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Published: 2008-03-26

Agreement and Plan of Merger - BFGoodrich Co. and Coltec Industries Inc.



                               AGREEMENT AND PLAN
                                    OF MERGER
                                   DATED AS OF
                                NOVEMBER 22, 1998
                                      AMONG
                            THE B.F.GOODRICH COMPANY,
                         RUNWAY ACQUISITION CORPORATION
                                       AND
                              COLTEC INDUSTRIES INC







                                TABLE OF CONTENTS



                                    ARTICLE I
                                   THE MERGER
         Section 1.1       The Merger ......................................1
         Section 1.2       Effective Date of the Merger.....................1

                                   ARTICLE II
                            THE SURVIVING CORPORATION

         Section 2.1       Articles of Incorporation and By-Laws............2
         Section 2.2       Board of Directors; Officers.....................2
         Section 2.3       Effects of Merger................................2

                                   ARTICLE III
                              CONVERSION OF SHARES

         Section 3.1       Exchange Ratio...................................2
         Section 3.2       Stock Options....................................2
         Section 3.3       Parent to Make Certificates Available............4
         Section 3.4       Dividends; Transfer Taxes........................4
         Section 3.5       No Fractional Shares.............................5
         Section 3.6       Exchange Agent...................................5
         Section 3.7       Shareholders' Meetings...........................6
         Section 3.8       Closing of the Company's Transfer Books..........6
         Section 3.9       Assistance in Consummation of the Merger.........6
         Section 3.10      Closing..........................................6

                                   ARTICLE IV
                    REPRESENTATIONS AND WARRANTIES OF PARENT

         Section 4.1       Organization and Qualification...................6
         Section 4.2       Capitalization...................................7
         Section 4.3       Subsidiaries.....................................7
         Section 4.4       Authority Relative to this Merger Agreement and 
                           the Cross Stock Option Agreements................8
         Section 4.5       Reports and Financial Statements.................9
         Section 4.6       Absence of Certain Changes or Events.............9
         Section 4.7       Litigation.......................................9
         Section 4.8       Takeover Provisions Inapplicable................10
         Section 4.9       Compliance with Applicable Laws.................10
         Section 4.10      Taxes...........................................10
         Section 4.11      Product Liability; Airworthiness................12
         Section 4.12      Environment.....................................12
         Section 4.13      Accounting; Tax Matters.........................13



                                      - 2 -




         Section 4.14      Parent Action...................................13
         Section 4.15      Lack of Ownership of Company Common Stock.......13
         Section 4.16      Financial Advisor...............................13
         Section 4.17      Fairness Opinion................................14

                                  ARTICLE IV--A
                  REPRESENTATIONS AND WARRANTIES REGARDING SUB

         Section 4A.1      Organization....................................14
         Section 4A.2      Capitalization..................................14
         Section 4A.3      Authority Relative to this Merger Agreement.....14

                                    ARTICLE V
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

         Section 5.1       Organization and Qualification..................15
         Section 5.2       Capitalization..................................15
         Section 5.3       Subsidiaries....................................16
         Section 5.4       Authority Relative to this Merger Agreement
                           and the Cross Stock Option Agreements...........16
         Section 5.5       Reports and Financial Statements................17
         Section 5.6       Absence of Certain Changes or Events............17
         Section 5.7       Litigation......................................18
         Section 5.8       Employee Benefit Plans..........................18
         Section 5.9       Plan Compliance.................................18
         Section 5.10      Takeover Provisions Inapplicable................19
         Section 5.11      Compliance with Applicable Laws.................19
         Section 5.12      Taxes...........................................19
         Section 5.13      Certain Contracts...............................21
         Section 5.14      Patents, Trademark, Etc.........................21
         Section 5.15      Product Liability; Airworthiness................22
         Section 5.16      Environment.....................................22
         Section 5.17      Accounting; Tax Matters.........................22
         Section 5.18      Company Action..................................22
         Section 5.19      Lack of Ownership of Parent Common Stock........23
         Section 5.20      Insurance Coverage..............................23
         Section 5.21      Year 2000.......................................23
         Section 5.22      Financial Advisor...............................23
         Section 5.23      Fairness Opinion................................23

                                   ARTICLE VI
                     CONDUCT OF BUSINESS PENDING THE MERGER

         Section 6.1       Conduct of Business by the Company Pending 
                           the Merger......................................23
         Section 6.2       Conduct of Business by Parent and Sub Pending 
                           the Merger......................................26
         Section 6.3       Notice of Breach................................27

  

                                      - 3 -



 

                                   ARTICLE VII
                              ADDITIONAL AGREEMENTS

         Section 7.1       Access and Information..........................27
         Section 7.2       Registration Statement/Proxy Statement..........27
         Section 7.3       Affiliates, Publication of Combined
                           Financial Results...............................28
         Section 7.4       Stock Exchange Listing..........................29
         Section 7.5       Employment Arrangements.........................29
         Section 7.6       Indemnification.................................29
         Section 7.7       Consents........................................30
         Section 7.8       Additional Agreements...........................30
         Section 7.9       No Solicitation.................................31
         Section 7.10      Accountants Letters.............................32
         Section 7.11      Pooling of Interests............................33
         Section 7.12      Trust Preferred Securities......................33
         Section 7.13      Parent Board of Directors.......................33
         Section 7.14      Post-Merger Operations..........................33
         Section 7.15      Tax Representation Letters......................33
         Section 7.16      Transfer Taxes..................................33

                                  ARTICLE VIII
                              CONDITIONS PRECEDENT

         Section 8.1       Conditions to Each Party's Obligation to
                           Effect the Merger...............................33
         Section 8.2       Conditions to Obligation of the Company
                           to Effect the Merger............................34
         Section 8.3       Conditions to Obligations of Parent and 
                           Sub to Effect the Merger........................35
         Section 8.4       Frustration of Closing Conditions...............35

                                   ARTICLE IX
                        TERMINATION, AMENDMENT AND WAIVER

         Section 9.1       Termination.....................................35
         Section 9.2       Effect of Termination...........................37
         Section 9.3       Amendment.......................................39
         Section 9.4       Waiver..........................................39

                                    ARTICLE X
                               GENERAL PROVISIONS

         Section 10.1      Notices.........................................39
         Section 10.2      Fees and Expenses...............................40
         Section 10.3      Publicity.......................................40
         Section 10.4      Specific Performance............................40



                                      - 4 -





         Section 10.5      Interpretation..................................41
         Section 10.6      Third Party Beneficiaries.......................41
         Section 10.7      Miscellaneous...................................42
         Section 10.8      Cure Period.....................................42
         Section 10.9      Non-Survival of Representations and Warranties..42
         Section 10.10     Validity........................................42



                                      - 5 -






                          AGREEMENT AND PLAN OF MERGER
                          ----------------------------

         THIS AGREEMENT AND PLAN OF MERGER (this "Merger  Agreement"),  dated as
of November 22, 1998, is among The B.F.Goodrich  Company, a New York corporation
("Parent"),  Runway Acquisition  Corporation,  a Pennsylvania  corporation and a
wholly  owned  subsidiary  of Parent  ("Sub"),  and  Coltec  Industries  Inc,  a
Pennsylvania corporation (the "Company").

                                    RECITALS:
                                    --------

         The Boards of Directors of Parent, Sub and the  Company  have  approved
the acquisition of the Company by Parent, to be  accomplished  by  the merger of
Sub  into  the  Company  (the  "Merger"),  upon  the  terms  and  subject to the
conditions set forth below and in accordance with the  Business Corporation  Law
of the Commonwealth of Pennsylvania ("PBCL").  It is intended for federal income
tax purposes that the  Merger  shall  qualify  as a "reorganization"  within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended  (the
"Code"), and that this Merger Agreement shall be a  plan  of  reorganization for
purposes of Section 368 of the Code and,  for  accounting  purposes,  the Merger
shall be a "pooling of interests".

         As a condition and  inducement to entering into this Merger  Agreement,
Parent and the Company have entered  into a stock option  agreement  dated as of
the date hereof  pursuant to which Parent has granted the Company an option with
respect to certain  shares of Parent Common Stock (as defined in Section  3.1(b)
below) (the "Parent Stock Option  Agreement") and a stock option agreement dated
as of the date hereof pursuant to which the Company has granted Parent an option
with  respect to certain  shares of Company  Common Stock (as defined in Section
3.1(b) below) (the "Company Stock Option  Agreement" and,  collectively with the
Parent Stock Option Agreement, the "Cross Stock Option Agreements") on the terms
and subject to the conditions set forth therein.

         NOW,   THEREFORE,  in   consideration   of   the   foregoing   and  the
representations, warranties and agreements set forth below, the parties agree as
follows:

                                    ARTICLE I
                                   THE MERGER

         Section 1.1 The Merger.   Upon  the terms and subject to the conditions
hereof,  on the Effective  Date (as defined below in Section 1.2),  Sub shall be
merged into the Company, the separate corporate existence of Sub shall thereupon
cease, and the Company shall continue  its  corporate existence as the surviving
corporation in the Merger (the "Surviving Corporation").

         Section 1.2   Effective  Date  of  the  Merger. The Merger shall become
effective when properly executed Articles  of  Merger  are  duly  filed with the
Department of State of the Commonwealth of  Pennsylvania,  which filing shall be
made on the date on which the closing of the  transactions  contemplated by this
Merger  Agreement takes place in accordance with Section 3.10. When used in this
Merger Agreement,  the  term "Effective Date" shall  mean  the  date and time at
which  such  filing shall have been made.


                                      - 6 -




                                   ARTICLE II
                            THE SURVIVING CORPORATION

         Section 2.1   Articles  of  Incorporation  and  By-Laws.  The  Articles
of Incorporation and  the  By-Laws  of  Sub in effect  immediately  prior to the
Effective Date shall be the Articles of  Incorporation  and  the  By-Laws of the
Surviving  Corporation  until  amended  in  accordance with  their  terms and as
provided by law.

         Section  2.2  Board  of  Directors;  Officers.  The  directors  of  Sub
immediately prior to the Effective  Date shall be the directors of the Surviving
Corporation  and  the  officers of  Sub  immediately prior to the Effective Date
shall be the officers  of the  Surviving  Corporation,  in each case until their
respective successors are duly elected and qualified.

         Section 2.3   Effects of Merger.  The Merger shall have the effects set
forth in Section 1929 of the PBCL.

                                   ARTICLE III
                              CONVERSION OF SHARES

         Section 3.1   Exchange Ratio.  As of the Effective Date, by  virtue  of
the Merger and without any action on the part of any holder of any capital stock
of the Company, Parent or Sub:

         (a)  All shares of capital  stock of the Company  which are held by the
Company, and  any shares of capital stock of the Company owned by Parent, Sub or
any other subsidiary of Parent, shall be canceled.

         (b)  Subject  to  Section  3.5,  each  remaining  outstanding  share of
common stock, par value $.01 per share,  of the Company ("Company Common Stock")
issued  and  outstanding  immediately  prior  to  the  Effective  Date  shall be
converted into .56 of a share (the "Exchange  Ratio") of common stock, par value
$5 per share, of Parent ("Parent  Common Stock").  One preferred  share purchase
right issuable pursuant to the Rights Agreement dated as of June 2, 1997 between
Parent  and  The  Bank  of  New  York  or  any  other  purchase  right issued in
substitution thereof (the "Parent Rights")  shall  be  issued together with  and
shall  attach  to  each  share  of  Parent  Common Stock issued pursuant to this
Section 3.1(b).

         (c) In the  event of any  change  in  Parent Common Stock by  reason of
stock dividends, splitups, mergers, recapitalizations, combinations, exchange of
shares or the like  after  the date of this  Merger  Agreement  and prior to the
Effective Date, the Exchange Ratio shall be adjusted appropriately.

         (d) Each issued and outstanding share of capital stock of Sub shall be
converted into and become one fully  paid  and  nonassessable  share  of  common
stock, par value $.01 per share, of the Surviving Corporation.



                                      - 7 -





         Section 3.2 Stock  Options.  (a) As soon as  practicable  following the
date of this Merger  Agreement,  the Board of  Directors  of the Company (or, if
appropriate,  any  committee  administering  the Company  Common Stock Plans (as
defined  below)) shall adopt such  resolutions or take such other actions as may
be required to effect the following in accordance  with the terms of the Company
Common Stock Plans:

                          (i)     adjust the terms of all outstanding options to
purchase  shares  of  Company Common Stock (the "Company Stock Options") granted
under any plan or  arrangement  providing  for  the grant of options to purchase
shares of Company  Common  Stock  to  current  or  former  directors,  officers,
employees or  consultants  of  the  Company or its  subsidiaries  (the  "Company
Common Stock  Plans"), whether vested or unvested, as necessary to provide that,
as of the Effective  Date,  each Company Stock  Option  outstanding  immediately
prior to the  Effective  Date  shall be amended  and  converted  into an  option
to  acquire,  on the  same  terms  and conditions as were  applicable  under the
Company  Stock  Option,  the number of shares of  Parent Common  Stock  (rounded
down to the nearest whole share) determined by multiplying  the number of shares
of Company Common Stock  subject to such  Company  Stock Option by the  Exchange
Ratio,  at a price per  share of Parent  Common Stock equal to (A) the  exercise
price for the shares of  Company  Common Stock otherwise purchasable pursuant to
such  Company  Stock  Option  divided  by (B) the  Exchange  Ratio  (each, as so
adjusted, an "Adjusted Option");  provided  that  such  exercise price shall  be
rounded up to the nearest whole cent; and

                           (ii) make such other  changes to the  Company  Common
Stock  Plans  as Parent and the Company may agree are appropriate to give effect
to the Merger.

         (b) The duration and other terms of each  Adjusted  Option shall be the
same as the original  Company  Stock Option from which it was  converted  except
that all  references to the Company in such original  Company Stock Option shall
be deemed to be references to Parent.

         (c) The  adjustments  provided herein with respect to any Company Stock
Options that are "incentive stock options" as defined in Section 422 of the Code
shall be and are  intended to be effected in a manner which is  consistent  with
Section 424(a) of the Code.

         (d) No later than the  Effective  Date,  Parent shall  prepare and file
with the Securities and Exchange  Commission  (the  "Commission") a registration
statement  on Form S-8 (or another  appropriate  form),  which  shall  include a
re-offer prospectus, registering a number of shares of Parent Common Stock equal
to the  number of shares  subject to the  Adjusted  Options.  Such  registration
statement  shall  be kept  effective  (and the  current  status  of the  initial
offering  prospectus or  prospectuses  required  thereby shall be maintained) at
least for so long as any Adjusted Options remain outstanding.

         (e) As soon as  practicable  after the  Effective  Date,  Parent  shall
deliver to the holders of Company  Stock  Options  appropriate  notices  setting
forth such holders' rights pursuant to the respective Company Common Stock Plans
and the agreements  evidencing the grants of such Company Stock Options and that
such Company Stock Options and  agreements  shall be assumed by Parent and shall
continue in effect on the same terms and conditions  (subject to the adjustments
required by this Section 3.2 after giving effect to the Merger).


                                      - 8 -





         (f) A holder of an Adjusted Option may exercise such Adjusted Option in
whole or in part in accordance with its terms by delivering a properly  executed
notice of exercise to Parent,  together with the consideration  therefor and any
required federal withholding tax information and payment.

         (g) Except as otherwise  contemplated by this Section 3.2 and except to
the extent  required under the respective  terms of the Company Stock Options or
other  applicable  agreements,  all  restrictions or limitations on transfer and
vesting with respect to Company Stock Options  awarded under the Company  Common
Stock Plans or any other plan,  program or  arrangement  of the Company,  to the
extent that such restrictions or limitations shall not have lapsed, shall remain
in full force and effect with respect to such options after giving effect to the
Merger and the assumption by Parent as set forth above.

         (h) Parent  shall use all  reasonable  best  efforts to  implement  the
provisions of this Section 3.2.

         Section 3.3  Parent  to  Make  Certificates  Available.  Prior  to  the
Effective Date, Parent shall select The  Bank of New York or such  other  person
or  persons reasonably satisfactory  to the Company to act as Exchange Agent for
the  Merger  (the "Exchange Agent").  As soon as practicable after the Effective
Date, Parent shall deposit, or cause to be deposited, with the  Exchange  Agent,
for the benefit of the holders of  certificates  representing  shares of Company
Common Stock (each, a "Certificate"), and each holder of Company Common Stock to
be converted pursuant to Section 3.1 (each, a "Company Holder") will be entitled
to receive, upon surrender to the Exchange Agent of one or more Certificates for
cancellation,  certificates  representing  the number of shares of Parent Common
Stock and cash in lieu of  fractional  shares into which such  Company  Holder's
shares of  Company  Common  Stock have been  converted  in the  Merger,  and any
dividends or other  distributions  with respect to such shares of Parent  Common
Stock with a record date after the Effective  Date. Such shares of Parent Common
Stock  issued in the  Merger  shall  each be  deemed to have been  issued at the
Effective Date.

