RELTEC CORP, S-1, 1998-01-15

RELTEC CORP
S-1, 1998-01-15

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1998

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

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

<TABLE>
<S> <C> <C>
DELAWARE 3661 94-3227019
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
Number)
</TABLE>

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

<TABLE>
<S> <C>
5900 LANDERBROOK DRIVE, SUITE 300 VALERIE A. GENTILE
CLEVELAND, OHIO 44124-4019 VICE PRESIDENT AND GENERAL COUNSEL
(440) 460-3600 RELTEC CORPORATION
(Address, including Zip Code, and Telephone 5900 LANDERBROOK DRIVE, SUITE 300
Number, including Area Code, of Registrant's CLEVELAND, OHIO 44124-4019
Principal Executive Offices) (440) 460-3600
(Name, Address, including Zip Code, and
Telephone Number, including Area Code,
of Agent for Service)
</TABLE>

COPIES TO:

<TABLE>
<S> <C>
RAYMOND Y. LIN VINCENT PAGANO, JR.
Latham & Watkins Simpson Thacher & Bartlett
885 Third Avenue 425 Lexington Avenue
New York, New York 10022 New York, New York 10017
(212) 906-1200 (212) 455-2000
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the effective
registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED OFFERING PRICE(1) FEE
<S> <C> <C>
Common Stock, $.01 par value...................................... $160,000,000 $47,200
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
------------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED JANUARY 14, 1998

RELTEC CORPORATION

COMMON STOCK
-----------------

OF THE SHARES OF COMMON STOCK OFFERED, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS AND
SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF THE UNITED STATES AND
CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE
SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------

APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "RLT."
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT

SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------

PRICE $ A SHARE
-------------------

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
PER SHARE................................. $ $ $
TOTAL (3)................................. $ $ $
</TABLE>

- ------------------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED THE U.S. UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF THE U.S.
UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
------------------------

THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SIMPSON THACHER & BARTLETT, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1998 AT THE OFFICE OF
MORGAN STANLEY & CO. INCORPORATED, NEW YORK, NEW YORK, AGAINST PAYMENT THEREFOR
IN IMMEDIATELY AVAILABLE FUNDS.
-------------------

MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY

GOLDMAN, SACHS & CO.
DEUTSCHE MORGAN GRENFELL
LEHMAN BROTHERS
J.P. MORGAN & CO.

, 1998
<PAGE>
[diagram of network architecture and
photographs of selected products]

RELTEC NETWORK ARCHITECTURE

2
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY
NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
OF THE SHARES OF COMMON STOCK OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION
IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH AN OFFERING OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 10
The Company...................................... 16
Use of Proceeds.................................. 16
Dividend Policy.................................. 17
Capitalization................................... 18
Dilution......................................... 19
Selected Consolidated Financial Data............. 20
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 23
Business......................................... 30
Management....................................... 43

Certain Relationships and Related Transactions... 55
Principal Stockholders........................... 57
Description of Certain Indebtedness.............. 58
Description of Capital Stock..................... 59
Shares Eligible for Future Sale.................. 61
Certain United States Tax Consequences to
Non-United States Holders...................... 62
Underwriters..................................... 66
Legal Matters.................................... 69
Experts.......................................... 69
Available Information............................ 70
Glossary......................................... G-1
Index to Financial Statements.................... F-1
</TABLE>

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

The Company intends to furnish its stockholders annual reports containing
audited consolidated financial statements examined by an independent accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing interim unaudited consolidated financial information.

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

RELTEC-Registered Trademark- [LOGO], Advanced Copper Solutions-SM-, Deep
Fiber Solutions-SM-, DISCHS-Registered Trademark-, FIBERCAST-TM-, FIBERSTHR-TM-,
Lorain-Registered Trademark-, MatrixExpress-TM-, Rainford-TM-, Reliable
Electric-Registered Trademark- and Vortex-TM- are trademarks or service marks of
the Company. All other trademarks, service marks or brand names appearing in
this Prospectus are the property of their respective holders.

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

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."

3
<PAGE>
PROSPECTUS SUMMARY

THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS OF A FORWARD-LOOKING NATURE
RELATING TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF THE COMPANY. IN
EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER
THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS, INCLUDING, BUT NOT LIMITED
TO, THE MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS," WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING
STATEMENTS. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE "GLOSSARY" BEGINNING ON PAGE G-1 FOR
DEFINITIONS OF VARIOUS ACRONYMS AND TECHNICAL TERMS USED IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS ASSUMES
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.

THE COMPANY

RELTEC Corporation ("RELTEC" or the "Company") is a leader in the design,
manufacture and sale of a broad range of telecommunications systems, products
and services to wireline and wireless service providers and OEMs in North
America and around the globe. Most of the Company's systems, products and
services can be found in the access portion of the telecommunications network,
also referred to as the local loop. The Company's systems, products and services
can be categorized as follows:

- - ACCESS SYSTEMS--The Company believes it is one of the top three U.S. suppliers
of next generation digital loop carrier (NGDLC) systems, which the Company
markets under the DISC*S brand name. In addition, RELTEC is a leader in
providing fiber-to-the-curb (FTTC) systems, with what it believes are more
installed FTTC lines in the United States than all other suppliers combined.
For the nine months ended September 30, 1997, Access Systems accounted for net
sales of $210.1 million, or 33.0% of the Company's total net sales.

- - INTEGRATED WIRELESS--The Company is one of the leading global independent
suppliers of integrated electro-mechanical subsystems used in outdoor wireless
base stations. These subsystems are sold to the major telecommunications OEMs
and wireless service providers and, together with the radio electronics
manufactured by the wireless OEMs, comprise what is commonly referred to as a
base station. RELTEC also designs and manufactures outside plant, power
systems, cabling and other products and provides installation services for
wireless OEMs and service providers. For the nine months ended September 30,
1997, Integrated Wireless accounted for net sales of $138.5 million, or 21.7%
of the Company's total net sales.

- - NETWORK COMPONENTS AND SERVICES--Network Components include: outside plant
products (enclosures, environmental control and heat management systems, and
advanced connection and protection products); power systems and modular power
products; network test and monitoring systems; and data networking racks.
Network Services include program management and aftermarket services. For the
nine months ended September 30, 1997, Network Components and Services
accounted for net sales of $288.8 million, or 45.3% of the Company's total net
sales.

The significant growth in voice, data and video communications traffic in
recent years has caused service providers to focus on increasing the bandwidth
of the public switched telephone network (PSTN). Transmission speed is limited
by the bandwidth of the "slowest" portion of the network, which is typically
found in the access segment. Until recently, technological solutions to improve
the performance of the access portion of the telephone network were generally
not cost effective for broad-based deployment by service providers. In the
current environment, however, the opportunity for telecommunications equipment
providers to increase the access network bandwidth is being driven by (i)
customer demand for improved data and wireless communications, (ii) the
emergence of new service providers, created by significant regulatory changes
and (iii) the emergence of cost-effective, new technologies which are enabling
increased bandwidth. As a result of the accelerating changes that are occurring
in the

4
<PAGE>
telecommunications industry, service providers are requiring flexible and
scalable solutions that not only meet their needs today but also will permit
easy, cost-effective enhancements in the future.

- - CAPITALIZE ON ESTABLISHED CUSTOMER RELATIONSHIPS -- The Company believes that
the longevity and breadth of its relationships with a number of major
customers provide competitive advantages. The Company intends to capitalize on
its longstanding relationships with major customers to introduce new system
solutions, products and services more rapidly than its competitors.

- - EXPAND GLOBAL PRESENCE -- RELTEC's global strategy is to increase its sales,
design, marketing and manufacturing capabilities within each major region of
the world, leveraging its existing customer relationships, product offerings
and technologies.

- - CONTINUE TO IMPROVE MARGINS AND QUALITY -- The Company is continuing to focus
on improving margins and further improving the quality of its systems and
products.

RELTEC sells its telecommunications systems, products and services to a
broad range of customers on a global basis. The Company's customers for its
Access Systems are primarily wireline telecommunications service providers such
as BellSouth, GTE, SBC Communications, Sprint and U S WEST. The customers for
the Company's Integrated Wireless products are primarily telecommunications OEMs
such as Nokia, Northern Telecom and Siemens. Network Components and Services are
sold to a wide range of telecommunications service providers, OEMs, cable
systems operators and distributors.

The Company has over 20 manufacturing and service locations in the United
States, Canada, China, Mexico and the United Kingdom. The Company has sales
offices and distributor relationships throughout North America, Europe, Latin
America and Asia/Pacific. For the nine months ended September 30, 1997,
approximately 24% of the Company's sales originated outside the United States.

Management and partnerships affiliated with Kohlberg Kravis Roberts & Co.,
L.P. ("KKR") purchased the Company in August 1995. Sales have grown from $514
million in 1995 to $839 million for the twelve months ended September 30, 1997,
a compounded annual growth rate of 32%.

5
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
U.S. Offering..................... shares

International Offering............ shares

Total..................... shares

Common Stock to be outstanding
after the Offering.............. shares(1)

Use of proceeds................... For repayment of approximately $ million of
indebtedness and for general corporate purposes. See
"Use of Proceeds."

Proposed New York Stock Exchange
symbol.......................... RLT
</TABLE>

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

(1) Excludes (i) 3,507,760 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1997, of which options to
purchase 1,101,776 shares were then exercisable and (ii) 4,200,000 shares of
Common Stock reserved for future issuance under the Company's stock plans.
See "Management--Benefit Plans."

RISK FACTORS

Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."

6
<PAGE>
SUMMARY FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

The following summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated and Combined Financial Statements and
the Notes thereto and the other information contained elsewhere in this
Prospectus. The summary historical combined financial data for the years ended
December 31, 1992, 1993 and 1994 are derived from the audited Combined Financial
Statements of the Company ("Predecessor B") prior to the acquisition of Reliance
Electric Company ("Reliance"), the former corporate parent of the Company, by
Rockwell International Corporation ("Rockwell") effective January 1, 1995 (the
"Rockwell Acquisition"). The pro forma financial data for the year ended
December 31, 1995 was derived from the audited combined financial statements of
the Company through July 31, 1995, prior to its acquisition by management and
KKR (the "RELTEC Acquisition"), and the audited consolidated financial
statements of the Company subsequent to the RELTEC Acquisition, giving effect to
the RELTEC Acquisition as if it had occurred on January 1, 1995. The RELTEC
Acquisition has been accounted for under the purchase method of accounting and
accounting adjustments in connection therewith have been reflected in the
financial data. Accordingly, the summary combined financial data of Predecessor
B are not comparable with the pro forma and Company's financial data subsequent
to January 1, 1995 in all respects.

The pro forma information reflects the impact of certain purchase accounting
adjustments such as depreciation of property, plant and equipment, amortization
of goodwill, intangibles and deferred financing fees, and interest expense
related to RELTEC Acquisition debt. The pro forma financial information for the
year ended December 31, 1995 excludes the impact of the Rockwell Acquisition and
the effect of nonrecurring purchase accounting charges related to acquired
in-process research and development.

The condensed consolidated financial information as of and for the nine
month periods ended September 30, 1996 and 1997 are unaudited, but in the
opinion of management contain all adjustments, which are of a normal recurring
nature, necessary to present fairly RELTEC's interim financial statements in
accordance with generally accepted accounting principles ("GAAP"). The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.

7
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>

<CAPTION>
PREDECESSOR B PRO FORMA(1)
1992 1993 1994 1995 1996 1996 1997
--------- ------------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $402.2 $438.1 $458.9 $513.8 $689.4 $488.2 $637.4
Cost of sales(2)........................ 279.7 309.6 322.3 361.6 482.9 337.8 452.3
--------- ------------- --------- ------------- --------- --------- ---------
Gross profit............................ 122.5 128.5 136.6 152.2 206.5 150.4 185.1
Operating expenses:
Research and product engineering...... 31.8 39.5 42.4 45.5 46.5 34.6 40.3
Selling and administrative............ 57.0 57.7 62.6 65.6 75.7 55.1 61.9
Goodwill and intangible
amortization........................ 12.8 12.5 12.7 20.9 24.5 15.9 23.7
Write-off of acquired in-process
research and development............ -- -- -- -- 8.9 8.9 0.7
Other expense (income)................ -- 4.7 0.8 0.9 (0.2) (2.1) 0.8
--------- ------------- --------- ------------- --------- --------- ---------
Total operating expenses 101.6 114.4 118.5 132.9 155.4 112.4 127.4
--------- ------------- --------- ------------- --------- --------- ---------
Operating income (loss)................. 20.9 14.1 18.1 19.3 51.1 38.0 57.7
Interest expense........................ 43.3 31.5 32.1 29.7 25.6 20.6 14.2
Income tax provision.................... 1.5 0.7 0.6 0.1 17.4 14.5 23.1
Cumulative effect of change in
accounting method and extraordinary
charge, net of tax benefit............ -- -- 1.3 -- 6.3 6.3 --
--------- ------------- --------- ------------- --------- --------- ---------
Net income (loss)....................... $ (23.9) $ (18.1 ) $ (15.9) $ (10.5 ) $ 1.8 $ (3.4) $ 20.4
--------- ------------- --------- ------------- --------- --------- ---------
--------- ------------- --------- ------------- --------- --------- ---------
Earnings per share...................... $ $
Weighted average shares outstanding.....
Earnings per share, as adjusted(3)...... $ $

OTHER FINANCIAL DATA:
Adjusted net income (loss)(4)(7)........ $ (23.9) $ (13.4 ) $ (13.8) $ (9.9 ) $ 17.8 $ 10.9 $ 21.1
Goodwill amortization................... 10.7 10.7 10.7 10.7 12.9 8.4 13.1
Intangible amortization(5).............. 2.1 1.8 2.0 6.7 7.1 4.6 6.5
--------- ------------- --------- ------------- --------- --------- ---------
Adjusted cash net income (loss)(6)(7)... $ (11.1) $ (0.9 ) $ (1.1) $ 7.5 $ 37.8 $ 23.9 $ 40.7
--------- ------------- --------- ------------- --------- --------- ---------
--------- ------------- --------- ------------- --------- --------- ---------

Adjusted EBITDA(8)...................... $ 42.5 $ 42.5 $ 42.2 $ 57.2 $ 103.9 $ 74.1 $ 97.3

Capital expenditures.................... 9.8 15.0 13.8 11.8 16.9 10.3 21.5
Depreciation expense.................... 8.8 11.2 10.6 16.1 18.1 12.7 15.2
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1997
----------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -----------
BALANCE SHEET DATA:
Working capital............................................................................. $ 117.5 $
Total assets................................................................................ 768.3
Total debt(9)............................................................................... 254.8
Stockholders' equity........................................................................ 340.1
</TABLE>

(FOOTNOTES ON NEXT PAGE)

8
<PAGE>
- ------------------------
(1) The pro forma financial information for the year ended December 31, 1995
gives effect to the RELTEC Acquisition as if it had occurred on January 1,
1995.

(2) For the year ended December 31, 1996, cost of sales includes nonrecurring
purchase accounting charges of $1.3 million related to the write-off of
inventory acquisition step-up.

(3) Earnings per share, as adjusted, represents earnings per share adjusted to
give the effect to the Offering as if it had occurred at the beginning of
the period indicated, including giving effect to the use of proceeds to
reduce indebtedness and the increase in the weighted average number of
shares (assuming no exercise of the Underwriters' over-allotment option).

(4) Adjusted net income (loss) excludes, on an after-tax basis, (i) nonrecurring
purchase accounting charges for the write-off of acquired in-process
research and development costs of $8.9 million in 1996 and $0.7 million for
the nine months ended September 30, 1997 and inventory acquisition step-up
of $1.3 million in 1996, (ii) the cumulative effect of a change in method of
accounting of $1.3 million in 1994, (iii) the write-off of deferred
financing fees of $6.3 million in 1996 and (iv) the nonrecurring other
income or other expense items discussed below. The nonrecurring items in
other income or expense consist of the following: (i) restructuring costs of
$4.7 million and $0.8 million incurred in 1993 and 1994, respectively, in
connection with a facility closing; (ii) for 1995 (pro forma), nonrecurring
costs of $0.9 million incurred subsequent to the RELTEC Acquisition in July
1995; and (iii) for 1996, (a) $2.5 million of other income received in
connection with a software settlement, (b) a $1.1 million charge for
employee severance pay and shut-down costs related to a facility closing and
(c) a $1.4 million facility relocation charge. The items set forth in
(iii)(a) and (iii)(b) above occurred during the nine months ended September
30, 1996 and the item set forth in (iii)(c) above occurred during the last
quarter of 1996. The tax effect of the nonrecurring items was an income tax
benefit of $0.3 million and $0.5 million in the year ended December 31, 1995
(pro forma) and 1996, respectively, and an income tax expense of $0.5
million for the nine months ended September 30, 1996. The tax effect was
calculated based on the Company's tax rate for the applicable period.

(5) Intangible amortization is presented net of taxes based on the Company's tax
rate for the applicable period. The tax effect on intangible amortization
was $3.5 million, $4.5 million, $2.9 million and $4.1 million for the year
ended December 31, 1995 (pro forma) and 1996 and the nine months ended
September 30, 1996 and 1997, respectively.

(6) Adjusted cash net income (loss) represents adjusted net income (loss)
excluding goodwill and intangible amortization expense.

(7) Management believes that in addition to cash flows and net income, adjusted
net income and adjusted cash net income are useful performance measures for
assessing the operating performance of the Company because, together with
net income and cash flows, adjusted net income and adjusted cash net income
provide investors with additional bases to evaluate the Company's financial
resources from operating activities. Adjusted net income and adjusted cash
net income do not represent net income or cash flows from operating,
financing and investing activities as defined by GAAP and do not necessarily
indicate that cash flows will be sufficient to fund cash needs. They should
not be considered as alternatives to net income as an indication of the
Company's operating performance or to cash flows as a measure of liquidity.

(8) EBITDA represents earnings before interest expense, income taxes,
depreciation and goodwill and intangible amortization expense. Adjusted
EBITDA represents EBITDA adjusted for the effects of other nonrecurring
expense (income) and nonrecurring purchase accounting charges described in
note (4) above, exclusive of tax effects. Management believes that in
addition to cash flows and net income, adjusted EBITDA is a useful
performance measure for assessing the operating performance of the Company
because, together with net income and cash flows, adjusted EBITDA provides
investors with an additional basis to evaluate the ability of the Company to
incur and service debt and to fund acquisitions and other capital
expenditures. Adjusted EBITDA does not represent net income or cash flows
from operating, financing and investing activities as defined by GAAP and
does not necessarily indicate that cash flows will be sufficient to fund
cash needs. It should not be considered as an alternative to net income as
an indication of the Company's operating performance or to cash flows as a
measure of liquidity.

(9) Includes $1.0 million of redeemable preferred stock.

9
<PAGE>
RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN, PROSPECTIVE INVESTORS
SHOULD CAREFULLY CONSIDER THE RISK FACTORS SET FORTH BELOW BEFORE MAKING AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS

Technology in the telecommunications equipment industry has evolved, and is
expected to continue to evolve, rapidly. The introduction of new products,
technologies and applications and the emergence of new industry standards can
render existing products or products in development obsolete. Rapid and
significant changes in technology have compelled telecommunications equipment
suppliers to invest significant amounts in new technology in order to remain
competitive. Any failure by the Company to anticipate or respond on a
cost-effective and timely basis to technological developments, changes in
industry standards or customer requirements, or any significant delays in
product development or introduction, could have a material adverse effect on the
Company's ability to compete in the telecommunications equipment industry.

UNCERTAIN MARKET FOR BROADBAND SYSTEMS

Although the Company has made significant investments in developing its
proprietary broadband systems, there can be no assurance that consumer demand
for, or customer purchases of, broadband platforms generally will reach the
levels or will occur at the times anticipated by the Company in the United
States or internationally. In addition, in the event of significant demand for
broadband technology, there can be no assurance that the Company's broadband
platform will be compatible with the industry standards ultimately adopted or
generally accepted for such systems. Development, customer acceptance and the
timing of such development or customer acceptance of new technologies and
applications is inherently uncertain, and there can be no assurance that systems
such as the Company's broadband platform will be commercially successful.

POTENTIAL FLUCTUATIONS IN FUTURE OPERATING RESULTS

The Company's operating results may fluctuate significantly from quarter to
quarter due to several factors, including, without limitation, the volume and
timing of orders from and shipments to major customers, the timing of new
product announcements by and the availability of products from the Company or
its competitors, the overall level of capital expenditures by public network
providers, market acceptance of new and enhanced versions of the Company's
products, variations in the mix of products, systems and services sold by the
Company or its sales channels and the availability and cost of key components.
The Company's expense levels are based in part on expectations of future
revenues. If revenue levels in a particular period do not meet expectations,
operating results will be adversely affected. In addition, the Company's results
of operations are subject to seasonal factors. The Company has historically
experienced a stronger demand for certain of its products at certain times
during the year, particularly its outdoor products, primarily as a result of
customer budget cycles and appropriate weather for installation of the Company's
systems.

LONG AND UNPREDICTABLE SALES CYCLES

The Company expects that the period of time between initial customer contact
with respect to the evaluation of the purchase of a product and an actual
purchase order may span a year or more. In addition, even when committed to
proceed with deployment of equipment, telecommunications carriers and service
providers typically undertake extensive and lengthy product evaluation and
factory acceptance and field testing of new equipment before purchasing and
installing any of it in their networks. Additionally, the purchase of network
equipment is typically carried out by network operators with multiyear
purchasing programs, which may increase or decrease annually as the operators
adjust their capital equipment budgets

10
<PAGE>
and purchasing priorities. The Company's customers do not typically share
information on the duration or magnitude of planned purchasing programs, nor do
they consistently provide to the Company advance notice of contemplated changes
in their capital equipment budgets and purchasing priorities. These
uncertainties substantially complicate the Company's manufacturing planning.
Curtailment or termination of customer purchasing programs, decreases in
customer capital budgets or reduction in the purchasing priority assigned to
equipment produced by the Company, particularly if significant and unanticipated
by the Company, could have a material adverse effect on the Company's business,
financial condition and results of operations.

COMPETITION

The telecommunications equipment industry is highly competitive, and the
Company believes that competition may increase substantially as the introduction
of new technologies, deployment of broadband networks and potential regulatory
changes create new opportunities for established and new companies in the
industry. In addition, a number of the Company's competitors have significantly
greater financial and other resources than the Company to meet new competitive
opportunities. RELTEC's Access Systems products compete in North America with
products offered by DSC Communications, Lucent Technologies, Northern Telecom
and Advanced Fibre Communications. In addition, the Company's Access Systems
products compete indirectly with companies that produce alternate technologies
such as PairGain Technologies, ADTRAN and ADC Telecommunications. RELTEC's
Integrated Wireless products compete primarily on a regional basis with Hoffman
Schroff, Rittal and Zero Corporation, as well as with a number of captive or
allied manufacturing companies serving telecommunications OEMs. Most of the
independent competitors for Integrated Wireless do not provide the same range of
integrated capabilities that the Company offers. RELTEC's Network Components and
Services compete by product and region with a variety of manufacturers and
service providers, the largest of which include Lucent Technologies, Northern
Telecom, Siecor, Raychem and Argus Technologies, as well as several other
telecommunications OEMs.

The rapid technological developments within the telecommunications industry
have resulted in frequent changes to the Company's group of competitors. The
Company believes its success in competing with other manufacturers of
telecommunications products depends primarily on its engineering, manufacturing
and marketing skills, the price, quality and reliability of its products and its
delivery and service capabilities. The Company may face increasing pricing
pressures from current and future competitors in certain or all of the markets
for its products and services.

The Company believes that technological change, the increasing addition of
data, video and other services to networks, continuing regulatory change and
industry consolidation or new entrants will continue to cause rapid evolution in
the competitive environment of the telecommunications equipment market, the full
scope and nature of which is difficult to predict. Increased competition could
result in price reductions, reduced margins and loss of market share by the
Company. The Company believes industry regulatory change may create new
opportunities for suppliers of telecommunications equipment; however, the
Company expects that such opportunities may attract increased competition from
others as well. The Company also believes that the rapid technological changes
which characterize the telecommunications industry will continue to make the
markets in which the Company competes attractive to new entrants. There can be
no assurance that the Company will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, operating results and
financial condition.

HISTORY OF NET LOSSES

For the years ended December 31, 1994, 1995 (pro forma) and 1996, the
Company incurred a net loss of $15.9 million and a net loss of $10.5 million and
had net income of $1.8 million, respectively. There can be no assurance that the
Company will not incur additional losses in the future.

11
<PAGE>
CHANGING REGULATORY ENVIRONMENT

The telecommunications industry is subject to regulation in the United
States and other countries. Federal and state agencies regulate most of the
Company's U.S. customers. The Company's business will be dependent upon the
telecommunications industry in the United States and internationally, which is
affected by regulation. Legislation has been adopted in the United States that
lifts certain restrictions on the ability of companies, including certain
customers of the Company, to compete with the Company. In particular, the RBOCs
are no longer prohibited from commercially manufacturing the types of equipment
and systems that the Company produces. The resulting effect of such legislation
on the market for the Company's products is difficult to predict at this time.
Changes in current or future laws or regulations in the United States or
elsewhere could have a material adverse effect on the Company's business,
financial condition and results of operations.

CUSTOMER CONCENTRATION

The universe of potential customers for the Company's products is relatively
limited. Moreover, increased competition among telecommunications companies has
produced a trend toward consolidation within the industry, absorbing some new
market entrants and reducing the number of existing telephone companies. As
companies combine operations, they may seek to realize economies of scale by
consolidating their network architectures or limiting the number of outside
suppliers of equipment. In the event that a significant existing customer of the
Company is merged with another telecommunications company, there can be no
assurance that such customer will continue to purchase its systems from the
Company. In 1997, sales to the Company's top five customers--BellSouth, GTE,
Nokia, SBC Communications and Sprint--represented approximately 46% of the
Company's total sales. Of these customers only BellSouth and Sprint accounted
for more than 10% of the Company's total sales during the same period. The loss
of a significant customer could have a material adverse effect on the Company's
business, financial condition or results of operations.

RESEARCH AND PRODUCT DEVELOPMENT

Management believes that the Company's success will depend on its ability to
develop and introduce in a timely manner new products and enhancements to its
existing products. The Company has announced the development of a number of new
products including its international NGDLC platform and small line size NGDLC
platforms. There can be no assurance that the Company will not experience
difficulties that could delay or prevent the successful development,
introduction or marketing of such new products and enhancements, or that its new
products and enhancements will adequately meet the requirements of the
marketplace and achieve market acceptance. Announcements of currently planned or
other new product offerings by the Company or its competitors may cause
customers to defer or cancel the purchase of existing Company products. The
Company's inability to develop on a timely basis new products or enhancements to
existing products, or the failure of such new products or enhancements to
achieve market acceptance, could have a material adverse effect on the Company's
business, financial condition and results of operations.

In addition, new products and enhancements offered by the Company may
contain undetected or unresolved errors when they are first introduced or as new
versions are released. There can be no assurance that despite extensive testing
by the Company, errors will not be found in new products or upgrades after
commencement of commercial shipments, resulting in delays in or loss of market
acceptance and sales, diversion of development resources, injury to the
Company's reputation or increased service and warranty costs, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.

12
<PAGE>
RISKS ASSOCIATED WITH ACQUISITIONS

The Company expects to continue to identify and acquire companies with
complementary products or services that may be expected to enhance the Company's
operations and profitability. However, there can be no assurance that the
Company will be able to acquire suitable acquisition targets on acceptable
terms. In addition, if the Company completes any such acquisitions, there can be
no assurance that the Company will be able to integrate the operations of any
acquired company successfully with existing operations or that any of such
acquisitions will prove profitable. Completed acquisitions may reduce the
financial resources available to the Company to invest in product development or
other internal growth.

INTERNATIONAL OPERATIONS

International sales accounted for 14%, 24% and 24% of the Company's net
sales in 1995, 1996 and the nine months ended September 30, 1997, respectively,
and the Company expects that international sales will increase as a percentage
of net sales in the future. In addition, the Company expects to commit
substantial resources to expand into new markets internationally. The Company
has manufacturing operations located in Canada, China, Mexico and the United
Kingdom. Due to its export sales and international manufacturing operations, the
Company is subject to the risks of conducting business internationally,
including unexpected changes in legislative or regulatory requirements, currency
fluctuations which could materially and adversely affect U.S. dollar revenues or
operating expenses, tariffs and other barriers and restrictions, potentially
longer payment cycles, greater difficulty in accounts receivable collection,
potentially adverse taxes, and the burdens of complying with a variety of
foreign laws and telecommunications standards. The Company also is subject to
general geopolitical risks, such as political and economic instability and
changes in diplomatic and trade relationships, in connection with its
international operations. There can be no assurance that such factors will not
have a material adverse effect on the Company's operations in the future or
require the Company to modify significantly its current business practices. In
addition, the laws of certain foreign countries may not protect the Company's
proprietary technology to the same extent as do the laws of the United States.
See "Business -- Manufacturing and Facilities."

POTENTIAL NEED FOR ADDITIONAL CAPITAL RESOURCES

The Company expects to fund its anticipated additional capital requirements
through existing resources, internally generated funds and additional debt or
equity financing as appropriate. There can be no assurance, however, that the
Company will be successful in producing sufficient cash flow or raising
additional debt or equity capital on terms that it will consider acceptable. In
addition, the Company's future capital requirements will depend upon a number of
factors, including research and development and marketing expenses, staffing
levels and customer growth, as well as other factors that will not be within the
Company's control such as competitive conditions or governmental regulation.
Failure to generate sufficient funds may have a material adverse effect on the
Company's business and results of operations.

INTELLECTUAL PROPERTY

The Company relies on a combination of patents, trade secrets, trademarks,
copyrights and other intellectual property law, nondisclosure agreements and
other protective measures to protect its proprietary rights. The Company also
utilizes unpatented proprietary know-how and trade secrets and employs various
methods to protect its trade secrets and know-how. Although the Company employs
a variety of intellectual property in the development and manufacturing of its
products, it believes that none of such intellectual property is individually
critical to its current operations. Taken as a whole, the Company believes its
intellectual property rights are significant and that the loss of all or a
substantial portion of such rights could have a material adverse effect on its
results of operations. There can be no assurance that the Company's intellectual
property protection measures will be sufficient to prevent misappropriation of
the Company's technology. In addition, the laws of many foreign countries do not

13
<PAGE>
protect the Company's intellectual properties to the same extent as the laws of
the United States. From time to time, the Company may desire or be required to
renew or to obtain licenses from others in order to further develop and market
commercially viable products effectively. There can be no assurance that any
necessary licenses will be available on reasonable terms.

COMPANY SUBJECT TO CONTROL OF THE KKR PARTNERSHIPS

Following the Offering, CMT Associates, L.P. and KKR Partners II, L.P. (the
"KKR Partnerships") will own approximately % of the outstanding Common Stock
of the Company on a fully diluted basis. KKR Associates, L.P., a New York
limited partnership ("KKR Associates"), is the general partner of the
Partnerships and therefore indirectly controls RELTEC and has the power to elect
a majority of its directors, appoint new management and approve any action
requiring the approval of the holders of Common Stock, including adopting
amendments to RELTEC's Certificate of Incorporation and approving mergers or
sales of substantially all of the Company's assets. In addition, the majority
ownership position of the KKR Partnerships may preclude or slow the consummation
of an unsolicited bid to acquire the Company. There can be no assurance that the
interests of the KKR Partnerships and KKR Associates will not conflict with the
interests of the other holders of Common Stock.

ENVIRONMENTAL MATTERS

The Company is subject to comprehensive and changing foreign, federal,
state, provincial and local environmental requirements, including those
governing discharges to the air and water, the handling and disposal of solid
and hazardous wastes and the remediation of contamination associated with
releases of hazardous substances. The Company believes that it is currently in
material compliance with current environmental requirements. Nevertheless, the
Company uses solvents and other hazardous substances, and as is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties, the Company may be held liable and may be required to
pay the cost of remedying the condition. The amount of any such liability could
be material.

The Company has made, and will continue to make, expenditures to comply with
current and future environmental requirements. The Company anticipates that it
may incur additional capital expenditures and will incur operating costs in the
future to comply with existing laws and regulations and new requirements arising
from new or amended statutes. In addition, because the applicable regulatory
agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot at this time reasonably estimate the
cost for compliance with these additional requirements. The amount of any such
compliance cost could be material.

ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Following the Offering there can be no assurance that a regular trading market
for the Common Stock will either develop or be sustained. The initial public
offering price for the Company's Common Stock will be established as a result of
negotiations between the Underwriters and the Company and may not reflect the
market price of the Common Stock following the Offering. The market price of the
Common Stock will be subject to fluctuations in response to quarterly financial
reports, analysts' earnings estimates, announcements of new products and
innovations by the Company or its competitors, general conditions in the
telecommunications equipment and service industry and other market factors. In
addition, the stock market in recent years has experienced extreme price and
volume fluctuations that often have no relationship or a disproportionate
relationship to the operating performance of the listed companies. These
fluctuations may adversely affect the market price of the Company's stock.

14
<PAGE>
RELIANCE ON KEY MANAGEMENT

The Company is dependent on the retention of, and the continued performance
by, its senior management. There can be no assurance that key management
personnel will continue to remain in the
employ of RELTEC, and the loss of such personnel could have a material adverse
effect on the Company.

IMMEDIATE DILUTION

Purchasers of the Common Stock will experience an immediate and substantial
dilution of $ per share. To the extent that outstanding options to
purchase the Company's Common Stock are exercised, there will be future
dilution. See "Dilution."

SHARES ELIGIBLE FOR FUTURE SALE

As of December 31, 1997, the Company had 50,038,608 shares of Common Stock
outstanding (excluding shares of Common Stock offered hereby). After the
Offering, the holders of shares of Common Stock issued prior to the Offering
will be entitled to certain registration rights under the Securities Act, at the
expense of the Company. Such shares may also be sold under Rule 144 of the
Securities Act, depending on the holding period of such securities and subject
to significant restrictions in the case of shares held by persons deemed to be
affiliates of the Company. No prediction can be made as to the effect, if any,
that future sales of shares, or the availability of shares for future sale, will
have on the market price of the Common Stock prevailing from time to time. Sales
of substantial amounts of Common Stock (including shares issued upon the
exercise of stock options), or the perception that such sales could occur, may
adversely affect prevailing market prices for the Common Stock. The Company has
agreed not to offer, sell, contract to sell or otherwise dispose of any Common
Stock for a period of days after the date of this Prospectus without the
written consent of Morgan Stanley & Co. Incorporated. The KKR Partnerships and
executive officers of the Company also have agreed not to offer, sell, contract
to sell or otherwise dispose of any Common Stock for a period of days after
the date of this Prospectus without the written consent of Morgan Stanley & Co.
Incorporated. The KKR Partnerships have no current intention to sell their
Common Stock upon the expiration of such period. As of December 31, 1997,
without giving effect to the Offering, the KKR Partnerships and the executive
officers in the aggregate owned shares of Common Stock, including
shares of Common Stock issuable pursuant to existing stock options. See
"Principal Stockholders" and "Shares Eligible for Future Sale."

15
<PAGE>
THE COMPANY

RELTEC is a leader in the design, manufacture and sale of a broad range of
telecommunications systems, products and services to wireline and wireless
service providers and OEMs in North America and around the globe. Most of the
Company's systems, products and services can be found in the access portion of
the telecommunications network. The Company conducts business in a single
industry segment, the global telecommunications equipment market. This segment
includes integrated systems and components for voice, video and data
communications. For management purposes, the Company's net sales are classified
into three product line offerings: Access Systems, Integrated Wireless and
Network Components and Services.

The Company was formed in July 1995 by management and the KKR Partnerships
to acquire Reliance Comm/Tec Corporation from the Reliance Electric Company, a
subsidiary of Rockwell International Corporation. Reliance Comm/Tec Corporation
is the successor to telecommunications equipment businesses that have been in
continuous operation for over 60 years.

The Company was incorporated in Delaware in July 1995 as "K-Tec Holdings,
Inc." In October 1995, the Company changed its name to RELTEC Holdings, Inc.,
and in January 1998, the Company changed its name to RELTEC Corporation. The
Company's principal executive offices are located at 5900 Landerbrook Drive,
Suite 300, Cleveland, Ohio 44124-4019, and the telephone number at that address
is (440) 460-3600.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby are estimated to be approximately $ million
($ if the over-allotment option granted to the Underwriters by the Company
is exercised in full), after deducting underwriting discounts and commissions
and offering expenses. A portion of the net proceeds will be used to repay
indebtedness under its credit facility (the "New Credit Facility") and its money
market lines of credit ("Money Market Lines of Credit").

At September 30, 1997, the weighted average interest rates on the New Credit
Facility and the Money Market Lines of Credit were 6.86% and 7.06% per annum,
respectively. The New Credit Facility expires on September 30, 2003, and
borrowings under the Money Market Lines of Credit mature at specified dates less
than one year after incurrence.

