by  the   Administrative   Agent  in  connection  with  the
preparation, negotiation, execution and delivery of this Amendment.

      SUBPART  V.4.  Headings;   Counterparts.  The  various  headings  of  this
Amendment are inserted for convenience  only and shall not affect the meaning or
interpretation of this Amendment or any provisions hereof. This Amendment may be
signed  in any  number  of  separate  counterparts,  each of  which  shall be an
original, and all of which taken together shall constitute one instrument.

      SUBPART V.5.  Governing Law;  Entire  Agreement.  THIS AMENDMENT  SHALL BE
DEEMED TO BE A CONTRACT  MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.  This Amendment  constitutes  the entire  understanding  among the parties
hereto  with  respect to the  subject  matter  hereof and  supersedes  any prior
agreements, written or oral, with respect thereto.

      SUBPART V.6. Loan Document Pursuant to Credit Agreement. This Amendment is
a Loan  Document  executed  pursuant  to  the  Credit  Agreement  and  shall  be
construed,  administered  and  applied in  accordance  with all of the terms and
provisions of the Credit Agreement.

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

                               IMO INDUSTRIES INC.


                              By:    John A. Young
                              Title: Vice President


                              II ACQUISITION CORP.


                              By:    John A. Young
                              Title: Vice President


                              THE BANK OF NOVA SCOTIA


                              By:    James R. trimble
                              Title: Senior Relationship Manager

                              NATIONSBANK, N.A.


                              By:    Chittaranjan D. Swamidasan
                              Title: Vice President

                              THE FIRST NATIONAL BANK OF CHICAGO


                              By:    Amy L. Robbins
                              Title: Vice President

                              FLEET CAPITAL CORPORATION

                              By:    Roland J. Robinson
                              Title: Senior Vice President

                              COMPAGNIE FINANCIERE DE CIC ET DE
                              L'UNION EUROPEENNE


                              By:    Brian O'Leary
                              Title: Vice President

                              By:    Anthony Rock
                              Title: Vice President


                              CRESTAR BANK


                              By:    Christopher B. Werner
                              Title: Vice President

                              DRESDNER BANK AG, NEW YORK AND
                              GRAND CAYMAN BRANCHES


                              By:    Kam Pasha
                              Title: Vice President

                              By:    Anthony Berti
                              Title: Assistant Treasurer

                              TRANSAMERICA BUSINESS CREDIT CORPORATION


                              By:    Steven Fischer
                              Title: Executive Vice President

                              US TRUST


                              By:    Thomas F. Macina
                              Title: Vice President