         Section  3.4  Dividends;   Transfer  Taxes.    No  dividends  or  other
distributions  that  are  declared or made on Parent Common Stock  with a record
date   after   the   Effective  Date  shall  be  paid  to  persons  entitled  to
receive  certificates representing  Parent Common  Stock pursuant to this Merger
Agreement until such persons surrender their Certificates.  Upon such surrender,
there shall be paid to the person in whose name  the  certificates  representing
such Parent  Common Stock  shall be  issued any dividends or other distributions
which shall have become payable with respect to such  Parent Common Stock with a
record date after the Effective  Date,  and,  at  the  appropriate payment date,
there shall  be  paid  to  such  person  the  amount  of  any dividends or other
distributions payable with respect to such shares of Parent Common Stock  with a
record  date after the Effective Date and a payment  date occurring  after  such
surrender.  In no event shall the person  entitled  to receive such dividends or
other  distributions be entitled to receive  interest on such dividends or other
distributions.  In  the  event  that any  certificates  for any shares of Parent
Common  Stock  are  to  be  issued  in  a  name  other  than  that  in which the
Certificates  surrendered  in  exchange  therefor are registered,  it shall be a
condition  of  such  exchange that the person requesting such exchange shall pay


                                      - 9 -





to the Exchange Agent  any  transfer or other taxes  required  by reason of  the
issuance of certificates  for such shares of Parent Common Stock in a name other
than that of the registered  holder  of  the Certificate  surrendered,  or shall
establish to the  satisfaction of the Exchange Agent that such tax has been paid
or is not applicable.  In the event any Certificate shall have been lost, stolen
or destroyed,  upon  the  making  of  an  affidavit  of  that fact by the person
claiming  such  Certificate  to  have  been  lost, stolen  or  destroyed and, if
required by Parent,  the  posting  by  such  person  of a bond in such amount as
Parent may  determine  is  reasonably  necessary  as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
shall issue in exchange for such  lost,  stolen  or  destroyed  Certificate  the
shares of Parent Common  Stock,  any cash in lieu of fractional  shares  and any
dividends or other distributions deliverable in respect thereof pursuant to this
Article III.  Notwithstanding  the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a Company Holder for any shares of Parent Common
Stock or dividends thereon delivered to a public official pursuant to any
applicable escheat laws. 

Section 3.5 No Fractional  Shares.  No certificates or scrip  representing  less
than one whole share of Parent  Common  Stock  shall be issued  pursuant to this
Merger Agreement.  In lieu of any such fractional share, each Company Holder who
would  otherwise  have been  entitled to a fraction of a share of Parent  Common
Stock shall be paid cash  (without  interest) in an amount equal to such Company
Holder's  proportionate  interest in the net proceeds  from the sale or sales in
the open market by the Exchange Agent, on behalf of all such Company Holders, of
the aggregate  fractional  shares of Parent Common Stock issued pursuant to this
Section 3.5. As soon as practicable  following the Effective  Date, the Exchange
Agent shall  determine  the excess of (i) the number of shares of Parent  Common
Stock  delivered to the Exchange Agent by Parent over (ii) the aggregate  number
of whole shares of Parent Common Stock to be distributed to the Company  Holders
(such excess being herein called the "Excess  Shares"),  and the Exchange Agent,
as  agent  for  the  Company  Holders,  shall  sell  the  Excess  Shares  at the
then-prevailing  prices on the New York Stock Exchange (the "NYSE"). The sale of
the Excess  Shares by the  Exchange  Agent shall be executed on the NYSE through
one or more member  firms of the NYSE and shall be executed in round lots to the
extent  practicable.  The Exchange  Agent shall use its best efforts to complete
the sale of the Excess Shares as promptly  following  the Effective  Date as, in
the Exchange Agent's sole judgment, is practicable consistent with obtaining the
best execution of such sales in light of prevailing  market  conditions.  Parent
shall pay all commissions,  transfer taxes and other  out-of-pocket  transaction
costs,  including the expenses and compensation of the Exchange Agent,  incurred
in  connection  with such sale of the Excess  Shares.  Until the net proceeds of
such sale have been distributed to the Company Holders, the Exchange Agent shall
hold such  proceeds in trust for the  Company  Holders.  As soon as  practicable
after the  determination of the amount of cash to be paid to the Company Holders
in lieu of any  fractional  share  interests,  the  Exchange  Agent  shall  make
available in accordance with this Merger  Agreement such amounts to such Company
Holders.  The  fractional  Parent Common Stock  interests of each Company Holder
will be  aggregated,  and no Company Holder will receive cash in an amount equal
to or greater than the value of one whole share of Parent Common Stock.



                                      - 10 -





         Section  3.6  Exchange  Agent.  Parent  shall use all  reasonable  best
efforts to cause the  Exchange  Agent to take all steps and  perform all actions
necessary to fulfill the Exchange Agent's  responsibilities as set forth in this
Article III.

Section 3.7 Shareholders'  Meetings.  (a) Subject to Sections 7.9(b), 7.9(c) and
9.1(j),  the  Company  shall  take all  action  necessary,  in  accordance  with
applicable  law and its  Amended and  Restated  Articles  of  Incorporation  and
Amended  and  Restated  By-Laws,  to convene a meeting of the holders of Company
Common Stock (the "Company  Meeting") as promptly as practicable for the purpose
of considering and taking action upon this Merger Agreement. Subject to Sections
7.9(b), 7.9(c) and 9.1(j),  the Board of Directors of the Company will recommend
that holders of Company Common Stock vote in favor of and approve the Merger and
the adoption of this Merger Agreement at the Company Meeting.

(b) Subject to Sections 7.9(b),  7.9(c) and 9.1(k), Parent shall take all action
necessary,  in accordance  with  applicable law and its Restated  Certificate of
Incorporation and By-Laws,  to convene a meeting of the holders of Parent Common
Stock (the  "Parent  Meeting")  as  promptly as  practicable  for the purpose of
considering  and acting  upon a proposal  (the  "Stock  Issuance  Proposal")  to
approve the issuance of shares of Parent Common Stock as provided by this Merger
Agreement. Subject to Sections 7.9(b), 7.9(c) and 9.1(k), the Board of Directors
of Parent will  recommend  that  holders of Parent Common Stock vote in favor of
and approve the Stock Issuance Proposal at the Parent Meeting.

Section 3.8 Closing of the Company's  Transfer Books. At the Effective Date, the
stock  transfer  books of the  Company  shall be closed and no  transfer  of any
shares of Company  Common  Stock  shall be made  thereafter.  In the event that,
after  the  Effective  Date,   Certificates   are  presented  to  the  Surviving
Corporation,  they shall be canceled and exchanged for the  securities of Parent
and/or cash as provided in Sections 3.1(b) and 3.5.

Section 3.9 Assistance in  Consummation of the Merger.  Each of Parent,  Sub and
the Company  shall provide all  reasonable  assistance  to, and shall  cooperate
with,  each  other to bring  about  the  consummation  of the  Merger as soon as
possible in accordance with the terms and conditions of this Merger Agreement.

Section  3.10  Closing.  The closing of the  transactions  contemplated  by this
Merger  Agreement  shall  take place (i) at the  offices  of  Squire,  Sanders & Dempsey L.L.P., 4900 Key Tower, 127 Public Square,  Cleveland,  Ohio 44114-1304,
at 9:00 A.M.  local time on the second  business  day after the day on which the
last of the  conditions set forth in Article VIII is fulfilled or waived or (ii)
at such other time and place as Parent and the Company shall agree in writing.

                                   ARTICLE IV
                    REPRESENTATIONS AND WARRANTIES OF PARENT

Parent  represents  and  warrants  to the  Company,  except  as set  forth  in a
disclosure  schedule  delivered  by Parent  concurrently  herewith  (the "Parent
Disclosure Schedule"), as follows:



                                      - 11 -





Section  4.1  Organization  and  Qualification.  Parent  is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
New York and has the corporate power to carry on its business as it is now being
conducted or currently  proposed to be conducted.  Parent is duly qualified as a
foreign  corporation  to  do  business,   and  is  in  good  standing,  in  each
jurisdiction  where the character of its properties owned or held under lease or
the nature of its activities makes such  qualification  necessary,  except where
the  failure to be so  qualified  would not have a Material  Adverse  Effect (as
defined in Section 10.5(b) below) on Parent.  Complete and correct copies of the
Restated  Certificate of Incorporation and By-Laws of Parent as in effect on the
date  hereof are  included  in the Parent SEC Reports (as defined in Section 4.5
below).

Section 4.2  Capitalization.  The authorized capital stock of Parent consists of
200,000,000  shares  of Parent  Common  Stock  and  10,000,000  shares of Series
Preferred  Stock,  par  value $1 per share  ("Parent  Preferred  Stock").  As of
November 18, 1998,  74,334,732 shares of Parent Common Stock were validly issued
and  outstanding,  fully paid and  nonassessable  and 1,845,919 shares of Parent
Common Stock were held in treasury. As of November 18, 1998, no shares of Parent
Preferred Stock were issued and outstanding. As of November 18, 1998, except for
employee stock options to acquire  4,098,764  shares of Parent Common Stock at a
weighted average exercise price of $33.68 per share and the Parent Rights, there
were no options,  warrants,  calls or other rights,  agreements  or  commitments
outstanding  obligating  Parent to issue,  deliver or sell shares of its capital
stock or debt securities,  or obligating  Parent to grant,  extend or enter into
any such option,  warrant,  call or other such right,  agreement or  commitment.
Except for the issuance of shares of Parent  Common  Stock  pursuant to employee
stock options to acquire Parent Common Stock and as provided in the Parent Stock
Option  Agreement,  during the period from  November  18, 1998  through the date
hereof,  no shares of Parent  Common Stock or Parent  Preferred  Stock have been
issued and Parent has not entered  into any  options,  warrants,  calls or other
rights,  agreements or commitments  obligating Parent to issue,  deliver or sell
shares of its capital stock or debt securities,  or obligating  Parent to grant,
extend  or enter  into any  such  option,  warrant,  call or other  such  right,
agreement or  commitment.  All of the shares of Parent Common Stock  issuable in
accordance with this Merger Agreement in exchange for Company Common Stock as of
the  Effective  Date are duly  authorized  and will be, when so issued,  validly
issued, fully paid and nonassessable.

         Section 4.3 Subsidiaries.  Each "significant  subsidiary" (as such term
is  defined  in Rule 1-02 of  Regulation  S-X of the  Commission)  ("Significant
Subsidiary") of Parent is a corporation duly organized,  validly existing and in
good standing under the laws of its  jurisdiction of  incorporation  and has the
corporate  power  to carry  on its  business  as it is now  being  conducted  or
currently  proposed to be conducted.  Each  Significant  Subsidiary of Parent is
duly qualified as a foreign corporation to do business, and is in good standing,
in each  jurisdiction  where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary, except
where  failure to be so qualified  would not have a Material  Adverse  Effect on
Parent.  All the  outstanding  shares  of  capital  stock  of  each  Significant
Subsidiary of Parent are validly issued,  fully paid and nonassessable and those
owned by Parent or by a  subsidiary  of Parent  are owned  free and clear of any
liens, claims or encumbrances. There are no existing options, warrants, calls or



                                      - 12 -




other rights,  agreements or commitments of any character relating to the issued
or  unissued  capital  stock  or  other  securities  of any  of the  Significant
Subsidiaries  of Parent.  Except as set forth in Parent's  Annual Report on Form
10-K for the fiscal year ended  December 31,  1997,  Parent does not directly or
indirectly own any interest in any other corporation, partnership, joint venture
or other  business  association  or entity  which is  material to Parent and its
subsidiaries taken as a whole.

Section 4.4  Authority  Relative to this  Merger  Agreement  and the Cross Stock
Option  Agreements.  Parent has the  corporate  power to enter into this  Merger
Agreement and the Cross Stock Option Agreements and to carry out its obligations
hereunder and  thereunder.  The execution and delivery of this Merger  Agreement
and the Cross Stock Option  Agreements and the  consummation of the transactions
contemplated  hereby and thereby have been duly  authorized by Parent's Board of
Directors.  This Merger  Agreement  and the Cross Stock Option  Agreements  each
constitute a valid and binding  obligation of Parent  enforceable  in accordance
with its terms  except as the same may be  limited  by  bankruptcy,  insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws relating
to or affecting the  enforcement  of  creditors'  rights  generally,  by general
equitable  principles  (regardless of whether  enforceability is considered in a
proceeding  in equity or at law) and by an  implied  covenant  of good faith and
fair dealing. No other corporate proceedings on the part of Parent are necessary
to authorize this Merger Agreement or the Cross Stock Option  Agreements and the
transactions  contemplated  hereby or  thereby,  other than the  approval of the
Stock  Issuance  Proposal by the holders of Parent  Common Stock,  which,  under
applicable  rules and regulations of the NYSE currently in effect,  will require
the Stock  Issuance  Proposal to receive the approval of a majority of the votes
cast thereon (provided that the total vote cast thereon  represents greater than
50% in interest of all Parent  securities  entitled to vote thereon).  Parent is
not subject to or  obligated  under (i) any charter or by-law  provision or (ii)
any  provision  of any  indenture  or other  loan  document  or other  contract,
license,  franchise,  permit,  order,  decree,  concession,  lease,  instrument,
judgment,  statute,  law, ordinance,  rule or regulation applicable to Parent or
any of its subsidiaries or their respective properties or assets, which would be
breached or violated,  or under which there would be a default  (with or without
notice or lapse of time,  or both),  or under which there would arise a right of
termination,  cancellation  or  acceleration  of any obligation or the loss of a
material benefit, by its executing and carrying out this Merger Agreement or the
Cross Stock Option  Agreements  other than, in the case of clause (ii) only, (x)
the laws and regulations referred to in the next sentence and (y) such breaches,
violations,  defaults,  rights of termination,  cancellations,  accelerations or
losses of a material benefit which would not,  individually or in the aggregate,
have a Material  Adverse  Effect on Parent.  Except as  referred to herein or in
connection,  or in  compliance,  with the  provisions  of the  Hart-Scott-Rodino
Antitrust  Improvements Act of 1976, as amended (the "HSR Act"), the Competition
Act (Canada), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities  Exchange Act of 1934,  as amended (the  "Exchange  Act"),  and other
governmental  approvals  required  under  the  applicable  laws  of any  foreign
jurisdiction and the applicable environmental,  corporation,  securities or blue
sky  laws  or  regulations  of the  various  states  ("Applicable  State  Laws")
(collectively,   the  "Parent  Required  Consents"),  no  filing  by  Parent  or
registration by Parent with any  Governmental  Entity (as defined in Section 4.9
below) is necessary  for, nor is any  authorization,  consent or approval of any
Governmental  Entity required to be obtained by Parent for, the  consummation of



                                      - 13 -




the Merger or the other transactions contemplated by this Merger Agreement or by
the Cross  Stock  Option  Agreements  except  for such  filings,  registrations,
authorizations,  consents or  approvals,  the failure of which to obtain or make
would not,  individually or in the aggregate,  have a Material Adverse Effect on
Parent; provided that Parent makes no representation or warranty with respect to
such of the foregoing as are required by reason of the regulatory  status of the
Company or any of its subsidiaries or facts specifically pertaining to them.

Section 4.5 Reports and Financial  Statements.  Since December 31, 1996,  Parent
has timely filed all registration statements,  prospectuses,  forms, reports and
documents  that Parent was required to file with the  Commission  (collectively,
the "Parent SEC Reports").  As of their respective dates, the Parent SEC Reports
complied in all material respects with the requirements of the Securities Act or
the  Exchange  Act,  as the case may be,  and the rules and  regulations  of the
Commission  thereunder  applicable  to such  Parent  SEC  Reports.  As of  their
respective dates, the Parent SEC Reports did not contain any untrue statement of
a material fact or omit to state a material  fact required to be stated  therein
or necessary to make the statements therein, in light of the circumstances under
which  they were  made,  not  misleading.  The  audited  consolidated  financial
statements and unaudited interim financial  statements of Parent included in the
Parent SEC Reports comply in all material  respects with  applicable  accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, and the financial statements included in the Parent SEC Reports
have  been  prepared  in  accordance  with  United  States  generally   accepted
accounting  principles  ("GAAP") applied on a consistent basis (except as may be
indicated therein or in the notes thereto or, in the case of unaudited financial
statements, as permitted by Form 10-Q under the Exchange Act) and fairly present
the financial  position of Parent and its  subsidiaries  as at the dates thereof
and the results of their  operations  and changes in financial  position for the
periods  then  ended,  subject,  in the  case  of  unaudited  interim  financial
statements,  to normal  year-end  audit  adjustments  and any other  adjustments
described therein.

Section 4.6 Absence of Certain  Changes or Events.  Except as  disclosed  in the
Parent SEC Reports filed prior to the date of this Merger Agreement ("Previously
Filed Parent SEC Reports"), since September 30, 1998, there has not been (i) any
event,  condition,  transaction,   commitment,  dispute  or  other  circumstance
(financial or otherwise) of any character (whether or not in the ordinary course
of  business),  which,  individually  or in the  aggregate,  has had a  Material
Adverse Effect on Parent;  (ii) any damage,  destruction or loss, whether or not
covered  by  insurance,  which,  individually  or in the  aggregate,  has  had a
Material  Adverse  Effect on Parent;  (iii) any  declaration,  setting  aside or
payment  of any  dividend  or other  distribution  (whether  in  cash,  stock or
property)  with  respect to the capital  stock of Parent  (except for  regularly
scheduled cash dividends out of current  earnings at a rate not greater than the
rate in effect on  September  30,  1998);  or (iv) any  entry  into any  legally
binding commitment or transaction  material to Parent and its subsidiaries taken
as a whole  (including any material  borrowing or material sale of assets) other
than  this  Merger  Agreement,   the  Cross  Stock  Option  Agreements  and  the
transactions contemplated hereby and thereby.