The Company expects to use the remaining proceeds, if any, for general
corporate purposes, including the funding of working capital requirements.
Pending such uses, the Company will invest the net proceeds of the Offering in
investment-grade, interest-bearing securities.

From time to time, the Company evaluates opportunities to enter into
potential acquisitions, strategic investments, joint ventures or other similar
transactions and may use a portion of the net proceeds to enter into such
transactions. There are no present understandings or agreements with respect to
any such transactions, and there can be no assurance that the Company will enter
into any such arrangements.

16
<PAGE>
DIVIDEND POLICY

The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain any future earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. The declaration and payment in the future of any cash dividends will be
at the election of the Company's Board of Directors and will depend upon the
earnings, capital requirements and financial position of the Company, future
loan covenants, general economic conditions and other pertinent factors.

In addition, the Company has certain limitations or restrictions on its
ability to pay dividends. The Company is a holding company that conducts its
operations through a number of its subsidiaries, and has no business operations
of its own. Accordingly, the Company is dependent on the receipt of cash from
its subsidiaries to pay dividends, as well as to meet its expenses and other
obligations generally. Certain of the Company's debt instruments contain
financial covenants and other restrictions that prohibit or restrict the payment
of dividends by the Company's subsidiaries to RELTEC and by RELTEC to its
stockholders. See "Description of Certain Indebtedness."

17
<PAGE>
CAPITALIZATION

The following table sets forth the current maturities of debt and
capitalization of the Company at September 30, 1997 and as adjusted to give
effect to the sale by the Company of shares of Common Stock at an
assumed initial public offering price of $ per share and the application of
the estimated net proceeds therefrom. This table should be read in conjunction
with "Use of Proceeds," "Selected Consolidated Financial Data" and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
--------- -------------

<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Current maturities of debt................................................................. $ 31.5 $
--------- -----
--------- -----
Long-term debt, excluding current maturities............................................... $ 222.3 $
--------- -----
Preferred stock, $.01 par value, 1,000,000 shares authorized (1); 1,000 shares of Series A
redeemable preferred stock issued and outstanding at September 30, 1997 with $1,000 per
share redemption value................................................................... 1.0 1.0
Stockholders' equity:
Common stock, $.01 par value; 60,000,000 shares authorized; 49,938,187 shares issued
and outstanding at September 30, 1997(1)(2).......................................... 0.5
Additional paid-in capital............................................................. 343.2
Accumulated deficit.................................................................... (8.3) (8.3)
Currency translation adjustment........................................................ 4.7 4.7
--------- -----
Total stockholders' equity......................................................... 340.1
--------- -----
Total capitalization............................................................. $ 563.4 $
--------- -----
--------- -----
</TABLE>

- ------------------------
(1) On January 14, 1998, the Company increased its authorized shares of Common
Stock to 150,000,000 and its authorized shares of preferred stock to
20,000,000.
(2) Excludes (i) 3,507,760 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1997, of which options to
purchase 1,101,776 shares were then exercisable and (ii) 4,200,000 shares of
Common Stock reserved for future issuance under the Company's stock plans.
See "Management--Benefit Plans."

18
<PAGE>
DILUTION

As of September 30, 1997, the Company's net tangible book deficit was $35.0
million, or $0.70 per share. After giving effect to the sale of the Common Stock
in the Offering (assuming that the Underwriters' over-allotment option is not
exercised) at an assumed initial offering price of $ per share and application
of the estimated net proceeds therefrom, the pro forma net tangible book value
as of September 30, 1997 was $ million, or $ per share. This amount represents
an immediate increase in net tangible book value of $ per share to existing
shareholders and an immediate dilution in pro forma net tangible book value of
$ per share to new investors. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share........................................... $
Consolidated net tangible book deficit per share as of September 30, 1997................. $ (0.70)
Increase per share attributable to the Offering(1)........................................ $
Pro forma consolidated net tangible book value after the Offering......................... $
Dilution per share to new investors....................................................... $
</TABLE>

- ------------------------
(1) After deducting underwriting discounts and commissions and estimated
offering expenses.

The following table summarizes the differences, on a pro forma basis as of
September 30, 1997, between the existing stockholders and the new investors with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............................. 49,938,187% $ 343.7% $ 6.88
New investors......................................
------------ --------- ---------- ---------
Total............................................ 100.0% $ 100.0%
------------ --------- ---------- ---------
------------ --------- ---------- ---------
</TABLE>

The tables above assume no exercise of any outstanding options to purchase
Common Stock, and therefore exclude (i) 3,507,760 shares of Common Stock
issuable upon exercise of stock options outstanding as of September 30, 1997, of
which options to purchase 1,101,776 shares were then exercisable at a weighted
average exercise price of $6.07 per share, and (ii) 4,200,000 shares of Common
Stock reserved for future issuance under the Company's stock plans. The exercise
of such options will be dilutive to new investors. See "Management--Benefit
Plans."

19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN MILLIONS, EXCEPT SHARE AMOUNTS)

The following selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated and Combined Financial Statements and the Notes
thereto and the other information contained elsewhere in this Prospectus. The
summary historical combined financial data for the years ended December 31,
1992, 1993 and 1994 are derived from the audited Combined Financial Statements
of the Company ("Predecessor B") prior to the acquisition of Reliance, the
former corporate parent of the Company, by Rockwell effective January 1, 1995
(the "Rockwell Acquisition"). The historical combined financial data for the
seven months ended July 31, 1995 are derived from the audited combined financial
statements of RELTEC ("Predecessor A") prior to its acquisition by management
and KKR (the "RELTEC Acquisition") on July 31, 1995. The pro forma financial
data for the year ended December 31, 1995 was derived from the audited combined
financial statements of the Company through July 31, 1995, prior to the RELTEC
Acquisition and the audited consolidated financial statements of the Company
subsequent to the RELTEC Acquisition, giving effect to the RELTEC Acquisition as
if it had occurred on January 1, 1995. The RELTEC Acquisition has been accounted
for under the purchase method of accounting and accounting adjustments in
connection therewith have been reflected in the financial data. Accordingly, the
summary combined financial data of Predecessor B are not comparable with the pro
forma and Company's financial data subsequent to January 1, 1995 in all
respects.

The condensed consolidated financial information as of and for the nine
month periods ended September 30, 1996 and 1997 are unaudited, but in the
opinion of management contain all adjustments, which are of a normal recurring
nature, necessary to present fairly RELTEC's interim financial statements in
accordance with GAAP. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.

20
<PAGE>
<TABLE>
<CAPTION>
Predecessor A Successor
------------- -------------------------------------------
Predecessor B
------------------------------- Seven Five
Months Months Year Ended
Year Ended Ended Ended December 31,
December 31, July 31, December 31, --------------------------
------------------------------- ------------- --------------- Pro Forma(1)
1992 1993 1994 1995 1995 1995 1996
--------- --------- --------- ------------- --------------- --------------- ---------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 402.2 $ 438.1 $ 458.9 $ 288.3 $ 225.5 $ 513.8 $ 689.4
Cost of sales (2)............... 279.7 309.6 322.3 205.3 166.2 361.6 482.9
--------- --------- --------- ------ ------ ------ ---------
Gross profit.................... 122.5 128.5 136.6 83.0 59.3 152.2 206.5
Operating expenses:
Research and product
engineering................... 31.8 39.5 42.4 27.1 18.3 45.5 46.5
Selling and administrative...... 57.0 57.7 62.6 39.1 27.6 65.6 75.7
Goodwill and intangible
amortization.................. 12.8 12.5 12.7 11.6 9.0 20.9 24.5
Write-off of acquired in-process
research and development...... -- -- -- 32.9 35.3 -- 8.9
Other expense (income).......... -- 4.7 0.8 -- 0.9 0.9 (0.2)
--------- --------- --------- ------ ------ ------ ---------
Total operating expenses........ 101.6 114.4 118.5 110.7 91.1 132.9 155.4
--------- --------- --------- ------ ------ ------ ---------
Operating income (loss)......... 20.9 14.1 18.1 (27.7) (31.8) 19.3 51.1
Interest expense................ 43.3 31.5 32.1 19.0 12.5 29.7 25.6
Income tax provision
(benefit)..................... 1.5 0.7 0.6 (14.1) (13.9) 0.1 17.4
Cumulative effect of change in
accounting method and
extraordinary charge, net of
tax benefit................... -- -- 1.3 -- -- -- 6.3
--------- --------- --------- ------ ------ ------ ---------
Net income (loss)............... $ (23.9) $ (18.1) $ (15.9) $ (32.6) $ (30.4) $ (10.5) $ 1.8
--------- --------- --------- ------ ------ ------ ---------
--------- --------- --------- ------ ------ ------ ---------
Earnings per share.............. $
Weighted average shares
outstanding...................
Earnings per share, as
adjusted(3)................... $

OTHER FINANCIAL DATA:
Adjusted net income
(loss)(4)(7).................. $ (23.9) $ (13.4) $ (13.8) $ (11.2) $ 0.9 $ (9.9) $ 17.8
Goodwill amortization........... 10.7 10.7 10.7 6.5 4.5 10.7 12.9
Intangible amortization(5)...... 2.1 1.8 2.0 3.3 3.0 6.7 7.1
--------- --------- --------- ------ ------ ------ ---------
Adjusted cash net income
(loss)(6)(7).................. $ (11.1) $ (0.9) $ (1.1) $ (1.4) $ 8.4 $ 7.5 $ 37.8
--------- --------- --------- ------ ------ ------ ---------
--------- --------- --------- ------ ------ ------ ---------
Adjusted EBITDA(8).............. $ 42.5 $ 42.5 $ 42.2 $ 26.2 $ 31.3 $ 57.2 $ 103.9
Capital expenditures............ 9.8 15.0 13.8 6.3 5.5 11.8 16.9
Depreciation expense............ 8.8 11.2 10.6 9.4 6.6 16.1 18.1

<CAPTION>
Nine Months
Ended
September 30,
--------------------
1996 1997
--------- ---------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Net sales....................... $ 488.2 $ 637.4
Cost of sales (2)............... 337.8 452.3
--------- ---------
Gross profit.................... 150.4 185.1
Operating expenses:
Research and product
engineering................... 34.6 40.3
Selling and administrative...... 55.1 61.9
Goodwill and intangible
amortization.................. 15.9 23.7
Write-off of acquired in-process
research and development...... 8.9 0.7
Other expense (income).......... (2.1) 0.8
--------- ---------
Total operating expenses........ 112.4 127.4
--------- ---------
Operating income (loss)......... 38.0 57.7
Interest expense................ 20.6 14.2
Income tax provision
(benefit)..................... 14.5 23.1
Cumulative effect of change in
accounting method and
extraordinary charge, net of
tax benefit................... 6.3 --
--------- ---------
Net income (loss)............... $ (3.4) $ 20.4
--------- ---------
--------- ---------
Earnings per share.............. $
Weighted average shares
outstanding...................
Earnings per share, as
adjusted(3)................... $
OTHER FINANCIAL DATA:
Adjusted net income
(loss)(4)(7).................. $ 10.9 $ 21.1
Goodwill amortization........... 8.4 13.1
Intangible amortization(5)...... 4.6 6.5
--------- ---------
Adjusted cash net income
(loss)(6)(7).................. $ 23.9 $ 40.7
--------- ---------
--------- ---------
Adjusted EBITDA(8).............. $ 74.1 $ 97.3
Capital expenditures............ 10.3 21.5
Depreciation expense............ 12.7 15.2
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER
30, 1997
-----------
BALANCE SHEET DATA: ACTUAL
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
Working capital......................................................................................... $ 117.5
Total assets............................................................................................ 768.3
Total debt (9).......................................................................................... 254.8
Stockholders' equity.................................................................................... 340.1

<CAPTION>
BALANCE SHEET DATA: AS ADJUSTED
- -------------------------------------------------------------------------------------------------------- -----------------
<S> <C>
Working capital......................................................................................... $
Total assets............................................................................................
Total debt (9)..........................................................................................
Stockholders' equity....................................................................................
</TABLE>

(FOOTNOTES ON NEXT PAGE)

21
<PAGE>
- --------------------------
(1) The pro forma financial information for the year ended December 31, 1995
gives effect to the RELTEC Acquisition as if it had occurred on January 1,
1995.

(2) For the five months ended December 31, 1995 and year ended December 31,
1996, cost of sales includes nonrecurring purchase accounting charges of
$11.3 million and $1.3 million, respectively, related to the write-off of
inventory acquisition step-up.

(4) Adjusted net income (loss) excludes, on an after-tax basis, (i) nonrecurring
purchase accounting charges for the write-off of acquired in-process
research and development costs of $32.9 million, $35.3 million, $8.9 million
and $0.7 million for the seven months ended July 31, 1995, the five months
ended December 31, 1995, all of 1996 and the nine months ended September 30,
1997, respectively, and inventory acquisition step-up of $11.3 million and
$1.3 million for the five months ended December 31, 1995 and the year ended
December 31, 1996, respectively, (ii) the cumulative effect of a change in
method of accounting of $1.3 million in 1994, (iii) the write-off of
deferred financing fees of $6.3 million in 1996 and (iv) the nonrecurring
other income or other expense items discussed below. The nonrecurring items
in other income or expense consist of the following: (i) for 1993 and 1994,
restructuring costs of $4.7 million and $0.8 million, respectively, incurred
in connection with a facility closing; (ii) for 1995 (pro forma),
nonrecurring costs of $0.9 million incurred subsequent to the RELTEC
Acquisition in July 1995; and (iii) for 1996, (a) $2.5 million of other
income received in connection with a software settlement, (b) a $1.1 million
charge for employee severance pay and shut-down costs related to a facility
closing and (c) a $1.4 million facility relocation charge. The items set
forth in (iii)(a) and (iii)(b) above occurrred during the nine months ended
September 30, 1996 and the item set forth in (iii)(c) above occurred during
the last quarter of 1996. The tax effect of the nonrecurring items was an
income tax benefit of $11.5 million for the seven months ended July 31,
1995, $16.2 million for the five months ended December 31, 1995, $0.3
million for 1995 (pro forma) and $0.5 million for 1996 and an income tax
expense of $0.5 million for the nine months ended September 30, 1996. The
tax effect was calculated based on the Company's tax rate in the applicable
period.

(5) Intangible amortization is presented net of taxes based on the Company's tax
rate for the applicable period. The tax effect on intangible amortization
was $3.3 million, $3.0 million, $3.5 million, $4.5 million, $2.9 million and
$4.1 million for the seven months ended July 31, 1995, the five months ended
December 31, 1995, the year ended December 31, 1995 (pro forma) and 1996 and
for the nine months ended September 30, 1996 and 1997, respectively.

(6) Adjusted cash net income (loss) represents adjusted net income (loss)
excluding goodwill and intangible amortization expense.

(9) Includes $1.0 million of redeemable preferred stock.

22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE MATTERS DISCUSSED HEREIN MAY INCLUDE "FORWARD-LOOKING STATEMENTS" AS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH STATEMENTS
INVOLVE RISKS AND UNCERTAINTIES WHICH COULD RESULT IN OPERATING PERFORMANCE THAT
IS MATERIALLY DIFFERENT FROM MANAGEMENT'S PROJECTIONS. THE SECTION OF THIS
PROSPECTUS ENTITLED "RISK FACTORS" SHOULD BE READ IN CONJUNCTION WITH THIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.

OVERVIEW

The Company is a leader in the design, manufacture and sale of a broad range
of telecommunications systems, products and services to wireline and wireless
service providers and OEMs in North America and around the globe. Most of the
Company's systems, products and services can be found in the access portion of
the telecommunications network.

RELTEC Corporation was formed in July 1995 by management and the KKR
Partnerships to acquire Reliance Comm/Tec Corporation from Reliance, a
subsidiary of Rockwell. Reliance Comm/Tec Corporation is the successor to
telecommunications equipment businesses that have been in continuous operation
for over 60 years. Since July 1995, the Company has completed six acquisitions,
strategic investments and joint venture investments for combined consideration
of approximately $185 million, the most significant of which was the acquisition
of Rainford Group plc in September 1996 (the "Rainford Acquisition") for
approximately $134 million. Rainford is a leading European manufacturer of base
station enclosures and systems for the telecommunications equipment industry.

The Company's acquisitions have been accounted for as purchases.
Accordingly, for financial reporting purposes, an allocation of the purchase
price has been made using estimated fair market values of the assets acquired
and liabilities assumed as of the acquisition date in accordance with Accounting
Principles Board Opinion No. 16--"Business Combinations." The results of these
acquisitions have been included in the accompanying consolidated financial
statements since the respective dates of acquisition.

The Company conducts business in a single industry segment, the global
telecommunications equipment market. This segment includes integrated systems
and components for voice, video and data communications. For management
purposes, the Company's net sales are classified into three product line
offerings: Access Systems, Integrated Wireless and Network Components and
Services. Sales are generally recognized when goods are shipped or services are
provided. The Company's products are sold directly to end users, such as RBOCs
and other telecommunications service providers, to telecommunications OEMs and,
to a lesser extent, through third party distributors. For certain products,
particularly in Access Systems, the purchase decision process may be long and
unpredictable, and may involve a lengthy standardization and evaluation process.

The Company sells its products in the United States and internationally. The
Company's non-U.S. sales represented approximately 14%, 24% and 24% of net sales
for the years ended December 31, 1995 and 1996 and the nine months ended
September 30, 1997, respectively. The increase in international sales in 1996
and 1997 was due primarily to the Rainford Acquisition. The majority of the
Company's international sales are not denominated in U.S. dollars. While the
Company is subject to fluctuations in foreign currency exchange rates with
respect to income derived from international sales not denominated in U.S.
dollars, the costs associated with a majority of these sales are in the same
currency, which partially mitigates the effect of such fluctuations.

23
<PAGE>
systems and services sold by the Company or its sales channels and the
availability and cost of key components.

RESULTS OF OPERATIONS

For comparative year-to-year analysis, operating results for the year ended
December 31, 1995 have been prepared on a pro forma basis. The pro forma
information gives effect to the RELTEC Acquisition as if it had occurred on
January 1, 1995. The pro forma information reflects the impact of certain
purchase accounting adjustments such as: depreciation of property, plant and
equipment; amortization of goodwill, intangibles and deferred financing fees;
and interest expense related to acquisition debt. The pro forma financial
information excludes the impact of the Rockwell Acquisition and the effect of
nonrecurring purchase accounting charges related to acquired in-process research
and development and inventory acquisition step-up write-off.

The following table sets forth, for the periods indicated, certain
statements of operations and other financial data and other data expressed as a
percentage of net sales:

<TABLE>
<CAPTION>
NINE MONTHS
PREDECESSOR B PRO FORMA ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1996 1996 1997
--------------- --------------- --------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................... 70.2 70.4 70.0 69.2 71.0
----- ----- ----- --------- ---------
Gross profit..................................... 29.8 29.6 30.0 30.8 29.0
Operating expenses:
Research and product engineering............... 9.2 8.8 6.7 7.1 6.3
Selling and administrative..................... 13.6 12.8 11.0 11.3 9.7
Goodwill and intangible amortization........... 2.8 4.1 3.6 3.2 3.7
Write-off of acquired in-process research and
development.................................. -- -- 1.3 1.8 0.1
Other expense (income)......................... 0.2 0.1 -- (0.4) 0.2
----- ----- ----- --------- ---------
Total operating expenses..................... 25.8 25.8 22.6 23.0 20.0
----- ----- ----- --------- ---------
Operating income................................. 4.0 3.8 7.4 7.8 9.0
Interest expense................................. 7.0 5.8 3.7 4.2 2.2
Income tax provision............................. 0.1 -- 2.5 3.0 3.6
Extraordinary charge, net of tax benefit......... 0.3 -- 0.9 1.3 --
----- ----- ----- --------- ---------
Net income (loss)................................ (3.4)% (2.0)% 0.3% (0.7)% 3.2%
----- ----- ----- --------- ---------
----- ----- ----- --------- ---------

Adjusted net income (loss)(1).................... (3.0)% (1.9)% 2.6% 2.2% 3.3%
Adjusted cash net income (loss)(1)............... (0.2) 1.5 5.5 4.9 6.4
Adjusted EBITDA(1)............................... 9.2 11.1 15.1 15.2 15.3
</TABLE>

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

(1) See notes (4) and (8) set forth under "Selected Consolidated Financial
Data."

24
<PAGE>
The following table sets forth, for the periods indicated, net sales by
product line offerings, expressed in dollar volumes and as a percentage of total
net sales:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
---------------------------------------------------------------------- SEPTEMBER 30,
----------------------
1994 1995
(PREDECESSOR B) (PRO FORMA) 1996 1996
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
----------- --------- ----------- --------- ----------- --------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales By Product Line:
Access Systems............. $ 99.9 21.8% $ 98.5 19.2% $ 192.3 27.9% $ 148.5 30.4%
Integrated Wireless........ 51.4 11.2 77.7 15.1 140.4 20.4 70.1 14.4
Network Components and
Services................. 307.6 67.0 337.6 65.7 356.7 51.7 269.6 55.2
----------- --------- ----------- --------- ----------- --------- ----------- ---------
Total...................... $ 458.9 100.0% $ 513.8 100.0% $ 689.4 100.0% $ 488.2 100.0%
----------- --------- ----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- --------- ----------- ---------

1997
----------------------
AMOUNT %
----------- ---------

<S> <C> <C>
Net Sales By Product Line:
Access Systems............. $ 210.1 33.0%
Integrated Wireless........ 138.5 21.7
Network Components and
Services................. 288.8 45.3
----------- ---------
Total...................... $ 637.4 100.0%
----------- ---------
----------- ---------
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996

Net sales increased $149.2 million, or 30.6%, to $637.4 million for the nine
months ended September 30, 1997 (the "1997 Period") from $488.2 million for the
nine months ended September 30, 1996 (the "1996 Period"). The increase resulted
primarily from higher sales of Access Systems products and a full period of
results for Rainford. The growth of Access Systems resulted from increased sales
to existing customers and a major product deployment by a new customer.
Excluding Rainford, Integrated Wireless sales were slightly down for the period
on weaker international sales of export power products for wireless networks.
Network Components and Services increased over the period due to a broader
customer base. At September 30, 1997, the Company's sales backlog (total dollar
volume of firm sales orders not yet recognized as revenue) had increased to
$160.1 million from $132.0 million at September 30, 1996.

Gross profit increased $34.7 million, or 23.1%, to $185.1 million for the
1997 Period from $150.4 million for the 1996 Period. Gross profit as a
percentage of net sales decreased to 29.0% for the 1997 Period from 30.8% for
the 1996 Period. The decrease in gross profit as a percentage of sales resulted
primarily from the higher relative volume of Access Systems products which carry
margins below those of Network Components and Services as well as the effect of
lower margin Integrated Wireless products offered by Rainford. This decrease was
partially offset by an increase in gross profit as a percentage of sales for the
Access Systems products.

Research and product engineering expense increased $5.7 million, or 16.5%,
to $40.3 million for the 1997 Period from $34.6 million for the 1996 Period.
Research and product engineering costs declined to 6.3% of net sales in the 1997
Period from 7.1% in the 1996 Period primarily due to the increase in net sales.
Approximately half of the Company's research and product engineering expense in
the 1997 Period and the 1996 Period was related to Access Systems, reflecting
the Company's focus on this product line.

Selling and administrative ("S&A") expense increased $6.8 million, or 12.3%,
to $61.9 million for the 1997 Period from $55.1 million for the 1996 Period. S&A
expenses as a percentage of net sales decreased to 9.7% for the 1997 Period from
11.3% for the 1996 Period primarily due to higher sales volume.

Goodwill and intangible amortization increased $7.8 million, or 49.1%, to
$23.7 million for the 1997 Period from $15.9 million for the 1996 Period.
Goodwill and intangible amortization as a percentage of net sales increased to
3.7% for the 1997 Period from 3.2% for the 1996 Period. This increase is
primarily the result of the additional goodwill and intangibles amounts
resulting from the Rainford Acquisition.

During the 1997 Period, $0.7 million of the $1.0 million purchase price for
the acquisition of Fire Networks, Inc. was assigned to acquired in-process
research and development ("R&D") and immediately written off. During the 1996
Period, $8.9 million of the $134.3 million purchase price for the acquisition of
Rainford was assigned to acquired in-process R&D costs and immediately written
off.

25
<PAGE>
During the 1996 Period, the Company received a one-time fee of $2.5 million
related to a software settlement, and recorded a charge of $1.1 million related
to a facility closing. The charge was primarily for employee severance pay and
facility shut-down costs. These amounts are recorded as other expense (income)
in the statement of operations for the 1996 Period.

Interest expense in the 1997 Period decreased $6.4 million, or 31.1%, to
$14.2 million for the 1997 Period from $20.6 million for the 1996 Period. This
decrease resulted from reduced levels of debt and lower interest rates. In
September 1996 the Company entered into the New Credit Facility which improved
the terms upon which the Company is able to borrow funds.

The Company's effective income tax rate decreased to 53.1% in the 1997
Period from 83.3% in the 1996 Period due to higher income before taxes
offsetting increased levels of nondeductible goodwill amortization expense and
the 1996 write-off of acquired in-process R&D costs.

An extraordinary charge of $6.3 million (net of a $3.3 million tax benefit)
was recorded in the 1996 Period to reflect the accelerated amortization of
deferred financing fees associated with the Company's previous credit facility
(the "Old Credit Facility") which was extinguished when the New Credit Facility
was entered into in September 1996.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995 (PRO
FORMA)

RELTEC's net sales increased $175.6 million, or 34.2%, to $689.4 million for
the year ended December 31, 1996 from $513.8 million for the year ended December
31, 1995 (pro forma). Rainford represented $38.4 million of the total increase.
Excluding the effect of the Rainford Acquisition, the Company's net sales in
1996 increased 26.7% over 1995. The primary contributors to the 1996 non-
acquisition related sales growth were strong demand for the Company's DISC*S
NGDLC Access Systems within the United States and Integrated Wireless base
station enclosures for the United States and Europe. Network Components and
Services net sales increased due to a higher volume of sales of CO products to
existing customers and the execution of a large test systems contract in Latin
America. At December 31, 1996, the Company's sales backlog had increased to
$127.8 million from $106.9 million at December 31, 1995.

Gross profit increased $54.3 million, or 35.7%, to $206.5 million in 1996
from $152.2 million in 1995. Gross profit as a percentage of net sales increased
to 30.0% in 1996 from 29.6% in 1995. The increase in gross profit as a
percentage of net sales resulted primarily from greater efficiences related to
producing higher volumes, offset partially by increased sales of Access Systems
products which carry lower relative margins.

Research and product engineering expense increased $1.0 million, or 2.2%, to
$46.5 million in 1996 from $45.5 million in 1995. Research and product
engineering expense as a percentage of net sales decreased to 6.7% in 1996 from
8.8% in 1995 due to higher sales volume and relatively stable research and
product engineering spending. Research and product engineering expense related
to Access Systems represented slightly less than half of all research and
product engineering expense for both years.

S&A expense increased $10.1 million, or 15.4%, to $75.7 million in 1996 from
$65.6 million in 1995. S&A expense as a percentage of net sales declined to
11.0% in 1996 from 12.8% in 1995 primarily as a result of stable S&A expense
being spread over higher sales volumes.

Goodwill and intangible amortization increased $3.6 million, or 17.2%, to
$24.5 million in 1996 from $20.9 million in 1995. Goodwill and intangible
amortization as a percentage of net sales decreased to 3.6% in 1996 from 4.1% in
1995. This increase is primarily the result of the additional goodwill and
intangibles amounts resulting from the Rainford Acquisition.

In 1996, as part of the Rainford Acquisition, $8.9 million of the purchase
price was allocated to acquired in-process R&D costs and immediately written off
subsequent to the acquisition. As required by

26
<PAGE>
current accounting standards, no provision for deferred income taxes was
established for the Rainford acquired in-process R&D costs.

Interest expense decreased $4.1 million, or 13.8%, to $25.6 million in 1996
from $29.7 million in 1995. The decrease resulted from lower interest rates on
the New Credit Facility entered into in September 1996 and the exchange of $75
million in principal amount of a bridge loan from the Company's majority
shareholder into common and preferred stock.

For 1996 the Company's effective tax rate was 68.2%. The effective tax rate
is higher than statutory rates in 1996 due to significant amounts of
nondeductible charges for goodwill and acquired in-process R&D costs. The 1995
tax provision reflects a significant amount of nondeductible goodwill
amortization expense and essentially no taxable earnings.

An extraordinary charge of $6.3 million (net of a $3.3 million tax benefit)
was recorded in 1996 to reflect the accelerated amortization of deferred
financing fees associated with the Company's Old Credit Facility which was
extinguished when the New Credit Facility was entered into in September 1996.

YEAR ENDED DECEMBER 31, 1995 (PRO FORMA) COMPARED TO YEAR ENDED DECEMBER 31,
1994 (PREDECESSOR B)

Predecessor B represents the Company's operations on a combined basis during
the period in which the manufacturing and services businesses were operated by
Reliance prior to the acquisition of Reliance by Rockwell on January 1, 1995.
The financial information for Predecessor B has been presented using Reliance's
basis in the assets and liabilities of the business. The financial information
includes allocations of certain Reliance corporate expenses. Management believes
that the allocations are reasonable; however, the allocated expenses are not
necessarily indicative of expenses that would have been incurred on a stand-
alone basis.

Net sales increased $54.9 million, or 12.0%, to $513.8 million in 1995 from
$458.9 million in 1994. The increase resulted primarily from strong demand for
Network Components and Services as well as the growth of Integrated Wireless
power product sales. At December 31, 1995 the Company's sales backlog had
increased to $106.9 million from $77.5 million at December 31, 1994.

Gross profit increased $15.6 million, or 11.4%, to $152.2 million in 1995
from $136.6 million in 1994. Gross profit as a percentage of net sales decreased
to 29.6% in 1995 from 29.8% in 1994.

Research and product engineering expense increased $3.1 million, or 7.3%, to
$45.5 million in 1995 from $42.4 million in 1994. Research and product
engineering expense as a percentage of net sales decreased to 8.8% in 1995 from
9.2% in 1994.

S&A expense increased $3.0 million, or 4.8%, to $65.6 million in 1995 from
$62.6 million in 1994. S&A expense as a percentage of net sales decreased to
12.8% in 1995 from 13.6% in 1994.

Goodwill and intangible amortization increased $8.2 million, or 64.6%, to
$20.9 million in 1995 from $12.7 million in 1994. Goodwill and intangible
amortization as a percentage of net sales increased to 4.1% in 1995 from 2.8% in
1994. This increase is primarily the result of the additional goodwill and
intangibles amounts resulting from the RELTEC Acquisition.

In 1995, the Company incurred $0.9 million of nonrecurring charges pursuant
to the RELTEC Acquisition related to a financing transaction that the Company
elected not to consummate. This amount is included as other expense (income) on
the statement of operations. In 1994, other expense (income) represents
restructuring costs incurred in connection with a facility closing.

Interest expense in 1994 was determined based on an intercompany note
payable to Reliance. For purposes of the pro forma 1995 financial information
interest expense was calculated based on RELTEC's capital structure resulting
from the RELTEC Acquisition.

27
<PAGE>
The Company's provision for taxes in 1994 consists of taxes at a non-U.S.
affiliate. The 1995 tax provision reflects a significant amount of
non-deductible goodwill amortization expense and essentially no taxable
earnings.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited quarterly financial
information of the Company, for the seven quarters ended September 30, 1997, in
dollars. The Company historically has experienced a stronger demand for certain
of its products at certain times during the year, particularly its outdoor
products, primarily as a result of customer budget cycles and appropriate
weather for installation of the Company's systems. These factors may be offset
in part by the growth in product lines or fluctuations in customer order
volumes. This information has been derived from the quarterly financial
statements of the Company which are unaudited but which, in the opinion of
management, have been prepared on the same basis as the audited financial
statements and include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial results for such
periods. This information should be read in conjunction with the Consolidated
and Combined Financial Statements and the Notes thereto and the other financial
information appearing elsewhere in this Prospectus. The operating results for
any previous quarter are not necessarily indicative of results for any future
period.

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1996 1996 1996(1) 1997 1997 1997
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS)
Net sales:
Access Systems......... $ 38.2 $ 52.9 $ 57.4 $ 43.8 $ 59.5 $ 72.8 $ 77.8
Integrated Wireless.... 21.8 24.4 23.9 70.3 55.2 41.8 41.5
Network Components and
Services............. 80.2 86.8 102.6 87.1 82.0 101.4 105.4
------ ------ ------ ------ ------ ------ ------
Total net sales........ $ 140.2 $ 164.1 $ 183.9 $ 201.2 $ 196.7 $ 216.0 $ 224.7
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Gross profit........... $ 40.3 $ 51.5 $ 58.6 $ 56.1 $ 51.7 $ 64.1 $ 69.3
</TABLE>

- ------------------------
(1) Reflects the first full quarter of operations after the acquisition of
Rainford on September 3, 1996. Rainford's revenues are primarily reflected
under the Integrated Wireless product line.

LIQUIDITY AND CAPITAL RESOURCES

The Company's primary liquidity needs are working capital requirements,
capital expenditures and investments such as acquisitions, strategic investments
and joint ventures. The Company's working capital requirements have grown as the
Company has grown. Capital expenditures, exclusive of acquisitions, were $11.8
million, $16.9 million and $21.5 million in 1995 (pro forma) and 1996 and for
the nine months ended September 30, 1997, respectively. The Company anticipates
that its capital expenditures for 1998 will be approximately $52.0 million.
Since the RELTEC Acquisition, the Company has completed six acquisitions,
strategic investments and joint venture investments for a combined consideration
of approximately $185.0 million. Approximately $148.2 million of such
consideration was cash with the remainder common stock and common stock options
of the Company.

The Company has funded its liquidity requirements principally from cash
flows from operations and borrowings under its debt facilities, issuances of its
common stock and to a lesser extent, from capital leases for new equipment.

Cash flows from operating activities were $61.6 million and $26.4 million in
1996 and for the nine months ended September 30, 1997, respectively.

In connection with the RELTEC Acquisition in July 1995, the Company entered
into the $325.0 million Old Credit Facility, providing $195.0 million of term
loans and $130.0 million of revolving credit, and a $135 million bridge loan
("Bridge Loan") from one of the KKR Partnerships. In September 1995,

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the Company converted $35 million of the Bridge Loan into common equity and
repaid $25 million of the Bridge Loan from borrowings under the Old Credit
Facility. In August 1996, the remaining portion of the Bridge Loan was exchanged
for $74.0 million of common stock and $1.0 million of redeemable preferred
stock. The Old Credit Facility was extinguished in September 1996. At the same
time, the Company entered into the $450.0 million New Credit Facility. The New
Credit Facility consists of a $350.0 million domestic revolving facility and a
$100.0 million multi-currency revolving facility. The New Credit Facility
contains provisions for a $30.0 million (or pound sterling equivalent)
short-term credit facility as well as for letters of credit. The New Credit
Facility matures on September 30, 2003. Pursuant to the terms of the New Credit
Facility, the available commitment under the New Credit Facility will be reduced
from $450.0 million on September 30, 1999 by $35.0 million, and by $35.0 million
per year on each September 30 thereafter until the balance matures on September
30, 2003. Principal payments under the New Credit Facility are not otherwise
required until maturity unless there are certain changes in the Company's
business activities as specified in the New Credit Facility. At September 30,
1997, the weighted average interest rate on the New Credit Facility was 6.86%
compared to 8.90% on aggregate borrowings at December 31, 1995. At September 30,
1997, the aggregate borrowing availability under the New Credit Facility was
$212.3 million. In October 1996, the Company also entered into a two-year
interest rate swap agreement to reduce its variable interest rate exposure on
borrowings under the New Credit Facility. The swap fixed the interest rate at
6.11% on a notional amount of $100.0 million. Under prevailing market rates at
December 31, 1996 and September 30, 1997, the fair value of the swap agreement
was a liability of $0.5 million and $0.3 million, respectively.

In May 1997, the Company entered into promissory notes with several banks
for $40.0 million of unsecured and uncommitted Money Market Lines of Credit in
addition to the New Credit Facility. At September 30, 1997, $24.0 million was
outstanding at a weighted average interest rate of 7.06%.

In April 1997, the KKR Partnerships contributed an additional $50.0 million
to stockholders' equity in exchange for shares of common stock. In addition,
employee shareholders and the Company's employee savings plan purchased $1.1
million of common stock during the nine months ended September 30, 1997.

The Company believes that its cash balances, proceeds from this Offering,
cash generated from future operations and its existing credit facilities will be
adequate to satisfy anticipated working capital requirements, capital
expenditures for equipment and investment requirements for the next twelve
months. As business and market conditions permit, the Company may, from time to
time, invest in or acquire complementary technologies, products or businesses.
These activities may require the Company to seek additional equity or debt to
fund such activities, which could result in dilution to existing stockholders.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997 the Financing Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128--"Earnings Per Share"
("SFAS 128"). This statement establishes standards for computing and presenting
earnings per share. SFAS 128 must be implemented by RELTEC in 1997. The Company
has determined that the impact from the adoption of SFAS 128 on the consolidated
financial statements is not material.

In June 1997 the FASB issued Statement of Financial Accounting Standards No.
130 -- "Reporting Comprehensive Income" ("SFAS 130"). This Statement discusses
how to report and display comprehensive income and its components in a full set
of general-purpose financial statements. Also in June of 1997, the FASB issued
Statement of Financial Accounting Standards No. 131 -- "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 130 and SFAS 131 must be
implemented by RELTEC in 1998. The Company does not anticipate a material impact
on the consolidated financial statements from the adoption of the additional
disclosure requirements of these accounting standards.

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BUSINESS

GENERAL

- - ACCESS SYSTEMS -- The Company believes it is one of the top three U.S.
suppliers of next generation digital loop carrier (NGDLC) systems, which the
Company markets under the DISC*S brand name. In addition, RELTEC is a leader
in providing fiber-to-the-curb (FTTC) systems, with what it believes are more
installed FTTC lines in the United States than all other suppliers combined.
For the nine months ended September 30, 1997, Access Systems accounted for net
sales of $210.1 million, or 33.0% of the Company's total net sales.

- - INTEGRATED WIRELESS -- The Company is one of the leading global independent
suppliers of integrated electro-mechanical subsystems used in outdoor wireless
base stations. These subsystems are sold to the major telecommunications OEMs
and wireless service providers and, together with the radio electronics
manufactured by the wireless OEMs, comprise what is commonly referred to as a
base station. RELTEC also designs and manufactures outside plant, power
systems, cabling and other products and provides installation services for
wireless OEMs and service providers. For the nine months ended September 30,
1997, Integrated Wireless accounted for net sales of $138.5 million, or 21.7%
of the Company's total net sales.

- - NETWORK COMPONENTS AND SERVICES -- Network Components include: outside plant
products (enclosures, environmental control and heat management systems, and
advanced connection and protection products); power systems and modular power
products; network test and monitoring systems; and data networking racks.
Network Services include program management and aftermarket services. For the
nine months ended September 30, 1997, Network Components and Services
accounted for net sales of $288.8 million, or 45.3% of the Company's total net
sales.

INDUSTRY BACKGROUND

The significant growth in voice, data and video communications traffic in
recent years has caused service providers to focus on increasing the bandwidth
of the PSTN. Transmission speed is limited by the bandwidth of the "slowest"
portion of the network, which is typically found in the access segment. Until
recently, technological solutions to improve the performance of the access
portion of the telephone network were generally not cost effective for
broad-based deployment by service providers. In the current environment,
however, the opportunity for telecommunications equipment providers to increase
the access network bandwidth is being driven by (i) customer demand for improved
data and wireless communications, (ii) the emergence of new service providers,
created by significant regulatory changes and (iii) the emergence of
cost-effective, new technologies which are enabling increased bandwidth.

CURRENT BANDWIDTH LIMITATIONS IN THE ACCESS NETWORK

Most of the existing access portion of the PSTN consists of a copper based
system that was designed to deliver analog voice communications, or plain old
telephone service (POTS). The copper-based analog network, however, does not
have the bandwidth or functionality to support the growing demand for new
services such as high-speed data and video communications. In addition,
traditional copper-based networks require significant maintenance expenditures.
In response to these limitations, service providers began installing digital
fiber optic technology which permits higher speed, higher volume and more
reliable transmission of information. To date, however, the use of digital fiber
optic technology has generally been

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<PAGE>
limited to network backbones and central office interconnections within
high-density traffic areas because of the historically high cost of deployment
and feasibility of installation. In addition to fiber-based PSTN enhancements,
several other technologies are being deployed as an alternative to the
traditional copper-based access network. Those technologies include fixed
wireless and hybrid fiber coax (HFC) solutions, both of which are capable at
significantly higher bandwidth transmission than traditional copper.

DEMAND DRIVERS

DATA COMMUNICATIONS. The need for high-speed data transmission has emerged
as the major driver behind customers' demand for increased wireline network
bandwidth. The emergence of the Internet and the corresponding explosion of
Internet related traffic over the PSTN has clearly illustrated its inherent
bandwidth limitations, particularly in the access portion of the network. These
bandwidth limitations have been highlighted not only by the rapid increase in
the number of users seeking to access the Internet, but also the increasingly
bandwidth intensive content on the Internet, such as active graphics and video.
Remote access to corporate LANs by business professionals while at home or while
traveling is also driving the need for more bandwidth.

WIRELESS COMMUNICATIONS. Another important driver of increased demand is
wireless communica-
tions. Wireless communication has grown dramatically over the last decade
including cellular service, PCS, fixed wireless and wireless data transmission.
In developed nations, mobile wireless has grown significantly in recent years as
a result of the convenience of mobility and decreases in the cost per minute of
usage. In addition, in many parts of the world the existing wireless
infrastructure is predominately based on analog technology. Many of these
systems are being replaced or upgraded to digital technology in an effort to
increase capacity and to offer an expanded range of services. In less developed
nations, fixed wireless has emerged as an alternative to traditional wireline
infrastructure owing to the potential for faster deployment, lower construction
costs and lower operating costs. Ease of deployment and operation is critical as
many of these developing nations recognize that their telecommunications
infrastructure is potentially the single greatest catalyst of economic growth.

EMERGENCE OF NEW SERVICE PROVIDERS

Global regulatory changes are increasing the number of competitors in the
access portion of the network and is further accelerating the need for service
providers to upgrade their networks and increase their service offerings. In the
United States, recent deregulation has facilitated competition in the local
exchange for local and long distance telephone service and video services.
Competitors which have emerged and potentially could take customers from
incumbent service providers include competitive local exchange carriers,
interexchange carriers, Internet service providers, cable operators and electric
utilities. Cable operators are already beginning to provide data transmission
services to customers by leveraging the high bandwidth capabilities of their
coaxial cable based infrastructure. In wireless markets, the FCC has completed
several auctions of wireless spectrum to enable the new competitors to enter the
market and enable the deployment of PCS and other wireless services.
Internationally, a number of developed and developing nations have privatized
the state-owned telecommunications monopolies and opened the market to new
service providers. For example, in Europe a consortium of countries have
recently allowed the entrance of new competitors into their local markets.

EMERGENCE OF NEW TECHNOLOGIES

Certain products and services have been introduced in recent years to (i)
increase the speed and quality of digital transmission over copper wires, (ii)
push fiber deeper into the access portion of the network and (iii) provide an
alternate means of accessing the wireline network backbone. While the cost of
deployment of these numerous solutions varies significantly, technological
developments have made each of these solutions much more cost effective in
recent years.

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<PAGE>
Examples of these technologies include:

DIGITAL LOOP CARRIERS -- DLCs extend the digital capabilities of the network
from the central office to a remote terminal closer to the customer. NGDLCs
support a fiber feed from the central office to the remote terminal, thereby
pushing fiber deeper into the access portion of the network.

FIBER-TO-THE-CURB -- FTTC systems push fiber deeper within the access
network to a short distance from each customer so that the final transmission
can take place at very high speeds over traditional twisted pair copper
architecture. FTTC systems take advantage of the extremely high bandwidth
characteristics of fiber optic systems.

DIGITAL SUBSCRIBER LINE -- xDSL technologies provide broadband services over
existing copper twisted pairs by modulating and demodulating digital signals.

HYBRID FIBER COAX -- HFC leverages the existing coaxial infrastructure of
cable television operators and enhances the bandwidth and performance
characteristics by adding additional fiber and two-way amplifiers. CATV
operators are deploying cable modems capable of providing high speed data
transmission.

WIRELESS LOCAL LOOP -- WLL uses radio frequency communications instead of
traditional wireline technologies (E.G., copper) to provide network access. In
certain applications WLL can potentially enable faster deployment, lower
construction costs and lower operating costs than traditional wireline access
networks. WLL has the greatest potential in areas with lower population density,
where it can more cost-effectively provide the primary service platform for both
mobile and fixed telecommunications.

The Company believes that the telecommunications industry will continue to
expand and evolve rapidly. As a result of the accelerating changes in the
telecommunications industry, service providers are requiring flexible and
scaleable solutions that not only meet their needs today but also will permit
easy, cost-effective enhancements in the future. In addition, as new enabling
technologies are deployed throughout the access portion of the network, there is
a corresponding demand for high quality infrastructure products such as power
supplies and outside plant.

STRATEGY

The Company's objective is to build and maintain a leading market position
in a broad range of systems, products and services for wireline and wireless
communications networks globally. RELTEC's Access Systems, Integrated Wireless
systems and Network Components and Services address critical portions of the
access segment of the network. Key elements of the Company's strategy include:

- - LEVERAGE EXPERTISE TO PROVIDE INTEGRATED SYSTEMS SOLUTIONS -- The Company
believes that its customers place a high degree of value on its ability to
deliver integrated systems solutions due to the increasing complexity of
system-level components and their desire to simplify their strategic supply
chain. The Company intends to continue to leverage its experience of over 60
years in providing high quality network components to design high value
integrated systems solutions. For example, the Company's DEEP FIBER SOLUTIONS
FTTC system integrates environmentally hardened optics and electronics, sealed
enclosures, sophisticated connection and protection solutions, power
assemblies and power systems, system design and system integration.

- - INCREASE BANDWIDTH IN THE ACCESS NETWORK -- Much of the Company's research and
development focus has been and will continue to be on designing architectures
that cost-effectively increase the bandwidth in the access portion of the
PSTN. Specifically, RELTEC's DEEP FIBER SOLUTIONS FTTC system and its ADVANCED
COPPER SOLUTIONS xDSL product offerings provide alternative means to deliver
broadband functionality to the public network. The Company also provides
advanced feature sets including high speed, "always on" Internet connectivity
and analog and digital broadcast video services.

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<PAGE>
- - CAPITALIZE ON ESTABLISHED CUSTOMER RELATIONSHIPS -- The Company believes that
the longevity and breadth of its relationships with a number of major
customers provide competitive advantages. The Company intends to capitalize on
its longstanding relationships with major customers to introduce new system
solutions, products and services more rapidly than its competitors.

- - EXPAND GLOBAL PRESENCE -- RELTEC believes that significant growth in the
telecommunications market will also occur outside of North America as the
result of deregulation and the recognition by many developing nations that a
telecommunications infrastructure is one of the most important enablers of
economic growth. RELTEC's global strategy is to increase its sales, design,
marketing and manufacturing capabilities within each major region of the
world, leveraging its existing customer relationships, product offerings and
technologies.

- - CONTINUE TO IMPROVE MARGINS AND QUALITY -- The Company is continuing to focus
on improving margins and further improving the quality of its systems and
products. The Company's goal is to be the preferred supplier of high quality,
low cost systems and products for its customers. The Company recently
reorganized all of its North American manufacturing operations under common
management in order to address this strategic directive.

- - PURSUE ACQUISITIONS, STRATEGIC INVESTMENTS AND JOINT VENTURES -- The Company
has used and expects to continue to use acquisitions, strategic investments
and joint ventures as an integral part of executing its growth strategies in
Access Systems, Integrated Wireless, and Network Components and Services.
Since July 1995, the Company has completed six such transactions for a
combined consideration of approximately $185 million.

PRODUCTS AND SERVICES

The Company's products and services can be categorized into three general
functional groups: (i) Access Systems, (ii) Integrated Wireless and (iii)
Network Components and Services.

ACCESS SYSTEMS

RELTEC designs, manufactures, markets and supports a suite of local loop
access solutions, including traditional NGDLC systems, FTTC systems, xDSL
solutions and traditional pairgain products. The Company believes RELTEC is
well-positioned to compete in the local loop access markets because of its
strong brand name, its long-standing relationships with customers, the broad
range of its access product offerings and its technologically innovative and
flexible products. The Company's flexible solutions platforms enable customers
to pursue scaleable rollout strategies for traditional POTS and broadband data
and video services, while leveraging their investment in existing
infrastructure.

In 1988, RELTEC was the first company to offer a NGDLC system and since such
time has shipped over $1.3 billion of product, representing over five million
access lines. The Company has standardized NGDLC products at many of the largest
telecommunications companies in the United States, including BellSouth, GTE, SBC
Communications, Sprint and U S WEST. Once a system has been introduced in a
telecommunications district, the district will standardize the system to
minimize spares and training requirements. The Company believes that
standardized incumbent systems represent a longer term commitment between the
customer and supplier.

TRADITIONAL NGDLC SYSTEM

RELTEC believes that it is one of the top three U.S. suppliers of NGDLC
products using the latest transmission technology for copper, fiber and coaxial
cable networks. The Company sells its NGDLC systems under the DISC*S brand name.
Most of these systems are configured as large traditional NGDLC system to
provide POTS services with line size configurations in the range of 384-2,000
access lines. The system architecture typically consists of an optical
transmitter at the central office terminal (COT) and a

33
<PAGE>
host digital remote terminal (HDT) located in the local loop, with a final drop
to the customer over traditional twisted pair copper.

BROADBAND SYSTEMS

In recent years, RELTEC has broadened its NGDLC offering to include an
advanced, broadband ready platform, as well as data and video feature sets that
allow service providers to offer high speed Internet access and broadcast and
interactive video services over the same system as POTS. The Company offers two
broadband ready systems solutions:

DEEP FIBER SOLUTIONS -- The Company's DEEP FIBER SOLUTIONS system
consists of a traditional COT and HDT, but also extends fiber access to
within 500 feet of the subscriber. Instead of a copper drop from the HDT to
a passive pedestal located near the subscriber's home, fiber is extended
from the HDT to an Optical Network Unit (ONU) located within 500 feet of the
subscriber. The ONU contains active optical electronics that receive the
optical signal from the HDT and convert this signal back to a traditional
electrical signal. At the ONU, the electrical signal is transmitted to the
subscriber over copper or coaxial cable.

The Company believes it is the only company that offers an FTTC solution
that can be deployed economically within 500 feet of the subscriber. Because
the final drop is within 500 feet of the subscriber, the physical
characteristics of the drop cable (the "baseband" characteristics) permit
signal transmission at rates up to 155 Mbps without requiring the addition
of passband modulation electronics such as ISDN or xDSL. In addition, the
Company's DEEP FIBER SOLUTIONS system has significantly lower power
requirements than competing systems and requires only a single fiber (as
opposed to separate upstream and downstream fibers). As a result, the
Company believes that its DEEP FIBER SOLUTIONS system, in certain new
network buildouts, such as MDUs, can be currently deployed at a cost
comparable to the cost of deploying a copper-based system. In addition, the
Company believes that the lifetime cost of its DEEP FIBER SOLUTIONS system
will be significantly lower than copper-based systems due to the inherently
lower maintenance requirements of fiber-based systems. The DEEP FIBER
SOLUTIONS system is the result of RELTEC's ability to leverage its
competencies across access electronics, electronic packaging, heat
management, power and services and its extensive experience within the
physical layer of the local loop. To date, the Company has shipped over $120
million of DEEP FIBER SOLUTIONS systems with a total capacity of over
500,000 lines.

RELTEC has developed advanced data and video feature sets for its DEEP
FIBER SOLUTIONS system that allow users of its systems to deliver high-speed
Internet access and analog and digital broadcast and interactive video
services. The FIBERST*R feature set allows the DISC*S system to deliver
high-speed Internet access to the ONU using an Ethernet connection.
Individual users connect to the ONU using broadly available traditional LAN
connection devices such as an Ethernet network interface card (NIC). Access
via FIBERST*R provides a reliable "always on" connection to the Internet
with lower power requirements than other FTTC alternatives. An important
feature for service providers is that the FIBERST*R architecture provides a
direct connection to the Internet without passing through the CO switch,
which eliminates many of the congestion problems in many metropolitan
switching centers. The FIBERCAST feature set allows the DISC*S system to
deliver analog and digital broadcast and interactive video services. Both
these feature sets can also be readily adapted to address the MSO market for
both upgrade and new build applications. For example, a broadcast "cable"
signal can be purchased by a service provider from a MSO on a wholesale
basis, connected to the HDT and then routed to the appropriate ONU and
ultimately the appropriate subscriber.

ADVANCED COPPER SOLUTIONS -- RELTEC's ADVANCED COPPER SOLUTIONS system
is a platform that allows service providers to take advantage of their
extensive installed base of copper access lines. These solutions require
line cards to be inserted in the DISC*S COT and HDT and a terminal at the
subscriber's premises. The basic system architecture consists of a
traditional COT and HDT along

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<PAGE>
with modulation/demodulation electronics in the CO, the HDT and at the
subscriber's premises. The Company believes that service providers will
decide on "chip level" solutions for providing high speed data transmission
over existing copper. RELTEC's ADVANCED COPPER SOLUTIONS system gives its
customers the flexibility to make their own "chip level" decisions not
dependent on any particular technology or technical standards for xDSL. Once
the decision is made, RELTEC has the capability to incorporate multiple xDSL
solutions from a range of vendors into its NGDLC system.

SMALL NGDLC SYSTEM

The Company has also recently broadened its NGDLC offering to include
smaller line size systems. Currently, RELTEC offers a 192 line NGDLC system
targeted at smaller line size systems, and expects to offer 24 and 96 line
versions by the end of 1998. Since these smaller systems utilize the same line
cards as the larger systems, the Company believes that those customers that have
large system and small system requirements will prefer using those suppliers who
can offer both solutions since it reduces inventory requirements and simplifies
supply chain management.

INTERNATIONAL NGDLC SYSTEM

To date, all of RELTEC's NGDLC systems have been sold in North America using
Bellcore/ANSI standards. Many areas outside of North America use ITU standards
which are different from Bellcore/ ANSI standards. In addition, feature
requirements are often different, requiring different system designs,
particularly in emerging countries. Principally as a result of these two factors
and in light of what the Company believes is a large market opportunity, the
Company is developing a system solution based on ITU standards under the brand
name MATRIXEXPRESS. Initially MATRIXEXPRESS will have an E-1 interface, and the
Company currently expects to upgrade MATRIXEXPRESS to SDH compatible fiber optic
capabilities at a later date.

TRADITIONAL PAIRGAIN

The Company also offers a family of single and multi-channel carrier product
lines that support from one to eight additional voice circuits per pair of
copper. The broad bandwidth of the recently redesigned two channel AML analog
carrier allows service providers to economically offer second line services to
customers who require support for analog modems used for Internet access.

SERVICES

The Company also offers Access Systems design and installation services.
RELTEC believes this capability is particularly important to CLEC customers who
often do not have the same scope of engineering resources that traditional RBOC
customers possess. The Company expanded its capabilities in providing services
to CLECs through its purchase of a privately held St. Louis-based services
company. The Company expects to continue focusing on providing these services to
CLECs, particularly for MDU applications.

INTEGRATED WIRELESS

The Company is one of the leading global independent suppliers of integrated
electro-mechanical subsystems used in outdoor wireless base stations. The
Company has supplied over 40,000 outdoor integrated base station systems to
major OEM telecommunications systems integrators in Europe, North America and
around the globe. RELTEC currently provides an electro-mechanical subsystem to
wireless radio OEMs and service providers that, in conjunction with radio
electronics manufactured by the wireless OEMs, comprises the network element
commonly referred to as a base station. The electro-mechanical subsystem
consists of an environmentally hardened electronic enclosure, a heat management
system, a high speed backplane, cabling, a power conversion and distribution
system, RF combiners and filters and

35
<PAGE>
monitoring and control systems. The Company currently manufactures most of these
components and purchases certain of these components from third parties. By
exploiting the Company's competencies in outdoor base stations, RELTEC is
offering a similarly integrated base station product for indoor applications and
has received initial orders for such products to be delivered in 1998.
Increasingly, RELTEC provides integration services to its major OEM customers by
designing and manufacturing the complete electro-mechanical subsystem, including
those components that are purchased or consigned from third party suppliers. In
addition, the Company provides its OEM customers a single point of design
control on a global basis in conjunction with the ability to manufacture systems
in-region at a number of locations to local specifications and with local
materials and labor. RELTEC believes this ability is a competitive advantage and
that it will become increasingly important to the global communications OEMs.

In addition to integrated base stations, RELTEC also designs AC-DC power
transfer pedestals, standalone base station enclosures and configured
environmentally controlled vaults, power conversion and distribution systems and
a number of other products, and sells these products to major wireless service
providers and to wireless OEMs. The Company provides system turn-up services for
many of these customers.

NETWORK COMPONENTS AND SERVICES

Network Components and Services include outside plant products, power
systems, network test products, and project management and aftermarket services.
RELTEC believes that many of its core competencies within Network Components and
Services enhance its ability to design and manufacture more feature rich and
cost competitive Access Systems and Integrated Wireless systems. The Company's
experience as an active participant in various portions of the access portion of
the PSTN for over 60 years enables it to design and implement highly effective
Network Components and Services. As service providers choose to install more
sophisticated systems, Network Component sales are expected to increase as the
access network is upgraded to meet the requirements of the more sophisticated
systems. For example, as more ADVANCED COPPER SOLUTIONS systems are installed,
copper infrastructure needs to be upgraded and/or replaced, and as more DEEP
FIBER SOLUTIONS systems are deployed, passive pedestals are replaced with ONUs.

OUTSIDE PLANT

The Company supplies connection, protection and enclosure products for the
outside plant portion of the local loop. The Company believes its design
expertise and competencies in heat management, electromagnetic protection and
enclosure construction are competitive advantages as networks become more
sophisticated with remote intelligence and complex electronics migrating closer
to the service subscriber. Products are marketed under the RELIABLE ELECTRIC and
RAINFORD brand names. The Company supplies products in the following general
categories: distribution pedestals, building entrance terminals, cross connect
terminals, cable television enclosure products, fiber optic splice enclosures,
large electronic configuration cabinets, central office main distribution
frames, heat management systems, power surge protection devices and connection
blocks and terminals.

POWER

RELTEC believes it is a leading supplier of power equipment to service
providers and communications OEMs throughout the world. The communications power
business is built on the premise that a telephone network must provide
uninterrupted services as a lifeline for its subscriber base. As a result, there
exists a need for a source of energy back-up. RELTEC's power products have been
marketed under the LORAIN brand name for over sixty years and have become known
for high quality, reliable communications power. RELTEC's power products and
systems can be categorized as follows: large power systems for central office
applications, smaller cabinet power systems with "plug and play" flexibility,
modular power systems, custom power subsystems sold to OEMs, DC distribution and
DC-DC conversion

36
<PAGE>
systems and traditional ringing and signaling equipment. In addition, the
Company manufactures hardware and develops software that allow for remote
monitoring and control of power systems.

RELTEC recently introduced its next generation family of power products
under the VORTEX brand name. Based on a single integrated platform for a broad
range of wireline and wireless requirements, this comprehensive,
microprocessor-based, "plug and play" architecture offers intelligent local and
remote power system access that is easily expanded for virtually limitless
system configuration and control. VORTEX allows for software-based
configuration, management, monitoring and remote access.

TEST SYSTEMS

RELTEC's test systems products allow service providers to routinely monitor
the performance of copper cable pairs used for transport of their subscriber's
telephone service and perform electrical tests on copper lines experiencing
customer repair problems. Functioning as part of the service provider's
operation support system, RELTEC supplies measurement units for installation in
switching offices and remote network elements along with application software
which interprets and analyzes data from the measurement units and supplies
comprehensive reports from which service providers can manage their workforce
and coordinate repair of customer outages. RELTEC's test systems products have
been installed in a number of major companies in the United States and have been
successfully deployed throughout the world. RELTEC has deployed its test systems
in numerous locations throughout China through the Company's joint venture in
Guangzhou. RELTEC believes there is a significant opportunity for its test
systems products in a number of developing nations as they focus on enhancing
their telecommunications infrastructure.

SERVICES

RELTEC complements its product offerings with a comprehensive range of
network services which leverage its extensive experience in managing
communication system deployments. The Company focuses its service offerings on
two primary segments: program management and aftermarket services. Program
management consists primarily of engineering and installation services and
includes the complete coordination of network and system design and materials,
equipment and skill-set management. RELTEC also provides a broad range of
aftermarket services, including site contract maintenance, breakdown service,
spare parts provisioning, equipment depot repair and customer training. The
Company's service offerings support both RELTEC products as well as those
products manufactured by other suppliers. As service providers refocus their
efforts on providing revenue generating services, the Company expects to benefit
from a greater level of multiple site program management and outsourcing
opportunities.

GLOBALIZATION

The Company had total non-U.S. sales of approximately $154.0 million, or 24%
of net sales, for the nine months ended September 30, 1997. For a geographical
breakdown of net sales and operating profits for 1996, see Note 3 to the
Company's Consolidated Financial Statements. Besides the direct sales of its
systems and services around the world, RELTEC supplies a range of products to
OEMs such as Lucent Technologies, Motorola, Nokia, Northern Telecom and Siemens
which, in turn, export the finished goods outside the countries in which they
are manufactured.

Due to international standards for Access Systems that are different from
standards applicable in the United States, the Company's international growth
efforts to date have been focused primarily on increasing sales of Integrated
Wireless systems, products and services and Network Components and Services. The
Company is currently developing its MATRIXEXPRESS platform that is compliant
with international standards in order to compete in this rapidly growing market.

The Company maintains global manufacturing, service and sales operations.
The Company has two wholly-owned entities in China -- a power systems company
located in Beijing and an international design

37
<PAGE>
center located in Chengdu. The Company also has two joint ventures in China, one
dedicated to test systems and another which produces main distribution frames
and other outside plant products for the Chinese market. RELTEC's partner in the
test systems joint venture is one of the academic research and development
affiliates of the Chinese Ministry of Post and Telecommunications that
participates in the development of the specifications for a number of products
used by the telephone companies in China, including test. The Company's joint
venture in Japan produces power protection devices, primarily for international
distribution. The Company is currently focused on expanding its worldwide
resources and capabilities in Europe, Latin America and Asia/Pacific. It has
established sales offices in Brazil, China, Costa Rica, Hong Kong, Japan,
Mexico, New Zealand, Singapore and the United Kingdom. It is the Company's
strategy to build integrated businesses within each global region (North
America, Europe, Latin America and Asia/Pacific) including manufacturing,
product development, marketing, sales and general management.

SALES AND MARKETING

SALES ORGANIZATION

The Company's sales organization divides sales responsibilities into four
geographic regions -- North America, Europe, Latin America and Asia/Pacific. In
addition to the Company's direct sales force, the Company has relationships with
sales representative organizations and agents in order to expand its sales and
distribution channels. The Company maintains multifaceted relationships with its
customers, involving a broad range of RELTEC employees at all levels who
interface with their respective counterparts. The Company's sales effort is
directed by regional vice presidents and sales managers who are responsible for
relationships with targeted customers. The sales management team for each
customer is responsible for maintaining contacts with their customer
counterparts who have planning and policy responsibility. At the same time,
RELTEC sales engineers with specialized product/service knowledge work with
customers to sell their specific offerings at key levels throughout the customer
organization.

MARKETING ORGANIZATION

Marketing is structured along product and channel lines for the major
product areas. For each major product area there is a vice president of
marketing who is supported by product directors, managers and specialists. A
corporate marketing council and marketing staff coordinates activities among the
business units and provides marketing support services including marketing
communications, marketing research, trademark administration and other
commercial support activities. The Company's marketing organizations develop
strategies for product lines and, along with the Company's sales force, develop
key account/market strategies and define product/service functions and features.
Marketing is responsible for sales support, contract negotiations, in-depth
product presentations, interfacing with operations, setting price levels to
achieve targeted margins, developing new services/business opportunities and
writing proposals in response to customer requests for information or
quotations.

CUSTOMERS

RELTEC sells its telecommunications systems, products and services to a
broad range of customers on a global basis, including the RBOCs, CLECs, IXCs,
independent telephone companies, wireless service providers, private network
operators, OEMs, PTTs, cable systems operators, distributors and other service
providers. The Company enjoys strong relationships with these customers and many
of its products have become standardized. In addition to other factors, as a
result of the high costs associated with replacing standardized products, RELTEC
believes it achieves high levels of repeat business from these customers.

38
<PAGE>
Some of the Company's customers are listed below:

<TABLE>
<S> <C>
Ameritech Motorola
AT&T Nokia
Bell Atlantic (including NYNEX) Northern Telecom
Bell Canada Rogers Communications
BellSouth SBC Communications (including Pacific
Brooks Fiber Telesis)
Cisco Systems Siemens
Cox Communications Sprint
GTE Telmex
Lucent Technologies Teleport Communications Group
MCI Communications U S WEST
WorldCom
</TABLE>

In 1997, sales to the Company's top five customers--BellSouth, GTE, Nokia,
SBC Communications and Sprint--represented approximately 46% of the Company's
total sales. Of these customers only BellSouth and Sprint accounted for more
than 10% of the Company's total sales during the same period. The loss of a
significant customer could have a material adverse effect on the Company's
business. See "Risk Factors--Customer Concentration."

RESEARCH AND DEVELOPMENT

The Company believes that its future success depends on its ability to adapt
to the rapidly changing telecommunications environment, to maintain its
significant expertise in core technologies and to continue to meet and
anticipate its customers' needs. The Company continually reviews and evaluates
technological changes affecting the telecommunications market and invests
substantially in applications-based research and development. The Company is
committed to an ongoing program of new product development that combines
internal development efforts with acquisitions, joint ventures and licensing or
marketing arrangements relating to new products and technologies from sources
outside the Company.

The Company has focused its recent research and development expenditures on
commercializing its broadband access systems including its DEEP FIBER SOLUTIONS
and ADVANCED COPPER SOLUTIONS along with Network Components that support these
initiatives. The Company believes that its extensive experience in the design
and implementation of high quality network components such as outside plant
products, heat management and power supplies has enabled it to develop
high-value integrated systems solutions. As a result of these development
efforts, the Company believes it has created an industry-leading platform for
cost-effective broadband delivery.

A core component of RELTEC's globalization strategy is the establishment of
design centers in each of North America, Europe, Latin America and Asia/Pacific.
To further this strategy, during 1997, the Company established its Asia/Pacific
design center in Chengdu, China. Management believes that local design
capability will enable the Company to develop products and feature sets that
better match local requirements and development standards and accelerate the
development process by optimizing development communication and expediting
market feedback.

COMPETITION

39
<PAGE>
Northern Telecom and Advanced Fibre Communications. In addition, the Company's
Access Systems products compete indirectly with companies that produce alternate
technologies such as PairGain Technologies, ADTRAN and ADC Telecommunications.
RELTEC's Integrated Wireless products compete primarily on a regional basis with
Hoffman Schroff, Rittal and Zero Corporation, as well as with a number of
captive or allied manufacturing companies serving telecommunications OEMs. Most
of the independent competitors for Integrated Wireless do not provide the same
range of integrated capabilities that the Company offers. RELTEC's Network
Components and Services compete by product and region with a variety of
manufacturers and service providers, the largest of which include Lucent
Technologies, Northern Telecom, Siecor, Raychem and Argus Technologies, as well
as several other telecommunications OEMs.

The Company believes that technological change, the increasing addition of
data, video and other services to networks, continuing regulatory change and
industry consolidation or new entrants will continue to cause rapid evolution in
the competitive environment of the telecommunications equipment market, the full
scope and nature of which is difficult to predict. Increased competition could
result in price reductions, reduced margins and loss of market share by the
Company. The Company believes regulatory change in the industry may create new
opportunities for suppliers of telecommunications equipment; however, the
Company expects that such opportunities may attract increased competition from
others as well. The Company also believes that the rapid technological changes
which characterize the telecommunications industry will continue to make the
markets in which the Company competes attractive to new entrants. There can be
no assurance that the Company will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by the Company
will not materially and adversely affect its business, operating results and
financial condition.

MANUFACTURING AND FACILITIES

The Company seeks to deliver its products on time and defect-free, utilizing
processes that are designed with employee involvement and are based on
just-in-time delivery and focused work cells principles. All major operations
meet ISO-9001 international manufacturing standards. The Company is committed to
providing high-quality products that are cost effective to its customers.

As of December 31, 1997, the Company operated 29 facilities worldwide
comprising its world headquarters and 23 principal manufacturing and service
locations. Some of the Company's manufacturing locations contain more than one
facility.

<TABLE>
<CAPTION>
OWNED FACILITIES LEASED FACILITIES
----------------------------- ---------------------------
APPROX. APPROX.
NUMBER OF AREA (SQ. AREA (SQ.
GEOGRAPHIC LOCATION FACILITIES FT.) NUMBER FT.)
- ------------------------------------------------ --------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
North America................................... 10 841,544 7 473,761
Europe.......................................... 1 70,000 4 233,000
Latin America................................... -- -- 4 120,965
Asia/Pacific.................................... -- -- 3 109,854
-- --
------------ ------------

Total......................................... 11 911,544 18 937,580
-- --
-- --
------------ ------------
------------ ------------
</TABLE>

40
<PAGE>
The Company has a 75% interest in a CO mainframe and protection joint
venture in Shanghai, China, manufactures power protection devices through a
joint venture relationship in Japan and has a 60% interest in a joint venture to
establish its test systems business in Guangzhou, China. The Company also has a
50% interest in a joint venture in the United States (Dantherm Inc.) that
provides thermal management systems for electronic cabinetry.

The Company believes it has sufficient production capacity to meet current
demand for its product offerings. The Company anticipates expanding capacity as
required by leasing, acquiring or building new production facilities. Certain
components used in the Company's products, including certain specific integrated
circuits, are only available from a single source or limited number of
suppliers. Some of the Company's sole-source suppliers are companies which from
time to time allocate parts to telephone equipment manufacturers due to market
demand for telecommunications equipment. Many of the Company's competitors are
much larger and may be able to obtain priority allocations from these shared
suppliers, thereby limiting or making unreliable the sources of supply for these
components. The Company has no supply commitments from its vendors and generally
purchases components on a purchase order basis as opposed to entering into long
term procurement agreements with vendors. To date, the Company has generally
been able to obtain adequate supplies in a timely matter from vendors or, when
necessary, to meet production needs from alternative vendors. The Company
believes that, in most cases, alternate vendors can be identified if current
vendors are unable to fulfill needs. If the Company is unable to obtain
sufficient quantities of these or any other components or if there is a
significant increase in the price of key components, delays or reductions in
manufacturing or product shipments could occur which would have a material
adverse effect on the Company's business, financial condition and results of
operations.

INTELLECTUAL PROPERTY

EMPLOYEES

As of December 31, 1997, RELTEC had 5,273 employees worldwide, including
4,151 employees in operations and engineering, 356 employees in sales and
marketing and 766 employees in corporate and administration. As of December 31,
1997, approximately 65 of the Company's U.S. employees were subject to a
collective bargaining agreement. In addition, certain of its employees in the
United Kingdom, Canada and Mexico are represented by unions. The Company
believes its relationship with its employees is good.

ENVIRONMENTAL MATTERS

The Company is subject to comprehensive and changing foreign, federal, state
and local environmental requirements, including those governing discharges to
the air and water, the handling and disposal of solid and hazardous wastes and
the remediation of contamination associated with releases of

41
<PAGE>
hazardous substances. The Company believes that it is currently in material
compliance with current environmental requirements. Nevertheless, the Company
uses solvents and other hazardous substances, and as is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties the Company may be held liable and may be required to
pay the cost of remedying the condition. The amount of any such liability could
be material.

The Company has made, and will continue to make, expenditures to comply with
current and future environmental requirements with respect to its facilities. In
each of the last three years, the Company's capital expenditures for
environmental compliance have been less than $1 million. The Company anticipates
that it may incur additional capital expenditures and will incur operating costs
in the future to comply with existing laws and regulations and new requirements
arising from new or amended statutes. In addition, because the applicable
regulatory agencies have not yet promulgated final standards for some existing
environmental programs, the Company cannot, at this time, reasonably estimate
the cost for compliance with these additional requirements. The amount of any
such compliance cost could be material.

In connection with the RELTEC Acquisition, Rockwell agreed to indemnify the
Company for certain environmental matters. Rockwell is obligated to provide 100%
indemnification for environmental matters relating to the St. Stephen, South
Carolina facility, which was transferred to Rockwell in February 1995. In
addition, Rockwell agreed to indemnify the Company for 75% of clean-up costs and
third-party liabilities exceeding $3 million resulting from contaminants
released at the Company's facilities prior to the RELTEC Acquisition provided
that the clean-up costs and third-party liabilities are incurred pursuant to a
governmental order or decree, or at the express direction of a governmental
entity. The above-described indemnification obligations expire fifteen years
from the closing of the RELTEC Acquisition.

LEGAL PROCEEDINGS

In October 1995, Vicor Corporation and its licensing affiliate VLT
Corporation (collectively, "VLT") filed suit against the Company alleging
underpayment of royalties and other defaults under an agreement pursuant to
which VLT licensed to the Company the right to use certain technology related to
power conversion. The case is currently pending in the United States District
Court in Boston, Massachusetts. In June 1997, the Company notified VLT that it
was exercising its right to terminate the agreement because the Company was not
using the VLT technology in any products with material sales. The Company
believes that it has meritorious defenses to VLT's claims and intends to defend
vigorously this suit.