         Section 4.7  Litigation.  Except as disclosed in the  Previously  Filed
Parent SEC Reports,  there is no suit,  action or proceeding  pending or, to the
knowledge  of  Parent,  threatened  against  or  affecting  Parent or any of its
subsidiaries  which  would,  individually  or in the  aggregate,  be  reasonably
expected to have a Material Adverse Effect on Parent, nor is there any judgment,
decree,  injunction,  rule or order of any  Governmental  Entity  or  arbitrator
outstanding against Parent or any of its subsidiaries which would,  individually
or in the aggregate, have a Material Adverse Effect on Parent.



                                      - 14 -





Section 4.8 Takeover Provisions  Inapplicable.  As of the date hereof and at all
times thereafter, until and including the Effective Date, Section 912 of the New
York Business Corporation Law (the "NYBCL") and the Parent Rights are, and shall
be, inapplicable to the Merger and the transactions  contemplated by this Merger
Agreement.

         Section  4.9  Compliance  with  Applicable  Laws.  (i)  Parent  and its
subsidiaries hold all material permits, licenses, variances,  exemptions, orders
and approvals (the "Parent  Permits") of all applicable  courts,  administrative
agencies or commissions or other governmental  authorities or instrumentalities,
domestic or foreign (each, a "Governmental  Entity"),  necessary in all material
respects for the  operation of the  businesses  of Parent and its  subsidiaries;
(ii) Parent and its  subsidiaries are in compliance with the terms of the Parent
Permits in all material  respects;  (iii) except as disclosed in the  Previously
Filed Parent SEC Reports,  the businesses of Parent and its subsidiaries are not
being  conducted  in  violation  of any  law,  ordinance  or  regulation  of any
Governmental  Entity except for such violations that would not,  individually or
in the  aggregate,  have a  Material  Adverse  Effect  on  Parent;  and  (iv) no
investigation or review by any Governmental Entity with respect to Parent or any
of its subsidiaries is pending, or, to the knowledge of Parent,  threatened, nor
has any  Governmental  Entity  indicated an intention to conduct the same except
for such  investigations  or  reviews  that would  not,  individually  or in the
aggregate,  be reasonably  expected to have a Material Adverse Effect on Parent.
No  representation or warranty is made in this Section 4.9 with respect to Taxes
(as defined in Section 4.10  below),  product  liability  and  airworthiness  or
Environmental  Laws (as defined in Section  4.12 below),  which  matters are the
subject of Sections 4.10, 4.11 and 4.12, respectively.

Section 4.10 Taxes. (a) Parent and its subsidiaries  have (i) filed or caused to
be  filed  all Tax  Returns  (as  defined  below)  required  to be  filed by any
jurisdiction  to which  any of them is  subject,  (ii)  paid in full on a timely
basis all Taxes due and claimed to be due by each such  jurisdiction,  and (iii)
duly  collected or withheld  and timely paid all Taxes  required to be collected
from others or deducted  and  withheld  from any amounts  paid to  employees  or
others,  except to the extent any failure to file,  pay or  withhold  would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Such
Tax Returns are accurate and  complete in all material  respects and  accurately
reflect  the  Tax  liabilities  for  such  periods,  except  to the  extent  any
inaccuracies  in  any  such  Tax  Returns  would  not,  individually  or in  the
aggregate,  have a Material  Adverse  Effect on  Parent.  No Tax  deficiency  or
penalty has been asserted or threatened by any such jurisdiction  against Parent
or any of its  subsidiaries,  except  to the  extent  any such  deficiencies  or
penalties,  individually or in the aggregate,  have not had and would not have a
Material Adverse Effect on Parent.

(b) To the knowledge of Parent,  there is no audit of any material Tax Return of
Parent or any of its  subsidiaries in progress,  there is no threatened  action,
suit,  proceeding,  investigation,  audit,  or claim for or relating to material
Taxes, there are no matters under discussion with any Governmental Entities with
respect to material Taxes that could result in an additional  amount of material
Taxes being payable by Parent or any of its  subsidiaries,  and no  Governmental
Entity has indicated  that it intends to audit any material Tax Return of Parent
or any of its subsidiaries.



                                      - 15 -





(c)  Neither  Parent nor any of its  subsidiaries  (i) has waived any statute of
limitations  with respect to Tax  obligations or agreed to any extension of time
with respect to a Tax  assessment or  deficiency,  except to the extent any such
Tax  obligation,  assessment or  deficiency  would not,  individually  or in the
aggregate,  have a Material Adverse Effect on Parent, (ii) is a party to any Tax
allocation or sharing agreement,  (iii) has been a member of an affiliated group
(other than the affiliated  group of which Parent is the common parent) filing a
consolidated  federal income tax return,  nor is liable for material Taxes of an
affiliated  group (other than the affiliated group of which Parent is the common
parent)  under  Section  1.1502-6 of the  Treasury  Regulations  (or any similar
provision  of  state,  local or  foreign  law),  including  as a  transferee  or
successor, by contract or otherwise, or (iv) is currently the beneficiary of any
extensions of time within which to file any Tax Return.

(d) The earliest  taxable  period of Parent and its  subsidiaries  for which the
statute of limitations for federal,  state,  local and foreign Tax Returns filed
by Parent is still open is the calendar year 1986.

         (e) Neither Parent nor any of its subsidiaries has been a United States
real property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section  897(c)(1)(A)(ii)  of the
Code.

         (f)  Neither  Parent  nor any of its  subsidiaries  (i) has  agreed  or
consented at any time under Section 341(f) of the Code to have the provisions of
Section  341(f)(2) of the Code apply to any disposition of any assets,  (ii) has
agreed, or is required,  to make any adjustment under Section 481(a) of the Code
by reason of a change in  accounting  method or  otherwise  that will affect the
liability  of the  Company  or its  subsidiaries  for  Taxes,  (iii) has made an
election, or is required, to treat any asset as owned by another person pursuant
to the  provisions  of  Section  168(f)  of the  Code,  (iv) has made any of the
foregoing elections or is required to apply any of the foregoing rules under any
comparable  state or local tax provision,  or (v) owns any material  assets that
were  financed  directly or  indirectly  with,  or that  directly or  indirectly
secure,  debt the interest on which is tax-exempt  under  Section  103(a) of the
Code.

         (g)  The  transaction  contemplated  herein,  either  by  itself  or in
conjunction  with any other  transactions  that Parent may have  entered into or
agreed to, will not give rise to any federal income tax liability  under section
355(e) of the Code for which Parent may in any way be held liable.

         (h) Parent is not a party to any "Gain Recognition  Agreements" as such
term is used in the Treasury  Regulations  promulgated  under Section 367 of the
Code.

(i) Neither Parent nor any of its  subsidiaries  has made or become obligated to
make, nor will the Company,  Parent, Sub, or any of Parent's other subsidiaries,
as a result of any event  connected  with any  transaction  contemplated  herein
and/or any termination of employment  related to any such  transaction,  make or
become  obligated to make (with  respect to any employee of Parent or any of its
subsidiaries), any "excess parachute payment", as defined in Section 280G of the
Code, to any employee of Parent or any of its subsidiaries.



                                      - 16 -





(j) There are no material liens for Taxes (other than for current Taxes that are
not yet due and payable or are being contested in good faith) upon the assets of
Parent or any of its subsidiaries.

         (k) Parent has no excess loss account,  as such term is used in Section
1.1502-19  of  the  Treasury  Regulations,  with  respect  to the  stock  of any
subsidiary.

(l) The unpaid  Taxes of Parent  and its  subsidiaries  did not,  as of the most
recent  fiscal  month end prior to the date  hereof,  exceed the reserve for Tax
liability (not  including any reserve for deferred Taxes  established to reflect
timing  differences  between  book and Tax  income) set forth on the face of the
most recent  balance sheet (other than in any notes  thereto) that has been made
available to the Company.

(m) For  purposes of this  Merger  Agreement,  the term "Tax" shall  include all
federal,  state, local and foreign income, profits,  franchise,  gross receipts,
payroll, sales, employment, use, property,  withholding, excise and other taxes,
duties and  assessments  of any nature  whatsoever  together  with all interest,
penalties and additions imposed with respect to such amounts.

(n) For  purposes  of this Merger  Agreement,  the term "Tax  Return"  means any
return,  declaration,  report,  claim  for  refund,  or  information  return  or
statement relating to Taxes, including any schedule or attachment, and including
any amendment thereof.

Section 4.11 Product  Liability;  Airworthiness.  (a) Parent has no knowledge of
any claim, or the basis for any claim, against Parent or any of its subsidiaries
for injury to person or property of employees or any third parties suffered as a
result of the sale of any product or performance of any service by Parent or any
of its  subsidiaries,  including  claims  arising out of the defective or unsafe
nature of its products or services,  which claim would,  individually  or in the
aggregate, be reasonably expected to have a Material Adverse Effect on Parent.

(b) To the knowledge of Parent, all goods and services designed, manufactured or
sold by Parent or any of its  subsidiaries  comply with all laws,  requirements,
specifications, rules and regulations related to airworthiness of all applicable
Governmental  Entities and none of such products or services contain any defects
in  manufacturing,  design or  performance  or other defect  which  renders such
products  or   services  or  any   component   thereof   defective,   deficient,
nonconforming  or  unsuitable  for their  intended use except to the extent that
such failures to comply or defects would not,  individually or in the aggregate,
have a Material  Adverse  Effect on Parent.  There is no publicly  and  formally
announced rule or regulation by any Governmental  Entity of the United States or
any state  thereof  that could  reasonably  be  expected  to affect the  various
airworthiness approvals,  licenses,  permits or certifications applicable to the
goods, services, assets, facilities or operations of Parent and its subsidiaries
except to the extent that such rules or regulations  would not,  individually or
in the aggregate, have a Material Adverse Effect on Parent.



                                      - 17 -





Section 4.12  Environment.  (a) As used herein,  the term  "Environmental  Laws"
means all  applicable  federal,  state,  local or  foreign  laws and  common law
relating to  pollution  or  protection  of health,  safety,  or the  environment
(including  pollution or protection of ambient air, surface water,  groundwater,
land surface,  subsurface strata,  natural resources,  humans and other life and
ecosystems),  including  laws  relating to  emissions,  discharges,  releases or
threatened  releases  of  chemicals,  pollutants,   contaminants,  or  toxic  or
hazardous  substances or wastes into the environment,  or otherwise  relating to
the manufacture,  import,  processing,  distribution,  use, treatment,  storage,
disposal, transport or handling of chemicals, pollutants, contaminants, or toxic
or hazardous  substances or wastes  (including the  Comprehensive  Environmental
Response,  Compensation,  and  Liability Act of 1980,  as amended  (CERCLA),  42
U.S.C.  ss.ss.  9601 et seq.,  the Resource  Conservation  and Recovery  Act, as
amended (RCRA), 42 U.S.C. ss.ss. 6901 et seq., the Clean Air Act, as amended, 42
U.S.C. ss.ss. 7401 et seq., the Federal Water Pollution Control Act, as amended,
33 U.S.C.  ss.ss. 1251 et seq., and the Toxic Substances Control Act, as amended
(TSCA),   15  U.S.C.   ss.ss.  2601  et  seq.),  as  well  as  all  regulations,
requirements,  authorizations,  codes,  standards,  demands  or demand  letters,
injunctions,  judgments,  licenses,  notices or notice letters, orders, decrees,
permits, or plans issued, entered, promulgated or approved thereunder.

(b) To the  knowledge of Parent,  except as disclosed  in the  Previously  Filed
Parent  SEC  Reports,   there  are,  with  respect  to  Parent  or  any  of  its
subsidiaries,  no past or present violations of Environmental  Laws, releases or
threatened  releases  of  any  material  into  the  environment  or  contractual
obligations which may reasonably be expected to give rise to any liability under
any Environmental Laws and which would, individually or in the aggregate, have a
Material Adverse Effect on Parent.

Section 4.13 Accounting;  Tax Matters. Neither Parent nor, to its knowledge, any
of its  affiliates,  has,  through the date hereof,  taken or agreed to take any
action  nor do they  have  any  knowledge  of any fact or  circumstance  that is
reasonably  likely to  prevent  (i)  Parent  from  accounting  for the  business
combination to be effected by the Merger as a "pooling of interests" or (ii) the
Merger from  qualifying  for federal  income tax purposes as a  "reorganization"
within the meaning of Section 368 (a) of the Code.

Section 4.14 Parent Action.  The Board of Directors of Parent (at a meeting duly
called and held) has by the requisite vote of directors  determined to recommend
the  approval of the Stock  Issuance  Proposal  by the holders of Parent  Common
Stock  and  directed  that  the  Stock   Issuance   Proposal  be  submitted  for
consideration  by Parent's  shareholders  entitled to vote thereon at the Parent
Meeting.

         Section 4.15 Lack of Ownership of Company Common Stock.  Neither Parent
nor any of its  subsidiaries  owns any shares of Company  Common  Stock or other
securities  convertible  into shares of Company  Common Stock  (exclusive of any
shares owned by any Parent Benefit Plan).


                                      - 18 -





Section 4.16 Financial  Advisor.  Except for Morgan Stanley & Co.  Incorporated,
financial advisor to Parent, no broker,  finder or investment banker is entitled
to any  brokerage,  finder's or other fee or commission  in connection  with the
Merger or the  transactions  contemplated  by this Merger  Agreement  based upon
arrangements  made by or on behalf  of  Parent,  and the fees and other  amounts
payable to Morgan Stanley & Co.  Incorporated  as  contemplated  by this Section
4.16 will be as provided in that certain  letter  agreement,  dated  October 22,
1998, from Morgan Stanley & Co. Incorporated to Parent.

Section 4.17 Fairness Opinion. Parent has received the opinion of Morgan Stanley
& Co.  Incorporated,  financial advisor to Parent, dated the date hereof, to the
effect that, as of the date hereof,  the Exchange  Ratio  pursuant to the Merger
Agreement is fair from a financial point of view to Parent.

                                  ARTICLE IV-A

                 REPRESENTATIONS AND WARRANTIES RELATING TO SUB

Parent and Sub,  jointly and severally,  represent and warrant to the Company as
follows:

Section 4A.1 Organization. Sub is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Pennsylvania. Sub has
not engaged in any business (other than certain organizational matters) since it
was incorporated.

Section 4A.2  Capitalization.  The  authorized  capital stock of Sub consists of
1,000 shares of common stock, par value $1 per share,  1,000 shares of which are
validly issued and outstanding,  fully paid and  nonassessable  and are owned by
Parent free and clear of all liens, claims and encumbrances.

Section 4A.3 Authority Relative to this Merger Agreement.  Sub has the corporate
power to enter  into this  Merger  Agreement  and to carry  out its  obligations
hereunder.  The  execution  and  delivery  of  this  Merger  Agreement  and  the
consummation of the transactions  contemplated  hereby have been duly authorized
by  Sub's  Board  of  Directors  and sole  shareholder,  and no other  corporate
proceedings on the part of Sub are necessary to authorize this Merger  Agreement
and the  transactions  contemplated  hereby.  Sub is not subject to or obligated
under (i) any charter or by-law provision or (ii) any provision of any indenture
or other loan document or other contract,  license,  franchise,  permit,  order,
decree, concession,  lease, instrument,  judgment, statute, law, ordinance, rule
or  regulation  applicable to Sub or its  properties  or assets,  which would be
breached or violated,  or under which there would arise a right of  termination,
cancellation  or  acceleration  of any  obligation  or the  loss  of a  material
benefit,  by its executing and carrying out this Merger Agreement other than, in
the case of clause  (ii) only,  (x) the Parent  Required  Consents  and (y) such
breaches,   violations,   defaults,   rights  of   termination,   cancellations,
accelerations or losses of a material  benefit which would not,  individually or
in the  aggregate,  have a Material  Adverse  Effect on  Parent.  Except for the
Parent  Required  Consents,  no filing or registration  with, or  authorization,
consent or approval of, any  Governmental  Entity is  necessary  for, nor is any
authorization,  consent,  or approval of any Governmental  Entity required to be
obtained by Sub for, the  consummation by Sub of the Merger or the  transactions
contemplated by this Merger Agreement,  except for such filings,  registrations,
authorizations,  consents or  approvals,  the failure of which to obtain or make



                                      - 19 -




would not,  individually or in the aggregate,  have a Material Adverse Effect on
Parent; provided that neither Parent nor Sub make any representation or warranty
with  respect  to  such  of the  foregoing  as are  required  by  reason  of the
regulatory   status  of  the  Company  or  any  of  its  subsidiaries  or  facts
specifically  pertaining to them. This Merger Agreement  constitutes a valid and
binding obligation of Sub enforceable in accordance with its terms except as the
same  may  be  limited  by  bankruptcy,   insolvency,   fraudulent   conveyance,
reorganization,  moratorium  and other similar laws relating to or affecting the
enforcement of creditors'  rights  generally,  by general  equitable  principles
(regardless of whether enforceability is considered in a proceeding in equity or
at law) and by an implied covenant of good faith and fair dealing.