In November 1997, Advanced Fibre Communications, Inc. ("AFC") filed suit
against the Company in a California state court alleging trade secret
misappropriation and other wrongful acts related to the Company's engagement of
a consultant, Vidar Sun Moon ("VSM"), that was also a consultant to AFC. AFC
alleges that the Company wrongfully obtained AFC's proprietary information from
VSM related to the Company's MATRIXEXPRESS product. AFC is seeking injunctive
relief as well as monetary damages. The Company believes that AFC's claims are
without merit and intends to defend vigorously this suit.

42
<PAGE>
MANAGEMENT

DIRECTORS AND OFFICERS

The Bylaws of the Company provide that the directors will be elected
annually. All directors of the Company hold office until the election and
qualification of their successors. Executive officers of the Company are chosen
by the Board of Directors of the Company and serve at its discretion. The
following sets forth certain information regarding the corporate officers,
directors and operating officers of the Company and its operating subsidiaries:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
CORPORATE OFFICERS
Dudley P. Sheffler................................... 53 President, CEO and Director
W. Michael Corkran................................... 44 President, North America and Asia/Pacific
Patrick L. Welker.................................... 51 President, Europe and Latin America
Scott A. Fine........................................ 38 Vice President, Finance
Valerie A. Gentile................................... 42 Vice President, General Counsel and Secretary
David G. Phelps...................................... 47 Vice President, Human Resources
John L. Wilson....................................... 48 Vice President, Controller
Ronald W. Baker...................................... 41 Treasurer

DIRECTORS
James H. Greene, Jr.................................. 47 Director
Henry R. Kravis...................................... 54 Director
Alexander Navab, Jr.................................. 31 Director
George R. Roberts.................................... 54 Director
Barry Houghton, MBE.................................. 49 Director

OPERATING OFFICERS
Nicholas A. Camino................................... 57 Vice President/General Manager, Services
Lisa A. Coffman...................................... 37 Vice President, North American Operations
Armando E. Cuesta.................................... 56 Vice President/General Manager, Latin America
Alan W. Ferguson..................................... 49 Managing Director, Europe Wireless
Pantelis P. Paradissis............................... 60 Vice President, Chief Technology Officer
Michael K. Pratt..................................... 43 Vice President/General Manager Access Systems
Richard L. Schwob.................................... 51 Vice President/General Manager Network Components
Philip Y. Shih....................................... 40 Vice President/General Manager, Asia/Pacific
</TABLE>

CORPORATE OFFICERS

DUDLEY P. SHEFFLER has been President and CEO of the Company and a director
of the Company since August 1995. He has served as President of the Company and
its predecessor since 1981.

W. MICHAEL CORKRAN has been President, North America and Asia/Pacific and
has had responsibility for the worldwide coordination of wireline activities
since July 1997. Prior to that, he was Vice President/ General Manager, Reliable
Electric Division of the Company and its predecessor since 1993. From 1990 to
1993, Mr. Corkran served as Director of Marketing for the Reliable Electric
Division and, prior thereto, held various management positions at Reliance
Electric Corporation since 1976.

PATRICK L. WELKER has been President, Europe and Latin America and has had
responsibility for worldwide coordination of wireless activities since July
1997. Prior to that, Mr. Welker was Vice President/

43
<PAGE>
General Manager, Transmission Products of the Company and its predecessor since
1993. From 1991 to 1993, Mr. Welker was the Vice President and General Manager
of the Engineered Systems Division of Reliance Comm/Tec Corporation and from
1990 to 1991, he served as General Manager of Reliance Comm/Tec Canada.

SCOTT A. FINE has been Vice President, Finance since December 1997. Mr. Fine
joined the Company in 1996 as Vice President, Strategic Planning & Business
Development after having been in the Investment Banking Division at Goldman,
Sachs & Co. for the previous eleven years. Prior thereto, Mr. Fine was
associated with McKinsey & Company, Inc., a worldwide strategic consulting firm.

VALERIE A. GENTILE has been Vice President, General Counsel and Secretary
since December 1997. Prior to that, Ms. Gentile worked for M.A. Hanna Company
for over nine years, where her last position was Senior Associate Counsel.

DAVID G. PHELPS has been Vice President, Human Resources for the Company and
its predecessor since 1986. Prior to assuming his current position, Mr. Phelps
was Director, Human Resources for Transmission Products at Reliance Comm/Tec.

JOHN L. WILSON has been Vice President and Controller of the Company since
August 1995. From 1993 to August 1995, Mr. Wilson was the Controller of the
Company and its predecessor and prior thereto, from 1989 to 1993, he served as
Controller of the Lorain Products Division of Reliance Comm/Tec. Mr. Wilson held
management positions in audit with Exxon Corporation for ten years before
joining Reliance Electric Company.

RONALD W. BAKER has been the Treasurer of the Company since August 1995.
Prior thereto and since 1978, he held various positions in accounting and
treasury with the Company, its predecessor and Reliance Electric Company.

DIRECTORS

JAMES H. GREENE, JR. has been a director of the Company since June 1995 and
is a member of the limited liability company which serves as the general partner
of KKR and a general partner of KKR Associates. He is also a director of
Accuride Corporation, Bruno's, Inc., Owens-Illinois, Inc., Owens-Illinois Group,
Inc., Randall's Food Markets, Inc., Safeway Inc. and Union Texas Petroleum
Holdings, Inc.

HENRY R. KRAVIS has been a director of the Company since August 1995. He is
a managing member of the limited liability company which serves as the general
partner of KKR and a general partner of KKR Associates. He is also a director of
Accuride Corporation, Amphenol Corporation, Borden, Inc., Bruno's, Inc., Evenflo
& Spalding Holdings Corporation, The Gillette Company, IDEX Corporation,
KinderCare Learning Centers, Inc., KSL Recreation Group, Inc., Merit Behavioral
Care Corporation, Newsquest Capital plc, Owens-Illinois, Inc., Owens-Illinois
Group, Inc., PRIMEDIA, Inc., Safeway Inc., Sotheby's Holdings, Inc., Union Texas
Petroleum Holdings, Inc. and World Color Press, Inc.

ALEXANDER NAVAB, JR. has been a director of the Company since June 1995. He
has been an executive of KKR and a limited partner of KKR Associates since 1993.
From 1991 to 1993, Mr. Navab was an associate at James D. Wolfensohn, Inc. He is
also a director of Borden, Inc., KSL Recreation Group, Inc., Newsquest Capital
plc and World Color Press, Inc.

GEORGE R. ROBERTS has been a director of the Company since August 1995. He
is a managing member of the limited liability company which serves as the
general partner of KKR and a general partner of KKR Associates. He is also a
director of Accuride Corporation, Amphenol Corporation, Borden, Inc., Bruno's,
Inc., Evenflo & Spalding Holdings Corporation, IDEX Corporation, KinderCare
Learning Centers, Inc., KSL Recreation Group, Inc., Merit Behavioral Care
Corporation, Owens-Illinois, Inc., Owens-Illinois

44
<PAGE>
Group, Inc., PRIMEDIA, Inc., Randall's Food Markets, Inc., Safeway Inc., Union
Texas Petroleum Holdings, Inc. and World Color Press, Inc.

BARRY HOUGHTON, MBE has been a Director of the Company since February 1997.
From 1994 through July 1997, he was Chairman of Rainford. From 1971, when he
founded Rainford, to 1994 he was Managing Director of Rainford.

MESSRS. Kravis and Roberts are first cousins.

The Board of Directors intends to appoint two additional directors who are
not affiliated with the Company or KKR promptly following the sale of shares
pursuant to the Offering. The additional directors have not yet been identified.

OPERATING OFFICERS

NICHOLAS A. CAMINO has been Vice President/General Manager, Services since
1989. Prior thereto he held various positions in project management,
applications engineering and systems marketing at Reliance Electric Company and
Reliance Comm/Tec.

LISA A. COFFMAN was appointed Vice President, North American Operations in
August 1997. Prior to that, Ms. Coffman worked for Motorola, Inc. for 15 years
in various manufacturing positions. Most recently, Ms. Coffman had
responsibility for Manufacturing Operations for Motorola's Boynton Beach Paging
Facility, which services the North America and Latin America markets.

ARMANDO E. CUESTA has been Vice President and General Manager, Latin America
since November 1997. Prior to that he was President of ECI Telecom Americas, a
wholly owned subsidiary of ECI Telecom LTD, since July 1996. From 1992 to July
1996, Mr. Cuesta was Senior Vice President--Americas Operations for Telematics
International Inc., a wholly owned subsidiary of ECI Telecom LTD.

ALAN W. FERGUSON has been Managing Director, Europe Wireless since July
1997. Prior to that, he was Group Managing Director of Rainford since October
1994. Prior to that, he held a number of senior managerial positions with
GEC-Plessey Telecommunications. Mr. Ferguson joined RELTEC with the acquisition
of Rainford in 1996.

PANTELIS P. PARADISSIS has been Vice President and Chief Technology Officer
of the Company since January 1997. Prior to that, he was Vice President/General
Manager, Lorain Products Division of Reliance Comm/Tec since 1989. Mr.
Paradissis joined Lorain Products in 1961 and has held a variety of engineering
and marketing positions since then with Reliance Comm/Tec and its predecessor.

MICHAEL K. PRATT has been Vice President/General Manager Access Systems
since July 1997. Prior to that Mr. Pratt was Vice President, Access Products
within the Transmission Products business unit since July 1996. Prior to joining
the Company in July 1996, Mr. Pratt held various positions with DSC
Communications Corporation.

RICHARD L. SCHWOB has been Vice President/General Manager Network Components
since January 1997. Prior to that he was Vice President, Sales for the Company
and its predecessor since 1988. From 1987 to 1988, Mr. Schwob served as the
Director of Marketing of Reliance Comm/Tec and from 1969 to 1984, he held
various positions at Reliance Comm/Tec and its predecessor in sales and
marketing.

PHILIP Y. SHIH has been Vice President/General Manager, Asia/Pacific for the
Company since January 1997 after joining the Company in August, 1996 as Vice
President/General Manager-China. Prior to that he worked for AT&T Bell
Laboratories for ten years and Chief Representative, AT&T West China Region with
his most recent position being General Manager, AT&T Chengdu Telecommunications
Company.

45
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS

Following the Offering, the Board of Directors will have three standing
committees: an Audit Committee, a Compensation Committee and an Executive
Committee. Messrs. Sheffler, Greene and Navab comprise the Executive Committee
of the Board of Directors. Currently, the Audit Committee consists of Messrs.
Greene and Navab. The Company intends to appoint to the Audit Committee only
persons who qualify as an "independent" director for purposes of the rules and
regulations of the NYSE. The Audit Committee will select and engage, on behalf
of the Company, the independent public accountants to audit the Company's annual
financial statements, and will review and approve the planned scope of the
annual audit. The Compensation Committee will establish remuneration levels for
certain officers of the Company and will perform such functions as provided
under the Company's employee benefit programs and executive compensation
programs. Currently, Messrs. Greene and Navab serve as members of the
Compensation Committee.

COMPENSATION OF DIRECTORS

Directors who are also employees of the Company receive no remuneration for
serving as directors. Each director who is not an employee of the Company
receives an annual retainer of $25,000. The Company maintains a deferred
compensation plan, effective January 1, 1996, for non-employee directors of the
Company (the "Directors' Deferred Compensation Plan"). Such directors may defer
all or a portion of their compensation to a deferred compensation account under
the Directors' Deferred Compensation Plan. Deferred compensation accounts are
credited with interest at the prime rate, and amounts in deferred compensation
accounts become distributable on the date that the director ceases to be a
director or such earlier time approved by the Board of Directors. All directors
will be reimbursed for reasonable expenses incurred to attend director and
committee meetings.

LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS

The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the Delaware General Corporation Law (the "DGCL"), a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director. Under the DGCL,
liability of a director may not be limited (i) for any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (iii) in respect of certain unlawful dividend payments or stock
redemptions or repurchases and (iv) for any transaction from which the director
derives an improper personal benefit. The effect of the provisions of the
Company's Certificate of Incorporation is to eliminate the rights of the Company
and its stockholders (through stockholders' derivative suits on behalf of the
Company) to recover monetary damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior), except in the situations described in
clauses (i) through (iv) above. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Bylaws provide that the Company shall indemnify its
directors, officers, employees and agents against losses incurred by any such
person by reason of the fact that such person was acting in such capacity.

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table provides certain summary
information concerning compensation paid or accrued by the Company to or on
behalf of the Company's Chief

46
<PAGE>
Executive Officer and each of the four other most highly compensated executive
officers of the Company (the "Named Executive Officers") during the year ended
December 31, 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------------- COMPENSATION
OTHER ANNUAL ------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION LTIP PAYOUTS COMPENSATION(1)
- ----------------------------------------- ---------- ---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Dudley P. Sheffler....................... $ 400,000 $ 360,000 $ -- $ -- $ 13,226
President and Chief
Executive Officer
W. Michael Corkran....................... 200,000 130,000 -- -- --
President, North America
and Asia/Pacific
Patrick L. Welker........................ 200,000 130,000 -- -- 2,574
President, Europe and Latin
America
Alan W. Ferguson(2)...................... 189,750 94,875 -- -- 18,975
Managing Director,
Europe
Richard L. Schwob........................ 179,000 89,500 -- -- 2,496
Vice President and
General Manager
</TABLE>

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

(1) Includes (a) payments equal to lost Company savings plan matching
contributions resulting from Code limitations (to Mr. Sheffler, Mr. Welker,
and Mr. Schwob) and (b) a contribution to Mr. Ferguson's Personal Pension
Plan in the UK.

(2) Mr. Ferguson joined RELTEC with the acquisition of Rainford by RELTEC
effective September 1, 1996. In 1997, Mr. Ferguson's annual salary was
L115,000, his Bonus was L57,500 and the contribution to his Personal Pension
Plan was 10% of his annual salary, or L11,500, all of which were converted
to U.S. dollars at a conversion rate of $1.65 per L1.00.

STOCK OPTIONS GRANTED IN 1997. The following table sets forth information
concerning individual grants of stock options made by the Company during the
year ended December 31, 1997 to each of the Named Executive Officers.

47
<PAGE>
OPTION GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
------------------------------------------------------ AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- -------------------------------- ----------- --------------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Dudley P. Sheffler.............. 60,000 6.9% $ 12.50 4/15/07 $ 471,671 $ 1,195,307
President and Chief
Executive Officer
W. Michael Corkran.............. 55,000 6.3 12.50 4/15/07 432,365 1,095,698
President, North America
and Asia/Pacific
Patrick L. Welker............... 21,200 2.4 12.50 4/15/07 166,657 422,342
President, Europe and 20,000 2.3 12.50 7/31/07 157,224 398,436
Latin America
Alan W. Ferguson................ 20,000 2.3 12.50 4/15/04 157,224 398,436
Managing Director,
Europe
Richard L. Schwob............... 21,200 2.4 12.50 4/15/07 166,657 422,342
Vice President and
General Manager
</TABLE>

AGGREGATED OPTION EXERCISES. None of the Named Executive Officers exercised
options in 1997.

BENEFIT PLANS

RETIREMENT PLANS

GENERAL

The Company maintains a number of "tax qualified" retirement plans,
including a 401(k) savings plan, that are each generally available to a broad
classification of its employees. In addition, the Company also maintains a
frozen defined benefit pension plan (the "Pension Plan") for eligible salaried
employees (including the Named Executive Officers) and those hourly employees
not covered by another defined benefit pension plan maintained by the Company
who were participants in a certain predecessor defined benefit plan in effect as
of the RELTEC Acquisition. Benefits under the Pension Plan are generally
determined on the basis of average compensation and years of service. Effective
December 31, 1997, benefit accruals under the Pension Plan were frozen.
Compensation taken into account under the Pension Plan generally includes salary
and bonus and other compensation disclosed in the Summary Compensation Table.
The normal retirement age under the Pension Plan is 65; however, retirement
before age 65 can be elected under certain conditions. Pension amounts will be
reduced to reflect retirement prior to age 65.

SUPPLEMENTAL RETIREMENT PLAN FOR KEY EMPLOYEES

The Company also maintains a Supplemental Retirement Plan for Key Employees
(the "Supplemental Plan"), an unfunded "non-qualified" plan that covers
employees (including the Named Executive Officers) who participate in the
Pension Plan and the Deferred Compensation Plan described below or whose
benefits under the Pension Plan are limited due to restrictions imposed by
federal tax laws. Benefits under the Supplemental Plan are based on years of
service (including years of service not taken into account under the Pension
Plan) and total annual compensation as reported in the Summary

48
<PAGE>
Compensation Table and, for participants in the Deferred Compensation Plan, a
specified percentage of average awards under such plan multiplied by years of
service.

SPECIAL RETIREMENT PROGRAM FOR ELECTED OFFICERS

The Company also maintains a deferred compensation plan (the "Special
Retirement Program") for principal officers of the Company who participated in a
similar predecessor plan of Reliance Electric Company. A principal officer must
have served as such for at least two years and, upon retirement, must have at
least ten years of service with the Company to be eligible to participate in the
Special Retirement Program. Eligibility to participate in the Special Retirement
Program is subject to the approval of the Board of Directors of the Company in
the event of retirement prior to the normal retirement date. An individual will
not be eligible to participate in the Special Retirement Program in the event of
retirement prior to reaching age 55.

The maximum retirement allowance provided under the Special Retirement
Program upon a participant's retirement will be 50% of the average of the three
best years of total compensation, less pension attributable to the Company
contributions under the Company Pension Plan, the Supplemental Retirement Plan
and any retirement plan of a prior employer following retirement from the
Company, and less 50% of primary Social Security benefit. The maximum retirement
allowance of 50% will be payable to the person holding, on retirement, the
office of Chief Executive Officer of the Company, and to any other participant
with 15 years of service with the Company upon retirement. If a participant,
other than the Chief Executive Officer of the Company, has less than 15 years of
service upon retirement, the retirement allowance will be reduced by .2777% for
each month of service less than 180 months. Under the Special Retirement
Program, the group life and medical insurance coverage in effect for a
participant at the time of early retirement will be continued until normal
retirement.

DEFERRED COMPENSATION PLAN

The Company also maintains an unfunded "non-qualified" deferred compensation
plan (the "Deferred Compensation Plan") for elected officers and other key
employees of the Company and its subsidiaries and affiliates, pursuant to which
the Company may elect to award deferred compensation to any of such officers and
employees each calendar year. In addition, because federal law places
limitations on contributions to the 401(k) retirement savings plan, the Company
contributes to the Deferred Compensation Plan for each participant the amount of
matching employer contributions to which the participant would be entitled under
the 401(k) savings plan but for such limitations. Deferred compensation accounts
under the Deferred Compensation Plan are credited quarterly with interest at the
rate specified by the Board from time to time (currently at the prime rate). The
amounts credited to an employee's deferred compensation account will become
distributable at age 65 or earlier with the approval of the Board of Directors
of the Company. In addition, in the event of a "change of control" (as defined
under the Deferred Compensation Plan), payment of all accounts shall be
accelerated and payable in a lump sum within 30 days after such event.

1995 EQUITY PLAN

The Company has adopted a Stock Purchase and Option Plan for its employees
effective as of August 1, 1995, as amended and restated effective as of July 18,
1996 (the "1995 Equity Plan"). The principal purposes of the 1995 Equity Plan
are to provide incentives for officers and employees of the Company through
grants of non-qualified stock options ("NQSOs") and restricted stock
(collectively, "Grants") to motivate their personal and active interest in the
Company's development and financial success, and to induce them to remain in the
Company's employment.

Under the 1995 Equity Plan, not more than 5,000,000 shares of Common Stock
are authorized for issuance upon exercise of NQSOs or upon vesting of restricted
stock awards. NQSOs are options to

49
<PAGE>
purchase shares of Common Stock that are not "incentive stock options" within
the meaning of Section 422 of the Code. Restricted stock is Common Stock that is
subject to restrictions or conditions on the participant's right to transfer or
sell such stock. Furthermore, the maximum number of shares that may be subject
to Grants under the 1995 Equity Plan to any individual cannot exceed 1,000,000.

ADMINISTRATION

The Compensation Committee of the Company's Board of Directors administers
the 1995 Equity Plan. It is the current intent of the Compensation Committee not
to make any Grants under the 1995 Equity Plan following the Offering.

Subject to the terms and conditions of the 1995 Equity Plan, the
Compensation Committee has the authority to select the employees, if any, to
whom Grants are to be made, to determine the number of shares to be subject
thereto and the terms and conditions thereof, and to make all other
determinations and to take all other actions necessary to advisable for the
administration of the 1995 Equity Plan. The Compensation Committee is also
authorized to adopt, amend and rescind rules relating to the administration of
the 1995 Equity Plan.

ELIGIBILITY

Restricted stock and NQSOs under the 1995 Equity Plan may be granted to
individuals who are employees of the Company (or any current or future
subsidiaries of the Company) selected by the Compensation Committee for
participation in the 1995 Equity Plan. No Grants may be made under the 1995
Equity Plan to non-employee directors of the Company or its subsidiaries, except
that, in connection with the Rainford Acquisition, the Compensation Committee
was authorized to make Grants of NQSOs to non-employee directors as rollover
options in return for cancellation of certain options issued by Rainford.

GRANTS UNDER THE 1995 EQUITY PLAN

The 1995 Equity Plan provides that the Compensation Committee may grant or
issue restricted stock or NQSOs, or any combination thereof, to any eligible
employee. Each such Grant will be set forth in a separate agreement with the
person receiving the Grant and will indicate the type, terms and conditions of
the Grant.

NON-QUALIFIED STOCK OPTIONS ("NQSOS") will provide for the right to purchase
Common Stock at a specified price per share that may be less than (but in most
cases not below 50%) the fair market value of a share of Common Stock on the
date of grant, and usually will become exercisable (at the discretion of the
Compensation Committee) in one or more installments after the grant date,
subject to the participant's continued employment with the Company and/or
subject to the satisfaction of individual or Company performance targets
established by the Compensation Committee. Exercise of NQSOs also may be
predicated on the purchase of restricted stock by the participant pursuant to a
Grant. NQSOs issued under the 1995 Equity Plan have a maximum exercise period of
ten years from the date of grant.

RESTRICTED STOCK may be sold to participants at various prices per share
(but not less than 50% of the fair market value of a share of Common Stock on
the date such shares are offered) and made subject to such restrictions as may
be determined by the Compensation Committee. Restricted stock typically may be
repurchased by the Company at the original purchase price in the event of
termination of the participant's employment with the Company other than by
reason of death, disability or retirement at age 65 or in the event of certain
impermissible transfers of Common Stock. In general, restricted stock may not be
sold, or otherwise transferred or hypothecated, until restrictions are removed
or expire. Purchasers of restricted stock, unlike recipients of options, will
have voting rights and will receive dividends prior to the time when the
restrictions lapse.

50
<PAGE>
1998 EQUITY PLAN

Prior to the Offering, the 1998 Equity Participation Plan of RELTEC
Corporation (the "Equity Plan") was approved by the Board of Directors and
stockholders of the Company. The principal purpose of the Equity Plan is to
provide incentives for officers, employees and consultants of the Company
through granting of options, restricted stock and other awards (collectively,
"Awards"), thereby stimulating their personal and active interest in the
Company's development and financial success, and inducing them to remain in the
Company's employment. The Equity Plan is also intended to assist the Company in
attracting and retaining qualified non-employee directors ("Non-Employee
Directors") by providing for the automatic grant of options to Non-Employee
Directors.

Under the Equity Plan, not more than 4,200,000 shares of Common Stock (or
the equivalent in other equity securities) are authorized for issuance upon
exercise of options, stock appreciation rights ("SARs"), and other Awards, or
upon vesting of restricted or deferred stock awards. Furthermore, the maximum
number of shares which may be subject to options, SARs, restricted stock or
other Awards granted under the Equity Plan to any individual in any calendar
year cannot exceed a certain maximum amount.

The principal features of the Equity Plan are summarized below, but the
summary is qualified in its entirety by reference to the Equity Plan, which is
filed as an exhibit to the registration statement of which this Prospectus is a
part.

ADMINISTRATION

Prior to the Company's initial registration of Common Stock under Section 12
of the Exchange Act, the Compensation Committee of the Board will administer the
Equity Plan. Following such registration, the entire Board or a committee
thereof that consists solely of two or more members of the Board, each of whom
is both a "non-employee director" for purposes of Rule 16b-3 under the Exchange
Act ("Rule 16b-3") and an "outside director" for the purposes of Section 162(m)
of the Code, will administer the Equity Plan with respect to grants to employees
or consultants of the Company and the full Board will administer the Equity Plan
with respect to options granted to Non-Employee Directors.

Subject to the terms and conditions of the Equity Plan, the Committee has
the authority to select the employees and consultants, if any, to whom Awards
are to be made, to determine the number of shares to be subject thereto and the
terms and conditions thereof, and to make all other determinations and to take
all other actions necessary or advisable for the administration of the Equity
Plan with respect to grants or awards made to employees or consultants. The
Committee (and the Board of Directors) is also authorized to adopt, amend and
rescind rules relating to the administration of the Equity Plan. Notwithstanding
the foregoing, the Board of Directors shall conduct the general administration
of the Equity Plan with respect to Options granted to Non-Employee Directors.

ELIGIBILITY

Options, SARs, restricted stock and other Awards under the Equity Plan may
be granted to individuals who are employees or consultants of the Company (or
any current or future subsidiaries) selected by the Committee for participation
in the Equity Plan. In addition, the Equity Plan provides for automatic grants
of non-qualified stock options to Non-Employee Directors.

NON-EMPLOYEE DIRECTORS

The Equity Plan provides for (i) automatic grants of non-qualified stock
options to purchase a set number of shares of Common Stock to each Non-Employee
Director at the time of election to the Board of Directors, and (ii) automatic
grants of non-qualified stock options to purchase a set number of shares of
Common Stock to each Non-Employee Director upon each successive anniversary of
such election upon which the Non-Employee Director remains a member of the
Board. Each such grant shall be set forth in a

51
<PAGE>
written agreement between the Company and the Non-Employee Director indicating
the terms and conditions of the option. The exercise price of such options shall
be the fair market value of a share of Common Stock on the date of grant. Each
option shall become exercisable in cumulative annual installments of one-fourth
each on each of the first four anniversaries of the date of the grant so long as
the Non-Employee Director continues to serve as a director of the Company;
provided, however, to the extent permitted by Rule 16b-3, the Board of Directors
may accelerate the exercisability of options upon the occurrence of certain
specified extraordinary corporate transactions or events, and provided further
that upon the occurrence of a "Change in Control" of the Company (as defined in
the Equity Plan) all outstanding options shall become immediately exercisable.
No portion of an option granted to any Non-Employee Director shall be
exercisable after the tenth anniversary of the date of grant or more than 120
days after the termination of the Non-Employee Director's services as director
of the Company.

AWARDS UNDER THE EQUITY PLAN

The Equity Plan provides that the Committee may grant or issue stock
options, SARs, restricted stock, deferred stock, dividend equivalents,
performance awards, stock payments, and other stock related benefits, or any
combination thereof to any eligible employee or consultant. Each such Award will
be set forth in a separate agreement with the person receiving the Award and
will indicate the type, terms and conditions of the Award.

NONQUALIFIED STOCK OPTIONS ("NQSOS") will provide for the right to purchase
Common Stock at a specified price which, except with respect to NQSOs intended
to qualify as performance-based compensation under Section 162(m) of the Code,
may be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable (in the discretion of the Committee)
in one or more installments after the grant date, subject to the participant's
continued employment with the Company and/or subject to the satisfaction of
individual or Company performance targets established by the Committee. NQSOs
may be granted for any term specified by the Committee. Notwithstanding the
foregoing, NQSOs granted to Non-Employee Directors shall be subject to the terms
described above. See "--Non-Employee Directors."

INCENTIVE STOCK OPTIONS ("ISOS") will be designed to comply with certain
restrictions contained in the Code. Among such restrictions, ISOs must have an
exercise price not less than the fair market value of a share of Common Stock on
the date of grant, may only be granted to employees, must expire within a
specified period of time following the Optionee's termination of employment, and
must be exercised within ten years after the date of grant; but may be
subsequently modified to disqualify them from treatment as ISOs. In the case of
an ISO granted to an individual who owns (or is deemed to own) at least 10% of
the total combined voting power of all classes of stock of the Company, the
Equity Plan provides that the exercise price must be at least 110% of the fair
market value of a share of Common Stock on the date of grant and the ISO must
expire upon the fifth anniversary of the date of its grant.

RESTRICTED STOCK may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Committee. Restricted stock, typically, may be repurchased by the Company at
the original purchase price if the conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of restricted
stock, unlike recipients of options, will have voting rights and will receive
dividends prior to the time when the restrictions lapse.

DEFERRED STOCK may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
prior to the time when vesting conditions are satisfied.

52
<PAGE>
STOCK APPRECIATION RIGHTS may be granted in connection with stock options or
other Awards, or separately. SARs granted by the Committee in connection with
stock options or other awards typically will provide for payments to the holder
based upon increases in the price of the Company's Common Stock over the
exercise price of the related option or other Awards, but alternatively may be
based upon criteria such as book value. Except as required by Section 162(m) of
the Code with respect to any SAR intended to qualify as performance-based
compensation as described in Section 162(m) of the Code, there are no
restrictions specified in the Equity Plan on the amount of gain realizable from
the exercise of SARs, although restrictions may be imposed by the Committee in
the SAR agreements. The Committee may elect to pay SARs in cash or in Common
Stock or in a combination of both.

DIVIDEND EQUIVALENTS represent the value of the dividends per share paid by
the Company, calculated with reference to the number of shares covered by the
stock options, SARs or other Awards held by the participant.

PERFORMANCE AWARDS may be granted by the Committee on an individual or group
basis. Generally, these Awards will be based upon specific performance targets
and may be paid in cash or in Common Stock or in a combination of both.
Performance Awards may include "phantom" stock Awards that provide for payments
based upon increases in the price of the Company's Common Stock over a
predetermined period. Performance Awards may also include bonuses which may be
granted by the Committee on an individual or group basis and which may be
payable in cash or in Common Stock or in a combination of both.

STOCK PAYMENTS may be authorized by the Committee in the form of shares of
Common Stock or an option or other right to purchase Common Stock as part of a
deferred compensation arrangement or otherwise in lieu of or in addition to all
or any part of compensation, including bonuses, that would otherwise be payable
in cash to the employee or consultant.

SECURITIES LAWS AND FEDERAL INCOME TAXES

SECURITIES LAWS. The 1995 Equity Plan and the Equity Plan (the "Equity
Plans") are intended to conform to the extent necessary with all provisions of
the Securities Act and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including,
without limitation, Rule 16b-3. To the extent permitted by applicable law, the
Equity Plans and options or other Awards granted thereunder shall be deemed
amended to the extent necessary to conform to such laws, rules and regulations.

GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards, and stock payments under the Equity Plans are taxable under
Section 83 of the Code upon their receipt of Common Stock or cash with respect
to such awards or grants and, subject to Section 162(m) of the Code, the Company
will be entitled to an income tax deduction with respect to the amounts taxable
to such recipients. Under Sections 421 and 422 of the Code, recipients of ISOs
are generally not taxable on their receipt of Common Stock upon their exercises
of ISOs if the ISOs and option stock are held for certain minimum holding
periods and, in such event, the Company is not entitled to income tax deductions
with respect to such exercises.

SECTION 162(M) LIMITATION. In general, under Section 162(m) of the Code,
income tax deductions of publicly-held corporations may be limited to the extent
total compensation (including base salary, annual bonus, stock option exercises
and non-qualified benefits paid) for certain executive officers exceeds $1
million in any one year. However, under Code Section 162(m), the deduction limit
does not apply to certain "performance-based compensation" established by an
independent compensation committee which is adequately disclosed to, and
approved by, stockholders. In particular, stock options and SARs will satisfy
the "performance-based compensation" exception if the awards are made by a
qualifying compensation committee, the plan sets the maximum number of shares
that can be granted to any person within a

53
<PAGE>
specified period and the compensation is based solely on an increase in the
stock price after the grant date (I.E., the option exercise price is equal to or
greater than the fair market value of the stock subject to the award on the
grant date). Under a Code Section 162(m) transition rule for compensation plans
of corporations which are privately held and which become publicly held in an
initial public offering, the Equity Plans will not be subject to Code Section
162(m) until the "Transition Date" which is defined as the earliest of (i) the
material modification of the Equity Plans; (ii) the issuance of all Common Stock
and other compensation that has been allocated under the Equity Plans; or (iii)
the first meeting of stockholders at which directors are to be elected that
occurs after December 31, 2001. After the Transition Date, rights and awards
granted under the Equity Plans, other than options and SARs, will not qualify as
"performance-based compensation" for purposes of Code Section 162(m) unless such
rights and awards are granted or vest upon preestablished objective performance
goals, the material terms of which are disclosed to and approved by the
stockholders of the Company.

The Company has attempted to structure the Equity Plans in such a manner
that, after the Transition Date, subject to obtaining stockholder approval of
the Equity Plans, the remuneration attributable to stock options and SARs which
meet the other requirements of Code Section 162(m) will not be subject to the
$1,000,000 limitation. The Company has not, however, requested a ruling from the
IRS or an opinion of counsel regarding this issue.

54
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The KKR Partnerships beneficially own % of the Company's outstanding
shares of Common Stock on a fully diluted basis, and after giving effect to the
Offering will own % on a fully diluted basis. As a result the KKR
Partnerships will have the power to elect all of the Company's directors,
appoint new management and approve any action requiring the approval of the
holders of Common Stock. KKR Associates is the general partner of the KKR
Partnerships. The general partners of KKR Associates are Messrs. Henry R.
Kravis, George R. Roberts, Paul E. Raether, Michael W. Michelson, James H.
Greene, Jr., Michael T. Tokarz, Clifton S. Robbins, Edward A. Gilhuly, Perry
Golkin, Scott M. Stuart and Robert I. MacDonnell. Messrs. Kravis, Roberts and
Greene are also directors of the Company, as is Alexander Navab, Jr., who is an
executive of KKR and a limited partner of KKR Associates. Each of the general
partners of KKR Associates is also a member of KKR & Co., L.L.C., which serves
as the general partner of KKR.

From time to time, KKR has received customary investment banking fees for
services rendered to the Company in connection with divestitures, acquisitions
and certain other transactions. As part of these fees, KKR received a fee of
$7.5 million in cash from the Company for negotiating the RELTEC Acquisition and
arranging the financing therefor, plus the reimbursement of its expenses in
connection therewith. The Company paid KKR a $2.0 million fee for consulting
services related to the Rainford Acquisition. In the future, KKR will continue
to receive customary fees for services rendered to the Company in connection
with acquisitions, divestitures and certain other transactions. In addition, KKR
has agreed to render management, consulting and financial services to the
Company for an annual fee of $750,000, payable quarterly. During the nine months
ended September 30, 1997, the year ended December 31, 1996 and the five months
ended December 31, 1995, the Company paid $0.5 million, $0.8 million and $0.4
million, respectively, to KKR for such services and for reimbursement of
expenses.

In connection with the RELTEC Acquisition, the KKR Partnerships entered into
Securities Purchase Agreements pursuant to which they acquired 28,000,000 shares
of Common Stock and one of the KKR Partnerships, CMT Associates L.P. ("CMT
Associates"), acquired a Subordinated Promissory Note in the principal amount of
$135,000,000 (the "Bridge Loan"). The Bridge Loan was guaranteed by the
Company's sole wholly-owned direct subsidiary. The Securities Purchase
Agreements contain provisions (i) restricting the KKR Partnerships' ability to
sell shares of Common Stock for up to 90 days after the effective date of
certain registration statements, (ii) requiring the Company to reimburse the KKR
Partnerships for all costs and expenses arising in connection with the
administration, enforcement and preservation of rights under the Securities
Purchase Agreements, including, without limitation, all expenses incurred by the
KKR Partnerships in connection with the maintenance of their books and records,
preparation of tax returns and delivery of tax information to their partners and
all travel and other out-of-pocket expenses of KKR Associates in connection with
the operation and business of the KKR Partnerships and their ownership of the
Common Stock and Bridge Loan and (iii) indemnifying the KKR Partnerships and all
of their partners from liabilities, damages and expenses relating to or arising
out of the KKR Partnerships' ownership of the Common Stock and Bridge Loan or
litigation to which such persons are made a party in their capacity as an owner
of such securities.

Also in connection with the RELTEC Acquisition, the KKR Partnerships entered
into the Registration Rights Agreement, dated August 1, 1995, (the "Registration
Rights Agreement") with the Company. Pursuant to such agreement the KKR
Partnerships have the right, under certain circumstances and subject to certain
conditions, to require the Company to register under the Securities Act shares
of Common Stock held by them. In addition, the Registration Rights Agreement
also provides the KKR Partnerships with certain piggyback registration rights.
The Registration Rights Agreement provides, among other things, that the Company
will pay all expenses in connection with the first six demand registrations
requested by the KKR Partnerships and in connection with any registration in
which the KKR Partnerships participates through piggyback registration rights
granted under such agreement.