                                    ARTICLE V
                  REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The  Company  represents  and  warrants  to  Parent,  except  as set  forth in a
disclosure schedule delivered by the Company concurrently herewith (the "Company
Disclosure Schedule"), as follows:

Section 5.1  Organization and  Qualification.  The Company is a corporation duly
organized,  validly  existing  and  in  good  standing  under  the  laws  of the
Commonwealth  of  Pennsylvania  and has the  corporate  power  to  carry  on its
business as it is now being conducted or currently proposed to be conducted. The
Company is duly  qualified as a foreign  corporation  to do business,  and is in
good standing,  in each jurisdiction where the character of its properties owned
or held under  lease or the nature of its  activities  makes such  qualification
necessary,  except where  failure to be so  qualified  would not have a Material
Adverse  Effect on the Company.  Complete and correct  copies of the Amended and
Restated  Articles of  Incorporation  and Amended  and  Restated  By-Laws of the
Company as in effect on the date hereof are  included in the Company SEC Reports
(as defined in Section 5.5 below).

Section 5.2 Capitalization. The authorized capital stock of the Company consists
of 100,000,000  shares of Company Common Stock and 2,500,000 shares of Preferred
Stock, par value $.01 per share ("Company  Preferred Stock"). As of November 20,
1998,  63,068,535 shares of Company Common Stock (excluding 25,000,000 shares of
Company  Common Stock held by a subsidiary of the Company)  were validly  issued
and  outstanding,  fully  paid and  nonassessable,  7,526,960  shares of Company
Common Stock were held in treasury,  no shares of Company  Preferred  Stock have
been issued,  and there have been no material  changes in such numbers of shares
through the date hereof.  As of November 20, 1998,  except for (x) Company Stock
Options granted under the Company Common Stock Plans to acquire 5,502,000 shares
of Company  Common  Stock,  (y) pursuant to the  conversion  terms of the 5 1/4%
Convertible  Preferred  Securities,  liquidation  amount $50 per security,  Term
Income  Deferrable  Equity  Securities  (TIDES)SM of Coltec  Capital  Trust (the
"Trust Preferred  Securities")  and of the Company's 5 1/4%  Convertible  Junior
Subordinated  Deferrable  Interest  Debentures due 2028,  there were no options,
warrants,   calls  or  other  rights,   agreements  or  commitments  outstanding
obligating the Company to issue,  deliver or sell shares of its capital stock or
debt  securities,  or obligating the Company to grant,  extend or enter into any
such option, warrant, call or other such right, agreement or commitment.  Except



                                      - 20 -






for the  issuance of shares of Company  Common Stock  pursuant to Company  Stock
Options and as provided in the Company Stock Option Agreement, during the period
from  November  20, 1998 through the date  hereof,  no shares of Company  Common
Stock or Company  Preferred  Stock  have been  issued  and the  Company  has not
entered  into  any  options,  warrants,  calls or other  rights,  agreements  or
commitments  obligating  the  Company to issue,  deliver  or sell  shares of its
capital stock or debt securities,  or obligating the Company to grant, extend or
enter into any such  option,  warrant,  call or other such right,  agreement  or
commitment.

Section  5.3  Subsidiaries.  Each  Significant  Subsidiary  of the  Company is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the corporate power to carry on its
business as it is now being  conducted  or currently  proposed to be  conducted.
Each  Significant  Subsidiary  of the  Company  is duly  qualified  as a foreign
corporation to do business,  and is in good standing, in each jurisdiction where
the character of its  properties  owned or held under lease or the nature of its
activities  makes such  qualification  necessary,  except where failure to be so
qualified  would not have a  Material  Adverse  Effect on the  Company.  All the
outstanding  shares  of  capital  stock of each  Significant  Subsidiary  of the
Company are validly issued,  fully paid and nonassessable and those owned by the
Company or by a subsidiary of the Company are owned free and clear of any liens,
claims or encumbrances.  There are no existing options, warrants, calls or other
rights,  agreements or  commitments  of any character  relating to the issued or
unissued   capital  stock  or  other   securities  of  any  of  the  Significant
Subsidiaries of the Company.  Except as set forth in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, the Company does not directly
or  indirectly  own any interest in any other  corporation,  partnership,  joint
venture or other business association or entity which is material to the Company
and its subsidiaries taken as a whole.

Section 5.4  Authority  Relative to this  Merger  Agreement  and the Cross Stock
Option Agreements. The Company has the corporate power to enter into this Merger
Agreement and the Cross Stock Option  Agreements  and,  subject to the requisite
approval of this  Merger  Agreement by the holders of Company  Common Stock,  to
carry out its obligations  hereunder and thereunder.  The execution and delivery
of  this  Merger  Agreement  and  the  Cross  Stock  Option  Agreements  and the
consummation of the transactions  contemplated hereby and thereby have been duly
authorized by the Company's  Board of Directors.  This Merger  Agreement and the
Cross Stock Option Agreements each constitute a valid and binding  obligation of
the Company  enforceable in accordance  with its terms except as the same may be
limited  by  bankruptcy,  insolvency,  fraudulent  conveyance,   reorganization,
moratorium,  and other similar laws relating to or affecting the  enforcement of
creditors' rights  generally,  by general  equitable  principles  (regardless of
whether enforceability is considered in a proceeding in equity or at law) and by
an implied  covenant of good faith and fair  dealing.  Except for the receipt of
the  affirmative  vote of a  majority  of the  votes  cast  by all  shareholders
entitled  to vote  thereon  in the  case  of this  Merger  Agreement,  no  other
corporate proceedings on the part of the Company are necessary to authorize this
Merger  Agreement  or the Cross Stock  Option  Agreements  and the  transactions
contemplated hereby or thereby. The Company is not subject to or obligated under
(i) any charter or by-law  provision or (ii) any  provision of any  indenture or
other loan  document  or other  contract,  license,  franchise,  permit,  order,
decree, concession,  lease, instrument,  judgment, statute, law, ordinance, rule



                                      - 21 -





or  regulation  applicable  to the Company or any of its  subsidiaries  or their
respective  properties or assets, which would be breached or violated,  or under
which  there  would be a default  (with or without  notice or lapse of time,  or
both), or under which there would arise a right of termination,  cancellation or
acceleration  of any  obligation  or the  loss  of a  material  benefit,  by its
executing  and  carrying  out this Merger  Agreement  or the Cross Stock  Option
Agreements,  other  than,  in the case of  clause  (ii)  only,  (x) the laws and
regulations referred to in the next sentence and (y) such breaches,  violations,
defaults,  rights of termination,  cancellations,  accelerations  or losses of a
material  benefit  which would not,  individually  or in the  aggregate,  have a
Material  Adverse  Effect on the  Company.  Except as  referred  to herein or in
connection,  or  in  compliance,  with  the  provisions  of  the  HSR  Act,  the
Competition  Act  (Canada),  the  Securities  Act, the  Exchange  Act, and other
governmental  approvals  required  under  the  applicable  laws  of any  foreign
jurisdiction  and Applicable  State Laws  (collectively,  the "Company  Required
Consents"),  no filing by the Company or  registration  by the Company  with any
Governmental  Entity is  necessary  for,  nor is any  authorization,  consent or
approval of any Governmental  Entity required to be obtained by the Company for,
the  consummation of the Merger or the other  transactions  contemplated by this
Merger  Agreement  or by the  Cross  Stock  Option  Agreements  except  for such
filings,  registrations,  authorizations,  consents or approvals, the failure of
which to obtain or make  would not,  individually  or in the  aggregate,  have a
Material  Adverse  Effect on the  Company;  provided  that the Company  makes no
representation or warranty with respect to such of the foregoing as are required
by reason of the regulatory status of Parent or any of its subsidiaries or facts
specifically pertaining to them.

Section 5.5 Reports and  Financial  Statements.  Since  December 31,  1996,  the
Company  has timely  filed all  registration  statements,  prospectuses,  forms,
reports and documents  that the Company was required to file with the Commission
(collectively,  the "Company SEC Reports").  As of their  respective  dates, the
Company SEC Reports  complied in all material  respects with the requirements of
the  Securities  Act or the Exchange  Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Company SEC Reports.
As of their respective dates, the Company SEC Reports did not contain any untrue
statement  of a material  fact or omit to state a material  fact  required to be
stated  therein or necessary  to make the  statements  therein,  in light of the
circumstances   under  which  they  were  made,  not  misleading.   The  audited
consolidated  financial statements and unaudited interim financial statements of
the  Company  included  in the  Company  SEC  Reports  comply  as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto,  and the financial
statements  included in the Company SEC Reports have been prepared in accordance
with GAAP applied on a consistent  basis (except as may be indicated  therein or
in the notes  thereto  or, in the case of  unaudited  financial  statements,  as
permitted by Form 10-Q under the Exchange Act) and fairly  present the financial
position  of the Company and its  subsidiaries  as at the dates  thereof and the
results of their  operations  and changes in financial  position for the periods
then ended, subject, in the case of unaudited interim financial  statements,  to
normal year-end audit adjustments and any other adjustments described therein.



                                      - 22 -





Section 5.6 Absence of Certain  Changes or Events.  Except as  disclosed  in the
Company  SEC  Reports  filed  prior  to  the  date  of  this  Merger   Agreement
("Previously  Filed Company SEC Reports"),  since September 30, 1998,  there has
not been (i) any event, condition,  transaction,  commitment,  dispute  or other
circumstance  (financial or  otherwise) of any character  (whether or not in the
ordinary course of business), which, individually or in the aggregate, has had a
Material  Adverse Effect on the Company;  (ii) any damage,  destruction or loss,
whether or not covered by insurance,  which,  individually  or in the aggregate,
has had a Material Adverse Effect on the Company; (iii) any declaration, setting
aside or payment of any dividend or other  distribution  (whether in cash, stock
or property) with respect to the capital stock of the Company; or (iv) any entry
into any legally binding  commitment or transaction  material to the Company and
its subsidiaries  taken as a whole (including any material borrowing or material
sale of  assets), other  than this  Merger  Agreement,  the Cross  Stock  Option
Agreements and the transactions contemplated hereby and thereby.

Section 5.7 Litigation.  Except as disclosed in the Previously Filed Company SEC
Reports,  there is no suit, action or proceeding pending or, to the knowledge of
the  Company,  threatened  against  or  affecting  the  Company  or  any  of its
subsidiaries  which  would,  individually  or in the  aggregate,  be  reasonably
expected  to have a Material  Adverse  Effect on the  Company,  nor is there any
judgment,  decree,  injunction,  rule or order  of any  Governmental  Entity  or
arbitrator  outstanding  against  the Company or any of its  subsidiaries  which
would,  individually or in the aggregate,  have a Material Adverse Effect on the
Company.

Section 5.8  Employee  Benefit  Plans.  Section  5.8 of the  Company  Disclosure
Schedule lists (i) each employee pension benefit plan as defined in Section 3(2)
of the Employee  Retirement Income Security Act of 1974, as amended ("ERISA") (a
"Company  Pension Plan");  (ii) each material  employee  welfare benefit plan as
defined in Section 3(1) of ERISA (a "Company Welfare Plan"); (iii) each material
employment agreement and each material supplemental  executive compensation plan
(a "Company Executive Benefit Arrangement"); and (iv) each multiemployer plan as
defined in Section  3(37) of ERISA  which is  maintained  by the  Company or any
subsidiary,  or trade or business that is part of the same controlled  group, or
under common control with, or part of an affiliated  service group that includes
the Company within the meaning of Sections 414(b),  (c), (m), or (o) of the Code
(a "Company ERISA  Affiliate")  for directors,  former  directors,  employees or
former  employees,  or to which the Company or any Company ERISA Affiliate makes
contributions with respect to directors, former directors,  employees, or former
employees.  The Company has made available to Parent correct and complete copies
of the plan documents and material employment  agreements (or in the case of any
unwritten Company Executive Benefit Arrangement, a description thereof), summary
plan  descriptions,   participant   informational   material,  the  most  recent
determination  letter received from the Internal Revenue  Service,  the two most
recent  Form 5500  annual  reports  (including  all  schedules  and  attachments
thereto),  the two most recent  audited  financial  statements  for any plan for
which audited financial  statements are required,  the two most recent actuarial
reports for any plan for which  actuarial  reports have been  prepared,  and all
related trust  agreements,  insurance  contracts  and other  funding  agreements
relating  to such  Company  Pension  Plans,  Company  Welfare  Plans and Company
Executive Benefit Arrangements (together, "Company Benefit Plans").



                                      - 23 -





Section 5.9 Plan Compliance.  Each Company Benefit Plan has been administered in
compliance  with its terms and any applicable  provision of ERISA,  the Code and
any other  applicable law except for any instances of  noncompliance  that would
not,  individually  or in the aggregate,  have a Material  Adverse Effect on the
Company. Each Company Pension Plan which is intended to meet the requirements of
Section  401(a) of the Code has been  determined  within the remedial  amendment
period under Section  401(b) of the Code by the Internal  Revenue  Service to be
qualified  under said Section  401(a) and each trust  maintained in  conjunction
with any such Company Pension Plan has been  determined by the Internal  Revenue
Service to be exempt  from  taxation  under  Section  501(a) of the Code and the
Company has not  amended any such  Company  Pension  Plan or related  trust in a
manner that would result in the  disqualification  thereof.  No Company  Pension
Plan which is subject to the  provisions of Section 412 of the Code has incurred
an  accumulated  funding  deficiency.  Neither the Company nor any Company ERISA
Affiliate has any unsatisfied liability under Title IV of ERISA, or knows of any
fact which would give rise to  liability  under Title IV of ERISA,  in an amount
that would,  individually or in the aggregate, have a Material Adverse Effect on
the Company. No reportable event, within the meaning of Section 4043(c) of ERISA
for which the  30-day  notice  requirement  of ERISA  has not been  waived,  has
occurred with respect to any Company  Pension  Plan.  Except as set forth in the
Previously Filed Company SEC Reports, there are no pending, filed, or threatened
disputes, lawsuits, claims (other than routine benefit claims),  investigations,
or audits by any person or  Governmental  Entity  with  respect  to any  Company
Benefit  Plan  that  would,  individually  or in the  aggregate,  be  reasonably
expected  to have a Material  Adverse  Effect on the  Company  and no  condition
exists which could  reasonably be expected to subject the Company or any Company
ERISA  Affiliate to any  liability  (other than for routine  benefit  claims and
other than  pursuant to the  current  terms of any  Company  Benefit  Plan) with
respect to any Company Benefit Plan in an amount that would,  individually or in
the aggregate, have a Material Adverse Effect on the Company.

Section 5.10 Takeover Provisions Inapplicable.  As of the date hereof and at all
times thereafter, until and including the Effective Date, Subchapters D (Section
2538),  E, F, G, H, I and J of  Chapter  25 of the  PBCL,  are,  and  shall  be,
inapplicable  to the Merger and the  transactions  contemplated  by this  Merger
Agreement.

Section  5.11  Compliance  with  Applicable   Laws.  (i)  The  Company  and  its
subsidiaries hold all material permits, licenses, variances,  exemptions, orders
and approvals (the "Company Permits") of all Governmental  Entities necessary in
all material respects for the operation of the businesses of the Company and its
subsidiaries;  (ii) the Company and its  subsidiaries are in compliance with the
terms of the Company Permits in all material respects; (iii) except as disclosed
in the Previously  Filed Company SEC Reports,  the businesses of the Company and
its subsidiaries  are not being conducted in violation of any law,  ordinance or
regulation of any Governmental Entity except for such violations that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company;
and (iv) no investigation  or review by any Governmental  Entity with respect to
the Company or any of its  subsidiaries is pending,  or, to the knowledge of the
Company,  threatened,  nor has any Governmental Entity indicated an intention to
conduct  the same  except for such  investigations  or  reviews  that would not,
individually  or in the  aggregate,  be  reasonably  expected to have a Material
Adverse  Effect on the Company.  No  representation  or warranty is made in this
Section 5.11 with respect to employee benefit plans,  Taxes,  product  liability
and  airworthiness  or  Environmental  Laws,  which  matters  are the subject of
Sections 5.8 and 5.9, 5.12, 5.15 and 5.16, respectively.



                                      - 24 -





Section 5.12      Taxes.

         (a) The  Company  and its  subsidiaries  have (i) filed or caused to be
filed all Tax Returns  required to be filed by any  jurisdiction to which any of
them is subject,  (ii) paid in full on a timely  basis all Taxes due and claimed
to be due by each such  jurisdiction,  and (iii) duly  collected or withheld and
timely paid all Taxes  required  to be  collected  from  others or deducted  and
withheld from any amounts paid to employees or others,  except to the extent any
failure to file,  pay or withhold would not,  individually  or in the aggregate,
have a Material Adverse Effect on the Company. Such Tax Returns are accurate and
complete in all material respects and accurately reflect the Tax liabilities for
such  periods,  except to the extent any  inaccuracies  in any such Tax  Returns
would not,  individually or in the aggregate,  have a Material Adverse Effect on
the Company. No Tax deficiency or penalty has been asserted or threatened by any
such jurisdiction against the Company or any of its subsidiaries,  except to the
extent any such  deficiencies  or penalties,  individually  or in the aggregate,
have not had and would not have a Material Adverse Effect on the Company.

(b) To the  knowledge  of the  Company,  there is no audit of any  material  Tax
Return  of the  Company  or any of its  subsidiaries  in  progress,  there is no
threatened  action,  suit,  proceeding,  investigation,  audit,  or claim for or
relating to  material  Taxes,  there are no matters  under  discussion  with any
Governmental  Entities  with  respect to material  Taxes that could result in an
additional  amount of material  Taxes being payable by the Company or any of its
subsidiaries,  and no Governmental Entity has indicated that it intends to audit
any material Tax Return of the Company or any of its subsidiaries.

         (c) Neither the Company nor any of its  subsidiaries (i) has waived any
statute  of  limitations  with  respect  to Tax  obligations  or  agreed  to any
extension of time with respect to a Tax assessment or deficiency,  except to the
extent any such Tax obligation, assessment or deficiency would not, individually
or in the aggregate,  have a Material  Adverse Effect on the Company,  (ii) is a
party to any Tax allocation or sharing agreement,  (iii) has been a member of an
affiliated  group (other than the  affiliated  group of which the Company is the
common parent) filing a  consolidated  federal income tax return,  nor is liable
for material Taxes of an affiliated  group (other than the  affiliated  group of
which the Company is the common  parent) under Section  1.1502-6 of the Treasury
Regulations  (or any  similar  provision  of  state,  local,  or  foreign  law),
including as a transferee or successor,  by contract,  or otherwise,  or (iv) is
currently the beneficiary of any extensions of time within which to file any Tax
Return.

                  (d)  The  earliest  taxable  period  of the  Company  and  its
subsidiaries for which the statute of limitations for federal,  state, local and
foreign Tax  Returns  filed by the  Company is still open is the  calendar  year
1987.

         (e) Neither the Company nor any of its  subsidiaries  has been a United
States real property holding corporation within the meaning of Section 897(c)(2)
of the Code during the applicable  period specified in Section  897(c)(1)(A)(ii)
of the Code.



                                      - 25 -





         (f) Neither the Company nor any of its  subsidiaries  (i) has agreed or
consented at any time under Section 341(f) of the Code to have the provisions of
Section  341(f)(2) of the Code apply to any disposition of any assets,  (ii) has
agreed, or is required,  to make any adjustment under Section 481(a) of the Code
by reason of a change in  accounting  method or  otherwise  that will affect the
liability  of the  Company  or its  subsidiaries  for  Taxes,  (iii) has made an
election, or is required, to treat any asset as owned by another person pursuant
to the provisions of Section  168(f) of the Code or as tax-exempt  bond financed
property or  tax-exempt  use  property  within the meaning of Section 168 of the
Code,  (iv) has made any of the foregoing  elections or is required to apply any
of the foregoing rules under any comparable state or local tax provision, or (v)
owns any material assets that were financed directly or indirectly with, or that
directly or indirectly  secure,  debt the interest on which is tax-exempt  under
Section 103(a) of the Code.

         (g)  The  transaction  contemplated  herein,  either  by  itself  or in
conjunction with any other transaction that the Company may have entered into or
agreed to, will not give rise to any federal income tax liability  under section
355(e) of the Code for which the Company may in any way be held liable.

         (h) The Company is not a party to any "Gain Recognition  Agreements" as
such term is used in the Treasury  Regulations  promulgated under Section 367 of
the Code.

         (i) Neither the Company nor any of its  subsidiaries has made or become
obligated  to  make,  nor  will  Parent,   Sub,  the  Company,  or  any  of  its
subsidiaries,   as  a  result  of  any  event  connected  with  any  transaction
contemplated  herein and/or any  termination  of employment  related to any such
transaction,  make or become  obligated to make (with respect to any employee of
the Company or any of its  subsidiaries),  any "excess  parachute  payment",  as
defined in Section 280G of the Code to any employee of the Company or any of its
subsidiaries.

         (j) There are no material liens for Taxes (other than for current Taxes
that are not yet due and payable or are being  contested in good faith) upon the
assets of the Company or any of the subsidiaries.

         (k) The  Company has no excess  loss  account,  as such term is used in
Section 1.1502-19 of the Treasury Regulations,  with respect to the stock of any
subsidiary.

(l) The unpaid Taxes of the Company and its subsidiaries did not, as of the most
recent  fiscal  month end prior to the date  hereof,  exceed the reserve for Tax
Liability (not  including any reserve for deferred Taxes  established to reflect
timing  differences  between  book and Tax  income) set forth on the face of the
most recent  balance sheet (other than in any notes  thereto) that has been made
available to Parent.

Section 5.13 Certain Contracts. Except as filed as an exhibit to the Company SEC
Reports,  neither the Company nor any of its subsidiaries is a party to or bound
by any contract,  arrangement,  commitment or understanding  (whether written or
oral) (i) which, as of the date hereof, is a "material  contract" (as defined in
Item  601(b)(10) of Regulation S-K of the Commission) or has been filed with the
Commission to be performed after the date of this Merger Agreement or (ii) which
materially restricts the conduct of any line of business of the Company.



                                      - 26 -





Section 5.14 Patents, Trademarks, Etc. The Company and its subsidiaries have all
patents,  trademarks,  trade names, service marks, trade secrets, copyrights and
licenses  and  other  proprietary  intellectual  property  rights  and  licenses
("Company  Intellectual  Property")  as are  necessary  in  connection  with the
businesses  of the Company and its  subsidiaries,  and the Company does not have
any  knowledge  of any  conflict  between  the  rights  of the  Company  and its
subsidiaries  and the rights of others  therein,  except to the extent  that the
failure of the Company to have,  or any  conflicts  with respect to, the Company
Intellectual  Property  would  not,  individually  or in the  aggregate,  have a
Material Adverse Effect on the Company.

Section 5.15 Product Liability;  Airworthiness. (a) The Company has no knowledge
of any claim,  or the basis for any  claim,  against  the  Company or any of its
subsidiaries  for injury to person or property of employees or any third parties
suffered as a result of the sale of any product or performance of any service by
the  Company or any of its  subsidiaries,  including  claims  arising out of the
defective  or unsafe  nature of its  products  or services, which  claim  would,
individually  or in the  aggregate,  be  reasonably  expected to have a Material
Adverse Effect on the Company.

         (b) To the knowledge of the Company,  all goods and services  designed,
manufactured or sold by the Company or any of its  subsidiaries  comply with all
laws,   requirements,   specifications,   rules  and   regulations   related  to
airworthiness of all applicable  Governmental Entities and none of such products
or services contain any defects in manufacturing, design or performance or other
defect  which  renders  such  products  or  services  or any  component  thereof
defective, deficient, nonconforming or unsuitable for their intended use, except
to the extent that such failure to comply or defects would not,  individually or
in the aggregate,  have a Material  Adverse  Effect on the Company.  There is no
publicly and formally announced rule or regulation by any Governmental Entity of
the United  States or any state  thereof  that could  reasonably  be expected to
affect the various airworthiness approvals,  licenses, permits or certifications
applicable  to the goods,  services,  assets,  facilities  or  operations of the
Company  and  its  subsidiaries,  except  to  the  extent  that  such  rules  or
regulations would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.

Section 5.16 Environment.  To the knowledge of the Company,  except as disclosed
in the  Previously  Filed  Company SEC Reports,  there are,  with respect to the
Company  or  any  of  its  subsidiaries,   no  past  or  present  violations  of
Environmental  Laws,  releases or  threatened  releases of any material into the
environment or contractual  obligations which may reasonably be expected to give
rise to any liability under any Environmental Laws and which would, individually
or in the aggregate, have a Material Adverse Effect on the Company.

Section 5.17 Accounting; Tax Matters. Neither the Company nor, to its knowledge,
any of its affiliates, has, through the date hereof, taken or agreed to take any
action nor do they have knowledge of any fact or circumstance that is reasonably
likely to prevent (i) Parent from accounting for the business  combination to be
effected  by the  Merger  as a  "pooling  of  interests,"  or  (ii)  the  Merger
qualifying  for federal  income tax  purposes as a  "reorganization"  within the
meaning of Section 368(a) of the Code.



                                      - 27 -





Section 5.18 Company Action. The Board of Directors of the Company (at a meeting
duly called and held) has by the requisite vote of directors (a) determined that
the Merger is in the best  interests  of the Company and its  shareholders,  (b)
approved this Merger Agreement in accordance with the provisions of Section 1922
of the PBCL,  and (c)  determined  to  recommend  the  approval  of this  Merger
Agreement and the Merger by the holders of the Company Common Stock.

Section 5.19 Lack of Ownership of Parent Common  Stock.  Neither the Company nor
any of its  subsidiaries  owns  any  shares  of  Parent  Common  Stock  or other
securities  convertible  into shares of Parent  Common Stock  (exclusive  of any
shares owned by any Company Benefit Plan).

Section 5.20 Insurance Coverage. The Company believes that as of the date hereof
it has adequate  insurance  coverage from solvent,  viable insurance carriers in
accordance with current industry practices except where the failure to have such
insurance coverage would not, individually or in the aggregate,  have a Material
Adverse Effect on the Company.

Section 5.21 Year 2000.  Except as disclosed in the Previously Filed Company SEC
Reports,  the Company's products and information systems are Year 2000 Compliant
except to the extent  that their  failure to be Year 2000  Compliant  would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
For purposes of this Merger  Agreement,  Year 2000 Compliant shall mean that the
Company's  products and information  systems  accurately  process date/time data
(including,  but not limited to,  calculating,  comparing and sequencing)  from,
into and between the twentieth and  twenty-first  centuries,  and the years 1999
and 2000 and leap year calculations.

Section  5.22  Financial   Advisor.   Except  for  Credit  Suisse  First  Boston
Corporation,  no  broker,  finder  or  investment  banker  is  entitled  to  any
brokerage,  finder's or other fee or commission in connection with the Merger or
the transactions  contemplated by this Merger Agreement based upon  arrangements
made by or on behalf of the  Company,  and the fees and  commissions  payable to
Credit Suisse First Boston Corporation as contemplated by this Section 5.22 will
be the amount set forth in that certain  letter,  dated November 11, 1998,  from
Credit Suisse First Boston Corporation to the Company.

Section 5.23  Fairness  Opinion.  The Company has received the opinion of Credit
Suisse First Boston  Corporation,  financial  advisor to the Company,  dated the
date  hereof,  to the effect  that the  Exchange  Ratio is fair from a financial
point of view to the holders of shares of Company Common Stock.

                                   ARTICLE VI
                     CONDUCT OF BUSINESS PENDING THE MERGER

Section 6.1 Conduct of Business by the Company Pending the Merger.  (a) Prior to
the  Effective  Date,  unless  Parent shall  otherwise  consent in writing (such
consent not to be unreasonably  withheld,  delayed or conditioned) and except as



                                      - 28 -




specifically  provided herein (including  Section 6.1(b)) or as set forth in the
Company Disclosure Schedule,  from and after the date hereof, the Company shall,
and shall cause its subsidiaries to, carry on their respective businesses in the
usual,  regular and ordinary course in the same manner as heretofore  conducted,
and  shall,  and shall  cause its  subsidiaries  to, use their  reasonable  best
efforts to preserve intact their present business organizations,  keep available
the  services  of their  present  officers  and  employees  and  preserve  their
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing  businesses  shall be unimpaired
at the Effective Date. The Company shall,  and shall cause its  subsidiaries to,
in the  ordinary  course of business (A) maintain  insurance  coverages  and its
books, accounts and records in the usual manner consistent with prior practices;
(B) comply with all material laws,  ordinances and  regulations of  Governmental
Entities  applicable to the Company and its subsidiaries;  (C) maintain and keep
its  properties  and  equipment in good  repair,  working  order and  condition,
ordinary wear and tear  excepted;  and (D) perform in all material  respects its
obligations  under all  contracts and  commitments  to which it is a party or by
which it is bound.

         (b) Without  limiting the  generality of Section  6.1(a),  prior to the
Effective Date,  unless Parent shall otherwise  consent in writing (such consent
not to be unreasonably withheld, delayed or conditioned) and except as set forth
in the Company Disclosure Schedule, from and after the date hereof:

(i) the  Company  shall not and  shall not  propose  to (A)  except as  required
pursuant to any  indenture,  loan documents or contract in effect as of the date
hereof,  sell or pledge or agree to sell or pledge any capital stock owned by it
in any of its  Significant  Subsidiaries  (unless already pledged as of the date
hereof), (B) amend its Amended and Restated Articles of Incorporation or Amended
and Restated By-Laws,  (C) split,  combine or reclassify its outstanding capital
stock or issue or authorize or propose the issuance of any other  securities  in
respect  of, in lieu of or in  substitution  for shares of capital  stock of the
Company, or declare, set aside or pay any dividend or other distribution payable
in cash,  stock or property,  or (D) except as required  pursuant to any Company
Benefit Plan,  directly or indirectly  redeem,  purchase or otherwise acquire or
agree to redeem,  purchase or  otherwise  acquire any shares of Company  capital
stock;

(ii) the Company shall not, nor shall it permit any of its  subsidiaries to, (A)
other than pursuant to the exercise of Company Stock Options  outstanding on the
date hereof or otherwise  in  accordance  with the present  terms of any Company
Benefit  Plan and except as permitted  by  Section  6.1(b)(iii)  or by the Cross
Stock Option Agreements,  issue, deliver or sell or agree to issue,  deliver  or
sell any  additional  shares of, or rights of any kind to acquire any shares of,
its capital stock of any class, or any option, rights or warrants to acquire, or
securities convertible into, shares of capital stock (other than,  in each case,
to the Company or direct or indirect  wholly-owned subsidiaries of the Company);
(B) acquire, lease or dispose or  agree  to  acquire,  lease  or  dispose of any
capital  assets or any other  assets  other  than  in  the  ordinary  course  of
business,  (C) incur  additional  indebtedness or encumber  or grant a  security
interest  in any  asset or  enter  into  any  other  material transaction  other



                                      - 29 -




than in each case in the  ordinary course of  business;  (D) acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial  equity
interest  in,  or  by  any  other  manner,  any  business  or  any  corporation,
partnership, association or other business organization or division thereof;  or
(E) enter into any contract,  agreement,  commitment or arrangement with respect
to any of the foregoing which is binding; 

(iii) the Company shall not, nor shall it permit any  of  its  subsidiaries  to,
except  as  required  to  comply   with  applicable  law,  and  except  for  (w)
compensation  payments and changes or benefit adjustments  made in the  ordinary
course   of  business (which  shall  include  (1)  normal  periodic  performance
reviews  and  related  compensation  and benefit increases and (2) the provision
of individual  Company Benefit Plans  consistent with past practice for promoted
or newly hired officers and employees) and which do not involve the grant of any
actual  or  phantom  equity  interests  in  the  Company, (x)  awards  under the
Company's 1994  Long-Term  Incentive Plan and CAP Plus Plan, in each case in the
ordinary  course of  business,  (y)  grants of  options  with respect to Company
Common  Stock  in  the  ordinary  course of business to newly-hired  or promoted
officers and employees and (z)  (following  notice  to Parent) grants of options
with respect to no more than 200,000  shares  of  Company  Common  Stock  in the
aggregate  in  the  ordinary  course  of  business, (A)(1)  adopt,  enter  into,
terminate or (2) in  any way that would  materially increase the cost thereof to
the   Company  or  expand  the  applicability  of,  or  amend, any bonus, profit
sharing,   compensation,   severance,   termination,  stock   option,   pension,
retirement,  deferred   compensation,  employment  or   other   Company  Benefit
Plan,  agreement, trust,  fund  or other  arrangement for the benefit or welfare
of any  director, officer  or  current  or  former employee, (B) increase in any
manner  the compensation or fringe benefit of any director, officer or employee,
(C) pay any benefit not provided  under any  existing  plan or arrangement,  (D)
grant any awards under any bonus,  incentive,  performance or other compensation
plan  or  arrangement  or  Company  Benefit  Plan  (including the grant of stock
options, stock  appreciation  rights,  stock  based  or  stock  related  awards,
performance   units  or  restricted   stock,  or   the   removal   of   existing
restrictions in any benefit plans or agreements or awards made thereunder),  (E)
take any action to fund or in any other way secure the  payment of  compensation
or benefits  under any  employee plan,  agreement,  contract  or  arrangement or
Company Benefit Plan other than in the ordinary  course  of business  consistent
with past  practice  or  as  required  under  the  present  terms of any Company
Benefit Plan, or (F)  adopt,  enter  into,  amend  or  terminate  any  contract,
agreement,  commitment  or  arrangement  to  do  any  of  the foregoing which is
binding;

(iv) except as required by or in connection with the Trust Preferred Securities,
the Company shall not, nor shall it permit any of its  subsidiaries to, make any
investments in non-investment  grade debt securities (other than  non-investment
grade debt securities issued by the Company or any of its subsidiaries);

(v) the Company shall not, nor shall it permit any of its  subsidiaries to, take
or cause to be taken any action,  whether  before or after the  Effective  Date,
which would  disqualify  the Merger as a "pooling of interests"  for  accounting
purposes or as a  "reorganization"  within the meaning of Section 368 (a) of the
Code; and



                                      - 30 -





(vi) neither the Company, nor any subsidiary of the Company, shall make or amend
any material Tax election,  agree to waive or extend any statute of limitations,
or resolve or agree to resolve any audit or proceeding  relating to any material
Tax liability other than in the ordinary course of business consistent with past
practice;  provided,  however,  that the Company and its  subsidiaries  shall be
permitted to make any Tax election  and take any action in  connection  with the
settling of its and their federal tax liabilities for the 1992, 1993, 1994, 1995
and 1996  tax  years so long as such  elections  or  actions  do not  result  in
aggregate  additional  Tax  liabilities to the Company and its  subsidiaries  in
excess  of  the  reserve  established   therefor  on  the  most  recent  audited
consolidated financial statements of the Company, and provided that any settling
of such audit and liabilities shall require the consent of Parent, which consent
shall not  unreasonably  be withheld.  The Company and its  subsidiaries  shall,
prior to the Closing  Date,  terminate  all tax  allocation  agreements  and tax
sharing  agreements  (if any) with  respect to the Company and its  subsidiaries
(other than the Tax Sharing  Agreement  dated September 13, 1996, by and between
the Company,  Garrison Litigation Management Group, Ltd., and The Anchor Packing
Company) and shall ensure that such agreements are of no further force or effect
as to the Company and its  subsidiaries  on and after the Closing Date and there
shall be no further liability of the Company or its subsidiaries  under any such
agreements.