55
<PAGE>
In connection with the issuance of shares of Common Stock to employees of
the Company pursuant to the Company's 1995 Stock Purchase and Option Plan, such
employees granted CMT Associates certain "drag along" rights and CMT Associates
granted such employee certain "tag along" rights.

On September 7, 1995, CMT Associates exchanged $35 million of the principal
amount of the Bridge Loan into 7,000,000 shares of Common Stock pursuant to the
terms of the Bridge Loan. On September 11, 1995, the Company repaid $25 million
of the principal amount of the Bridge Loan with proceeds for borrowings under
its then existing bank credit agreement. In August 1996, CMT Associates
exchanged the remaining $75 million principal amount for 6,434,783 shares of
Common Stock, plus 1,000 shares of Series A Preferred Stock that was
subsequently sold to a third party. On April 1, 1997, CMT Associates purchased
an additional 4,000,000 shares of Common Stock for $50,000,000, which proceeds
were used to repay indebtedness.

In connection with the Rainford Acquisition, 2,951,044 shares of Common
Stock were issued in exchange for certain shares of Rainford Common Stock held
for the benefit of Barry Houghton, a director of the Company, and his family
(the "Settlements") pursuant to certain settlement agreements. The Settlements
and the Company entered into a Put/Call Agreement in August 1996. That agreement
provides that if Barry Houghton ceases for any reason to be employed by the
Company or any of its subsidiaries, the Company shall have the right to purchase
some or all of the shares of Common Stock held by the Settlements at fair market
value on the date of his termination. Subject to certain limitations, upon Barry
Houghton ceasing for any reason to be employed by the Company or any of its
subsidiaries the Settlements shall be entitled to sell to the Company, and the
Company shall be required to purchase, up to 10% of the shares of Common Stock
held by the Settlements at fair market value on the date of his termination. For
purpose of the agreement, if the Common Stock is listed on an exchange, then
fair market value shall mean the average of the closing sales price for the
Common Stock for the twenty trading days prior to the date of his termination.
The Settlements also entered into a Stockholders' Agreement with the Company,
the KKR Partnerships and certain other shareholders of Rainford. In the
Stockholders' Agreement the Settlements granted the KKR Partnerships certain
"drag along" rights and the KKR Partnerships granted the Settlements certain
"tag along" rights. In addition, the Settlements have granted the Company a
right of first refusal with respect to certain transfers of the Common Stock
held by the Settlements and the Company granted the Settlements certain
piggyback registration rights.

In connection with the purchase of Common Stock pursuant to the 1995 Equity
Plan, the Company made loans to certain employees. The only loans to executive
officers were to Susan Clark, formerly General Counsel and Secretary and
currently Vice President/Administration, Latin America, and to Valerie Gentile,
Vice President and General Counsel. The principal amount of the loans are paid
in five equal annual payments and interest on the unpaid principal accrues at a
floating interest rate. The loans are secured by a pledge of the Common Stock
held by such persons. At December 31, 1997, the outstanding principal balance
for Ms. Clark's and Ms. Gentile's loans were $54,683 and $218,750, respectively.

56
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth information with respect to the beneficial
ownership of the Company's Common Stock as of December 31, 1997 by (i) each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
executive officers of the Company and (iv) all directors and executive officers
as a group. Unless otherwise indicated, the address of each person named in the
table below is RELTEC Corporation, 5900 Landerbrook Drive, Suite 300, Cleveland,
OH 44124-4019.

<TABLE>
<CAPTION>
PERCENT OF TOTAL
----------------------
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING OFFERING(2)
- --------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
KKR Associates, L.P.(3)...................... 45,434,783 90.8%
Henry R. Kravis............................ -- --
George R. Roberts.......................... -- --
James H. Greene, Jr........................ -- --
Barry Houghton MBE(4)........................ 2,985,044 6.0
Dudley P. Sheffler(5)........................ 282,000 *
Patrick L. Welker(6)......................... 103,640 *
W. Michael Corkran(7)........................ 83,000 *
Alexander Navab, Jr.(8)...................... -- *
All officers and directors as a group (5
persons, excluding Messrs. Greene, Kravis
and Roberts)(9)............................ 3,453,684 6.9
</TABLE>

- ------------------------
* Less than 1%.

(1) For purposes of this table, a person is deemed as of any date to have
"beneficial ownership" of any security that such person has a right to
acquire within 60 days after such date. Shares that each identified
stockholder has the right to acquire within 60 days of the date of the table
set forth above are deemed to be outstanding in calculating the percentage
ownership of such stockholder, but are not deemed outstanding as to any
other person.

(2) Assumes (i) no exercise of the over-allotment option by the Underwriters and
(ii) no purchase of shares in the Offering by the respective Beneficial
Owner.

(3) Shares of Common Stock shown as owned by KKR Associates are owned of record
by CMT Associates, L.P. and KKR Partners II, L.P. of which KKR Associates is
the sole general partner and as to which it possesses sole voting and
investment power. Messrs. Kravis, Roberts and Greene (who are directors of
the Company) and Messrs. Paul E. Raether, Michael W. Michelson, Michael T.
Tokarz, Clifton S. Robbins, Edward D. Gilhuly, Perry Golkin, Scott M. Stuart
and Robert I. MacDonnell, as general partners of KKR Associates, may be
deemed to share beneficial ownership of any shares beneficially owned by KKR
Associates, but disclaim any such beneficial ownership. The address of KKR
Associates is 9 West 57th Street, New York, New York 10019.

(4) Includes an aggregate of 34,000 options that are exercisable within 60 days
of the date hereof held by Mr. Houghton and 2,951,044 shares held in trust
in respect of which Mr. Houghton is the beneficial owner.

(5) Includes an aggregate of 132,000 options that are exercisable within 60 days
of the date hereof.

(6) Includes an aggregate of 50,640 options that are exercisable within 60 days
of the date hereof.

(7) Includes an aggregate of 43,000 options that are exercisable within 60 days
of the date hereof.

(8) Mr. Navab is an executive of KKR and a limited partner of KKR Associates.
Mr. Navab disclaims that he is the beneficial owner of any shares
beneficially owned by KKR Associates.

(9) Includes an aggregate of 259,640 options that are exercisable within 60 days
of the date hereof.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

In September 1996, the Company entered into the $450.0 million New Credit
Facility which matures on September 30, 2003. The New Credit Facility consists
of a $350.0 million domestic revolving facility ("DRF") and a $100.0 million
multi-currency revolving facility ("MCRF"). DRF loans are denominated in U.S.
dollars and maintained at the Base Rate or the Euro Rate plus percentage margins
as specified in the New Credit Facility. MCRF loans are denominated in U.S.
dollars, pounds sterling, deutsche marks and/or yen and are maintained at the
Base Rate or the Euro Rate plus percentage margins as specified in the New
Credit Facility. The New Credit Facility contains provisions to reduce the
interest rates and commitment fees if certain leverage ratios are achieved. At
September 30, 1997, the weighted average interest rate on the New Credit
Facility was 6.86%. The New Credit Facility contains provisions for a $30.0
million (or a pound sterling equivalent) short-term credit line as well as
letters of credit. At September 30, 1997 the New Credit Facility has a facility
fee of 0.25% per annum on the unused commitment and a letter of credit facility
fee of 0.25% per annum on outstanding letters of credit with provisions to
reduce both rates if certain leverage ratios are achieved. At September 30,
1997, the aggregate availability under the New Credit Facility was $212.3
million.

The New Credit Facility contains covenants and provisions that restrict,
among other things, the Company's ability to change its business, declare
dividends, grant liens, incur additional indebtedness, exceed a leverage ratio
meet or exceed a minimum interest coverage ratio and make certain capital
expenditures. The Company was in compliance with these covenants as of September
30, 1997. The New Credit Facility is secured by the capital stock of RELTEC's
subsidiaries and guaranteed by certain subsidiaries.

Pursuant to the terms of the New Credit Facility, the available commitment
under the New Credit Facility will be reduced from $450.0 million on September
30, 1999 by $35.0 million, and by $35.0 million per year on each September 30
thereafter until balance matures on September 30, 2003. Principal payments are
not otherwise required unless the New Credit Facility is required to be reduced
for certain changes in the Company's business activities as defined in the
Credit Agreement.

In May 1997, the Company entered into promissory notes with several banks
for $40 million of unsecured and uncommitted Money Market Lines of Credit in
addition to the New Credit Facility. As of September 30, 1997, $24.0 million was
outstanding at a weighted average interest rate of 7.06%.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The Certificate of Incorporation of the Company authorizes 100,000,000
shares of Common Stock, par value $0.01 per share ("Common Stock"), and
20,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred
Stock"), of which 1,000 shares are designated as Series A Redeemable Preferred
Stock ("Series A Preferred Stock"). As of December 31, 1997, the outstanding
capital stock of the Company consisted of 50,038,608 shares of Common Stock held
by 223 stockholders of record and 1,000 shares of Series A Preferred Stock held
by one stockholder of record. The following summaries of certain provisions of
the Common Stock and Preferred Stock do not purport to be complete and are
subject to, and qualified in their entirety by, the provisions of the
Certificate of Incorporation and Bylaws of the Company, which are included as
exhibits to the Registration Statement of which this Prospectus forms a part,
and by applicable law.

COMMON STOCK

Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by the stockholders of the Company, and do not have cumulative
voting rights. The holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available for that purpose, subject to
preferences that may be applicable to any outstanding Preferred Stock and any
other provisions of the Company's Certificate of Incorporation. The Company
currently intends to retain any future earnings for use in its business and does
not anticipate paying any cash dividends in the foreseeable future. The
declaration and payment in the future of any cash dividends will be at the
election of the Company's Board of Directors and will depend upon the earnings,
capital requirements and financial position of the Company, future loan
covenants, general economic conditions and other pertinent factors. Holders of
Common Stock have no preemptive or other rights to subscribe for additional
shares. No shares of Common Stock are subject to redemption or a sinking fund.
In the event of any liquidation, dissolution or winding up of the Company, after
payment of the debts and other liabilities of the Company, and subject to the
rights of holders of shares of Preferred Stock, holders of Common Stock are
entitled to share pro rata in any distribution to the stockholders. All of the
outstanding shares of Common Stock are, and the shares offered hereby will be,
fully paid and nonassessable. See "Risk Factors--Company Subject to Control of
the KKR Partnerships," "Dividend Policy," "Dilution" and "Shares Eligible for
Future Sale."

PREFERRED STOCK

The Board of Directors has the authority, without action by the
stockholders, to designate and issue Preferred Stock in one or more series and
to designate the rights, preferences and privileges of each series, any or all
of which may be greater that the rights of the Common Stock. It is not possible
to state the actual effect of the issuance of any shares of Preferred Stock upon
the rights of holders of the Common Stock until the Board of Directors
determines the specific rights of the holders of such Preferred Stock. However,
the effects might include, among other things, restricting dividends on the
Common Stock, diluting the voting power of the Common Stock, impairing the
liquidation rights of the Common Stock and delaying or preventing a change in
control of the Company without further action by the stockholders.

Holders of Series A Preferred Stock are entitled to receive cumulative
dividends, accruable without interest, at the annual rate of $105.00 per share
for the year ended December 31, 1996, 1997 and 1998; $115.00 per share for the
year ended December 31, 1999; $125.00 for the year ended December 31, 2000; and
$130.00 for each annual period thereafter until redeemed by the Corporation. The
Company and the holders of Series A Preferred Stock have certain optional
redemption rights which, if exercised, may result in a purchase of Series A
Preferred Stock at the redemption price of $1,000 per share, plus an amount
equal to any and all accumulated dividends accrued and unpaid thereon. In the
event of a liquidation,

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<PAGE>
dissolution or winding up of the company, the holders of shares of Series A
Preferred Stock shall be entitled to an amount equal to $1,000 per share, plus
an amount equal to any and all accumulated dividends accrued and unpaid thereon,
subject to the rights of holders of senior securities. In the event of a merger
or consolidation where the Company is not the surviving corporation, the Series
A Preferred Stock will be exchanged or changed into an equal number of shares of
preferred stock of such other person or entity with terms substantially
identical to those of the Series A Preferred Stock.

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

The Company is a Delaware corporation subject to Section 203 of the General
Corporation Law of the State of Delaware ("Section 203"). Section 203 provides
in general that a stockholder acquiring more than 15% of the outstanding voting
stock of a corporation subject to Section 203 (an "Interested Stockholder") but
less than 85% of such stock may not engage in certain Business Combinations (as
defined in Section 203) with the corporation for a period of three years
subsequent to the date on which the stockholder became an Interested Stockholder
unless (i) prior to such date the corporation's board of directors approved
either the Business Combination or the transaction in which the stockholder
became an Interested Stockholder or (ii) the Business Combination is approved by
the corporation's board of directors and authorized by a vote of at least
66 2/3% of the outstanding voting stock of the corporation not owned by the
Interested Stockholder. A "Business Combination" includes mergers, asset sales
and other transactions resulting in financial benefit to a stockholder. Section
203 could prohibit or delay mergers or other takeover or change of control
attempts with respect to the Company and, accordingly, may discourage attempts
that might result in a premium over the market price for the shares held by
stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is .

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SHARES ELIGIBLE FOR FUTURE SALE

GENERAL

Prior to completion of the Offering, there has been no public market for the
Common Stock of the Company. Sales of substantial amounts of Common Stock in the
public market, or the perception that such sales may occur, could adversely
affect the market price of the Common Stock.

Upon the consummation of the Offering, the Company will have shares of
Common Stock issued and outstanding. All of the shares of Common Stock to
be sold in the Offering (and any shares sold upon exercise of the U.S.
Underwriters' over-allotment option) will be freely tradable without
restrictions or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as that term is defined in
Rule 144 under the Securities Act ("Rule 144")), which will be subject to the
resale limitations of Rule 144. The remaining shares of Common Stock outstanding
are "restricted securities" as that term is defined in Rule 144 and are also
subject to certain restrictions on disposition. Restricted securities may be
sold in the public market only if registered or if they qualify for an exemption
from registration under Rule 144 or Rule 701 under the Securities Act. Sales of
restricted securities in the public market, or the availability of such shares
for sale, could have an adverse effect on the price of the Common Stock. See
"Risk Factors--Absence of Public Market and Possible Volatility of Stock Price,"
"Risk Factors--Immediate Dilution", "Risk Factors--Shares Eligible for Future
Sale" and "Dilution."

REGISTRATION RIGHTS

On August 1, 1995, the Company entered into the Registration Rights
Agreement with the KKR Partnerships giving the KKR Partnerships demand rights,
subject to certain limitations, to cause the Company to file a registration
statement under the Securities Act covering resales of 28,000,000 shares of
Common Stock held by them, and to cause such registration statement to become
effective. The Registration Rights Agreement also grants "piggyback"
registration rights permitting the KKR Partnerships to include their registrable
securities in a registration of securities by the Company, subject to certain
conditions and limitations. The Company is obligated to pay the expenses of such
registrations.

In addition, pursuant to certain stockholder agreements, the Company has
granted "piggyback" registration rights to (i) substantially all of its
employees that have purchased shares of Common Stock and/or that have been
awarded options to purchase shares of Common Stock, (ii) certain shareholders
that purchased shares of Common Stock in connection with the Rainford
Acquisition and (iii) certain institutional investors. Such registration rights
are exercisable only upon registration by the Company of shares of Common Stock
held by the KKR Partnerships. The holders of such registration rights are
entitled to notice of any proposal to register shares held by the KKR
Partnerships and to include their shares in such registration, subject to
certain restrictions, including the right of an underwriter participating in the
offering to limit the number of shares included in such registration. The
Company is obligated to pay the expenses of such piggyback registrations.

RULE 144

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned shares of
Common Stock for at least one year, including a person who may be deemed an
"affiliate" of the Company, is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of 1% of the total number of
shares of the class of stock sold or the average weekly reported trading volume
of the class of stock being sold during the four calendar weeks preceding such
sale. A person who is not deemed an "affiliate" of the Company at any time
during the three months preceding a sale and who has beneficially owned shares
for at least two years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. As defined in Rule 144, an
"affiliate" of an issuer is a person that directly or indirectly through the use
of one

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or more intermediaries controls, is controlled by, or is under common control
with, such issuer. The foregoing summary of Rule 144 is not intended to be a
complete description thereof.

Each of the Company, the KKR Partnerships, the directors, executive officers
and certain other stockholders of the Company has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending days after the date of
this Prospectus, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer, lend or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The restrictions
described in this paragraph do not apply to (x) the sale of Shares to the
Underwriters, (y) the issuance by the Company of shares of Common Stock upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this Prospectus of which the Underwriters have been advised in
writing or (z) transactions by any person other than the Company relating to
shares of Common Stock or other securities acquired in open market transactions
after the completion of the offering of the Shares.

The Company and its directors and officers and certain of the Company's
other present stockholders who hold in the aggregate shares of Common
Stock have agreed that they will not, directly or indirectly, offer, sell,
contract to sell or otherwise dispose of or transfer any shares of Common Stock
of the Company, or any security convertible into, or exercisable or exchangeable
for, Common Stock for a period of days after the date of this Prospectus,
without the prior written consent of Morgan Stanley & Co. Incorporated. See
"Underwriters."

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

GENERAL

The following is a general discussion of certain United States federal
income and estate tax consequences of the ownership and disposition of Common
Stock by Non-U.S. Holders. As used in this discussion, the term "Non-U.S.
Holder" means any person or entity that is, for United States federal income tax
purposes, a foreign corporation, a non-resident alien individual, a non-resident
fiduciary of a foreign estate or trust, or a foreign partnership. An individual
may, subject to certain exception, be deemed to be a resident alien (as opposed
to a non-resident alien) by virtue of being present in the United States on at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year (counting for
such purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year). Resident aliens are subject to United States federal
tax as if they were United States citizens and residents.

This discussion does not address all aspects of United States federal income
and estate taxes or consider any specific facts or circumstances that may apply
to a particular Non-U.S. Holder. Nor does it deal with foreign, state and local
consequences that may be relevant to Non-U.S. Holders. Furthermore, this
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), existing and proposed regulations promulgated
thereunder and public administrative and judicial interpretations thereof, all
of which are subject to changes which could be applied retroactively. EACH
PROSPECTIVE PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH
RESPECT TO CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING
AND DISPOSING OF COMMON STOCK.

Dividends paid to a Non-U.S. Holder of Common Stock will be subject to
withholding of United States federal income tax at a 30% rate or such lower rate
as may be specified by an applicable income tax treaty, unless the dividends are
effectively connected with the conduct of a trade or business by the Non-

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U.S. Holder within the United States. If the dividends are effectively connected
with the conduct of a trade or business by the Non-U.S. Holder within the United
States and, if a tax treaty applies, are attributable to a United States
permanent establishment of the Non-U.S. Holder, the dividends will be subject to
United States federal income tax on a net income basis at applicable graduated
individual or corporate rates and will be exempt from the 30% withholding tax
described above (assuming the necessary certification and disclosure
requirements are met). Any such effectively connected dividends received by a
foreign corporation may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty.

Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country for purposes of the withholding discussed
above (unless the payor has knowledge to the contrary), and, under currently
applicable United States Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under recently promulgated United States
Treasury regulations generally effective with respect to payments made after
December 31, 1998, however, a Non-U.S. Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate (and avoid backup withholding as
discussed below) will be required to satisfy specified certification and other
requirements, which will include filing a Form W-8 containing the Non-U.S.
Holder's name, address and a certification that such Holder is eligible for the
benefits of the treaty under its Limitations in Benefits Article.

A Non-U.S. Holder of Common Stock who is eligible for a reduced rate of
United States withholding tax pursuant to a tax treaty may obtain a refund of
any excess amounts currently withheld by filing an appropriate, timely claim for
refund with the United States Internal Revenue Service (the "Service").

GAIN ON DISPOSITION OF COMMON STOCK

A Non-U.S. Holder generally will not be subject to United States federal
income tax on any gain recognized on a disposition of a share of Common Stock
unless (i) subject to the exception discussed below, the Company is or has been
a "United States real property holding corporation" (a "USRPHC") within the
meaning of section 897(c)(2) of the Code at any time within the shorter of the
five-year period preceding such disposition or such Non-U.S. Holder's holding
period (the "Required Holding Period"), (ii) the gain is effectively connected
with the conduct of a trade or business within the United States of the Non-U.S.
Holder and, if a tax treaty applies, is attributable to a permanent
establishment maintained by the Non-U.S. Holder, (iii) the Non-U.S. Holder is an
individual who holds the share of Common Stock as capital asset and is present
in the United States of 183 days or more in the taxable year of the disposition
and either (a) such individual has a "tax home" (as defined for United States
federal income tax purposes) in the United States or (b) the gain is
attributable to an office or other fixed place of business maintained in the
United States by such individual or (iv) the Non-U.S. Holder is subject to tax
pursuant to the Code provisions applicable to certain United States expatriates.
If an individual Non-U.S. Holder falls under clause (ii) or (iv) above, he or
she will be taxed on his or her net gain derived from the sale under regular
United States federal income tax rates. If the individual Non-U.S. Holder falls
under clause (iii) above, he or she will be subject to a flat 30% tax on the
gain derived from the sale which may be offset by United States source capital
losses (notwithstanding the fact that he or she is not considered a resident of
the United States). If a Non-U.S. Holder that is a foreign corporation falls
under clause (ii) above, it will be taxed on its gain under regular graduated
United States federal income tax rates and, in addition, will under certain
circumstances be subject to the branch profits tax equal to 30% of its
effectively connected earnings and profits within the meaning of the Code for
the taxable year, as adjusted for certain items, unless it qualifies for a lower
rate under an applicable income tax treaty.

A corporation is generally a USRPHC if the fair market value of its United
States real property interests equals or exceeds 50% of the sum of the fair
market value of its worldwide real property interest plus its other assets used
or held for use in a trade or business. The Company believes that it is not
currently a USRPHC. However, a Non-U.S. Holder would generally not be subject to
tax or withholding in respect of such tax, on gain from a sale or other
disposition of Common Stock by reason of the Company's

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USRPHC status if the Common Stock is regularly traded on an established
securities market ("regularly traded") during the calendar year in which such
sale or disposition occurs, provided that such holder does not own, actually or
constructively, Common Stock with a fair market value in excess of 5% of the
fair market value of all Common Stock outstanding at any time during the
Required Holding Period. The Company believes that the Common Stock will be
treated as regularly traded.

If the Company is or has been a USRPHC within the Required Holding Period,
and if a Non-U.S. Holder owns in excess of 5% of the fair market value of Common
Stock (as described in the preceding paragraph), such Non-U.S. Holder of Common
Stock will be subject to United States federal income tax at regular graduated
rates under certain rules ("FIRPTA tax") on gain recognized on a sale or other
disposition of such Common Stock. In addition, if the Company is or has been a
USRPHC within the Required Holding Period and if the Common Stock were not
treated as regularly traded, a Non-U.S. Holder would be subject to withholding
in respect of FIRPTA tax at a rate of 10% of the amount realized on a sale or
other disposition of Common Stock and could be further subject to FIRPTA tax in
excess of the amounts withheld. Any amount withheld pursuant to such withholding
tax would be creditable against such Non-U.S. Holder's United States federal
income tax liability. Non-U.S. Holders are urged to consult their tax advisors
concerning the potential applicability of these provisions.

FEDERAL ESTATE TAXES

An individual Non-U.S. Holder who (i) is not a citizen or resident of the
United States (as specifically defined for United States estate tax purposes) at
the time of his or her death and (ii) owns, or is treated as owning Common Stock
at the time of his or her death, or has made certain lifetime transfers of an
interest in Common Stock, will be required to include the value of such Common
Stock in his or her gross estate for federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.

UNITED STATES INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

The Company must report annually to the Service and to each Non-U.S. Holder
the amount of dividends paid to such holder and the tax withheld with respect to
such dividends. These information reporting requirements apply regardless of
whether withholding is required. Copies of the information returns reporting
such dividends and withholding may also be made available to the tax authorities
in the country in which the Non-U.S. Holder resides under the provisions of an
applicable income tax treaty or other agreement with the tax authorities in that
country.

United States backup withholding tax (which, in general, is a withholding
tax imposed at the rate of 31% on certain payments to persons that fail to
furnish certain information under the United States information reporting
requirements) generally will not apply to (a) the payment of dividends paid on
Common Stock to a Non-U.S. Holder at an address outside the United States
(unless the payor has knowledge that the payee is a United States person) or (b)
the payment of the proceeds of the sale of Common Stock to or through the
foreign office of a broker. In the case of the payment of proceeds from such a
sale of Common Stock through a foreign office of a broker that is a United
States person or a "U.S. related person", however, information reporting (but
not backup withholding) is required with respect to the payment unless the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
(and has no actual knowledge to the contrary) and certain other requirements are
met or the holder otherwise establishes an exemption. For this purpose, a "U.S.
related person" is (i) a "controlled foreign corporation" for United States
federal income tax purposes or (ii) a foreign person 50% or more of whose gross
income from all sources for the three-year period ending with the close of its
taxable year preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The payment of
the proceeds of a sale of shares of Common Stock to or through a United States
office of a broker is subject to information reporting and possible backup
withholding unless the owner certifies its non-United States status under
penalties of perjury or otherwise establishes an exemption. Any amounts withheld
under the

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backup withholding rules from a payment to a Non-U.S. Holder will be allowed as
a refund or a credit against such Non-U.S. Holder's United States federal income
tax liability, provided that the required information is furnished to the
Service.

The Treasury Department recently promulgated final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not significantly alter the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. In addition, the final
regulations permit the shifting of primary responsibility for withholding to
certain financial intermediaries acting on behalf of beneficial owners. The
final regulations are generally effective for payments made after December 31,
1998, subject to certain transition rules, Non-U.S. Holders should consult their
own tax advisors with respect to the impact, if any, of the final regulations.

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UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated and Smith
Barney Inc. are acting as U.S. Representatives, and the International
Underwriters named below for whom Morgan Stanley & Co. International Limited and
Smith Barney Inc. are acting as International Representatives, have severally
agreed to purchase, and the Company has agreed to sell to them, severally, the
respective number of shares of Common Stock set forth opposite the names of such
Underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- -------------------------------------------------------------------------------- ------------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.............................................
Smith Barney Inc..............................................................
Goldman, Sachs & Co...........................................................
Deutsche Morgan Grenfell Inc..................................................
Lehman Brothers Inc...........................................................
J.P. Morgan Securities Inc....................................................
------------
Subtotal....................................................................
------------
International Underwriters:
Morgan Stanley & Co. International Limited....................................
Smith Barney Inc..............................................................
Goldman Sachs International...................................................
Morgan Grenfell & Co. Limited.................................................
Lehman Brothers International (Europe)........................................
J.P. Morgan Securities Ltd....................................................
------------
Subtotal....................................................................
------------
Total.....................................................................
------------
------------
</TABLE>

The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives", respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are obligated to take and pay for all of the
shares of Common Stock offered hereby (other than those covered by the U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside of the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its

66
<PAGE>
capacity as an International Underwriter. The foregoing limitations do not apply
to stabilization transactions or to certain other transactions specified in the
Agreement between U.S. and International Underwriters. As used herein, "United
States or Canadian Person" means any national or resident of the United States
or Canada, or any corporation, pension, profit-sharing or other trust or other
entity organized under the laws of the United States or Canada or of any
political subdivision thereof (other than a branch located outside the United
States and Canada of any United States or Canadian Person), and includes any
United States or Canadian branch of a person who is otherwise not a United
States or Canadian Person. All shares of Common Stock to be purchased by the
Underwriters under the Underwriting Agreement are referred to herein as the
"Shares."

Pursuant to the Agreement between U.S. and International Underwriters, sales
may be made between the U.S. Underwriters and International Underwriters of any
number of Shares as may be mutually agreed. The per share price of any Shares so
sold shall be the public offering price set forth on the cover page hereof, in
United States dollars, less an amount not greater than the per share amount of
the concession to dealers set forth below.

Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995 (the "U.K. Regulations"), (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
and the U.K. Regulations with respect to anything done by it in relation to the
Shares in, from or otherwise involving the United Kingdom and (iii) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the offering of the Shares to a
person who is of a kind described in Article 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.

Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions

67
<PAGE>
of Japanese law. Each International Underwriter has further agreed to send to
any dealer who purchases from it any of the Shares a notice stating in substance
that, by purchasing such Shares, such dealer represents and agrees that it has
not offered or sold, and will not offer or sell, any of such Shares, directly or
indirectly, in Japan or to or for the account of any resident thereof except for
offers or sales to Japanese International Underwriters or dealers and except
pursuant to any exemption from the registration requirements of the Securities
and Exchange Law and otherwise in compliance with applicable provisions of
Japanese law, and that such dealer will send to any other dealer to whom it
sells any of such Shares a notice containing substantially the same statement as
is contained in this sentence.

The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $ a
share to other Underwriters or to certain dealers. After the initial offering of
the shares of Common Stock, the offering price and other selling terms may from
time to time be varied by the Representatives.

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the public offering price set forth
on the cover page hereof, less underwriting discounts and commissions. The U.S.
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, made in connection with the Offering. To the extent
such option is exercised, each U.S. Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
additional shares of Common Stock as the number set forth next to such U.S.
Underwriter's name in the preceding table bears to the total number of shares of
Common Stock set forth next to the names of all U.S. Underwriters in the
preceding table.

The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.

The Company will apply for listing of the Common Stock on the NYSE under the
symbol "RLT."

Each of the Company, the KKR Partnerships, the directors, executive officers
and certain other stockholders of the Company has agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period ending days after the date of
this Prospectus, (i) offer, issue, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer, lend or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of Shares
to the Underwriters, (y) the issuance by the Company of shares of Common Stock
upon the exercise of an option or a warrant or the conversion of a security
outstanding on the date of this Prospectus of which the Underwriters have been
advised in writing or (z) transactions by any person other than the Company
relating to shares of Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares.

At the request of the Company, the Underwriters have reserved for sale, at
the initial offering price, up to shares of Common Stock offered hereby
for directors, officers, employees, business associates, and related persons of
the Company. The number of shares of Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.

68
<PAGE>
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.

From time to time, certain of the Underwriters and their affiliates have
provided, and may continue to provide, investment banking services to the
Company.

The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act.

PRICING OF THE OFFERING

Prior to this Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiations
between the Company and the U.S. Representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial operating information of the Company in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Latham & Watkins, New York, New York and for the Underwriters by
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), New York, New York. Certain partners of Latham & Watkins, members
of their respective families, related persons and others have an indirect
interest, through limited partnerships, in less than 1% of the Common Stock.
Such persons do not have the power to vote or dispose of such shares of Common
Stock. Simpson Thacher & Bartlett renders legal services to KKR on a regular
basis.

EXPERTS

The consolidated financial statements of RELTEC Corporation as of December
31, 1996 and 1995 and for the year ended December 31, 1996 and the five month
period ended December 31, 1995 and the combined financial statements of RELTEC
Corporation (Predecessor A) for the seven month period ended July 31, 1995,
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, which report
expresses an unqualified opinion and includes an explanatory paragraph referring
to a change in method of accounting for inventory. The combined statements of
operations and cash flows of RELTEC Corporation (Predecessor B) for the year
ended December 31, 1994 included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, which report expresses an unqualified opinion and includes an
explanatory paragraph referring to a change in method of accounting for
postemployment benefits. The above financial statements have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.

69
<PAGE>
The financial statements of Rainford Group plc as of March 31, 1995 and
1996, and for the years then ended included in this Prospectus have been audited
by Grant Thornton, independent auditors, as stated in their report appearing
herein. These financial statements are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), under the Securities Act and the rules and regulations thereunder,
for the registration of the Common Stock offered hereby. This Prospectus, which
forms a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain parts of which have
been omitted as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement. Statements contained in
this Prospectus as to the contents of any contracts or other document referred
to herein are not necessarily complete and, where such contract or other
document is an exhibit to the Registration Statement, each such statement is
qualified in all respects by the provisions of such exhibit, to which reference
is hereby made. The Registration Statement can be inspected and copied at
prescribed rates at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. In addition, the Registration Statement is
publicly available through the Commission's site on the Internet's World Wide
Web, located at http:// www.sec.gov. Following the Offering, the Company's
future public filings are expected to be available for inspection at the offices
of the NYSE, 20 Broad Street, New York, New York 10005.

70
<PAGE>
GLOSSARY

<TABLE>
<S> <C>
Access Network.................... The network which connects users' telephone equipment to
the telephone exchange.

ADSL.............................. "Asymmetric Digital Subscriber Line." High speed
technology that enables the transfer of data over
existing copper lines allowing more bandwidth downstream
than upstream.

Analog............................ A method of representing a physical variable such as
speech using a signal which varies continuously in
direct proportion to the variable being represented.

Backplane......................... A circuit board that interconnects a variety of
components to form a system.

Bandwidth......................... The range of frequencies that carry a signal on a
transmission medium. The "wider" the bandwidth, the
greater the volume of information that can be
transmitted.

Baseband.......................... The transmission of signals over limited distances
whereby the signals are placed directly on the
transmission line without any modulation.

Base Station...................... The radio transmitter/receiver and associated equipment
at a fixed location which, in conjunction with other
network components, comprises a wireless network.

CATV.............................. Cable television.

CLEC.............................. "Competitive Local Exchange Carrier." A category of
telephone service provider (carrier) that offers
services in a local exchange that compete with the
incumbent local telephone company.

CO................................ "Central Office." A term commonly used to describe the
location of the switching equipment in the local
exchange.

COT............................... "Central Office Terminal." The component of the DLC
system that resides in the central office.

Digital........................... A method of representing a physical variable such as
speech using numbers such that the numbers vary
discretely in relation to the variable being
represented.

DLC............................... "Digital Loop Carrier." A system that resides in the
local loop which extends the physical reach of the CO
switch and enables the provisioning of new access lines.

E-I............................... An ITU transmission standard which delivers digital
services at a rate of 2.048 Mbps.

Ethernet.......................... Network protocol widely used in local area networks to
connect devices over coaxial cable or twisted pair wire.

FTTC.............................. "Fiber-to-the-Curb." A network architecture that pushes
fiber optic cable closer to the customer premises,
allowing for delivery of higher bandwidth voice, data
and video services.

HDT............................... "Host Digital Terminal." The portion of the DLC system
that resides in the local loop.
</TABLE>

G-1
<PAGE>
<TABLE>
<S> <C>
ISDN.............................. "Integrated Services Digital Network." A digital
transmission standard designed to deliver voice and data
services.

ISO-9001.......................... ISO is the International Standards Organization
responsible for drafting quality procedures. 9001 is the
quality procedure for manufacturing.

ITU............................... "International Telecommunications Union." The
international standards setting body for the
telecommunications industry.

IXC............................... "Interexchange Carrier." A provider of
telecommunications services that connect exchanges. Also
called a long distance carrier.

kbps.............................. "Kilobits per second." A measure of the
information-carrying capacity (i.e. bandwidth) of a
circuit.

LAN............................... "Local Area Network." A private data communications
network linking a variety of network devices that are
located in close proximity.

LEC............................... "Local Exchange Carrier." Any telephone service provider
offering local exchange services.

Local Exchange.................... A switching exchange serving a group of lines that can
be uniquely identified by an area code and the first
three digits of a phone number.

Local Loop........................ The portion of the network which connects users'
telephone equipment to the telephone exchange. Also
referred to as the Access Network.

Mbps.............................. "Megabits per second." A measure of the
information-carrying capacity of a circuit.

MDU............................... "Multiple Dwelling Unit." Generally, an apartment or
condominium building or complex.

MSO............................... "Multiple System Operator." A term applied to cellular
operators and cable television providers that hold
franchises that allow them to provide their services in
different cities.

NGDLC............................. "Next Generation Digital Loop Carrier." A generation of
DLCs which incorporates a fiber-optic connection between
the HDT and the COT.

NIC............................... "Network Interface Card." An add-in circuit board that
enables a computer to connect to a LAN.

OEM............................... "Original Equipment Manufacturer."

ONU............................... "Optical Network Unit." A pedestal device located near
the customer premise which receives the optical signal
from the HDT and converts the signal back to a
traditional electrical signal.

Pairgain.......................... Technology that increases the line capacity of
traditional copper twisted pair.

Passband Modulation Electronics... Electronic circuitry that enables the modulation of
baseband signals to increase the information carrying
capacity of a circuit over a given distance. Examples
include xDSL and ISDN.
</TABLE>

G-2
<PAGE>
<TABLE>
<S> <C>
PCS............................... "Personal Communications System." A two-way fully
digital wireless telecommunications system operating in
the 1.8 GHz-2.4 GHz frequency band in the U.S.

POTS.............................. "Plain Old Telephone Service." Basic telephone service
with no enhanced features such as call waiting,
conference calling or call forwarding.

PSTN.............................. "Public Switched Telephone Network." Domestic
telecommunications network commonly accessed by
telephones, PBXs and other devices.

PTT............................... "Post Telegraph-Telephone." The incumbent traditional
communications monopoly in a country. In many countries,
it is or was a government-owned system.

RBOC.............................. "Regional Bell Operating Company." One of the companies
created by the divestiture of the local exchange
business by AT&T. These currently include Ameritech,
Bell Atlantic, BellSouth, SBC Communications and U S
WEST.