         Section 6.2.  Conduct of Business by Parent and Sub Pending the Merger.
(a) Parent.  Prior to the Effective  Date,  unless the Company  shall  otherwise
consent in writing (such  consent not to be  unreasonably  withheld,  delayed or
conditioned)  and except as specifically  provided herein including as set forth
in the Parent Disclosure Schedule,  from and after the date hereof Parent shall,
and shall cause its subsidiaries to, carry on their respective businesses in the
usual,  regular and ordinary course in the same manner as heretofore  conducted,
and  shall,  and shall  cause its  subsidiaries  to, use their  reasonable  best
efforts to preserve intact their present business organizations,  keep available
the  services  of their  present  officers  and  employees  and  preserve  their
relationships with customers, suppliers and others having business dealings with
them to the end that their goodwill and ongoing  businesses  shall be unimpaired
at the Effective Date.  Subject  to  Section 6.2(b),  the  foregoing  shall  not
prevent  Parent   from   acquiring   or   agreeing   to  acquire  by  merging or
consolidating with, or by purchasing a substantial equity interest in, or by any
other manner, any assets, business or any corporation,  partnership, association
or  other  business   organization  or  division  thereof,  for  such  aggregate
consideration in cash, Parent Common Stock or a combination  thereof,  as Parent
may deem appropriate from time to time.

         (b) Prior to the Effective  Date,  neither Parent nor its  subsidiaries
shall,  unless the Company shall otherwise  consent in writing (such consent not
to be unreasonably withheld, delayed or conditioned), acquire, merge or agree to
acquire or be acquired,  by merging or  consolidating  with,  or by purchasing a
substantial  equity  interest  in or by selling  50% or more of the  outstanding
Parent Common Stock (or securities  convertible into Parent Common Stock) to, or
by any other manner, any business or any corporation,  partnership, association,
or other business  organization or division thereof,  in each case participating



                                      - 31 -




in a  line  of  business  or  related  business  of  the  Company  or any of its
subsidiaries,  which  transaction,  either  alone  or in  conjunction  with  the
transactions  contemplated  by this Merger  Agreement,  is reasonably  likely to
raise antitrust,  competition law or trade regulatory issues that are reasonably
likely to materially delay, impede or prohibit the consummation of the Merger.

         (c) Without  limiting the  generality of Section  6.2(a),  prior to the
Effective  Date,  unless the Company  shall  otherwise  consent in writing (such
consent not to be unreasonably  withheld,  delayed or conditioned) and except as
set forth in the Parent  Disclosure  Schedule,  from after the date hereof:  (i)
Parent shall not, nor shall it permit any of its  subsidiaries to, take or cause
to be taken any action,  whether before or after the Effective Date, which would
disqualify or would be reasonably  likely to disqualify the Merger as a "pooling
of  interests"  for  accounting  purposes  or as a  "reorganization"  within the
meaning of Section  368(a) of the Code and (ii) Parent  shall not enter into any
contract,  agreement,  commitment  or  arrangement  with  respect  to any of the
foregoing which is binding.

(d)  Sub.  During  the  period  from the date of this  Merger  Agreement  to the
Effective  Date,  Sub shall not engage in any activities of any nature except as
provided in or contemplated by this Merger Agreement.

Section 6.3 Notice of Breach.  Each party shall  promptly give written notice to
the other party upon  becoming  aware of the  occurrence  or, to its  knowledge,
impending or threatened occurrence, of any event which would cause or constitute
a breach of any of its covenants  contained in this Merger  Agreement,  or would
cause  any of  its  representations  or  warranties  contained  in  this  Merger
Agreement  to be  inaccurate,  and  shall use its best  efforts  to  prevent  or
promptly remedy the same. No such  notification  shall be deemed an amendment of
the Company Disclosure Schedule or the Parent Disclosure Schedule.

                                   ARTICLE VII
                              ADDITIONAL AGREEMENTS

Section  7.1 Access and  Information.  Each of the  Company and Parent and their
respective   subsidiaries   shall  afford  to  the  other  and  to  the  other's
accountants,  counsel  and  other  representatives  full  access  during  normal
business  hours (and at such other  times as the  parties  may  mutually  agree)
throughout  the period  prior to the  Effective  Date to all of its  properties,
books,  contracts,  commitments,  records and personnel and, during such period,
each shall furnish promptly to the other (i) a copy of each report, schedule and
other document filed or received by it pursuant to the  requirements  of federal
or state  securities  laws,  and (ii)  subject  to  applicable  law,  all  other
information  concerning its business,  properties and personnel as the other may
reasonably  request.  Each of the Company and Parent shall hold, and shall cause
their  respective   employees  and  agents  to  hold,  in  confidence  all  such
information in accordance with the terms of the Confidentiality  Agreement dated
as of October 21, 1998  between  Parent and the  Company  (the  "Confidentiality
Agreement").

Section  7.2  Registration   Statement/Proxy   Statement.  (a)  As  promptly  as
practicable after the execution of this Merger Agreement, the Company and Parent
shall prepare and file with the  Commission a joint proxy  statement (the "Proxy



                                      - 32 -




Statement")  in preliminary  form for use at the Company  Meeting and the Parent
Meeting.  As  promptly as  practicable  after  comments  are  received  from the
Commission with respect to the preliminary form of the Proxy Statement and after
the  furnishing  by the  Company  and Parent of all  information  required to be
contained  therein,  the Company and Parent shall file with the  Commission  the
Proxy  Statement  in  definitive  form for use at their  respective  shareholder
meetings and Parent shall file with the Commission a  registration  statement on
Form S-4 under the Securities  Act for the purpose of registering  the shares of
Parent Common Stock to be issued in the Merger (the  "Registration  Statement").
Parent  and the  Company  shall use all  reasonable  best  efforts  to cause the
Registration  Statement to become  effective as soon  thereafter as practicable.
None of the  information  furnished by the Company or its  subsidiaries  (in the
case of the  Company) or by Parent or its  subsidiaries  (in the case of Parent)
for inclusion or incorporation by reference in (i) the Registration Statement or
(ii) the  Proxy  Statement  will,  in the  case of the  Proxy  Statement  or any
amendments  or  supplements  thereto,  at the time of the  mailing  of the Proxy
Statement and any  amendments  or  supplements  thereto,  and at the time of the
Company Meeting and Parent Meeting to be held in connection with the Merger, or,
in the case of the Registration  Statement, at the time it becomes effective and
at the Effective Date,  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  therein,  in light of the circumstances under which they
are made, not misleading.  No  representation,  covenant or agreement is made by
any party  hereto with  respect to  information  supplied by any other party for
inclusion in the Proxy Statement or the Registration Statement. No filing of, or
amendment or supplement to, the Proxy Statement or Registration  Statement shall
be  made  by  Parent  or the  Company  without  providing  the  other  with  the
opportunity to review and comment thereon. If at any time prior to the Effective
Date  any  information  relating  to  Parent  or the  Company,  or any of  their
respective affiliates,  directors or officers, should be discovered by Parent or
the Company which should be set forth in an amendment or supplement to the Proxy
Statement or Registration  Statement so that the Proxy Statement or Registration
Statement would not include any misstatement of a material fact or omit to state
any material  fact  necessary to make the  statements  therein,  in light of the
circumstances  under  which  they were made,  not  misleading,  the party  which
discovers such information shall promptly notify the other parties hereto and an
appropriate  amendment  or  supplement  describing  such  information  shall  be
promptly  filed  with  the  Commission  and,  to the  extent  required  by  law,
disseminated to the shareholders of Parent and the Company.

         (b) The  Company  and Parent  shall  make all  necessary  filings  with
respect to the Merger  under the  Securities  Act and the  Exchange  Act and the
rules and  regulations  thereunder,  and under  applicable  blue sky or  similar
securities  laws and  shall  each use its  reasonable  best  efforts  to  obtain
required approvals and clearances with respect thereto.

Section 7.3 Affiliates,  Publication of Combined Financial Results. (a) Not less
than 45 days prior to the Effective  Date,  each of Parent and the Company shall
deliver to the other a list of names or  addresses  of each  person  who, in its
reasonable  judgment,  is an affiliate  of Parent or the Company,  respectively,
within the meaning of Rule 145 of the rules and  regulations  promulgated  under
the Securities Act or otherwise applicable  Commission  accounting releases with
respect to "pooling of  interests"  accounting  treatment  (each such person,  a
"Pooling  Affiliate")  of Parent or the Company,  respectively.  Each such party
shall provide the other with such  information  and documents as the other shall
reasonably request for purposes of reviewing such list.



                                      - 33 -





(b) Each of the  Company and Parent  shall use its  reasonable  best  efforts to
cause each of its respective  Pooling  Affiliates,  as soon as practicable after
the date of this Merger Agreement, and no less than 30 days prior to the date of
the Company  Meeting  and the Parent  Meeting,  respectively,  to deliver to the
other party an affiliate  letter in customary form.  Parent shall be entitled to
place  legends  as  specified  in such  affiliate  letters  on the  certificates
evidencing  any of the  Parent  Common  Stock  to be  received  by such  Pooling
Affiliates  pursuant  to the  terms  of  this  Merger  Agreement,  and to  issue
appropriate  stop  transfer  instructions  to the transfer  agent for the Parent
Common Stock, consistent with the terms of such letters.

(c) Parent shall publish  combined  sales and net income  figures  reflecting at
least 30 days of  post-Merger  combined  operations  as  contemplated  by and in
accordance  with the terms of Commission  Accounting  Series Release No. 135, no
later than 20 days after the end of the first  fiscal  quarter of Parent  ending
after the Effective Date in which there are at least 30 days of such post-Merger
combined operations.

Section 7.4 Stock Exchange Listing. Parent shall use its reasonable best efforts
to list on the NYSE,  upon  official  notice of  issuance,  the shares of Parent
Common Stock to be issued pursuant to the Merger.

         Section 7.5  Employment  Arrangements.  (a) After the  Effective  Date,
Parent shall,  or shall cause the Surviving  Corporation to, honor in accordance
with  their  terms,  all  Company  Benefit  Plans,   including  all  employment,
severance,  consulting and other  compensation  contracts between the Company or
any of its subsidiaries and any current or former director,  officer or employee
thereof,  and all provisions for vested or unvested  benefits or other vested or
unvested amounts earned or accrued through the Effective Date and all provisions
under any Company Benefit Plan (as amended in compliance herewith or as modified
by Section 7.5 of the Company  Disclosure  Schedule)  except for changes thereto
which are (i) set forth on Section 7.5 of the Company Disclosure Schedule,  (ii)
required under the present terms of any Company Benefit Plan, or (iii) otherwise
agreed to by the parties hereto and, if applicable, the affected individual.

(b) From and after the Effective  Date and for a period of one year  thereafter,
employees of the Company and its  subsidiaries  shall receive  compensation  and
benefits from the Surviving  Corporation (or any successor thereto) that, in the
aggregate,  are no less favorable than either (i) the  compensation and benefits
provided to similarly  situated  employees of Parent or its subsidiaries or (ii)
the  compensation  and benefits  provided to such  employees as of the Effective
Date by the Company and its subsidiaries.

(c) The Company  and, if  applicable,  Parent  agree (i) to take all actions set
forth on Section 7.5 of the Company  Disclosure  Schedule and (ii) that any such
action  shall not be deemed  to  violate  any  other  provision  of this  Merger
Agreement.



                                      - 34 -





Section 7.6 Indemnification. (a) From and after the Effective Date, Parent shall
indemnify, defend and hold harmless the officers, directors and employees of the
Company and its subsidiaries  (the  "Indemnified  Parties")  against all losses,
expenses,  claims, damages or liabilities arising prior to the Effective Date to
the fullest  extent  permitted  or required  under (A)  applicable  law, (B) any
indemnification  agreements  between  the Company and any such person or (C) the
Company's  Amended  and  Restated  Articles  of  Incorporation  and  Amended and
Restated By-Laws.

(b) Parent  shall use its best  efforts to cause the  Indemnified  Parties to be
covered for a period of six (6) years from the Effective  Date (or the period of
the  applicable  statute  of  limitations,  if  longer)  by the  directors'  and
officers'  liability  insurance policy  maintained by the Company (provided that
Parent  may  substitute  therefor  policies  of at least the same  coverage  and
amounts  containing terms and conditions which are not less  advantageous to the
Indemnified  Parties  than  such  policy)  with  respect  to acts  or  omissions
occurring  prior to the Effective Date which were committed by such  Indemnified
Parties in their  capacity as such;  provided,  however,  that in no event shall
Parent  be  required  to  expend on an annual  basis  more  than  $730,000  (the
"Insurance  Amount") to maintain or procure  insurance  coverage pursuant hereto
and  provided  further  that if  Parent  is unable  to  maintain  or obtain  the
insurance  called for by this Section  7.6(b),  Parent shall use its  reasonable
best  efforts  to obtain  as much  comparable  insurance  as  available  for the
Insurance Amount.

         (c) In the event that any action,  suit,  proceeding  or  investigation
relating hereto or to the transactions  contemplated by this Merger Agreement is
commenced,  whether before or after the Effective Date, the parties hereto agree
to cooperate  and use their  respective  reasonable  best efforts to  vigorously
defend against and respond thereto.

Section 7.7  Consents.  (a) Each of the  parties shall use its  reasonable  best
efforts to obtain as promptly as  practicable  all consents of any  Governmental
Entity or any other  person  required  in  connection  with,  and waivers of any
violations or rights of termination  that may be caused by, the  consummation of
the transactions contemplated by this Merger Agreement.

         (b) In furtherance and not in limitation of the foregoing,  each of the
parties  shall use its  reasonable  best  efforts  to  resolve  as  promptly  as
practicable  such  objections,  if any, as may be asserted  with  respect to the
transactions   contemplated  by  this  Merger  Agreement  under  any  antitrust,
competition or trade  regulatory  laws, rules or regulations of any Governmental
Entity;  provided  however,  that nothing in this Merger Agreement shall require
Parent to agree to hold separate or to divest any of the business, product lines
or assets of Parent or the Company or any of their  respective  subsidiaries  or
take any other action,  if such holding  separate,  divestiture  or other action
would have a Material Adverse Effect on Parent or the Company.

         (c)  Each of the  parties  shall  promptly  inform  the  others  of any
material  communication  from  any  Governmental  Entity  regarding  any  of the
transactions  contemplated  by  this  Merger  Agreement.  If  any  party  or any
affiliate  thereof receives a request for additional  information or documentary
material  from any such  Governmental  Entity with  respect to the  transactions
contemplated by this Merger  Agreement,  then such party shall make, or cause to



                                      - 35 -




be made, as soon as reasonably practicable and after consultation with the other
party, an appropriate  response in compliance with such request.  Parent and the
Company shall consult and cooperate  with one another with respect to (and prior
to) any  understandings,  undertakings or agreements (oral or written) which are
proposed to be made or entered into with any  Governmental  Entity in connection
with the transactions  contemplated by this Merger Agreement and the Cross Stock
Option Agreements.

         Section  7.8  Additional  Agreements.  (a)  Subject  to the  terms  and
conditions herein provided  (including  Section 7.7), each of the parties hereto
agrees to use its  reasonable  best efforts to take,  or cause to be taken,  all
actions  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   contemplated  by  this  Merger  Agreement  as  promptly  as
practicable, including using its reasonable best efforts to obtain all necessary
waivers,  consents and  approvals,  to effect all  necessary  registrations  and
filings (including, but not limited to, filings with all applicable Governmental
Entities)  and  defending  any  lawsuits  or other  legal  proceedings,  whether
judicial or  administrative,  challenging  this Merger  Agreement or the Merger,
including  seeking  to lift any  injunction,  temporary  restraining  order  or,
subject to any required vote of the shareholders of the Company, other legal bar
to the Merger (and, in such case, to proceed with the Merger as expeditiously as
possible)  and  the  transactions  contemplated  hereby.    Notwithstanding  the
foregoing,  but subject to Section 7.7, there shall be no action  required to be
taken and no action will be taken in order to consummate  and make effective the
transactions  contemplated  by  this  Merger  Agreement  if such  action  would,
individually  or in the aggregate,  have a Material  Adverse Effect on Parent or
the Company.

         (b) In case at any time after the Effective  Date any further action is
necessary or desirable to carry out the purposes of this Merger  Agreement,  the
proper  officers  and/or  directors  of Parent,  the Company  and the  Surviving
Corporation shall take all such necessary action.

Section 7.9 No Solicitation.  (a) Neither the Company nor Parent shall, directly
or indirectly,  take (nor shall the Company or Parent instruct its subsidiaries,
directors, officers, employees, representatives,  investment bankers, attorneys,
accountants or other agents or affiliates, (collectively, "Representatives")) to
take any action to (i)  encourage,  solicit or initiate  the  submission  of any
Acquisition  Proposal (as defined below) with respect to such party,  (ii) enter
into any agreement with respect to any Acquisition Proposal with respect to such
party or (iii)  participate in any way in discussions or  negotiations  with, or
furnish any  information  to, any person in  connection  with, or take any other
action  to  facilitate  any  inquiries  or  the  making  of  any  proposal  that
constitutes,  or may reasonably be expected to lead to, any Acquisition Proposal
with  respect  to such  party.  Each of the  Company  and Parent  will  promptly
communicate  to the other that such a  solicitation  has been received by it, or
that any such  information has been requested from it or that such  negotiations
or discussions  have been sought to be initiated with it or that it has received
a written  communication with respect to an Acquisition Proposal with respect to
it. For  purposes  of this Merger  Agreement,  the term  "Acquisition  Proposal"
means, with respect to each of the Company and Parent,  any proposed (A) merger,
consolidation or similar  transaction  involving the Company (in the case of the
Company) or merger,  consolidation or similar transaction  involving Parent upon
consummation  of which the holders of Parent  Common Stock will not own at least



                                      - 36 -





50% of the common stock of Parent or, if Parent is not the surviving entity, the
combined entity (in the case of Parent),  (B) sale,  lease or other  disposition
directly or indirectly by merger, consolidation,  share exchange or otherwise of
assets of the  Company  (in the case of the  Company)  or Parent (in the case of
Parent) or its subsidiaries  representing 15% or more of the consolidated assets
of the Company and its  subsidiaries (in the case of the Company) or 50% or more
of the  consolidated  assets  of  Parent  and its  subsidiaries  (in the case of
Parent),  (C) issue,  sale, or other disposition of (including by way of merger,
consolidation,  share exchange or any similar  transaction),  or acquisition of,
securities  (or  options,   rights  or  warrants  to  purchase,   or  securities
convertible into, such securities)  representing 15% or more of the voting power
of the Company (in the case of the  Company) or 50% or more of the voting  power
of Parent (in the case of Parent).

         (b)  Notwithstanding  anything in this Merger Agreement to the contrary
(including  clause (a) of this Section 7.9), to the extent the Company or Parent
or its respective  Representatives  receive a  communication  with respect to an
Acquisition   Proposal  with  respect  to  it,  which  its  Board  of  Directors
determines,  after consultation with its financial  advisors,  may be reasonably
likely to result in a Superior  Proposal  (as defined  below) or, in the case of
Parent,  a  transaction  that  would not  otherwise  conflict  with this  Merger
Agreement,  including  Section 6.2(b),  such party and its  Representatives  may
engage in any negotiations  concerning,  or provide any confidential information
or  data  to,  or  have  any  discussions  with,  any  person  relating  to such
Acquisition  Proposal,  or otherwise facilitate any effort or attempt to make or
implement such Acquisition  Proposal;  provided,  however, that upon engaging in
such  negotiations  or  discussions,  providing  such  information  or otherwise
facilitating  any  effort  or  attempt  to make or  implement  such  Acquisition
Proposal,  the  Company or Parent (as the case may be) shall give  notice to the
other  of its  engagement  in such  activities.  For  purposes  of  this  Merger
Agreement,  the term "Superior  Proposal" means,  with respect to each of Parent
and the Company,  any Acquisition  Proposal with respect to it (and for purposes
of this  definition  of the term  "Superior  Proposal",  the  term  "Acquisition
Proposal"  with  respect  to the  Company  shall have the  meaning  set forth in
Section  7.9(a) except that the references to "15%" in such Section 7.9(a) shall
be deemed  references to "50%") that is more favorable to its shareholders  than
the Merger  (taking into  account the nature of the  Acquisition  Proposal,  the
nature and amount of the  consideration,  the  likelihood of completion  and any
other factors deemed appropriate by the Board of Directors). Prior to furnishing
nonpublic information to, or entering into discussions or negotiations with, any
other  persons  or  entities,  the  Company or Parent (as the case may be) shall
enter into a customary  confidentiality agreement with such person or entity, it
being understood that such  confidentiality  agreement (x) shall not include any
provision  calling for an exclusive right to negotiate with such party, (y) need
not contain  "standstill" or similar  provisions and such party shall advise the
other of the  nature of such  nonpublic  information  delivered  to such  person
reasonably promptly following its delivery to the requesting party.

         (c)  Nothing  contained  herein,  including  this  Section  7.9,  shall
prohibit Parent or the Company from taking and disclosing to its  shareholders a
position  contemplated  by Rule 14e-2(a)  promulgated  under the Exchange Act or
from making any disclosure to its  shareholders if in the good faith judgment of
its Board of Directors,  after consultation with outside counsel,  failure so to
disclose  would be  inconsistent  with its  obligations  under  applicable  law;
provided,  however, that neither Parent nor the Company, as the case may be, nor



                                      - 37 -




its Board of Directors nor any committee  thereof shall  withdraw or modify,  or
propose publicly to withdraw or modify, its position with respect to this Merger
Agreement, or approve or recommend, or propose publicly to approve or recommend,
an  Acquisition  Proposal  with  respect to it.  This  Section  7.9(c)  does not
prohibit the termination of this Merger Agreement as specified in Section 9.1(j)
in the case of the Company or Section 9.1(k) in the case of Parent.

Section 7.10 Accountants' Letters. (a) The Company shall use its reasonable best
efforts to cause to be  delivered to Parent a letter from Arthur  Andersen  LLP,
dated  within  two  business  days  before  the date on which  the  Registration
Statement shall become effective and addressed to Parent,  in form and substance
reasonably  satisfactory  to Parent and  customary  in scope and  substance  for
comfort letters delivered by independent  public  accountants in connection with
registration statements similar to the Registration Statement.

(b) Parent shall use its reasonable best efforts to cause to be delivered to the
Company a letter from Ernst & Young LLP,  dated within two business  days before
the  date on  which  the  Registration  Statement  shall  become  effective  and
addressed to the Company, in form and substance  reasonably  satisfactory to the
Company and customary in scope and substance  for comfort  letters  delivered by
independent  public  accountants  in  connection  with  registration  statements
similar to the Registration Statement.

Section 7.11 Pooling of Interests.  Each of Parent and the Company shall use its
reasonable best efforts to cause the Merger to be accounted for as a "pooling of
interests",  and  such  accounting  treatment  to be  accepted  by  each  of the
Company's and Parent's  independent  certified  public  accountants,  and by the
Commission,  respectively,  and each of Parent and the  Company  agrees  that it
shall voluntarily take no action that would cause such accounting  treatment not
to be obtained.

Section 7.12 Trust Preferred Securities.  Parent shall take all actions required
in connection with the  transactions  contemplated  by this Merger  Agreement to
provide for the  compliance by the Company with Section 13.04 of the  Indenture,
dated as of April 14,  1998,  between the  Company and The Bank of New York,  as
Trustee, governing the Trust Preferred Securities.

Section  7.13   Parent  Board of  Directors.  The Board of  Directors  of Parent
shall  take such  action as may be necessary (including  increasing  the size of
the  Board of  Directors  of  Parent)  to  appoint  to the Board of Directors of
Parent as of the Effective Date John W. Guffey,  Jr. and two other  directors of
the Company  selected by the Board of Directors of Parent.

Section 7.14 Post-Merger  Operations.  Following the Effective Date,  Parent and
the  Surviving  Corporation's  principal  executive  offices shall be located in
Charlotte, North Carolina.

         Section  7.15  Tax  Representation  Letters.  For  purposes  of the tax
opinions described in Sections 8.2(b) and 8.3(b) of this Merger Agreement,  each
of Parent and the Company shall provide representation letters, substantially in
the form of  Exhibits  E and F,  each  dated on or  about  the date  that is two
business  days  prior  to  the  date  the  Proxy  Statement  is  mailed  to  the
shareholders of the Company and reissued as of the Effective Date.



                                      - 38 -





                  Section 7.16  Transfer  Taxes.  All state,  local,  foreign or
provincial sales, use, real property transfer,  stock transfer or similar taxes,
including any interest or penalties with respect  thereto,  attributable  to the
Merger shall be paid by the Company.

                                  ARTICLE VIII
                              CONDITIONS PRECEDENT

Section 8.1  Conditions  to Each Party's  Obligation  to Effect the Merger.  The
respective  obligations  of each party to effect the Merger  shall be subject to
the fulfillment or waiver by each party at or prior to the Effective Date of the
following conditions:

(a) This Merger  Agreement  shall have been adopted by the requisite vote of the
holders of the Company Common Stock.

(b) The Stock  Issuance  Proposal shall have been approved by the requisite vote
of the holders of Parent Common Stock.

(c) The Parent  Common Stock  issuable in the Merger shall have been  authorized
for listing on the NYSE upon official notice of issuance.

(d) The waiting periods  applicable to the  consummation of the Merger under the
HSR Act and the  Competition  Act (Canada) shall have expired or been terminated
and all other Company  Required  Consents and Parent  Required  Consents in each
case required to be obtained prior to consummation of the Merger shall have been
obtained,  except  where the  failure  to obtain  such  other  Company  Required
Consents or Parent Required Consents would not have a Material Adverse Effect on
the Company or Parent, as the case may be.

(e) The  Registration  Statement shall have become  effective in accordance with
the  provisions  of  the  Securities  Act  and  no  stop  order  suspending  the
effectiveness  of the  Registration  Statement  shall  have  been  issued by the
Commission and remain in effect.

(f) No preliminary or permanent  injunction or other order by any court or other
Governmental Entity of competent jurisdiction  (collectively,  "Restraints") (i)
prohibiting  or  preventing  the  consummation  of the Merger or (ii)  requiring
Parent or the Company to hold separate or to divest any of the business, product
lines or assets of Parent or the Company or any of their respective subsidiaries
or take any other action, if such holding separate,  divestiture or other action
would have a Material  Adverse Effect on Parent or the Company,  shall have been
issued and remain in effect;  provided,  however, that each of the parties shall
have used its best  efforts to prevent the entry of any such  Restraints  and to
appeal as promptly as possible any such Restraints that may be entered



                                      - 39 -





(g) Parent and the Company  shall have  received  letters from Ernst & Young LLP
and Arthur  Andersen LLP,  respectively,  dated as of the Effective  Date to the
effect that such firm  concurs  with  management's  conclusion  that,  as of the
Effective Date, no conditions  exist that would preclude such party from being a
party to a business  combination  for which  "pooling of  interests"  accounting
treatment  would be  available if  consummated  in  accordance  with this Merger
Agreement.

Section 8.2  Conditions to  Obligation of the Company to Effect the Merger.  The
obligation  of the  Company  to  effect  the  Merger  shall  be  subject  to the
fulfillment  at or  prior  to the  Effective  Date of the  additional  following
conditions, unless waived by the Company:

(a) (i) Parent and Sub shall  have  performed  in all  material  respects  their
agreements  contained  in this Merger  Agreement  required to be performed on or
prior to the  Effective  Date and (ii) the  representations  and  warranties  of
Parent and Sub contained in this Merger  Agreement shall be true in all respects
when made and on and as of the Effective Date as if made on and as of such date,
except for  representations and warranties which are by their express provisions
made as of a specific date or dates,  which were or will be true in all respects
at such  time or times as stated  therein  (provided  that,  in each  case,  the
condition set forth in this Section 8.2(a)(ii) shall be deemed satisfied so long
as any failures of such  representations  and warranties to be true and correct,
taken  together,  would not have a Material  Adverse Effect on Parent),  and the
Company shall have received a  certificate  of the President or Chief  Executive
Officer or a Vice President of Parent and Sub, respectively, to that effect.

(b) The  Company  shall have  received an opinion  substantially  in the form of
Exhibit  C of  Cravath,  Swaine & Moore,  counsel  to the  Company,  dated  the
Effective Date, to the effect that the Merger will constitute a "reorganization"
for federal  income tax  purposes  within the  meaning of Section  368(a) of the
Code.  In rendering  such  opinion,  such counsel shall be entitled to rely upon
representations  provided by the  parties  hereto  substantially  in the form of
Exhibits E and F.

Section 8.3  Conditions to  Obligations  of Parent and Sub to Effect the Merger.
The  obligations  of Parent and Sub to effect the Merger shall be subject to the
fulfillment  at or  prior  to the  Effective  Date of the  additional  following
conditions, unless waived by Parent:

(a) (i) The Company shall have performed in all material respects its agreements
contained in this Merger  Agreement  required to be performed on or prior to the
Effective  Date and (ii)  the  representations  and  warranties  of the  Company
contained in this Merger  Agreement  shall be true in all respects when made and
on and as of the  Effective  Date as if made on and as of such date,  except for
representations  and warranties which are by their express provisions made as of
a specific date or dates which were or will be true in all respects at such date
or dates  (provided  that, in each case, the condition set forth in this Section
8.3(a)(ii)   shall  be  deemed  satisfied  so  long  as  any  failures  of  such
representations and warranties to be true and correct, taken together, would not
have a Material  Adverse  Effect on the Company),  and Parent and Sub shall have
received a  certificate  of the President or Chief  Executive  Officer or a Vice
President of the Company to that effect.



                                      - 40 -





(b) The Parent  shall have  received  an  opinion  substantially  in the form of
Exhibit D of Squire,  Sanders & Dempsey  L.L.P.,  counsel  to Parent,  dated the
Effective Date, to the effect that the Merger will constitute a "reorganization"
for federal  income tax  purposes  within the  meaning of Section  368(a) of the
Code.  In rendering  such  opinion,  such counsel shall be entitled to rely upon
representations  provided by the  parties  hereto  substantially  in the form of
Exhibits E and F.

8.4 Frustration of Closing  Conditions.  No party may rely on the failure of any
condition  set  forth in  Section  8.1,  8.2 or 8.3,  as the case may be,  to be
satisfied if such failure  results from such party's  breach of any provision of
this Merger  Agreement or the failure of such party to use its  reasonable  best
efforts to cause the Merger to be consummated.


                                   ARTICLE IX
                        TERMINATION, AMENDMENT AND WAIVER

Section 9.1  Termination.  This Merger  Agreement  may be terminated at any time
prior  to  the  Effective  Date,   whether  before  or  after  approval  by  the
shareholders of the Company:

(a)      by mutual consent of Parent and the Company;

(b) by  either  Parent  or the  Company  if  the  Merger  shall  not  have  been
consummated on or before March 31, 2000; provided, that the terminating party is
not  otherwise in material  breach of its  covenants  hereunder and none of such
terminating party's  representations and warranties  contained herein, which are
qualified as to  materiality,  shall be inaccurate  in any respect,  and none of
such terminating party's  representations and warranties contained herein, which
are not so qualified, shall be inaccurate in any material respect, in each case,
as  if  made  as  of  the  date  of  such  purported   termination  (except  for
representations  and  warranties  that by their express  provisions are or shall
have  been  made as of a  specific  date or dates,  which  shall  only be deemed
inaccurate  to the  extent  that they were  inaccurate  at such  times as stated
therein);

(c) by either Parent or the Company if the adoption by the  shareholders  of the
Company of this  Merger  Agreement  shall not have been  obtained at the Company
Meeting or at any adjournment or postponement thereof;

(d) by either  Parent or the  Company if the  approval  by the  shareholders  of
Parent of the Stock Issuance Proposal shall not have been obtained at the Parent
Meeting or at any adjournment or postponement thereof;

(e) by the Company if any of the  conditions  specified  in Sections 8.1 and 8.2
have not been met or waived by the Company at such time as such  condition is no
longer capable of satisfaction;

(f) by Parent if any of the  conditions  specified  in Sections 8.1 and 8.3 have
not been met or waived by  Parent  at such time as such  condition  is no longer
capable of satisfaction;



                                      - 41 -





(g) by Parent if the  Company's  Board of  Directors  shall have (i) accepted or
resolved to accept a Superior  Proposal  (provided  that the  Company  shall not
accept or resolve to accept a Superior  Proposal  unless (x) it provides  Parent
with notice of the  material  terms of such  proposal at least two days prior to
such acceptance and (y) at the time of such acceptance the Board of Directors of
the  Company  determines  in good faith  that such  proposal  continues  to be a
Superior  Proposal after taking into account any  amendments  Parent and Sub may
have  offered to make to this Merger  Agreement)  or (ii)  refused to affirm its
recommendation concerning the Merger referred to in Section 3.7(a) hereof within
10 business  days after  receipt of any written  request from Parent to do so at
any time when an  Acquisition  Proposal  with respect to the Company  shall have
been made and not rejected by the Company's Board of Directors;

(h) by Parent or the  Company if any  Restraint  having any of the  effects  set
forth in  Section  8.1(f)  shall be in effect and shall  have  become  final and
nonappealable;  provided,  however,  that the party  seeking to  terminate  this
Merger Agreement  pursuant to this Section 9.1(h) shall have used its reasonable
best efforts to prevent the entry of and to remove such Restraint;

(i) by the Company if Parent's  Board of  Directors  shall have (i)  accepted or
resolved to accept a Superior  Proposal  contemplating  the  termination of this
Merger  Agreement  (provided that Parent shall not accept or resolve to accept a
Superior Proposal unless (x) it provides the Company with notice of the material
terms of such proposal at least two days prior to such acceptance and (y) at the
time of such  acceptance  the Board of  Directors of Parent  determines  in good
faith that such proposal  continues to be a Superior  Proposal after taking into
account  any  amendments  the  Company  may have  offered to make to this Merger
Agreement)  or (ii) refused to affirm its  recommendation  concerning  the Stock
Issuance  Proposal  referred to in Section 3.7(b) hereof within 10 business days
after receipt of any written  request from the Company to do so at any time when
an  Acquisition  Proposal  with  respect to Parent  shall have been made and not
rejected by Parent's Board of Directors;

(j) by the Company if the Board of  Directors  of the  Company  has  accepted or
resolved to accept a Superior  Proposal;  provided  that the  Company  shall not
accept or resolve to accept a Superior  Proposal  unless (i) it provides  Parent
with notice of the  material  terms of such  proposal at least two days prior to
such  acceptance and (ii) at the time of such  acceptance the Board of Directors
of the Company  determines  in good faith that such proposal  continues to be a
Superior  Proposal after taking into account any  amendments  Parent and Sub may
have offered to make to this Merger Agreement; or

(k) by Parent if the Board of  Directors  of Parent has  accepted or resolved to
accept a Superior Proposal;  provided that Parent shall not accept or resolve to
accept a Superior Proposal unless (i) it provides the Company with notice of the
material  terms of such proposal at least two days prior to such  acceptance and
(ii) at the time of such acceptance the Board of Directors of Parent  determines
in good faith that such  proposal  continues  to be a  Superior  Proposal  after
taking into account any  amendments the Company may have offered to make to this
Merger Agreement.