RF................................ "Radio Frequency." Range of electromagnetic frequencies
above audio range and below visible light.

SDH............................... "Synchronous Digital Hierarchy." International version
of SONET standard for high speed fiber optic, digital
transmission networks.

SONET............................. "Synchronous Optical NETwork." Network architecture that
allows fiber optic transmission of voice, video and data
at very high speeds.

WAN............................... "Wide Area Network." A data network that interconnects
LANs.

xDSL.............................. Generic term to describe a variety of point-to-point
network access technologies that allow voice, data and
video to be transported over twisted pair copper wire in
the local loop, at higher transmission speeds over given
distances.
</TABLE>

G-3
<PAGE>
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
RELTEC CORPORATION AND PREDECESSOR A
Independent Auditors' Report......................................................... F-2

Consolidated Balance Sheets as of December 31, 1995, and 1996 and September 30, 1997
(Unaudited).......................................................................... F-3

Consolidated and Combined Statements of Operations for the seven months ended July
31, 1995 (Predecessor A), and five months ended December 31, 1995, and for the year
ended December 31, 1996 and for the nine months ended September 30, 1996 (Unaudited)
and 1997 (Unaudited)................................................................. F-4

Consolidated and Combined Statements of Cash Flows for the seven months ended July
31, 1995 (Predecessor A), and five months ended December 31, 1995, and for the year
ended December 31, 1996 and for the nine months ended September 30, 1996 (Unaudited)
and 1997 (Unaudited)................................................................. F-5

Consolidated Statements of Stockholders' Equity for the five months ended December
31, 1995 and for the year ended December 31, 1996, and for the nine months ended
September 30, 1997 (Unaudited) and Combined Statement of Parent Company Investment
(Predecessor A) for the seven months ended July 31, 1995............................. F-6

Notes to the Consolidated and Combined Financial Statements.......................... F-7

RELTEC CORPORATION PREDECESSOR B
Independent Auditors' Report......................................................... F-27

Combined Statement of Operations for the year ended December 31, 1994................ F-28

Combined Statement of Cash Flows for the year ended December 31, 1994................ F-29

Notes to Combined Financial Statements............................................... F-30

RELTEC CORPORATION AND RAINFORD GROUP PLC
Unaudited Pro Forma Supplemental Condensed Consolidated Statement of Operations for
the year ended December 31, 1996..................................................... F-37

RAINFORD GROUP PLC
Report of the auditors to the members of Rainford Group plc for the year ended March
31, 1996............................................................................. F-38

Principal accounting policies........................................................ F-39

Group profit and loss account for the year ended March 31, 1996...................... F-41

Group balance sheet as of March 31, 1996............................................. F-42

Company balance sheet as of March 31, 1996........................................... F-43

Group cashflow statement for the year ended March 31, 1996........................... F-44

Notes to the financial statements of Rainford Group plc.............................. F-45

RAINFORD GROUP PLC INTERIM FINANCIAL STATEMENTS
Group profit and loss accounts for the three months ended June 30, 1996 and 1995
(unaudited).......................................................................... F-58

Group balance sheets at June 30, 1996 and March 31, 1996 (unaudited)................. F-59

Group cashflow statements for the three months ended June 30, 1996 and 1995
(unaudited).......................................................................... F-60

Notes to the Group interim financial statements (unaudited).......................... F-61
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF RELTEC CORPORATION

We have audited the accompanying consolidated balance sheets of RELTEC
Corporation and its subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year ended December 31, 1996 and the five month
period ended December 31, 1995 and RELTEC Corporation's ("Predecessor A")
combined statements of operations, parent company investment and cash flows for
the seven month period ended July 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of RELTEC Corporation and its
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the year ended December 31, 1996 and the
five month period ended December 31, 1995 and the combined results of operations
and cash flows of RELTEC Corporation (Predecessor A) for the seven months ended
July 31, 1995 in conformity with generally accepted accounting principles.

As discussed in Note 5 to the consolidated financial statements, in 1997 the
Company changed its method of accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method, and
retroactively restated the 1996 and 1995 consolidated financial statements for
the change.

Deloitte & Touche LLP
Cleveland, Ohio
January 6, 1998

F-2
<PAGE>
RELTEC CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 4.4 $ 8.7 $ 19.2
Accounts receivable, net........................................... 64.6 108.6 121.8
Inventories........................................................ 63.7 77.6 96.2
Receivable from seller............................................. 7.4 5.0 --
Deferred income taxes.............................................. 15.1 23.6 26.2
Other current assets............................................... 11.0 8.3 14.1
------ ------ ------
Total current assets................................................. 166.2 231.8 277.5
Property, plant and equipment:
Land............................................................... 3.2 3.7 3.7
Buildings and improvements......................................... 21.6 28.8 32.1
Machinery and equipment............................................ 70.3 90.7 108.6
------ ------ ------
Total................................................................ 95.1 123.2 144.4
Less: accumulated depreciation....................................... 6.6 20.3 39.0
------ ------ ------
Property, plant and equipment, net................................... 88.5 102.9 105.4
Goodwill and intangible assets, net.................................. 298.8 394.7 373.7
Other noncurrent assets.............................................. 13.2 10.9 11.7
------ ------ ------
Total assets......................................................... $ 566.7 $ 740.3 $ 768.3
------ ------ ------
------ ------ ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of debt......................................... $ 3.2 $ 12.6 $ 31.5
Accounts payable................................................... 36.4 70.5 68.7
Accrued compensation............................................... 17.0 22.1 23.6
Other current liabilities.......................................... 19.7 37.1 36.2
------ ------ ------
Total current liabilities............................................ 76.3 142.3 160.0
Long-term debt....................................................... 293.9 276.1 222.3
Deferred income taxes................................................ 16.0 15.0 8.4
Retirement and other benefits........................................ 25.1 26.2 29.3
Other noncurrent liabilities......................................... 5.1 6.3 7.2
Preferred stock, $.01 par value, 1,000,000 shares authorized; 1,000
shares of Series A redeemable preferred stock issued and
outstanding with $1,000 per share redemption value at December 31,
1996 and September 30, 1997 (unaudited), respectively.............. -- 1.0 1.0
Commitments and contingencies (Note 17)
Stockholders' equity:
Common stock, $.01 par value; 60,000,000 shares authorized,
36,306,600, 45,926,779 and 49,938,187 (unaudited) shares issued
and outstanding, respectively.................................... 0.4 0.5 0.5
Additional paid-in capital......................................... 180.3 292.8 343.2
Accumulated deficit................................................ (30.4) (28.6) (8.3)
Currency translation adjustment...................................... -- 8.7 4.7
------ ------ ------
Total stockholders' equity........................................... 150.3 273.4 340.1
------ ------ ------
Total liabilities and stockholders' equity........................... $ 566.7 $ 740.3 $ 768.3
------ ------ ------
------ ------ ------
</TABLE>

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

F-3
<PAGE>
RELTEC CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS ENDED,
PREDECESSOR A YEAR ENDED SEPTEMBER 30,
SEVEN MONTHS ENDED FIVE MONTHS ENDED DECEMBER 31, --------------------
JULY 31, 1995 DECEMBER 31, 1995 1996 1996 1997
------------------- ------------------- ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................. $ 288.3 $ 225.5 $ 689.4 $ 488.2 $ 637.4
Cost of sales......................... 205.3 166.2 482.9 337.8 452.3
------ ------ ------ --------- ---------
Gross profit.......................... 83.0 59.3 206.5 150.4 185.1
Operating expenses:
Research and product engineering.... 27.1 18.3 46.5 34.6 40.3
Selling and administrative.......... 39.1 27.6 75.7 55.1 61.9
Goodwill and intangible
amortization...................... 11.6 9.0 24.5 15.9 23.7
Write-off of acquired in-process
research and development.......... 32.9 35.3 8.9 8.9 0.7
Other (income) expense.............. -- 0.9 (0.2) (2.1) 0.8
------ ------ ------ --------- ---------
Total operating expenses.............. 110.7 91.1 155.4 112.4 127.4
------ ------ ------ --------- ---------
Operating income (loss)............... (27.7) (31.8) 51.1 38.0 57.7
Interest expense...................... 19.0 12.5 25.6 20.6 14.2
------ ------ ------ --------- ---------
Income (loss) before income taxes and
extraordinary charge................ (46.7) (44.3) 25.5 17.4 43.5
Income tax provision (benefit)........ (14.1) (13.9) 17.4 14.5 23.1
------ ------ ------ --------- ---------
Income (loss) before extraordinary
charge.............................. (32.6) (30.4) 8.1 2.9 20.4
Extraordinary charge, net of tax
benefit............................. -- -- 6.3 6.3 --
------ ------ ------ --------- ---------
Net income (loss)..................... $ (32.6) $ (30.4) $ 1.8 $ (3.4) $ 20.4
------ ------ ------ --------- ---------
------ ------ ------ --------- ---------
Earnings per common share data (Note 1):
Earnings per common share....................................................... $ $
------ ---------
------ ---------
Weighted average number of common and common equivalent shares outstanding......
------ ---------
------ ---------
</TABLE>

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

F-4
<PAGE>
RELTEC CORPORATION

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(IN MILLIONS)

<TABLE>
<CAPTION>
NINE MONTHS
PREDECESSOR A FIVE MONTHS ENDED
SEVEN MONTHS ENDED YEAR ENDED SEPTEMBER 30,
ENDED DECEMBER 31, DECEMBER 31, --------------------
JULY 31, 1995 1995 1996 1996 1997
--------------- --------------- ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)................................. $ (32.6) $ (30.4) $ 1.8 $ (3.4) $ 20.4
Adjustments to net income (loss) to arrive at cash
provided by (used for) operating activities:
Depreciation and amortization................... 21.0 15.6 42.6 28.6 38.9
Amortization of deferred financing fees......... -- 0.7 1.2 1.2 0.1
Write-off of acquired in-process research and
development and inventory acquisition
step-up....................................... 32.9 46.6 10.2 8.9 0.7
Deferred income taxes........................... (14.5) (18.4) (12.0) (6.7) (7.4)
Extraordinary charge, net of tax benefit........ -- -- 6.3 6.3 --
Changes in operating assets and liabilities
excluding the effect of the Rainford
Acquisition:
Accounts receivable, net...................... (5.9) 1.1 (28.3) (24.6) (13.2)
Inventories................................... (0.1) (6.6) (5.5) (1.8) (15.8)
Receivable from seller........................ 3.7 -- 7.4 7.4 5.0
Accounts payable.............................. (2.4) 7.7 23.6 9.7 (2.0)
Other assets and liabilities.................. (8.7) 3.0 14.3 13.2 (0.3)
------ ------ ------------- --------- ---------
Net cash provided by (used for) operating
activities........................................ (6.6) 19.3 61.6 38.8 26.4

Investing activities:
Rainford Acquisition, net of $2.5 million cash
acquired........................................ -- -- (95.0) (93.8) --
Other acquisitions................................ -- -- -- -- (9.9)
Other............................................. -- -- -- (0.3) --
Purchases of property, plant and equipment........ (6.3) (5.5) (16.9) (10.3) (21.5)
------ ------ ------------- --------- ---------
Net cash used by investing activities............... (6.3) (5.5) (111.9) (104.4) (31.4)

Financing activities:
New Credit Facility net borrowings (repayment).... -- -- 275.4 292.6 (57.2)
Money Market lines of credit...................... -- -- -- -- 24.0
Other debt net borrowings......................... -- -- 0.6 0.9 (1.7)
Senior Term Facilities (repayments) borrowings.... -- 25.0 (195.0) (195.0) --
Old Revolving Facility net repayments............. -- (13.4) (27.1) (27.1) --
Bridge Loan repayments............................ -- (25.0) -- -- --
Financing fees paid............................... -- -- (1.6) -- --
Common stock issuances............................ -- 1.5 2.5 0.3 51.1
Common stock repurchases.......................... -- -- (0.2) -- (0.7)
Net transfers from Parent Company................. 14.9 -- -- -- --
------ ------ ------------- --------- ---------
Net cash provided by (used for) financing
activities........................................ 14.9 (11.9) 54.6 71.7 15.5
Net increase in cash and cash equivalents........... 2.0 1.9 4.3 6.1 10.5
Cash and cash equivalents, beginning of period...... 0.5 2.5 4.4 4.4 8.7
------ ------ ------------- --------- ---------
Cash and cash equivalents, end of period............ $ 2.5 $ 4.4 $ 8.7 $ 10.5 $ 19.2
------ ------ ------------- --------- ---------
------ ------ ------------- --------- ---------
</TABLE>

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

F-5
<PAGE>
RELTEC CORPORATION

COMBINED STATEMENT OF PARENT COMPANY INVESTMENT (PREDECESSOR A)

(IN MILLIONS)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN ACCUMULATED CURRENCY
AMOUNT CAPITAL INVESTMENT TRANSLATION TOTAL
-------------------- ------------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of January 1, 1995......................... -- $ -- $ -- $ 155.2 $ -- $ 155.2
Net loss...................................... -- -- -- (32.6) -- (32.6)
Net Transfers to Parent Company............... -- -- -- (22.6) -- (22.6)
--------- --------- ----- ------ ----- ---------
As of July 31, 1995........................... -- $ -- $ -- $ 100.0 $ -- $ 100.0
--------- --------- ----- ------ ----- ---------
--------- --------- ----- ------ ----- ---------
</TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN MILLIONS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED
------------------------- PAID-IN INVESTMENT CURRENCY
SHARES AMOUNT CAPITAL (DEFICIT) TRANSLATION TOTAL
------------ ----------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
As of August 1, 1995..................... 29,000,000 $ 0.3 $ 143.9 $ -- $ -- $ 144.2
Common stock issuances................... 7,306,600 0.1 36.4 -- -- 36.5
Net loss................................. -- -- -- (30.4) -- (30.4)
------------ --- ----------- ------ ----- ---------
As of December 31, 1995.................. 36,306,600 0.4 180.3 (30.4) -- 150.3

Common stock issuances................... 9,658,179 0.1 112.7 -- -- 112.8
Common stock repurchases................. (38,000) -- (0.2) -- -- (0.2)
Currency translation adjustment.......... -- -- -- -- 8.7 8.7
Net income............................... -- -- -- 1.8 -- 1.8
------------ --- ----------- ------ ----- ---------
As of December 31, 1996.................. 45,926,779 0.5 292.8 (28.6) 8.7 273.4
(Unaudited)
Common stock issuances................... 4,090,278 -- 51.1 -- -- 51.1
Common stock repurchases................. (78,870) -- (0.7) -- -- (0.7)
Redeemable preferred stock dividends
($105 per share)....................... -- -- -- (0.1) -- (0.1)
Currency translation adjustment.......... -- -- -- -- (4.0) (4.0)
Net income............................... -- -- -- 20.4 -- 20.4
------------ --- ----------- ------ ----- ---------
As of September 30, 1997................. 49,938,187 $ 0.5 $ 343.2 $ (8.3) $ 4.7 $ 340.1
------------ --- ----------- ------ ----- ---------
------------ --- ----------- ------ ----- ---------
</TABLE>

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

F-6
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

1. ORGANIZATION AND NATURE OF OPERATIONS

RELTEC Corporation ("RELTEC" or the "Company") was formed in July 1995 by
management and partnerships affiliated with Kohlberg Kravis Roberts & Co., L.P.
to acquire Reliance Comm/Tec Corporation ("Reliance Comm/Tec") from the Reliance
Electric Company ("Reliance"), a subsidiary of Rockwell International
Corporation ("Rockwell") (the "RELTEC Acquisition"). Rockwell acquired Reliance
effective January 1995 (the "Rockwell Acquisition"). For the seven month period
ended July 31, 1995 the Company is referred to as Predecessor A. The Company was
incorporated in July 1995 as K-Tec Holdings, Inc. In October 1995, the Company
changed its name to RELTEC Holdings, Inc., and in January 1998, the Company
changed its name to RELTEC Corporation.

The Company is a provider of a broad range of systems, products and services
to wireline and wireless service providers and telecommunications OEMs in North
America and around the globe. Most of the Company's systems, products and
services can be found in the access portion of the telecommunications network,
also referred to as the "local loop."

The RELTEC Acquisition totaled approximately $475.0 million excluding $18.0
million of related acquisition and financing costs. The purchase price was
subsequently decreased by $7.1 million in 1995 to account for changes in the
Company's working capital which occurred during the sale process. This amount
plus accrued interest was received by the Company in February, 1996. During
1996, the purchase price was decreased by an additional $5.0 million as a result
of the loss of certain business activities as specified in the purchase
agreement. At December 31, 1996, this amount was recorded as a receivable from
seller and a reduction of goodwill resulting from the RELTEC Acquisition.

The accompanying condensed consolidated financial information as of and for
the nine month periods ended September 30, 1996 and 1997 are unaudited, but in
the opinion of management contain all adjustments, which are of a normal
recurring nature, necessary to present fairly RELTEC's interim financial
statements in accordance with GAAP. The Company believes that the disclosures
made are adequate to make the information presented not misleading. The
unaudited consolidated statement of operations for the nine months ended
September 30, 1997 is not necessarily indicative of the results to be expected
for the full year.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND COMBINATION

The consolidated financial statements include the accounts of RELTEC
Corporation and its subsidiaries.

All significant intercompany balances and transactions have been eliminated.
RELTEC's investments in 20% to 50% owned companies in which it has the ability
to exercise significant influence over operating and financial policies are
accounted for using the equity method.

The combined financial statements of Predecessor A include the
telecommunications equipment manufacturing and service businesses which were
operated by Reliance and are presented on a basis which reflects Rockwell's
acquisition of Reliance. The Rockwell Acquisition was accounted for as a
purchase. As such, effective January 1995 a portion of Rockwell's purchase price
has been allocated to Predecessor A's

F-7
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
assets and liabilities. The combined financial statements of Predecessor A do
not include any purchase price adjustments related to the Company's acquisition
of Reliance Comm/Tec.

The combined statement of operations includes allocations of certain
Reliance corporate expenses (see Note 16). RELTEC's management believes the
allocations are reasonable; however, these allocated expenses are not
necessarily indicative of expenses that would have been incurred by RELTEC on a
stand-alone basis.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

Cash equivalents include all highly-liquid investments with an original
purchased maturity of three months or less and are stated at cost, which
approximates market value. At December 31, 1996, cash and cash equivalents
include $1.7 million of cash restricted for use in the completion of a contract.

INVENTORIES

Inventories are valued at the lower of cost or market and are stated on a
first-in, first-out (FIFO) cost basis. Predecessor A maintained inventories on
the last-in, first-out (LIFO) cost basis.

EARNINGS (LOSS) PER COMMON SHARE

Earnings per share is computed using the weighted average number of common
shares outstanding during the year, after consideration of the dilutive effect
of stock options. In accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 83 ("SAB No. 83"), all common and common equivalent
shares issued during the twelve month period prior to the date of RELTEC's
initial filing of the Registration Statement have been included in the
calculation as if they were outstanding for all periods. As permitted under SAB
No. 83, the common equivalent shares, which consist of stock options, were
determined using the treasury stock method and an assumed initial public
offering price of $ per share.

SALES RECOGNITION

Sales are generally recognized when goods are shipped or services are
provided. Sales on long-term contracts (defined as significant contracts with
terms of longer than six months) are recorded on a percentage-of-completion
basis, measured by the cost-to-cost method.

F-8
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is stated at cost. For financial reporting
purposes, depreciation is computed by the straight-line method over the
estimated useful lives of the assets. The estimated useful lives are up to 45
years for buildings and improvements and 3 to 12 years for machinery and
equipment. Depreciation is computed principally using accelerated methods for
income tax reporting purposes. Depreciation expense was $15.2 million and $12.7
million for the nine months ended September 30, 1997 and 1996, respectively,
$18.1 million for the year ended December 31, 1996, and $6.6 million and $9.4
million for the five months ended December 31, 1995 and the seven months ended
July 31, 1995, respectively.

Leasehold improvements are amortized over the shorter of the useful life or
the remaining lease term. Significant renewals and betterments which
substantially extend the useful life of the asset are capitalized. Upon sale or
other disposition of assets, the cost and related accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss, if
any, is reflected in income. Maintenance, repairs and renewals of minor amounts
are charged to expense as incurred.

GOODWILL AND INTANGIBLE ASSETS

The excess of cost over the fair value of net assets of businesses acquired
(goodwill) is being amortized, using the straight-line method, over periods
ranging from 15 to 25 years for RELTEC and 25 years for Predecessor A. Other
intangible assets, primarily patents, are amortized using the straight-line
method over the estimated useful lives, ranging up to four years for RELTEC and
3 to 7 years for Predecessor A.

The Company periodically evaluates the recoverability of goodwill and other
intangible assets by comparing the book value of such assets to expected future
cash flows, on an undiscounted basis, over the remaining amortization period of
the asset.

PRODUCT WARRANTY

Product warranty costs are accrued at the time of sale based on historical
warranty experience and are adjusted as required to reflect subsequent
experience.

WORKERS' COMPENSATION, PRODUCT AND GENERAL LIABILITY COSTS

The consolidated financial statements include RELTEC's estimated costs,
including costs not reimbursable under insurance contracts, of settling workers'
compensation, product and general liability claims. Accruals are determined from
historical claims-incurred experience, using actuarial computations of the
estimated ultimate settlement cost of such claims, including claims incurred but
not yet reported.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. Research and
development expense for the nine months ended September 30, 1997 and 1996 was
$23.6 million and $21.1 million, respectively, for the

F-9
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
year ended December 31, 1996 was $28.5 million, and for the five months ended
December 31, 1995 and seven months ended July 31, 1995 was $10.6 million and
$13.7 million, respectively.

TRANSLATION OF FOREIGN CURRENCIES

Assets and liabilities of non-U.S. subsidiaries are translated into U.S.
dollars at the period-end exchange rate. Operating results are translated at the
average exchange rate for the period. The related translation adjustments are
accumulated in equity. Foreign currency gains (losses) resulting from
transactions are included in the statements of operations. Transaction gains
(losses) for the periods presented were not significant to RELTEC's results of
operations.

ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT COSTS AND INVENTORY ACQUISITION
STEP-UP

In connection with the RELTEC Acquisition and Rockwell Acquisition of the
Company and certain acquisitions by the Company, a portion of each purchase
price was allocated to in-process research and development costs and inventory
acquisition step-up. Subsequent to the acquisition dates, certain of these
amounts were expensed. The Company believes that the write-off of acquired
in-process research and development costs is appropriate because there is no
alternative use for these research and development projects. For the nine months
ended September 30, 1997 and 1996 such amounts were $0.7 million and $8.9
million, respectively. For the year ended December 31, 1996 and five months
ended December 31, 1995 such amounts were $10.2 million and $46.6 million,
respectively. Predecessor A's financial statements for the seven month period
ended July 31, 1995 include a charge of $32.9 million for the write-off of
acquired in-process research and development costs related to the Rockwell
Acquisition.

FAIR VALUES AND CONCENTRATION OF CREDIT RISK

The recorded value of RELTEC's financial instruments, which includes
accounts receivable and accounts payable, approximates market value. The
carrying value of RELTEC's long-term debt is considered to approximate fair
value based on the borrowing rates currently available for loans with similar
terms and maturities.

Receivables are from a diverse group of customers in the telecommunications
industry and are generally unsecured. RELTEC maintains a reserve for potential
losses.

NEW ACCOUNTING PRONOUNCEMENTS

In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128--"Earnings Per Share" ("SFAS
128"). This statement establishes standards for computing and presenting
earnings per share. SFAS 128 must be implemented by RELTEC in 1997. The Company
has determined that the impact from the adoption of SFAS 128 on the consolidated
financial statements is not material.

F-10
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
Segments of an Enterprise and Related Information" ("SFAS 131"). This Statement
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
those enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 130 and SFAS 131 must be
implemented by RELTEC in 1998. The Company does not anticipate a material impact
on the consolidated financial statements from the adoption of the additional
disclosure requirments of these accounting standards.

2. ACQUISITIONS

The Company's acquisitions have been accounted for as purchases.
Accordingly, for financial reporting purposes an allocation of the purchase
price has been made using estimated fair market values of the assets acquired
and liabilities assumed as of the acquisition date in accordance with Accounting
Principles Board Opinion No. 16--"Business Combinations". The results of these
acquisitions have been included in the accompanying consolidated financial
statements since the respective dates of acquisition.

FIRE NETWORKS, INC.

In September, 1997, the Company acquired the assets of Fire Networks, Inc.
("Fire") for $1.0 million. Fire is a Dallas, Texas start-up company specializing
in the design and manufacture of xDSL equipment which enables the simultaneous
transmission of voice and data services over an existing copper telephone wire.
In conjunction with this acquisition, approximately $0.7 million of the purchase
price has been assigned to acquired in-process research and development. This
amount was written-off subsequent to the purchase price allocation.

BALLYNAHINCH MANUFACTURING OPERATIONS

In June, 1997, the Company acquired the assets of the Ballynahinch
manufacturing operation ("Bally"), located in County Down, Northern Ireland. The
cost of this acquisition was $4.1 million, of which the final $0.2 million is
payable in January 1998. Bally specializes in electrical manufacturing
capabilities and complements the Company's other operations that provide
integrated external mobile radio base station enclosures for wireless
communications networks.

RAINFORD GROUP PLC

On September 3, 1996, the Company acquired substantially all of the
outstanding shares of Rainford Group plc ("Rainford"), a European manufacturer
of base station cabinet enclosure systems and supplier of electromagnetic
protection equipment and systems to the telecommunications equipment industry
for $134.3 million, including $6.7 million of acquisition fees (the "Rainford
Acquisition"). The Rainford Acquisition was consummated with $97.5 million of
cash, $34.4 million (2,991,388 shares) of RELTEC common stock and $2.4 million
of Rainford stock options converted into RELTEC stock options. Approximately
$101.2 million of the purchase price was assigned to goodwill, which is being
amortized over 15 years, and $8.9 million of the purchase price was allocated to
acquired in-process research and development and immediately written-off. As
required by current accounting standards, no provision for deferred income taxes
was established for the acquired in-process research and development.

F-11
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

2. ACQUISITIONS (CONTINUED)
The following pro forma financial information has been prepared assuming
that the RELTEC and Rainford Acquisitions (collectively, the "Acquisitions")
occurred on January 1, 1995 and excludes the effects of the Rockwell
Acquisition. One-time nonrecurring charges for the write-off of acquired
in-process research and development costs, inventory acquisition step-up
write-off and an extraordinary charge have also been excluded:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER
31, SEPTEMBER 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1995 1996 1996 1997
--------- --------- --------- ---------

<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales.............................................. $ 641.2 $ 742.2 $ 541.6 $ 637.4
Operating income....................................... 17.5 49.8 36.7 57.7
Net income (loss)...................................... (18.9) 8.8 3.1 20.4
</TABLE>

The pro forma financial information is unaudited and not necessarily
indicative of the operating results that would have occurred had the
Acquisitions been consummated as of January 1, 1995, nor is it necessarily
indicative of future operating results.

3. GEOGRAPHIC AND MARKET DATA

The Company operates in a single industry segment, the global
telecommunications equipment market. This segment includes integrated systems
and components used for voice, video and data communications.

For the year ended December 31, 1996, one customer represented approximately
16.2% of RELTEC's consolidated net sales. Export sales were approximately 11.5%
of RELTEC's net sales for the year ended December 31, 1996. The pro forma
financial information has been prepared assuming that the RELTEC Acquisition
occurred on January 1, 1995 and excludes the effects of the Rockwell
Acquisition. One-time nonrecurring charges for the write-off of acquired
in-process research and development costs, inventory acquisition step-up
write-off and an extraordinary charge have also been excluded. The pro forma
financial information is unaudited and not necessarily indicative of the
operating results that would have occurred had the RELTEC Acquisition been
consummated as of January 1, 1995, nor is it necessarily indicative of future
operating results.

F-12
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

3. GEOGRAPHIC AND MARKET DATA (CONTINUED)
The following tables summarize financial information of the Company by
markets served and geographic region:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
PRO FORMA
1995 1996
-------------- ----------

<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Net Sales by Market:
Access Systems................ $ 98.5 $192.3
Integrated Wireless........... 77.7 140.4
Network Components and
Service..................... 337.6 356.7
------ ----------
Total......................... $513.8 $689.4
------ ----------
------ ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
<S> <C> <C>
PRO FORMA
1995 1996
-------------- ----------

<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Net Sales:
U.S.:
Sales to customers............ $499.3 $621.0
Sales to affiliates........... 13.8 8.4
------ ----------
Europe:
Sales to customers............ -- 38.4
Sales to affiliates........... -- --
------ ----------
Other International:
Sales to customers............ 14.5 30.0
Sales to affiliates........... 8.3 10.0
------ ----------
Eliminations.................. (22.1) (18.4)
------ ----------
Total......................... $513.8 $689.4
------ ----------
------ ----------
</TABLE>

F-13
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

3. GEOGRAPHIC AND MARKET DATA (CONTINUED)
Sales between geographic regions are generally priced to recover cost plus
an appropriate markup for profit.
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------

<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Identifiable Assets:
U.S..................................................................... $ 544.0 $ 624.3
Europe.................................................................. -- 174.5
Other International..................................................... 22.7 28.1
Eliminations............................................................ -- (86.6)
--------- ---------
Total................................................................... $ 566.7 $ 740.3
--------- ---------
--------- ---------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-------------------
<S> <C>
(IN MILLIONS)
Operating Profit:
U.S........................................................................ $ 46.5
Europe..................................................................... 0.1
Other International........................................................ 4.5
Eliminations............................................................... --
-----
Total...................................................................... $ 51.1
-----
-----
</TABLE>

4. EXTRAORDINARY CHARGE

During 1996, the Company recorded an extraordinary charge of $6.3 million,
net of a $3.3 million tax benefit, related to the accelerated amortization of
deferred financing fees. The old credit facility entered into as part of the
RELTEC Acquisition was extinguished and a new credit facility was established
(refer to Note 9 for further discussion).

5. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Raw materials............................................... $ 40.3 $ 48.3 $ 56.6
Work-in-process............................................. 10.6 10.8 18.8
Finished goods.............................................. 12.8 18.5 20.8
--------- --------- -----
Total....................................................... $ 63.7 $ 77.6 $ 96.2
--------- --------- -----
--------- --------- -----
</TABLE>

F-14
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

5. INVENTORIES (CONTINUED)
In 1997, the Company changed its method of accounting for inventory from
LIFO to FIFO, effective August 1, 1995. The Company believes that the FIFO
method of accounting for inventories provides a more meaningful presentation of
the Company's financial position and results of operations. As required by
generally accepted accounting principles, the Company has retroactively restated
the 1995 and 1996 consolidated financial statements for this change and reduced
inventory by $11.3 million and $2.4 million at December 31, 1995 and 1996,
respectively. The effect of the restatement on statements of operations is as
follows:

<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------- ---------------
<S> <C> <C>
(IN MILLIONS)
As previously reported:
Income (loss) before extraordinary charge........................ $ (23.1) $ 9.2
Net income (loss)................................................ $ (23.1) $ 2.9
As restated:
Income (loss) before extraordinary charge........................ $ (30.4) $ 8.1
Net income (loss)................................................ $ (30.4) $ 1.8
</TABLE>

6. GOODWILL, INTANGIBLE ASSETS AND OTHER NONCURRENT ASSETS

Goodwill, intangible assets and other noncurrent assets consisted of the
following:

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
Goodwill, net.............................................. $ 262.2 $ 353.9 $ 339.2
Intangible assets, net..................................... 36.6 40.8 34.5
--------- --------- ------
Total goodwill and other intangible assets, net............ $ 298.8 $ 394.7 $ 373.7
--------- --------- ------
--------- --------- ------
Deferred financing fees.................................... $ 10.2 $ 1.6 $ 1.4
Construction funds in escrow............................... -- 5.2 0.6
Investments in affiliates.................................. 1.9 2.7 7.6
Other...................................................... 1.1 1.4 2.1
--------- --------- ------
Total other noncurrent assets.............................. $ 13.2 $ 10.9 $ 11.7
--------- --------- ------
--------- --------- ------
</TABLE>

Deferred financing fees are amortized over the term of the related financing
and are classified as interest expense in the accompanying consolidated
statements of operations.

F-15
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

7. MISCELLANEOUS FINANCIAL INFORMATION

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Allowance for doubtful accounts............................... $ 1.4 $ 2.4 $ 2.6
Goodwill--accumulated amortization............................ 4.5 17.4 30.5
Intangible assets--accumulated amortization................... 4.5 16.1 26.6
</TABLE>

8. OTHER CURRENT LIABILITIES

Other current liabilities consisted of the following:

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Interest payable.............................................. $ 4.0 $ 1.5 $ 2.4
Accrued warranty.............................................. 4.2 7.0 8.1
Income taxes payable.......................................... -- 5.2 6.2
License termination........................................... -- 11.0 --
Other......................................................... 11.5 12.4 19.5
--------- --------- -----
Total......................................................... $ 19.7 $ 37.1 $ 36.2
--------- --------- -----
--------- --------- -----
</TABLE>

The license termination liability represents the settlement of a license
agreement with a third party.

9. DEBT

In connection with the RELTEC Acquisition, the Company entered into the
$325.0 million Old Credit Facility (the "Old Credit Facility"), providing $195.0
million of term loans and $130.0 million of revolving credit and a $135.0
million bridge loan ("Bridge Loan") with a limited partnership in which KKR
Associates, L.P. is the general partner (the "KKR Partnership") (see Note 16).
In September 1995, the Company converted $35.0 million of the Bridge Loan into
common equity and repaid $25.0 million of the Bridge Loan from proceeds of
borrowings under the Old Credit Facility. During August, 1996, the KKR
Partnership exchanged the Bridge Loan for $74.0 million of Common Stock and $1.0
million of redeemable Preferred Stock. The redeemable Preferred Stock was
immediately sold to an unrelated third party.

In September 1996, the Company extinguished outstanding amounts under the
Old Credit Facility and refinanced its borrowings under a new $450.0 million
credit facility with a new bank syndicate (the "New Credit Facility") which
matures on September 30, 2003. The New Credit Facility consists of a $350.0
million domestic revolving facility ("DRF") and a $100.0 million multi-currency
revolving facility ("MCRF"). DRF loans are denominated in U.S. Dollars and
maintained at the Base Rate or the Euro Rate plus percentage margins as
specified in the New Credit Facility. MCRF loans are denominated in U.S.
dollars, pounds sterling, deutsche marks and yen and are maintained at the Base
Rate or the Euro Rate plus percentage margins as specified in the New Credit
Facility. The New Credit Facility contains

F-16
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

9. DEBT (CONTINUED)
provisions to reduce the interest rates and commitment fees if certain leverage
ratios are achieved. At September 30, 1997, the weighted average interest rate
on the New Credit Facility was 6.86%.

The New Credit Facility contains provisions for a $30.0 million (or a pound
sterling equivalent) short-term credit line as well as letters of credit. The
aggregate facility borrowing availability is reduced for amounts outstanding
under the short-term credit lines and letters of credit. Amounts outstanding
under the short-term credit lines bear interest at the Base Rate plus percentage
margins as specified in the Credit Agreement. At September 30, 1997 and December
31, 1996, the New Credit Facility has a facility fee of 0.25% per annum on the
unused commitment and a letter of credit facility fee of 0.25% per annum on
outstanding letters of credit with provisions to reduce both rates if certain
leverage ratios are achieved. At September 30, 1997 and December 31, 1996, the
aggregate availability under the New Credit Facility was $212.3 million and
$157.9 million, respectively. Interest and commitment fees are payable
quarterly. During 1996, interest accrued on the debt obligations at weighted
average interest rates of 7.83% and 10.39% per annum, respectively.

The New Credit Facility contains covenants and provisions that restrict,
among other things, the Company's ability to change its business, declare
dividends, grant liens, incur additional indebtedness, exceed a leverage ratio,
meet or exceed a minimum interest coverage ratio and make certain capital
expenditures. The Company was in compliance with these covenants at September
30, 1997 and December 31, 1996. The New Credit Facility is secured by the
capital stock of RELTEC's subsidiaries and guaranteed by certain subsidiaries.

In October, 1996 the Company entered into an interest rate swap agreement to
reduce its variable interest rate exposure on borrowings under the New Credit
Facility. The swap fixes the interest rate at 6.11% on a notional amount of
$100.0 million for two years. Interest is payable quarterly beginning January
28, 1997. Under the prevailing market rates at December 31, 1996 and September
30, 1997, the fair value of the swap agreement was a liability of $0.5 million
and $0.3 million, respectively.

In May 1997, the Company entered into promissory notes with several banks
("Money Market Lines of Credit") for $40.0 million of unsecured and uncommitted
credit lines, outside the New Credit Facility. As of September 30, 1997, $24.0
million was outstanding at a weighted average interest rate of 7.06%. Borrowings
under the Money Market Lines of Credit mature at specified dates less than one
year after incurrence.

The Company maintains a line of credit at a subsidiary to finance purchases
of certain equipment. At December 31, 1996, the outstanding principal under this
financing arrangement was $3.9 million at a weighted-average interest rate of
9.0% per annum. The Company also maintains two secured loans at a subsidiary
totaling $0.4 million. Interest accrues on the loans at a weighted-average rate
of 9.0% per annum.

F-17
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED) (CONTINUED)

9. DEBT (CONTINUED)
At December 31, 1996, the Company is also contingently liable for $1.3
million of outstanding letters of credit issued prior to the RELTEC Acquisition.

<TABLE>
<CAPTION>
AS OF
DECEMBER 31, AS OF
-------------------- SEPTEMBER 30,
1995 1996 1997
--------- --------- -------------
<S> <C> <C> <C>
(IN MILLIONS)
New Credit Facility........................................ $ -- $ 275.4 $ 218.2
Money Market Lines of Credit............................... -- -- 24.0
Capital lease obligation................................... -- 9.0 9.0
Other debt................................................. -- 4.3 2.6
Old Credit Facility:
Term Facilities.......................................... 195.0 -- --
Revolving Facility....................................... 27.1 -- --
Bridge Loan................................................ 75.0 -- --
--------- --------- ------
Total debt................................................. 297.1 288.7 253.8
Current maturities......................................... 3.2 12.6 31.5
--------- --------- ------
Total long-term debt....................................... $ 293.9 $ 276.1 $ 222.3
--------- --------- ------
--------- --------- ------
</TABLE>

As of December 31, 1996, aggregate maturities of debt obligations in each of
the next five years are as follows (in millions):

Predecessor A's financial statements for the period ended July 31, 1995
include interest expense to the parent company on an inter-company note which
carried an interest rate of 4.3%.

Interest paid was $14.1 million, $26.9 million and $7.8 million for the nine
months ended September 30, 1997, the year ended December 31, 1996 and five
months ended December 31, 1995, respectively.

10. LEASES

RELTEC leases certain facilities and equipment under operating leases, many
of which contain renewal options and escalation clauses. Total rental expense
was $6.2 million and $5.4 million for the nine months ended September 30, 1997
and 1996, respectively, $6.6 million for the year ended December 31, 1996, and
$3.1 million and $4.5 million for the five months ended December 31, 1995 and
seven months ended July 31, 1995, respectively. Minimum future rental
commitments under operating leases having non-cancelable lease terms in excess
of one year aggregated $12.4 million as of December 31, 1996 and are payable as
follows: 1997, $3.3 million; 1998, $1.7 million; 1999, $1.0 million; 2000, $0.9
million; 2001, $0.8 million; and thereafter, $4.7 million.

F-18
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

During 1996, the Company entered into a capital lease agreement which
requires variable lease payments based on a variable market rate. As of
September 30, 1997 and December 31, 1996, the variable rate was 4.2% and 4.35%,
respectively. As of September 30, 1997, obligations under this capital lease are
$0.4 million annually through 2001 and $16.5 million thereafter.

11. REDEEMABLE PREFERRED STOCK

During 1996, the Company issued 1,000 shares of Series A Redeemable
Preferred Stock (the "Preferred Stock"). The Preferred Stock has annual dividend
requirements of $105 per share for each of the years ending December 31, 1996,
1997 and 1998; $115 per share for the year ending December 31, 1999; $125 per
share for the year ending December 31, 2000; and $130 per share for each year
ending December 31 thereafter. Dividends are cumulative and payable quarterly
beginning January 1, 1997. The Company can redeem the Preferred Stock at any
time at a redemption price of $1,000 per share (the "Redemption Price"). The
Preferred Stock can be redeemed by the holders at any time after July 1, 2003 or
earlier in the event of a triggering occurrence, as defined in the Preferred
Stock Certificate of Designation, at the Redemption Price plus accrued
dividends. The Preferred Stock has no voting rights.

12. COMMON STOCK AND STOCK OPTION PLAN

Holders of shares of common stock of RELTEC Corporation ("Common Stock") are
entitled to one vote per share on matters to be voted on by the stockholders,
and to receive dividends when and as declared by the Board of Directors. Holders
of Common Stock are not entitled to preemptive rights and have no subscription,
redemption or conversion privileges. The Common Stock does not have cumulative
voting rights. The rights, preferences and privileges of holders of Common Stock
are subject to the rights of the holders of shares of any series of preferred
stock issued or that may be issued in the future. At September 30, 1997 and
December 31, 1996, loans to employees for the purchase of Common Stock were $0.5
million and $0.6 million, respectively. These amounts have been presented as a
reduction of stockholders' equity.

On August 1, 1995, RELTEC Corporation adopted the 1995 Stock Purchase and
Option Plan for Employees of RELTEC Corporation and Subsidiaries (the "Equity
Plan") under which employees of RELTEC may be permitted to purchase common stock
and/or be granted options to purchase shares of common stock of RELTEC. At
December 31, 1996, 5,000,000 shares of common stock were reserved for issuance
under the Equity Plan as amended and restated in 1996. As of December 31, 1996,
1,402,384 shares have been purchased. The options expire in periods ranging from
seven to ten years from the date of grant. Approximately sixty percent of the
options granted vest proratably over periods of up to five years ("Term
Options"). Vesting of the remaining options is dependent on RELTEC achieving
certain financial objectives, but in no event later than terms ranging from six
years and eleven months to seven years and eleven months ("Performance
Options").

F-19
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

12. COMMON STOCK AND STOCK OPTION PLAN (CONTINUED)
A summary of the changes in the stock options granted under the Equity Plan
is as follows:

<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
---------- -----------------
<S> <C> <C>
Outstanding, August 1, 1995.................................... -- --
Granted........................................................ 1,875,600 $ 5.00
---------- ------
Outstanding, December 31, 1995................................. 1,875,600 5.00
Granted........................................................ 1,211,021 9.56
Forfeited...................................................... (38,000) 5.00
---------- ------
Outstanding, December 31, 1996................................. 3,048,621 $ 6.81
---------- ------
---------- ------
</TABLE>

At December 31, 1996, 413,639 options were exercisable with a weighted
average exercise price of $4.52. The weighted average fair market values of
options granted during 1996 and 1995 was $4.33 and $2.35, respectively. At
December 31, 1996 the weighted average remaining contractual life of outstanding
options was 8.1 years.

The Company accounts for the Equity Plan under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized. Had compensation cost for the Equity Plan
been determined consistent with Financial Accounting Standards Board Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's
net income (loss) would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
------------------- ---------------------
<S> <C> <C>
(IN MILLIONS)
Income (loss) as reported.............................. $ (30.4) $ 1.8
Pro forma income (loss)................................ (30.6) 1.2
</TABLE>

Under SFAS 123, the fair value of each option is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
1995 ISSUANCES 1996 ISSUANCES
--------------- ---------------
<S> <C> <C>
Risk-free interest rate....................................... 6.35% 6.18%
Expected life (years)......................................... 10.0 7.5
Expected dividends............................................ $ -- $ --
</TABLE>

F-20
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

13. INCOME TAXES

Income tax provision (benefit) includes:

<TABLE>
<CAPTION>
NINE MONTHS
FIVE MONTHS ENDED
ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, --------------------
1995 1996 1996 1997
------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Current taxes:
U.S. federal.................................... $ 3.5 $ 23.9 $ 17.5 $ 24.1
State and local................................. 0.5 3.8 2.8 4.2
Non-U.S......................................... 0.5 1.7 0.9 2.2
------ ------ --------- ---------
Total........................................... $ 4.5 $ 29.4 $ 21.2 $ 30.5
------ ------ --------- ---------
Deferred taxes:
Federal and state $ (18.2) $ (10.8) $ (6.6) $ (6.4)
Non-U.S......................................... (0.2) (1.2) (0.1) (1.0)
------ ------ --------- ---------
Total........................................... (18.4) (12.0) (6.7) (7.4)
------ ------ --------- ---------
Total tax provision (benefit) $ (13.9) $ 17.4 $ 14.5 $ 23.1
------ ------ --------- ---------
------ ------ --------- ---------
</TABLE>

Income taxes differ from amounts computed at the U.S. statutory rate due to:

F-21
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

13. INCOME TAXES (CONTINUED)
Temporary differences and loss carryforwards which gave rise to deferred tax
assets and (liabilities) consisted of the following:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------

<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets (liabilities):
Pension, postretirement and postemployment benefits..................... $ 9.6 $ 11.0
Self-insurance reserves................................................. 3.1 3.3
Capital lease obligation................................................ -- 3.6
Inventory............................................................... 9.2 13.0
Tax loss carryforwards.................................................. 2.1 1.7
Other accrued liabilities............................................... 3.5 9.7
Property and equipment.................................................. (15.4) (17.1)
Intangible assets....................................................... (13.0) (14.5)
Construction funds in escrow............................................ -- (2.1)
--------- ---------
Net deferred taxes...................................................... $ (0.9) $ 8.6
--------- ---------
--------- ---------
</TABLE>

For income tax reporting purposes, the Company has state net operating loss
carryforwards that aggregate approximately $28.8 million. Such carryforwards
have various expiration dates beginning in 1997.

RELTEC has not provided for U.S. income and foreign withholding taxes on
undistributed earnings of its non-U.S. subsidiaries because management intends
to permanently reinvest those earnings. Undistributed earnings of non-U.S.
subsidiaries were not significant at September 30, 1997 and December 31, 1996.

Income taxes paid were $25.8 million and $14.6 million for the nine months
ended September 31, 1997 and 1996, respectively, $20.5 million for the year
ended December 31, 1996, and $6.5 million during the five months ended December
31, 1995.

For Predecessor A, the results of RELTEC's domestic operations were included
in the consolidated U.S. return of its parent. The actual tax benefit generated
by RELTEC was settled through an intercompany account with the parent. On a
stand-alone basis, RELTEC would not have recognized any income tax benefit in
its statement of operations; as such, the benefit has been credited to the
parent company investment. The actual amount credited to the parent company
investment for the seven months ended July 31, 1995 was $1.0 million.

For the seven month period ended July 31, 1995 the provision (benefit) for
income taxes consisted of a current tax provision of $0.4 million and a deferred
tax (benefit) of $(14.5) million. The current provision for income taxes relates
to non-U.S. taxes. The deferred provision relates to the write-off of acquired
in-process research and development costs.

14. PENSION PLANS

RELTEC maintains pension plans which cover certain employees and provide for
monthly pension payments to eligible employees upon retirement. Plans covering
salaried employees provide benefits based

F-22
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

14. PENSION PLANS (CONTINUED)
on years of credited service and compensation. Pension benefits for certain
hourly employees are based on years of service and specified benefits amounts.
RELTEC's funding policy in the United States is to contribute amounts necessary
to meet or exceed ERISA funding requirements, and elsewhere to fund amounts in
accordance with local regulations. Pension plan assets consist primarily of
United States government obligations, fixed income investments and equity
securities whose values are subject to fluctuations of the securities market.

As part of the RELTEC Acquisition, the Company's employee benefit plan
obligations and related plan assets were determined on a stand-alone basis and
recorded in the consolidated balance sheet as part of the allocation of the
purchase price. A pension asset valuation and transfer from the seller's trust
accounts into RELTEC's trust accounts was completed in August 1996.

The following table reconciles the funded status of the Company's defined
benefit plans:

<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------------- ----------------------------
STATUS OF PLAN(S) OVER-FUNDED UNDER-FUNDED OVER-FUNDED UNDER-FUNDED
- ------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Accumulated benefit obligation,
principally vested................. $ 15.9 $ 22.3 $ 16.1 $ 26.6
Effect of projected salary
increases.......................... 0.1 4.9 0.5 5.5
----- ------ ----- ------
Projected benefit obligation......... 16.0 27.2 16.6 32.1
Fair value of plan assets............ 17.4 15.5 18.6 22.2
----- ------ ----- ------
Plan assets greater/ (less) than
projected benefit obligation....... 1.4 (11.7) 2.0 (9.9)
Unrecognized cumulative net gain..... (0.5) (0.7) (1.0) (2.3)
----- ------ ----- ------
Prepaid (accrued) pension costs...... $ 0.9 $ (12.4) $ 1.0 $ (12.2)
----- ------ ----- ------
----- ------ ----- ------
</TABLE>

Net periodic pension costs included in the accompanying consolidated
statements of operations consisted of the following:

<TABLE>
<CAPTION>
FIVE MONTHS YEAR ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1995 1996
------------------- ---------------
<S> <C> <C>
(IN MILLIONS)
Service cost--benefits earned............................... $ 1.7 $ 4.1
Interest accrued on accumulated benefit obligation.......... 1.3 3.2
Actual return on plan assets................................ (1.8) (4.2)
Net amortization and deferrals.............................. 0.6 1.2
----- -----
Net periodic pension cost................................... $ 1.8 $ 4.3
----- -----
----- -----
</TABLE>

Net periodic pension cost included in Predecessor A's financial statements
for the period ended July 31, 1995 was $2.1 million.

F-23
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

14. PENSION PLANS (CONTINUED)
The above pension amounts were determined using the following assumptions:

<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
------------------------
<S> <C> <C>
1995 1996
----- -----
Discount rate................................................................ 7.5% 7.5%
Salary increase.............................................................. 4.5% 4.5%
Asset return................................................................. 9.0% 9.0%
</TABLE>

The Company sponsors a defined contribution savings and investment plan
covering substantially all U.S. RELTEC salaried employees. Employer
contributions to the plan are 50% of employee contributions, up to 6% of each
covered employee's salary. RELTEC's contributions were $2.4 million for the year
ended December 31, 1996, and $0.9 million and $1.3 million for the five month
period ended December 31, 1995 and the seven month ended July 31, 1995,
respectively.

15. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The Company provides postretirement benefits other than pensions, primarily
health care and life insurance, for certain eligible U.S. retirees.
Postretirement benefits are unfunded.

Net periodic postretirement benefit costs consisted of the following:

<TABLE>
<CAPTION>
SEVEN MONTHS FIVE MONTHS YEAR ENDED
ENDED ENDED DECEMBER 31,
JULY 31, 1995 DECEMBER 31, 1995 1996
--------------- --------------------- ---------------
<S> <C> <C> <C>
(IN MILLIONS)
Service cost.................................. $ 0.5 $ 0.2 $ 0.6
Interest cost................................. 0.9 0.4 0.9
--- --- ---
Net periodic postretirement benefit cost...... $ 1.4 $ 0.6 $ 1.5
--- --- ---
--- --- ---
</TABLE>

The following table reconciles the funded status of the Company's
postretirement benefit obligation:
<TABLE>
<CAPTION>
AS OF
DECEMBER 31,
--------------------
<S> <C> <C>
1995 1996
--------- ---------

<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retired participants..................................................... $ 2.6 $ 2.5
Fully eligible active plan participants.................................. 3.3 3.4
Other active plan participants........................................... 6.0 7.1
--------- ---------
Accrued postretirement benefit obligation................................ $ 11.9 $ 13.0
--------- ---------
--------- ---------
</TABLE>

The actuarial present value of the accumulated postretirement benefit
obligation was determined using a discount rate of 7.5% at December 31, 1996.
Health care cost inflation is assumed to be 8.5%, declining gradually to 5.5% in
2017 and thereafter. A 1.0% increase in the assumed health care cost rates would
increase the service and interest cost components, in aggregate, by
approximately $0.2 million and increase the accumulated postretirement benefit
obligation by approximately $1.5 million.

F-24
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

16. RELATED PARTY TRANSACTIONS

On April 1, 1997, the Company's largest stockholder, a limited partnership
in which KKR Associates, L.P. is the general partner, invested an additional
$50.0 million in RELTEC in exchange for 4,000,000 shares of common stock. The
cash proceeds were used to repay borrowings under the New Credit Facility.

At September 30, 1997, two limited partnerships in which KKR Associates,
L.P. is a general partner owned 90.2% of the Company's outstanding Common Stock.
The remaining 9.8% of outstanding Common Stock is owned by management investors,
an employee savings plan and other third parties.

Kohlberg Kravis Roberts & Co., L.P. ("KKR") provides certain management,
consulting and financial services to the Company for an annual fee. Such
services include, but are not necessarily limited to, advice and assistance
concerning any and all aspects of the operation, planning and financing of the
Company. During the nine months ending September 30, 1997, the year ending
December 31, 1996 and the five months ended December 31, 1995, the Company paid
$0.5 million, $0.8 million and $0.4 million, respectively, to KKR for management
fees and reimbursement of expenses.

During 1996, RELTEC paid $2.0 million to KKR for consulting services related
to the Rainford Acquisition and $7.5 million in 1995 for services rendered in
connection with the RELTEC Acquisition.

Predecessor A's financial statements include charges for certain direct
expenses which were administered centrally by Reliance including insurance,
pensions and certain other items. Annual allocations were also made for common
services provided by Reliance such as cash management and other treasury, legal,
patent, tax, corporate accounting, audit and communication services.
Administrative expense includes $3.9 million for the seven months ended July 31,
1995 for such allocated expenses. Settlement of RELTEC's related
receivable/payable resulting from these transactions was done through an
intercompany account which has been included in the parent company investment.

17. CONTINGENCIES

Various lawsuits, claims and proceedings have been or may be instituted or
asserted against the Company relating to the conduct of its business, including
those pertaining to environmental, safety and health, employment and contract
matters. Although the outcome of litigation cannot be predicted with certainty
and some lawsuits, claims or proceedings may be disposed of unfavorably to the
Company, management believes the disposition of matters which are pending or
asserted will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

18. SUBSEQUENT EVENTS

ACQUISITION OF CUSTOM DESIGN TELEPHONE DESIGN SYSTEMS, INC.

In October, 1997, the Company acquired all of the capital stock of Custom
Design Telephone Systems, Inc. ("CDTS") for approximately $27.0 million. Based
in St. Louis, Missouri, CDTS is a provider of integrated telecommunications
services. Of the $27.0 million purchase price, approximately $18.0 million was
paid in cash on October 30, 1997. The remaining portion of the purchase price is
contingently payable based on the achievement of certain financial targets.

DEFINED BENEFIT PENSION PLANS

Effective December 31, 1997, benefit accruals under the U.S. defined benefit
pension plans were frozen. The effect on the funded status of the plans has not
yet been finalized.

F-25
<PAGE>
RELTEC CORPORATION

NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 IS UNAUDITED)

18. SUBSEQUENT EVENTS (CONTINUED)
1998 EQUITY PLAN

F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT

TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
OF RELTEC CORPORATION

We have audited the accompanying combined statements of operations and cash
flows of RELTEC Corporation (Predecessor B) (the "Company") for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, such combined statements of operations and cash flows
present fairly, in all material respects, the results of the Company's
operations and its cash flows for the year ended December 31, 1994, in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the combined financial statements, the Company
changed its method of accounting for postemployment benefits to conform with
Statement of Financial Accounting Standards No. 112.

Deloitte & Touche LLP
Cleveland, Ohio
February 15, 1996

(January 6, 1998 as to Note 2)

F-27
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1994

(IN MILLIONS)

<TABLE>
<S> <C>
Net sales........................................................................... $ 458.9
Cost of sales....................................................................... 322.3
---------
Gross profit........................................................................ 136.6
Operating expenses:
Research and product engineering.................................................. 42.4
Selling and administrative........................................................ 62.6
Goodwill and intangible amortization.............................................. 12.7
Restructuring..................................................................... 0.8
---------
Total operating expenses............................................................ 118.5
---------
Operating income.................................................................... 18.1
Interest expense.................................................................... 32.1
---------
Loss before income taxes and cumulative effect of change in accounting.............. (14.0)
Provision for income taxes.......................................................... 0.6
---------
Net loss before cumulative effect of change in accounting........................... (14.6)
Cumulative effect of change in accounting for postemployment benefits............... 1.3
---------
Net loss............................................................................ $ (15.9)
---------
---------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-28
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

COMBINED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 31, 1994

(IN MILLIONS)

<TABLE>
<S> <C>
Operating activities:
Net loss.......................................................................... $ (15.9)
Adjustments to net loss to arrive at cash provided by operating activities:
Depreciation and amortization..................................................... 23.3
Cumulative effect of change in accounting......................................... 1.3
Changes in operating assets and liabilities:
Accounts receivable............................................................. (7.3)
Inventories..................................................................... (3.6)
Accounts payable................................................................ 1.7
Advances from customers......................................................... 4.8
Other assets and liabilities.................................................... 0.7
---------
Net cash provided by operating activities........................................... 5.0

Investing activities:
Purchases of property, plant and equipment........................................ (13.8)
Proceeds from sale of equipment................................................... 0.2
Additions to intangibles.......................................................... (2.4)
Other............................................................................. 1.5
---------
Net cash used by investing activities............................................... (14.5)

Financing activities:
Net transfers from parent company................................................. 8.9
---------
Decrease in cash and cash equivalents............................................. (0.6)
Cash and cash equivalents, beginning of period.................................... 1.1
---------
Cash and cash equivalents, end of period.......................................... $ 0.5
---------
---------
</TABLE>

The accompanying notes are an integral part of these combined financial
statements.

F-29
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994

1. ORGANIZATION AND NATURE OF OPERATIONS

The Company is referred to as Predecessor B prior to January 1, 1995.

SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF COMBINATION

The combined financial statements of Predecessor B include the
telecommunications equipment manufacturing and service businesses which were
operated by Reliance Electric Company ("Reliance") and are presented using
Reliance's basis in the assets and liabilities. All significant intercompany
accounts and transactions were eliminated in combination. Intercompany balances
with Reliance were included in Parent Company Deficit. The combined statements
of operations include allocations of certain Reliance corporate expenses (see
Note 8). RELTEC's management believes that the allocations are reasonable;
however, these allocated expenses are not necessarily indicative of expenses
that would have been incurred by RELTEC on a stand-alone basis.

RELTEC's investments in 20% to 50% owned companies in which it has the
ability to exercise significant influence over operating and financial policies
are accounted for using the equity method.

USE OF ESTIMATES

CASH AND CASH EQUIVALENTS

Except for its non-U.S. operations, Predecessor B participates in a
centralized cash management system with Reliance wherein receipts are deposited
to corporate accounts, disbursements are centrally funded and borrowings are
effected. Cash equivalents include all highly-liquid investments with an
original purchased maturity of three months or less and are stated at cost,
which approximates market value.

F-30
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
INVENTORIES

Inventories are valued at the lower of cost or market. Cost is determined by
the last-in, first-out (LIFO) method. Inventory costs include material, direct
labor and manufacturing overhead, which primarily includes indirect labor,
utilities, depreciation and property taxes.

SALES RECOGNITION

Sales are generally recognized when goods are shipped or services are
provided. Sales on long-term contracts (defined as significant contracts with
terms of longer than six months) are recorded on a percentage of completion
basis, measured by the cost to cost method.

DEPRECIATION EXPENSE

For financial reporting purposes, depreciation is computed by the
straight-line method over the estimated useful lives of the assets. The
estimated useful lives are up to 45 years for buildings and improvements and 3
to 12 years for machinery and equipment. Depreciation is computed principally
using accelerated methods for income tax reporting purposes. Depreciation
expense was $10.7 million for the year ended December 31, 1994.

GOODWILL AND INTANGIBLE ASSETS

The excess of cost over the fair value of net assets of businesses acquired
(goodwill) is being amortized using the straight-line method over 40 years.
Other intangible assets, primarily patents, are being amortized using the
straight-line method over the estimated useful lives, ranging from 1 to 16
years.

Predecessor B periodically evaluates the recoverability of goodwill and
other intangible assets by comparing the book value of such assets to expected
future cash flows, on an undiscounted basis, over the remaining amortization
period of the asset.

PRODUCT WARRANTY

Product warranty costs are accrued at the time of sale based on historical
warranty experience and are adjusted as required to reflect subsequent
experience.

WORKERS' COMPENSATION, PRODUCT AND GENERAL LIABILITY COSTS

The combined financial statements include Predecessor B's estimated costs,
including costs not reimbursable under insurance contracts, of settling workers'
compensation, product and general liability claims. Accruals are determined from
historical claims-incurred experience, using actuarial computations of the
estimated ultimate settlement cost of such claims, including claims incurred but
not yet reported.

F-31
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. Research and
development expense for the year ended December 31, 1994 was $25.4 million.

TRANSLATION OF FOREIGN CURRENCIES

Assets and liabilities of non-U.S. subsidiaries are translated into U.S.
dollars at the period-end exchange rate. Operating results are translated at the
average exchange rate for the period. The related translation adjustments are
accumulated in the parent company deficit account. Foreign currency gains
(losses) resulting from transactions and the translation of highly inflationary
currencies are included in income. Exchange gains (losses) and translation gains
(losses) for the year ended December 31, 1994 were not significant to
Predecessor B's results of operations.

INCOME TAXES

The results of Predecessor B's domestic operations are included in the
consolidated U.S. federal income tax return of its parent. The parent's policy
is to allocate U.S. federal expense or benefit based upon the operating results
of each of its respective subsidiaries. For purposes of these combined financial
statements, payments to Predecessor B for tax losses generated annually are
reported as a capital contribution.

ACCOUNTING CHANGE

Effective January 1, 1994, Predecessor B adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." This Statement requires the accrual of benefits to be paid to former
employees after employment but before retirement. The cumulative effect of this
accounting change was $1.3 million. These benefits relate primarily to
short-term disability benefits provided to substantially all U.S. employees and
certain salary continuation benefits.

FAIR VALUES AND CONCENTRATION OF CREDIT RISK

Predecessor B's sales are primarily to customers operating in the
telecommunications market. Receivables are from a diverse group of customers in
the telecommunications industry and such receivables are generally unsecured.
Predecessor B maintains a reserve for potential losses. In 1994, one customer
represented approximately 10.0% and export sales accounted for approximately
10.1% of Predecessor B's combined net sales.

F-32
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

2. GEOGRAPHIC AND MARKET DATA

Predecessor B operates in a single industry segment, the global
telecommunications equipment market. This segment includes integrated systems
and components used for voice, video and data communications. The following
tables summarize financial information of Predecessor B by markets served and
geographic region:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
(IN MILLIONS)
Net Sales by Market:
Access Systems................................................................... $ 99.9
Integrated Wireless.............................................................. 51.4
Network Components and Service................................................... 307.6
------
Total............................................................................ $ 458.9
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
(IN MILLIONS)
Net Sales:
U.S.:
Sales to customers............................................................... $ 437.1
Sales to affiliates.............................................................. 12.4
------
Other International:
Sales to customers............................................................... 21.8
Sales to affiliates.............................................................. 8.4
------
Eliminations..................................................................... (20.8)
------
Total............................................................................ $ 458.9
------
------
</TABLE>

Sales between geographic regions are generally priced to recover cost plus
an appropriate markup for profit.

3. INCOME TAXES

The results of Predecessor B's domestic operations are included in the
consolidated U.S. Federal income tax return of its parent. The actual tax
benefit generated by Predecessor B is settled through the intercompany account
with the parent. On a stand-alone basis, Predecessor B would not have recognized
any income tax benefit in its statement of operations; as such, the benefit has
been credited to the parent company deficit account. The actual amount credited
to the parent company deficit account for the year ended December 31, 1994 was
$10.4 million.

For the year ended December 31, 1994 the current provision for income taxes
consists of non-U.S. taxes.

Predecessor B has not provided for U.S. income and foreign withholding taxes
on undistributed earnings of its non-U.S. subsidiaries because management
intends to permanently reinvest these earnings. Undistributed earnings of
non-U.S. subsidiaries were approximately $2.6 million at December 31, 1994.

F-33
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

4. INTER-COMPANY DEBT

Intercompany debt consists of an unsecured inter-company note payable
("Note") with the parent. The Note bears interest at 4.3%.

5. PENSION PLANS

Reliance has pension plans which cover certain Predecessor B employees and
provide for monthly pension payments to eligible employees upon retirement.
Plans covering salaried employees provide benefits based on years of credited
service and compensation. Pension benefits for certain hourly employees are
based on years of service and specified benefit amounts. Predecessor B's funding
policy in the United States is to contribute amounts necessary to meet or exceed
ERISA funding requirements, and elsewhere to fund amounts in accordance with
local regulations. Pension plan assets consist primarily of U.S. government
obligations, fixed income investments and equity securities whose values are
subject to fluctuations of the securities market.

Substantially all salaried domestic employees participate in the Reliance
Electric Retirement Plan. Canadian salaried employees participate in the
Reliance Electric Limited Canadian Pension Plan for the Salaried and Management
Employees.

Net periodic allocated pension cost under these plans was $3.6 million for
the year ended December 31, 1994.

In addition, Predecessor B has separate pension plans covering certain of
its employees not covered under the multi-employer plans.

Net periodic pension cost included in the combined financial statements for
plans covering employees who are not part of the multi-employer plans consisted
of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
-------------
<S> <C>
(IN MILLIONS)
Service cost--benefits earned during the year.................................... $ 0.5
Interest accrued on accumulated benefit obligation............................... 1.0
Actual return on plan assets..................................................... (1.3)
Amortization..................................................................... 0.3
-----
Net periodic pension cost........................................................ $ 0.5
-----
-----
</TABLE>

The above pension amounts were determined using the following assumptions:

<TABLE>
<S> <C>
Discount rate.................................................................... 8.5%
Salary increase.................................................................. 4.5%
Asset return..................................................................... 9.0%
</TABLE>

Reliance sponsors a defined contribution savings and investment plan
covering substantially all domestic Predecessor B salaried employees. Employer
contributions to the plan are 50% of employee

F-34
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

5. PENSION PLANS (CONTINUED)
contributions, up to 6% of each covered employee's salary. Predecessor B's
contributions were $2.2 million for the year ended December 31, 1994.

6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Predecessor B provides postretirement benefits other than pensions,
primarily health care and life insurance, for certain eligible U.S. retirees.
Postretirement benefits are unfunded.

Net periodic postretirement benefit costs consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1994
---------------
<S> <C>
(IN MILLIONS)
Service cost..................................................................... $ 0.7
Interest cost.................................................................... 1.3
Net amortization and deferral.................................................... 0.2
---
Net periodic postretirement benefit cost......................................... $ 2.2
---
---
</TABLE>

The actuarial present value of the accumulated postretirement benefit
obligation was determined using a weighted average discount rate of 8.5% at
December 31, 1994. Health care cost inflation is assumed to be 8.5% for 1995,
declining gradually in 2001 to 5.5% in 2016. A 1% increase in the assumed health
care cost rates would increase the service and interest cost components by
approximately $0.2 million.

7. PARENT COMPANY DEFICIT

A summary of the changes in the parent company deficit account is as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER
31, 1994
-----------
<S> <C>
(IN
MILLIONS)
Balance at beginning of period................................................... $ (230.1)
Net loss......................................................................... (15.9)
Net transfers to parent company.................................................. (25.2)
-----------
Balance at end of period......................................................... $ (271.2)
-----------
-----------
</TABLE>

For the year ended December 31, 1994, the net change in the cumulative
foreign currency translation adjustment was not significant.

8. TRANSACTIONS WITH PARENT COMPANY

Predecessor B is charged for certain direct expenses administered centrally
by Reliance including insurance, pensions and certain other items. Annual
allocations are also made for common services provided by Reliance such as cash
management and other treasury, legal, patent, tax, corporate accounting,

F-35
<PAGE>
RELTEC CORPORATION--PREDECESSOR B

NOTES TO COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1994 (CONTINUED)

8. TRANSACTIONS WITH PARENT COMPANY (CONTINUED)
audit and communication services. Administrative expense includes $6.2 million
for such allocated expenses.

Settlement of Predecessor B's related receivable/payable resulting from
these transactions is performed through an intercompany account which has been
included in the parent company deficit account.

9. LEASES

Predecessor B leases certain facilities and equipment under operating
leases, many of which contain renewal options and escalation clauses. Total
rental expense was $5.6 million for the year ended December 31, 1994. Minimum
future rental commitments under operating leases having non-cancelable lease
terms in excess of one year aggregated $9.6 million as of December 31, 1994 and
are payable as follows: 1995, $2.3 million; 1996, $1.9 million; 1997, $1.5
million; 1998, $1.4 million; 1999, $0.5 million; and thereafter, $2.0 million.

10. COMMITMENTS AND CONTINGENCIES

F-36
<PAGE>
RELTEC CORPORATION AND RAINFORD GROUP PLC

UNAUDITED PRO FORMA SUPPLEMENTAL CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN MILLIONS, EXCEPT SHARE DATA)

The following unaudited pro forma supplemental condensed consolidated
statement of operations gives effect to the acquisition of Rainford Group plc
("Rainford") by RELTEC Corporation. This pro forma statement assumes the
acquisition was effective January 1, 1996 and combines the statement of
operations of RELTEC Corporation for the year ended December 31, 1996 and the
statement of operations of Rainford for the period January 1, 1996 through
September 3, 1996. The pro forma data reflects the acquisition of all of the
capital stock of Rainford and the assumption of certain liabilities. The pro
forma data does not reflect nonrecurring purchase accounting charges of $10.9
million resulting from the acquisition and certain other nonrecurring charges
related to the acquisition totaling $12.1 million and does not purport to be
indicative of the results that would actually have been reported if the
acquisition had been effected at January 1, 1996 or which may be reported in the
future. This statement should be read in conjunction with the accompanying
explanatory notes and the respective historical financial statements and related
notes of RELTEC and Rainford.

<TABLE>
<CAPTION>
RELTEC RAINFORD PRO FORMA
YEAR ENDED EIGHT MONTHS YEAR ENDED
DECEMBER 31, ENDED DECEMBER 31,
1996 SEPTEMBER 3, 1996 (1) ADJUSTMENTS 1996
------------ --------------------- ------------- ------------
<S> <C> <C> <C> <C>
(IN MILLIONS)
Net sales..................... $689.4 $ 52.8 $-- $742.2
Cost of sales................. 482.9 49.4 (4.2) (2) 528.1
------ ------ ------ ------
Gross profit.................. 206.5 3.4 4.2 214.1
Operating expenses:
Research and product
engineering............... 46.5 1.1 -- 47.6
Selling and
administrative............ 75.7 4.0 -- 79.7
Goodwill and intangible
amortization.............. 24.5 -- 7.0(3) 31.5
Write-off of acquired
in-process research and
development............... 8.9 -- (8.9) (2) --
Other (income) expense...... (0.2) 17.8(5) (12.1) (2) 5.5
------ ------ ------ ------
Total operating expenses...... 155.4 22.9 (14.0) 164.3
------ ------ ------ ------
Operating income (loss)....... 51.1 (19.5) 18.2 49.8
Interest expense (income)..... 25.6 (0.1) -- 25.5
------ ------ ------ ------
Income before income taxes and
extraordinary charge........ 25.5 (19.4) 18.2 24.3
Income tax provision
(benefit)................... 17.4 (4.7) 2.8 15.5
------ ------ ------ ------
Income before extraordinary
charge...................... 8.1 (14.7) 15.4 8.8
Extraordinary charge, net of
tax benefit................. 6.3 -- (6.3) (4) --
------ ------ ------ ------
Net income (loss)............. $ 1.8 $(14.7) $ 21.7 $ 8.8
------ ------ ------ ------
------ ------ ------ ------
Pro forma earnings per common
share data
Pro forma earnings per common
share....................... $
------
------
Pro forma weighted average
number of common and common
equivalent shares
outstanding.................
------
------
</TABLE>

- ------------------------
(1) Represents the period January 1, 1996 to September 3, 1996 (date of
acquisition).
(2) Represents adjustments to eliminate nonrecurring purchase accounting charges
related to the write-off of inventory acquisition step-up, acquired
in-process research and development costs and other nonrecurring charges
related to the acquisition.
(3) Represents adjustments for incremental goodwill and intangible amortization
expense related to the acquisition.
(4) Represents adjustments to eliminate costs associated with accelerated
amortization of deferred financing fees.
(5) Includes charges of $5.6 million for the settlement of a significant
contract.

F-37
<PAGE>
REPORT OF THE AUDITORS TO THE MEMBERS
OF RAINFORD GROUP PLC

We have audited the financial statements on pages F-41 to F-57 which have
been prepared under the accounting policies on pages F-39 and F-40.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS

As described on page 9 of the 1996 Annual Report and Accounts the directors
are responsible for the preparation of financial statements. It is our
responsibility to form an independent opinion, based on our audit, on those
statements and to report our opinion to you.

BASIS OF OPINION

We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the circumstances, consistently applied
and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

OPINION

In our opinion the financial statements give a true and fair view of the
state of affairs of the company and the group at 31 March 1996 and of the profit
of the group for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.

Grant Thornton
Registered Auditors
Chartered Accountants
Manchester

26 July 1996

F-38
<PAGE>
PRINCIPAL ACCOUNTING POLICIES

A summary of the principal accounting policies, all of which have been
applied consistently throughout the year and the preceding year, is set out
below.

BASIS OF ACCOUNTING

The financial statements are prepared in accordance with applicable
Accounting Standards and under the historical cost convention, as modified by
the revaluation of certain fixed assets.

BASIS OF CONSOLIDATION

The consolidated financial statements includes those of the company and its
subsidiary undertakings drawn up to 31 March 1996. Profits or losses on
intra-group transactions are eliminated in full.

Goodwill arising on consolidation is written off to reserves immediately on
acquisition.