                                      - 42 -





Section  9.2  Effect of  Termination.  (a) In the event of  termination  of this
Merger Agreement by either Parent or the Company, as provided above, this Merger
Agreement shall forthwith  become void and (except (x) for the willful breach of
this Merger  Agreement  by, or fraud of, any party hereto and (y) as provided in
the  proviso  to  Section  9.2(c) or  9.2(e),  respectively)  there  shall be no
liability on the part of either the Company,  Parent or Sub or their  respective
directors  or  officers;  provided  that the last  sentence of Section  7.1, and
Sections 9.2 and 10.2 shall survive the termination.

         (b)  Unless (x) any of the  representations  and  warranties  of Parent
contained  herein,  which  are  qualified  as to  materiality,  were or shall be
inaccurate  in any respect,  or any of the  representations  and  warranties  of
Parent contained herein, which are not so qualified, were or shall be inaccurate
in any  material  respect,  in each  case,  when  made and as of the date of any
termination  of  this  Merger  Agreement,  as if  made  as of the  date  of such
termination  (except for  representations  and warranties  that by their express
provisions  are made as of a specific date or dates,  which shall only be deemed
inaccurate  to the extent that they were or shall have been  inaccurate  at such
times as stated therein),  respectively, or (y) at the time of such termination,
Parent is in material breach of any covenant contained herein, the Company shall
make a payment to Parent (by wire  transfer or cashiers  check) of a breakup fee
in the  amount of $45  million  (the  "Termination  Fee") (i) in the event  this
Merger  Agreement is terminated  pursuant to Section 9.1(g) or Section 9.1(j) or
(ii) in the event this Merger  Agreement  is  terminated  following  the Company
Meeting  pursuant to Section 9.1(c) and an Acquisition  Proposal with respect to
the  Company  shall have been  publicly  disclosed  to the  shareholders  of the
Company (and not  withdrawn  or  terminated)  prior to the Company  Meeting and,
within 12 months after such  termination of this Merger  Agreement,  the Company
shall have  entered  into an  agreement  providing  for the  consummation  of an
Acquisition  Proposal with respect to the Company (it being  understood  that no
confidentiality   agreement  with  respect  to  an  Acquisition  Proposal  shall
constitute  such an  agreement) or an  Acquisition  Proposal with respect to the
Company shall have been  consummated.  For purposes of this Section 9.2(b),  the
term  Acquisition  Proposal  shall have the meaning set forth in Section  7.9(a)
except  that the  references  to "15%" in such  Section  7.9(a)  shall be deemed
references to "50%".

         (c) The  Company  shall make a payment to Parent (by wire  transfer  or
cashiers check) of an expense  reimbursement fee in the amount of $5 million (i)
in the event the  Termination  Fee becomes  due and payable  pursuant to Section
9.2(b) or (ii) in the event this  Merger  Agreement  is  terminated  pursuant to
Section  9.1(f) and at the time of such  termination  the Company is in material
breach of any  representation,  warranty  or  material  covenant  of the Company
contained herein;  provided, that, in the event the expense reimbursement fee is
payable   pursuant  to  the  foregoing  clause  (ii)  of  this  Section  9.2(c),
notwithstanding Section 9.2(a) or the termination of this Merger Agreement,  the
Company shall remain liable for, and no payment pursuant to the foregoing clause
(ii) of this Section  9.2(c) shall  release the Company  from,  any liability or
damage suffered or incurred by Parent to the extent any such liability or damage
exceeds the amount of such expense reimbursement fee.

         (d) Unless (x) any of the representations and warranties of the Company
contained  herein,  which  are  qualified  as to  materiality,  were or shall be
inaccurate in any respect,  or any of the  representations and warranties of the
Company  contained  herein,  which  are  not so  qualified,  were  or  shall  be
inaccurate in any material  respect,  in each case, when made and as of the date



                                      - 43 -




of any termination of this Merger  Agreement,  as if made as of the date of such
termination  (except for  representations  and warranties  that by their express
provisions  are made as of a specific date or dates,  which shall only be deemed
inaccurate  to the extent that they were or shall have been  inaccurate  at such
times as stated therein),  respectively, or (y) at the time of such termination,
the Company is in material breach of any covenant contained herein, Parent shall
make  a  payment  to  Company  (by  wire  transfer  or  cashiers  check)  of the
Termination Fee (i) in the event this Merger Agreement is terminated pursuant to
Section 9.1(i) or Section  9.1(k) or (ii) in the event this Merger  Agreement is
terminated  following  the Parent  Meeting  pursuant  to  Section  9.1(d) and an
Acquisition  Proposal with respect to Parent shall have been publicly  disclosed
to the  shareholders  of Parent (and not withdrawn or  terminated)  prior to the
Parent  Meeting  and,  within 12 months  after such  termination  of this Merger
Agreement,  Parent  shall  have  entered  into an  agreement  providing  for the
consummation  of an  Acquisition  Proposal  with  respect  to  Parent  (it being
understood  that no  confidentiality  agreement  with respect to an  Acquisition
Proposal shall  constitute  such an agreement) or an  Acquisition  Proposal with
respect to Parent shall have been consummated.

         (e)  Parent  shall  make a payment  to  Company  (by wire  transfer  or
cashiers check) of an expense  reimbursement fee in the amount of $5 million (i)
in the event the  Termination  Fee becomes  due and payable  pursuant to Section
9.2(d) or (ii) in the event this  Merger  Agreement  is  terminated  pursuant to
Section 9.1(e) and at the time of such termination  Parent is in material breach
of any representation, warranty or material covenant contained herein; provided,
that,  in the event the  expense  reimbursement  fee is payable  pursuant to the
foregoing clause (ii) of this Section 9.2(e),  notwithstanding Section 9.2(a) or
the termination of this Merger Agreement, Parent shall remain liable for, and no
payment  pursuant to the  foregoing  clause (ii) of this  Section  9.2(e)  shall
release Parent from, any liability or damage suffered or incurred by the Company
to the extent any such  liability  or damage  exceeds the amount of such expense
reimbursement fee.

Section  9.3  Amendment.  This  Merger  Agreement  may be amended by the parties
hereto at any time before or after approval  hereof by the  shareholders  of the
Company or Parent, but, after such approval, no amendment shall be made which by
law  requires  further  approval  by the  shareholders  of the Company or Parent
without such further  approval.  This Merger Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.

Section 9.4 Waiver.  At any time prior to the Effective Date, the parties hereto
may (i) extend the time for the  performance of any of the  obligations or other
acts  of  the  other  parties  hereto,   (ii)  waive  any  inaccuracies  in  the
representations  and warranties  contained herein or in any documents  delivered
pursuant  hereto  or  (iii)  waive  compliance  with  any of the  agreements  or
conditions  contained herein;  provided,  however,  that no such waiver shall be
given that by law requires  further  approval by the shareholders of the Company
or Parent without such further  approval  having been obtained.  No agreement on
the part of a party hereto to any such extension or waiver shall be valid unless
set forth in an instrument in writing signed on behalf of such party.



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                                    ARTICLE X
                               GENERAL PROVISIONS

Section  10.1  Notices.  All notices or other  communications  under this Merger
Agreement  shall be in  writing  and shall be given (and shall be deemed to have
been duly given upon  receipt)  by  delivery in person,  by  overnight  courier,
telecopy,  or by registered or certified mail,  postage prepaid,  return receipt
requested, addressed as follows:

             If to the Company:

             Coltec Industries Inc
             3 Coliseum Centre
             2550 West Tyvola Road
             Charlotte, NC  28217

             Attention:   Corporate Secretary
                          Fax:  (704) 423-7011

             With copies to:

             Cravath, Swaine & Moore
             825 Eighth Avenue
             New York, NY  10019

             Attention:   George W. Bilicic, Jr., Esq. and Allen Finkelson, Esq.
                          Fax:  (212) 474-3700

            If to Parent or Sub:

            The B.F.Goodrich Company
            4020 Kinross Lakes Pkwy.
            Richfield, OH  44286-9368

            Attention:    Terrence G. Linnert
                          Sr. Vice President and General Counsel
                          Fax:  (330) 659-7737

            With a copy to:
            Squire, Sanders & Dempsey L.L.P.
            4900 Key Tower
            127 Public Square
            Cleveland, Ohio  44114-1304

            Attention:    Gordon S. Kaiser, Esq.
                          Fax:  (216) 479-8780

or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.



                                      - 45 -





Section 10.2 Fees and Expenses.  Whether or not the Merger is  consummated,  all
costs and expenses  incurred in  connection  with this Merger  Agreement and the
transactions  contemplated  by this Merger  Agreement shall be paid by the party
incurring such expenses, except that Parent and Company agree to each pay 50% of
all printing,  mailing and delivery  expenses  incurred by the parties hereto in
connection with the Proxy Statement.

Section 10.3 Publicity.  So long as this Merger Agreement is in effect,  Parent,
Sub and the  Company  agree to  consult  with each  other in  issuing  any press
release  or  otherwise   making  any  public   statement  with  respect  to  the
transactions contemplated by this Merger Agreement, and none of them shall issue
any press  release  or make any  public  statement  prior to such  consultation,
except as may be required by law.

Section 10.4 Specific  Performance.  The parties  hereto agree that  irreparable
damage  would  occur in the  event  that any of the  provisions  of this  Merger
Agreement  were not performed in accordance  with their  specific  terms or were
otherwise  breached.  It is accordingly  agreed that the parties hereto shall be
entitled to an  injunction  or  injunctions  to prevent  breaches of this Merger
Agreement and to enforce  specifically  the terms and  provisions  hereof in any
court of the  United  States or any state  having  jurisdiction,  this  being in
addition to any other remedy to which they are entitled at law or in equity.

Section  10.5  Interpretation.  (a)  When a  reference  is made  in this  Merger
Agreement  to  subsidiaries  of Parent or the Company,  the word  "subsidiaries"
means  corporations  more than 50% of whose  outstanding  voting  securities are
directly or indirectly  owned by Parent or the Company,  as the case may be. The
table of  contents  and  headings  contained  in this Merger  Agreement  are for
reference  purposes  only  and  shall  not  affect  in any  way the  meaning  or
interpretation of this Merger  Agreement.  When reference is made in this Merger
Agreement to Articles,  Sections, Schedules or Exhibits, such reference shall be
to an Article,  Section,  Schedule or Exhibit of this Merger  Agreement,  as the
case  may  be,  unless  otherwise  indicated.   Whenever  the  words  "include",
"includes" or "including" are used in this Merger Agreement and are not followed
by the words  "without  limitation",  they shall be deemed to be followed by the
words "without  limitation."  The words  "hereof",  "herein" and "hereunder" and
words of similar import when used in this Merger  Agreement  shall refer to this
Merger  Agreement as a whole and not to any particular  provision of this Merger
Agreement.  Whenever "or" is used in this Merger Agreement it shall be construed
in the nonexclusive sense. The phrases "transactions contemplated by this Merger
Agreement" and  "transactions  contemplated  hereby" shall include  transactions
contemplated by the Cross Stock Option Agreements.

         (b) As used in this Merger  Agreement,  any  reference  to any state of
facts,  event,  change or effect having a "Material  Adverse  Effect" on or with
respect to any party, as the case may be, shall mean such state of facts, event,
change or effect  that has had,  or would  reasonably  be  expected  to have,  a
material adverse effect on the business,  properties,  financial  condition,  or
results  of  operations  of such  party  and its  subsidiaries  taken as a whole
(excluding  any state of facts,  event,  change  or effect  relating  to (i) the
economy or  securities  markets in general,  (ii) this Merger  Agreement  or the
transactions  contemplated  hereby  or the  announcement  thereof  or (iii)  the
aerospace industry in general).

         (c) As used in this Merger  Agreement,  "knowledge"  shall  mean,  with
respect to the matter in  question,  the actual  knowledge of such matter by any
executive officer of Parent or the Company, as applicable.



                                      - 46 -





         (d) The  inclusion of an item on any schedule to this Merger  Agreement
shall not be deemed to be indicative of the materiality of such item.

Section 10.6 Parties in Interest; No Assignment; Third Party Beneficiaries.  (a)
This Merger  Agreement  shall be binding upon and inure solely to the benefit of
each party hereto, and their respective successors and permitted assigns. Except
as  expressly  provided  for in  this  Merger  Agreement,  neither  this  Merger
Agreement  nor the rights or  obligations  of any party  hereto are  assignable,
except by  operation  of law or with the  written  consent  of the other  party.
Except  as  expressly  provided  in  Section  10.6(b),  nothing  in this  Merger
Agreement,  express or implied, is intended to confer upon any person other than
the parties hereto and their respective permitted assigns any rights or remedies
hereunder.

         (b) The provisions of Sections 3.2,  7.5(a),  7.5(c) and 7.6 hereof and
Section 7.5 of the Company  Disclosure  Schedule  (i) are intended to be for the
benefit of, and will be enforceable by, each individual  benefitted  thereunder,
his or her heirs and his or her representatives and (ii) are in addition to, and
not in substitution for, any other rights,  including rights to  indemnification
or contribution, that any such person may have by contract or otherwise.

Section 10.7 Miscellaneous.  This Merger Agreement  (including the documents and
instruments  referred  to  herein)  (a)  constitutes  the entire  agreement  and
supersedes all other prior agreements and understandings, both written and oral,
among the parties,  or any of them,  with respect to the subject  matter  hereof
(other than the Confidentiality  Agreement, as the same may be amended); and (b)
shall be  governed  in all  respects,  including  validity,  interpretation  and
effect,  by the laws of the Commonwealth of Pennsylvania  (without giving effect
to the  provisions  thereof  relating to conflicts of law to the extent that the
application of the laws of another jurisdiction would be required thereby). This
Merger  Agreement  may be executed in two or more  counterparts  which  together
shall  constitute  a  single  agreement  and  each of which  shall  only  become
effective  when one or more  counterparts  have been  signed  by each  party and
delivered to the other parties.

Section  10.8 Cure  Period.  No party  shall have any rights  under this  Merger
Agreement for any actual or  threatened  breach of a  representation,  warranty,
covenant  or  agreement  contained  herein,  if such  breach is capable of being
cured, until (i) the non-breaching party has notified the breaching party of its
determination  of  the  existence  (or  threatened  existence)  of a  basis  for
termination,  and  (ii)  the  breaching  party  shall  have  a  reasonable  time
(considering  the nature of the breach and the actions required for cure, but in
no event longer than 60 days) to cure such breach.

Section 10.9 Non-Survival of Representations and Warranties.  No representations
or warranties in this Merger Agreement shall survive the Effective Date.

Section 10.10 Validity.  (a) The invalidity or unenforceability of any provision
of this Merger Agreement shall not affect the validity or  enforceability of the
other provisions of this Merger Agreement,  which shall remain in full force and
effect.



                                      - 47 -



(b) In the event any court of competent jurisdiction holds any provision of this
Merger  Agreement to be null,  void or  unenforceable,  the parties hereto shall
negotiate  in good faith the  execution  and  delivery of an  amendment  to this
Merger Agreement in order, as nearly as possible,  to effectuate,  to the extent
permitted  by law,  the  intent  of the  parties  hereto  with  respect  to such
provision and the economic effects thereof.

(c) Each party agrees that, should any court of competent  jurisdiction hold any
provision  of  this  Merger  Agreement  or  part  hereof  to be  null,  void  or
unenforceable,  or order any party to take any action inconsistent  herewith, or
not take any action  required  herein,  the other party shall not be entitled to
specific  performance  of such  provision or part hereof or to any other remedy,
including but not limited to money  damages,  for breach thereof or of any other
provision of this Merger  Agreement or part hereof as the result of such holding
or order.

IN WITNESS  WHEREOF,  the parties hereto have caused this Merger Agreement to be
signed by their  respective  officers  thereunder  duly authorized all as of the
date first written above.

                                THE B.F.GOODRICH COMPANY


                                By:
                                     Name:  David L. Burner
                                     Title: Chairman and Chief Executive Officer


                                RUNWAY ACQUISITION CORPORATION


                                By:
                                     Name:  Terrence G. Linnert
                                     Title: Vice President


                                COLTEC INDUSTRIES INC


                                By:
                                     Name:  John W. Guffey, Jr. 
                                     Title: Chairman and Chief Executive Officer



                                      - 48 -