INVESTMENT IN SUBSIDIARY UNDERTAKINGS

Investments in subsidiary undertakings are valued at cost, less amounts
written off.

TURNOVER

Turnover is the total amount receivable by the group in the ordinary course
of business from outside customers for goods supplied as a principal and for
services provided, excluding VAT and trade discounts. In the case of long term
contracts, turnover reflects the contract activity during the year and
represents the proportion of total contract value which costs incurred to date
bear to total expected contract costs.

DEPRECIATION

Depreciation is calculated on the reducing balance or straight line method
and aims to write down the cost or valuation, less estimated residual value, of
all tangible fixed assets, other than freehold land, over their expected useful
lives as follows:

<TABLE>
<S> <C>
Freehold buildings.................................. 50 years
period of
Leasehold alterations............................... lease
Plant and machinery................................. 5 to 25 years
Motor vehicles...................................... 6 years
Fixtures and fittings............................... 3 to 10 years
</TABLE>

STOCKS

Stocks are stated at the lower of cost and net realisable value.

LONG-TERM CONTRACTS

The attributable profit on long-term contracts is recognised once their
outcome can be assessed with reasonable certainty. The profit recognised
reflects the proportion of work completed to date on the project.

Costs associated with long term contracts are included in stock to the
extent that they cannot be matched with contract work accounted for as turnover.
Long term contract balances included in stocks are stated at cost, after
provision has been made for any foreseeable losses and the deduction of
applicable payments on account.

Full provision is made for losses on all contracts in the year in which the
loss is first foreseen.

F-39
<PAGE>
PRINCIPAL ACCOUNTING POLICIES (CONTINUED)

AMOUNTS RECOVERABLE ON CONTRACTS

Amounts recoverable on contracts are included in current assets and are
stated at cost plus attributable profit less any foreseeable losses less
payments received on account.

DEFERRED TAXATION

Deferred tax is the tax attributable to timing differences between profits
or losses as computed for tax purposes and results as stated in the financial
statements.

Deferred tax is provided for under the liability method to the extent that
it is probable that a liability will crystallise. Unprovided deferred tax is
disclosed as a contingent liability.

LEASED ASSETS

Where assets are financed by leasing agreements which give risks and rewards
approximating to ownership ("finance leases") they are treated as if they had
been purchased outright on credit. They are therefore initially recorded as a
fixed asset and a liability at a sum equal to the fair value of the asset.
Leasing payments on such assets are regarded as consisting of a capital element
which reduces the outstanding liability and an interest charge.

All other leases are regarded as operating leases and the total payments
made under them are charged to the profit and loss account on a straight line
basis over the lease term.

RESEARCH AND DEVELOPMENT

Research and development costs are written off in the year of expenditure.

FOREIGN CURRENCIES

Transactions in foreign currencies are translated at the exchange rate
ruling at the date of the transaction. Monetary assets and liabilities in
foreign currencies are translated at the rates of exchange ruling at the balance
sheet date. Exchange differences are dealt with through the profit and loss
account.

CONTRIBUTIONS TO PENSION FUNDS

The pension costs charged against profits, all of which relate to defined
contribution schemes, represent the amount of contributions payable to the
schemes in respect of the accounting period.

EMPLOYEE BENEFIT TRUST

Shares, including shares in the company, held by the trustees of the
employee benefit trust are shown on the balance sheet at cost.

F-40
<PAGE>
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1996

<TABLE>
<CAPTION>
NOTES
----- 1995 1996
--------- ---------
L'000 L'000

<S> <C> <C> <C>
TURNOVER............................................................................. 1 63,449 78,996

Cost of sales........................................................................ (49,820) (63,328)
--------- ---------

Gross profit......................................................................... 13,629 15,668

Operating expenses................................................................... (7,853) (9,773)
--------- ---------

OPERATING PROFIT..................................................................... 5,776 5,895

Net interest......................................................................... 3 (430) 254
--------- ---------

PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........................................ 2 5,346 6,149

Tax on profit on ordinary activities................................................. 6 (1,790) (2,040)
--------- ---------

PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION......................................... 3,556 4,109

Dividends--equity and non-equity..................................................... 8 (123) (2,221)
--------- ---------

PROFIT RETAINED...................................................................... 18 3,433 1,888
--------- ---------

EARNINGS PER SHARE................................................................... 9 17.3p 17.3P

FULLY DILUTED EARNINGS PER SHARE..................................................... 9 15.9p 16.2P
</TABLE>

There were no recognised gains or losses other than the profit for the financial
year.

The accompanying accounting policies and notes form an integral part of these
financial statements.

F-41
<PAGE>
GROUP BALANCE SHEET

AT 31 MARCH 1996

<TABLE>
<CAPTION>
NOTES 1995 1996
----- --------- ---------
L'000 L'000
<S> <C> <C> <C>
FIXED ASSETS:
Tangible assets..................................................... 10 5,762 7,273
Investments......................................................... 11 -- 56
--------- ---------
5,762 7,329
--------- ---------
CURRENT ASSETS:
Stocks.............................................................. 12 4,623 6,768
Debtors............................................................. 13 12,877 13,981
Cash at bank and in hand............................................ 5,995 8,637
--------- ---------
23,495 29,386
CREDITORS: amounts falling due within one year...................... 14 (17,077) (17,989)
--------- ---------
NET CURRENT ASSETS.................................................. 6,418 11,397
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES............................... 12,180 18,726
CREDITORS: amounts falling due after more than one year............. 15 (4,710) (1,468)
--------- ---------
7,470 17,258
--------- ---------
--------- ---------
CAPITAL AND RESERVES:
Called up share capital............................................. 17 2,167 1,192
Share premium account............................................... 18 -- 8,875
Revaluation reserve................................................. 18 37 36
Other reserves...................................................... 18 625 383
Capital redemption reserve.......................................... 18 583 583
Profit and loss account............................................. 18 4,058 6,189
--------- ---------
Shareholders' funds................................................. 19 7,470 17,258
--------- ---------
--------- ---------
Equity shareholders' funds.......................................... 6,303 17,258
Non-equity shareholders' funds...................................... 1,167 --
--------- ---------
7,470 17,258
--------- ---------
--------- ---------
</TABLE>

The financial statements were approved by the board on 26 July 1996.

<TABLE>
<S> <C>
B Houghton
Directors
J K Acornley
</TABLE>

The accompanying accounting policies and notes form an integral part of these
financial statements.

F-42
<PAGE>
COMPANY BALANCE SHEET
AT 31 MARCH 1996

<TABLE>
<CAPTION>
NOTES 1995 1996
----- --------- ---------
<S> <C> <C> <C>
L'000 L'000
FIXED ASSETS
Investments............................................................................ 11 1,750 1,806
--------- ---------
CURRENT ASSETS
Debtors................................................................................ 13 1,091 1,547
Cash at bank and in hand............................................................... 5,558 8,752
--------- ---------
6,649 10,299
CREDITORS: amounts falling due within one year......................................... 14 (1,309) (1,304)
--------- ---------
NET CURRENT ASSETS..................................................................... 5,340 8,995
--------- ---------
TOTAL ASSETS LESS CURRENT LIABILITIES.................................................. 7,090 10,801
CREDITORS: amounts falling due after more than one year................................ 15 (3,750) --
--------- ---------
3,340 10,801
--------- ---------
--------- ---------
CAPITAL AND RESERVES
Called up share capital................................................................ 17 2,167 1,192
Share premium account.................................................................. 18 -- 8,875
Capital redemption reserve............................................................. 18 583 583
Profit and loss account................................................................ 18 590 151
--------- ---------
SHAREHOLDERS' FUNDS.................................................................... 3,340 10,801
--------- ---------
--------- ---------
Equity shareholders' funds............................................................. 2,173 10,801
Non-equity shareholders' funds......................................................... 1,167 --
--------- ---------
3,340 10,801
--------- ---------
--------- ---------
</TABLE>

The financial statements were approved by the board on 26 July 1996.

<TABLE>
<S> <C>
B Houghton
Directors
J K Acornley
</TABLE>

The accompanying accounting policies and notes form an integral part of these
financial statements.

F-43
<PAGE>
GROUP CASHFLOW STATEMENT

FOR THE YEAR ENDED 31 MARCH 1996

<TABLE>
<CAPTION>
NOTES 1995 1996
----- --------- ---------
<S> <C> <C> <C>
L'000 L'000
NET CASH INFLOW FROM OPERATING ACTIVITIES.............................................. 20 6,118 4,411
--------- ---------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest............................................................................... 3 (430) 254
Dividends paid......................................................................... (123) (1,029)
--------- ---------
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE.................. (553) (775)
--------- ---------
TAXATION
UK corporation tax paid................................................................ (306) (2,016)
--------- ---------
INVESTING ACTIVITIES
Purchase of investments................................................................ -- (56)
Disposal of associated undertakings.................................................... 201 --
Purchase of tangible fixed assets...................................................... (416) (1,683)
Disposal of tangible fixed assets...................................................... 128 374
--------- ---------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES............................................. (87) (1,365)
--------- ---------
NET CASH INFLOW BEFORE FINANCING....................................................... 5,172 255
--------- ---------
FINANCING..............................................................................
Receipt of loans....................................................................... 21 5,000 107
Repayment of loans..................................................................... 21 (1,767) (5,124)
Net proceeds from issue of share capital............................................... 21 -- 9,067
Capital element of finance lease repayments............................................ 21 (473) (496)
Redemption of preferred shares......................................................... 21 (583) (1,167)
--------- ---------
NET CASH INFLOW FROM FINANCING......................................................... 2,177 2,387
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS.................................................. 22 7,349 2,642
--------- ---------
--------- ---------
</TABLE>

The accompanying accounting policies and notes form an integral part of these
financial statements.

F-44
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC

1. SEGMENTAL INFORMATION

The directors, as a result of a review of the business, have concluded that
in view of the insignificance of the historical and ongoing business in what was
the electromagnetic protection equipment business, that the disclosure of the
segmental analysis between telecommunications equipment and electromagnetic
protection equipment is no longer appropriate.

An analysis of turnover by geographic market (destination) is given below:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
UK.......................................................... 52,350 64,177
Europe...................................................... 10,978 12,887
Rest of World............................................... 121 1,932
--------- ---------
63,449 78,996
--------- ---------
--------- ---------
</TABLE>

All turnover originated within the UK.

2. PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
PROFIT ON ORDINARY ACTIVITIES IS STATED AFTER:
Auditors' remuneration
audit fees................................................ 43 38
non-audit fees............................................ 55 40
Depreciation
owned..................................................... 555 729
held under finance leases and HP contracts................ 223 350
Grant release............................................... (6) --
Loss on sale of fixed assets................................ 38 62
Operating lease rentals--land and buildings................. 408 398
Operating lease rentals--plant and machinery................ -- 22
Research and development expenditure........................ 1,545 2,057
--------- ---------
--------- ---------
</TABLE>

In respect of non-audit fees charged by the auditors, in addition to those
disclosed above, fees of L132,000 are included in issue costs charged to the
share premium account.

F-45
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

3. NET INTEREST

<TABLE>
<CAPTION>
1995 1996
----------- -----------
L'000 L'000
<S> <C> <C>
On bank loans, overdrafts and other loans:
repayable within 5 years, otherwise than by instalments... 438 --
repayable within 5 years, by instalments.................. 64 223
repayable wholly or partly in more than 5 years by
instalments............................................... 16 --
Finance charges in respect of finance leases................ 51 34
----------- -----------
(569) (257)
Interest receivable......................................... 139 511
----------- -----------
(430) 254
----------- -----------
----------- -----------
</TABLE>

4. EMPLOYMENT COSTS
<TABLE>
<CAPTION>
1995 1996
----------- -----------
L'000 L'000
<S> <C> <C>
Wages and salaries.......................................... 10,531 12,861
Social security costs....................................... 1,014 1,183
Other pension costs......................................... 154 192
----------- -----------
11,699 14,236
----------- -----------
----------- -----------

NUMBER NUMBER
----------- -----------
<S> <C> <C>
Average number of employees................................. 637 741
----------- -----------
----------- -----------
</TABLE>

The group operates a number of defined contribution pension schemes for the
benefit of employees. The assets of the schemes are administered by trustees in
funds independent from those of the group.

Share options have been granted to a number of senior employees in respect
of 280,040 ordinary 5p shares under an employee share scheme which was approved
by the Inland Revenue on 11 May 1993. The exercise price is 75p.

An approved employee share option scheme was adopted on 6 April 1995. Share
options have been granted to a number of senior employees in respect of 120,745
ordinary 5p shares. Exercise prices vary between L3.59 and L3.97.

An approved employee Save As You Earn scheme was adopted on 6 April 1995.
Share options have been granted to a number of employees in respect of 296,275
ordinary 5p shares. The exercise price is L2.80.

F-46
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

5. DIRECTORS' EMOLUMENTS

The remuneration of all the directors of the company was as follows:
<TABLE>
<CAPTION>
BASIC SALARY BONUS BENEFITS
------------- ------------- -------------
1995 1996 1995 1996 1995 1996
----- ----- ----- ----- ----- -----
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
B Houghton....................................... 64 140 -- -- 7 9
A W Ferguson..................................... 46 100 23 -- 3 6
J K Acornley..................................... 60 75 10 -- 3 5
M W Fell......................................... 10 14 -- -- -- --
B H Wormsley..................................... 13 15 -- -- -- --
J Ziemniak....................................... -- 14 -- -- -- --
--- --- --- --- --- ---
193 358 33 -- 13 20
--- --- --- --- --- ---
--- --- --- --- --- ---

<CAPTION>
TOTAL PENSION
------------- -------------
1995 1996 1995 1996
----- ----- ----- -----
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
B Houghton....................................... 71 149 50 58
A W Ferguson..................................... 72 106 4 10
J K Acornley..................................... 73 80 9 8
M W Fell......................................... 10 14 -- --
B H Wormsley..................................... 13 15 -- --
J Ziemniak....................................... -- 14 -- --
--- --- --- ---
239 378 63 76
--- --- --- ---
--- --- --- ---
</TABLE>

Share options have been granted to directors and the following are
outstanding at 31 March 1996:

<TABLE>
<CAPTION>
OPTION J K A W B H
DATE OF PRICE ACORNLEY FERGUSON WORMSLEY
SCHEME GRANT (P) 000'S 000'S 000'S
- ----------------------------- --------------------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Rainford Group Holdings Ltd
1992 Executive Share Option
Scheme..................... 4 November 1994 75 -- 400 --
Rainford Group Holdings Ltd
Unapproved Share Option
Scheme..................... 19 December 1994 20 400 -- --
Rainford Group Holdings Ltd
Unapproved Share Option
Scheme 19 December 1994..... 75 -- 460 200
--- --- ---
400 860 200
--- --- ---
--- --- ---
</TABLE>

The Inland Revenue approved Executive Share Option Scheme was established on
17 March 1993. Options are exercisable on the third anniversary of date of
grant, or in certain specific other circumstances.

The unapproved scheme was established on 7 December 1994. Options are
exercisable generally between one year from the date of admission of the
company's shares to the Official List and the seventh anniversary of date of
grant, subject to specific variations for individual directors.

During the year the only movements in respect of options were that A W
Ferguson exercised an option to purchase 140,000 shares at 75p per share and J K
Acornley exercised an option to buy 500,000 shares at 20p per share. The market
value of the shares at the date of purchase by the directors was L2.70 per
share.

The market price at 31 March 1996 was L2.60 per share. During the year the
market value of the shares varied between L4.49 and L2.60.

There have been no share options granted since 31 March 1996.

F-47
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

6. TAX ON PROFIT ON ORDINARY ACTIVITIES

The taxation charge is based on the profit for the year and is made up as
follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
United Kingdom corporation tax @ 33%.......................... 1,890 2,152
Deferred taxation............................................. (55) --
Adjustments in respect of prior years:
Corporation tax............................................... (45) (112)
--------- ---------
1,790 2,040
--------- ---------
--------- ---------
</TABLE>

7. PROFIT FOR THE FINANCIAL YEAR

The parent company has taken advantage of Section 230 of the Companies Act
1985 and has not included its own profit and loss account in these financial
statements. The group profit for the year includes L1,782,000 which is dealt
with in the financial statements of the company.

8. DIVIDENDS

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
NON-EQUITY
Redeemable preferred shares:
Interim dividend paid of nil (1995: 3.5p) per share........... 61 --
Final dividend paid of 0.25p (1995: 3.5p) per share........... 62 3
--------- ---------
123 3
--------- ---------
--------- ---------
EQUITY
Interim dividend paid of 2.0p (1995: nil) per share........... -- 476
Second interim dividend proposed of 5.0p (1995: nil) per
share....................................................... -- 1,192
Dividend paid on Admission to the Barry Houghton 1988
settlement of 55p per share................................. -- 550
--------- ---------
-- 2,218
--------- ---------
123 2,221
--------- ---------
--------- ---------
</TABLE>

9. EARNINGS PER SHARE

The calculation of earnings per share is based on 23,695,869 (1995:
20,000,000) ordinary shares and earnings of L4,106,000 (1995: L3,463,000).
Earnings represent profit after taxation and preference dividend, but adjusted
on the basis that redeemable preferred shares (the remainder of which were
redeemed on Admission) had been redeemed at the beginning of each of the years,
with a corresponding interest charge on the cost of the redemption substituted
for the preference dividends declared in each of the years.

The calculation of fully diluted earnings per share is based on 25,783,362
(1995: 21,954,720) ordinary shares, being the number of shares in issue
immediately preceding the placing together with the shares to be issued on the
exercise of all outstanding share options and earnings of L4,189,000 (1995:
L3,500,000).

F-48
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

9. EARNINGS PER SHARE (CONTINUED)
Earnings are adjusted to reflect the redemption of the redeemable preferred
shares as described above and also on the basis that the share options are
exercised on the date of grant and the proceeds invested in 2 1/2 per cent
Consolidated Stock.

10. TANGIBLE FIXED ASSETS

<TABLE>
<CAPTION>
FREEHOLD FIXTURES PLANT
LAND AND AND AND MOTOR LEASEHOLD
THE GROUP TOTAL BUILDINGS FITTINGS MACHINERY VEHICLES ALTERATIONS
- ------------------------------------- --------- ------------- ----------- ----------- ----------- -------------
L'000 L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C> <C>
COST/VALUATION
At 1 April 1995...................... 8,945 1,080 1,347 5,567 543 408
Additions at cost.................... 3,026 43 1,050 1,363 289 281
Disposal............................. (650) -- (32) (425) (193) --
--------- ----- ----- ----- --- ---
At 31 March 1996..................... 11,321 1,123 2,365 6,505 639 689
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---

DEPRECIATION
At 1 April 1995...................... 3,183 20 715 2,249 143 56
Provided in the year................. 1,079 23 318 535 130 73
Disposals............................ (214) -- (9) (120) (85) --
--------- ----- ----- ----- --- ---
At 31 March 1996..................... 4,048 43 1,024 2,664 188 129
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---

NET BOOK AMOUNT
At 31 March 1996..................... 7,273 1,080 1,341 3,841 451 560
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---
At 31 March 1995..................... 5,762 1,060 632 3,318 400 352
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---
</TABLE>

Details of assets held under finance leases are as follows:

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
NET BOOK AMOUNT
AT 31 MARCH 1996............. 1,496 22 193 1,058 223 --
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---
At 31 March 1995............. 1,091 22 179 778 110 2
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---
Depreciation charge
for the year................. 350 -- 112 179 59 --
--------- ----- ----- ----- --- ---
--------- ----- ----- ----- --- ---
</TABLE>

The figures stated above for cost or valuation include a valuation of
freehold land and building as follows:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
At 31 March 1994 valuation.................................... 1,000 1,000
At cost....................................................... 80 123
--------- ---------
1,080 1,123
--------- ---------
--------- ---------
</TABLE>

F-49
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

10. TANGIBLE FIXED ASSETS (CONTINUED)
No provision has been made in the deferred taxation account for the
estimated corporation tax that would be payable on disposal at this valuation
because, in the opinion of the directors, this asset is unlikely to be disposed
of in the foreseeable future.

If the freehold land and buildings had not been revalued, they would have
been included on the historic cost basis at the following amounts:

<TABLE>
<CAPTION>
L'000
<S> <C>
Cost.................................................................................. 1,086
Accumulated depreciation.............................................................. (42)
---------
Net book amount at 31 March 1996...................................................... 1,044
---------
---------
Net book amount at 31 March 1995...................................................... 1,023
---------
---------
</TABLE>

11. INVESTMENTS
<TABLE>
<CAPTION>
THE GROUP 1995 1996
- ----------------------------------------------------------------------------- --------- ---------
L'000 L'000
<S> <C> <C>
Own shares................................................................... -- 56

THE COMPANY 1995 1996
- ----------------------------------------------------------------------------- --------- ---------
L'000 L'000
<S> <C> <C>
Shares in subsidiary undertaking............................................. 1,750 1,750
Own shares................................................................... -- 56
--------- ---------
1,750 1,806
--------- ---------
--------- ---------
</TABLE>

On 24 March 1995 the company formed an employee benefit trust, the Rainford
Group plc Employee Benefit Trust (the "EBT"). The company agreed to lend to the
trustees of the EBT the sum of L300,000 and the trustees of the EBT used the
money loaned to purchase 111,111 existing ordinary shares of 5p from the Barry
Houghton 1988 Settlement at L2.70 per share. On flotation of the company, 90,371
of shares were sold to employees at a discount of 25 per cent or 35 per cent,
depending on length of service. At 31 March 1996 20,740 shares, at a cost of
L56,000, are held by the EBT and are available for the future benefit of
employees. Dividends receivable on shares held by the EBT are not waived. The
market value of the shares at 31 March 1996 was L54,000. L167,000 of the loan
was repaid using the monies received from the employees to purchase ordinary
shares. The company has agreed, under the terms of the deed establishing the
EBT, to indemnify the trustees against any costs, expenses or liabilities for
which the trustees are liable, other than any such costs, expenses or
liabilities which are attributable to fraud or wrongdoing of the trustees.

F-50
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

11. INVESTMENTS (CONTINUED)
At 31 March 1996, the principal subsidiaries were:

<TABLE>
<CAPTION>
CLASS PROPORTION HELD
COUNTRY OF OF SHARE --------------------------
REGISTRATION/ CAPITAL BY PARENT BY THE NATURE OF
SUBSIDIARY UNDERTAKING INCORPORATION HELD COMPANY GROUP BUSINESS
- --------------------------- --------------------- ----------- ------------- ----------- ---------------------------
<S> <C> <C> <C> <C> <C>
Rainford Group (St. Helens)
Limited.................. England and Wales Ordinary 100% -- See group principal
activities
Rainford Group Trustees
Limited.................. England and Wales Ordinary 100% -- Operates employee benefit
trust
Rainford Group (Coventry)
Limited England and Wales Ordinary 100% -- See group principal
activities
</TABLE>

All of the subsidiary undertakings have been consolidated in the group financial
statements.

F-51
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

12. STOCKS

<TABLE>
<CAPTION>
THE GROUP 1995 1996
- ----------------------------------------------------------------------------- --------- ---------
L'000 L'000
<S> <C> <C>
Long term contract work in progress.......................................... -- 729
Raw materials................................................................ 1,484 1,936
Work in progress............................................................. 2,432 3,561
Finished goods............................................................... 707 542
--------- ---------
4,623 6,768
--------- ---------
--------- ---------
</TABLE>

13. DEBTORS

<TABLE>
<CAPTION>
THE GROUP THE COMPANY
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Trade debtors................................................................ 11,787 12,417 -- --
Amounts due from subsidiary undertakings..................................... -- -- 1,002 1,234
Other debtors................................................................ 307 309 -- --
Prepayments and accrued income............................................... 184 444 39 28
Amounts recoverable on contracts............................................. 569 665 -- --
Inter Company Dividend Receivable............................................ -- -- -- 238
Taxation..................................................................... 30 -- 50 47
Advance Corporation Tax recoverable.......................................... -- 146 -- --
--------- --------- --------- ---------
12,877 13,981 1,091 1,547
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

14. CREDITORS : AMOUNTS FALLING DUE WITHIN ONE YEAR

<TABLE>
<CAPTION>
THE GROUP THE COMPANY
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Instalments due on secured term loans (see note 15).......................... 1,375 125 1,250 --
Instalments due on unsecured term loans (see note 15)........................ -- 36 -- --
Payments received on account................................................. 1,089 -- -- --
Trade creditors.............................................................. 9,602 12,456 -- 57
Taxation..................................................................... 1,912 2,052 15 --
Social security and other taxes.............................................. 813 564 -- --
Other creditors.............................................................. 214 114 -- --
Accruals..................................................................... 1,623 715 44 55
Dividends payable............................................................ -- 1,192 -- 1,192
Amounts due under finance leases............................................. 449 735 -- --
--------- --------- --------- ---------
17,077 17,989 1,309 1,304
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

F-52
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

15. CREDITORS : AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

<TABLE>
<CAPTION>
THE GROUP THE COMPANY
-------------------- --------------------
1995 1996 1995 1996
--------- --------- --------- ---------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Secured term loans:
Repayable between 1 and 2 years.............................................. 1,375 125 1,250 --
Repayable between 2 and 5 years.............................................. 2,695 110 2,500 --
Repayable after 5 years...................................................... 40 -- -- --
--------- --------- --------- ---------
4,110 235 3,750 --
Unsecured term loans:
Repayable between 1 and 2 years.............................................. -- 36 -- --
Repayable between 2 and 5 years.............................................. -- 36 -- --
--------- --------- --------- ---------
-- 72 -- --
Amounts due under finance leases:
Repayable between 1 and 2 years.............................................. 369 574 -- --
Repayable between 2 and 5 years.............................................. 231 587 -- --
--------- --------- --------- ---------
600 1,161 -- --
--------- --------- --------- ---------
4,710 1,468 3,750 --
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>

THE GROUP

The secured loans of L360,000, including L125,000 due within one year, are
secured by fixed charges on the group's freehold land and buildings and by a
floating charge on all other assets of the group.

The loans are repayable as follows:

<TABLE>
<S> <C> <C>
Secured loan No. 1 -- Two annual instalments of L90,000 from 30 April 1996. Interest is
payable at 2% above base rate.
Secured loan No. 2 -- Four annual instalments of L35,000 from 30 September 1996 and a final
instalment of L40,000 payable on 30 September 2000. Interest is
payable at 2.5% above base rate.
Unsecured loan -- Thirty six equal monthly instalments of L3,000. Interest is payable
at a fixed rate of 8.9%.
</TABLE>

16. DEFERRED TAXATION

THE GROUP

The total potential liability for deferred taxation, none of which is
provided in the financial statements, is set out below, and represents a
contingent liability at the balance sheet date.

<TABLE>
<CAPTION>
POTENTIAL LIABILITY
------------------------
1995
----- 1996
L'000 -----
L'000
<S> <C> <C>
Accelerated capital allowances........................................... 441 493
Other timing differences................................................. (79) (62)
--- ---
362 431
--- ---
--- ---
</TABLE>

F-53
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

17. SHARE CAPITAL
<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
AUTHORISED
861,000 ordinary shares of L1 each............................................... 861 --
36,000,000 ordinary shares of 5p each............................................ -- 1,800
1,750,000 redeemable preferred shares of L1 each................................. 1,750 --
250,000 cumulative convertible participating preferred ordinary shares of L1
each............................................................................ 250 --
--------- ---------
2,861 1,800
--------- ---------
--------- ---------

1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
ISSUED AND FULLY PAID
750,000 ordinary shares of L1 each............................................... 750 --
23,843,704 ordinary shares of 5p each............................................ -- 1,192
1,166,667 redeemable preferred shares of L1 each................................. 1,167 --
250,000 cumulative convertible participating preferred ordinary shares of L1
each............................................................................ 250 --
--------- ---------
2,167 1,192
--------- ---------
--------- ---------
</TABLE>

By resolutions of the company passed on 6 April 1995 and expressed to be
conditional upon admission to the Official List, it was resolved that:

i) each of the cumulative convertible participating preferred ordinary
shares of L1 each be reclasssified as ordinary shares of L1 each and the
ordinary share capital of the company be sub-divided into 22,220,000
ordinary shares of 5p each of which 20,140,000 were issued, including
140,000 ordinary shares issued on the exercise of share options;

ii) following the redemption of the remaining 1,166,667 redeemable
preferred shares, each of the redeemable preferred shares be reclassified
and sub-divided into ordinary shares of 5p each; and

iii) 21,220,000 of the ordinary shares in the capital of the company
which have not been taken up or agreed to be taken up at the date the
resolutions became unconditional were cancelled so that the authorised share
capital of the company was reduced to L1,800,000 divided into 36,000,000
ordinary shares of 5p each.

On 7 April 1995 the ordinary shares of the company, following the above
resolutions, were admitted to the Official List. 3,703,704 new ordinary shares
were placed with investors, raising L10.1 million. Issue costs amounted to L1.0
million.

Details of directors and employees shares options are given in notes 4 and
5. Under the unapproved share scheme a share option over 20,000 shares of 5p
each has been granted to a consultant of the company at 75p per share.

F-54
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

18. RESERVES

THE GROUP

<TABLE>
<CAPTION>
CAPITAL PROFIT AND SHARE
REDEMPTION OTHER REVALUATION LOSS PREMIUM
RESERVE RESERVES RESERVE ACCOUNT ACCOUNT
--------------- ----------- --------------- ----------- -----------
L'000 L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C> <C>
At 1 April 1995........................................ 583 625 37 4,058 --
Retained profit........................................ -- -- -- 1,888 --
Issue of new shares.................................... -- -- -- -- 8,875
Realised during the year............................... -- (242) (1) 243 --
--
--- --- ----- -----
At 31 March 1996....................................... 583 383 36 6,189 8,875
--
--
--- --- ----- -----
--- --- ----- -----
</TABLE>

The balances on the capital redemption reserve, the revaluation reserve, the
share premium account and other reserves may not be distributed legally.

The cumulative amount of goodwill written off to reserves is L46,000 (1995:
L46,000).

THE COMPANY

<TABLE>
<CAPTION>
CAPITAL PROFIT AND SHARE
REDEMPTION LOSS PREMIUM
RESERVE ACCOUNT ACCOUNT
--------------- ------------- -----------
<S> <C> <C> <C>
L'000 L'000 L'000
At 1 April 1995............................................ 583 590 --
Issue of new shares........................................ -- -- 8,875
Loss sustained............................................. -- (439) --
--- --- -----
At 31 March 1996........................................... 583 151 8,875
--- --- -----
--- --- -----
</TABLE>

The balances on the capital redemption reserve and the share premium account
may not be distributed legally.

19. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
Profit for the year.......................................... 3,556 4,109
Dividends.................................................... (123) (2,221)
Issue of new shares.......................................... -- 9,067
Redemption of preferred shares............................... (583) (1,167)
--------- ---------
Net increase in shareholders' funds.......................... 2,850 9,788
Opening shareholders' funds.................................. 4,620 7,470
--------- ---------
Closing shareholders' funds.................................. 7,470 17,258
--------- ---------
--------- ---------
</TABLE>

F-55
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

20. NET CASH INFLOW FROM OPERATING ACTIVITIES

<TABLE>
<CAPTION>
1995 1996
--------- ---------
L'000 L'000
<S> <C> <C>
Operating profit............................................ 5,776 5,895
Depreciation................................................ 778 1,079
Loss on sale of tangible fixed assets....................... 38 62
Increase in stock........................................... (1,197) (2,145)
Increase in debtors......................................... (6,468) (988)
Increase in creditors....................................... 7,197 508
Deferred grants............................................. (6) --
--------- ---------
6,118 4,411
--------- ---------
--------- ---------
</TABLE>

21. ANALYSIS OF CHANGES IN FINANCING

<TABLE>
<CAPTION>
OBLIGATIONS
UNDER
SHARE SHARE FINANCE
CAPITAL PREMIUM LOANS LEASES
--------- ----------- --------- -------------
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
As at 1 April 1994................................. 2,750 -- 2,252 513
Receipt of loans................................... -- -- 5,000 --
Inception of finance leases........................ -- -- -- 1,009
Repayment of loans and finance leases.............. -- -- (1,767) (473)
Redemption of preferred shares..................... (583) -- -- --
--------- ----------- --------- -----
As at 31 March 1995................................ 2,167 -- 5,485 1,049
Receipt of loans................................... -- -- 107 --
Inception of finance leases........................ -- -- -- 1,343
Repayment of loans and finance leases.............. -- -- (5,124) (496)
Issue of new shares................................ 192 9,912 -- --
Issue costs........................................ -- (1,037) -- --
Redemption of preferred shares..................... (1,167) -- -- --
--------- ----------- --------- -----
As at 31 March 1996................................ 1,192 8,875 468 1,896
--------- ----------- --------- -----
--------- ----------- --------- -----
</TABLE>

22. ANALYSIS OF CHANGES IN CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>
CASH AT
BANK AND
IN HAND OVERDRAFT TOTAL
----------- ----------- ---------
L'000 L'000 L'000
<S> <C> <C> <C>
As at 1 April 1994............................................ 3 (1,357) (1,354)
Net increase.................................................. 5,992 1,357 7,349
----- ----------- ---------
As at 31 March 1995........................................... 5,995 -- 5,995
Net increase.................................................. 2,642 -- 2,642
----- ----------- ---------
As at 31 March 1996........................................... 8,637 -- 8,637
----- ----------- ---------
----------- ---------
</TABLE>

F-56
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF RAINFORD GROUP PLC (CONTINUED)

23. CAPITAL COMMITMENTS

THE GROUP

There were L714,000 of capital commitments contracted for but not provided
for at 31 March 1996 (1995: L145,000).

THE COMPANY

There were no capital commitments in respect of the company.

24. LEASING COMMITMENTS

THE GROUP

Operating lease payments, in respect of land and buildings, amounting to
L406,000 (1995: L410,000) are due within one year. The leases to which these
amounts relate expire in five years or more.

THE COMPANY

There were no leasing commitments in respect of the company.

25. CONTINGENT LIABILITIES

THE GROUP

At 31 March 1996 the group had contingent liabilities in respect of:

(i) deferred taxation (notes 10 and 16);

(ii) outstanding performance bonds in the ordinary course of business in
favour of its customers which will become payable if Rainford Group (St.
Helens) Limited does not fulfill certain contractual obligations. These
bonds total L93,474 (1995: L252,000); and

(iii) contractual guarantees in favour of third parties totalling
L2,275,743 (1995: L1,840,000), which are secured on certain cash balances.

THE COMPANY

The Company had contingent liabilities in respect of items (ii) and (iii)
above.

26. POST BALANCE SHEET EVENTS

On 18 July 1996 the company entered into an agreement with A/S Dantherm of
Denmark, under which both of the parties will invest in a newly formed company,
based in Spartanburgh, South Carolina, to manufacture and supply thermal
management and air conditioning systems within North America. Details of the
agreement are disclosed in the directors' report.

F-57
<PAGE>
RAINFORD INTERIM FINANCIAL STATEMENTS

GROUP PROFIT AND LOSS ACCOUNTS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
THREE MONTHS THREE MONTHS
TO JUNE 30, TO JUNE 30,
1995 1996
------------- -------------
NOTE L'000 L'000
-----
<S> <C> <C> <C>
TURNOVER
- --continuing activities....................................................... 18,736 10,067
OPERATING (LOSS)/PROFIT
- --continuing activities....................................................... 1,059 (489)
Reorganization costs.......................................................... (46) (7)
Loss on disposal of assets.................................................... -- (8)
Net interest received/(paid).................................................. 50 10
------ ------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION.......................... 1,063 (494)

Refund/(tax) on (loss)/profit on ordinary activities.......................... 1 (349) 163
(LOSS)/PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION........................... 714 (331)
Dividends--non equity......................................................... (3) --
--equity.............................................................. -- --
------ ------
(LOSS)/PROFIT RETAINED........................................................ 711 (331)
------ ------
------ ------
</TABLE>

F-58
<PAGE>
RAINFORD INTERIM FINANCIAL STATEMENTS (CONTINUED)

GROUP BALANCE SHEETS
AT MARCH 31, 1996 AND JUNE 30, 1996

<TABLE>
<CAPTION>
AUDITED UNAUDITED
MARCH 31, JUNE 30,
1996 1996
----------- -----------
L'000 L'000
<S> <C> <C>
FIXED ASSETS
Tangible assets........................................................................... 7,273 7,396
Investments............................................................................... 56 --
----------- -----------
7,329 7,396
CURRENT ASSETS
Stocks.................................................................................... 6,768 6,360
Debtors................................................................................... 13,981 15,193
Cash at bank and in hand.................................................................. 8,637 4,510
----------- -----------
29,386 26,063
CREDITORS: amounts falling due within one year............................................ (17,989) (14,456)
----------- -----------
NET CURRENT ASSETS........................................................................ 11,397 11,607
TOTAL ASSETS LESS CURRENT LIABILITIES..................................................... 18,726 19,003
CREDITORS: amounts falling due after more than one year................................... (1,468) (2,076)
----------- -----------
17,258 16,927
----------- -----------
----------- -----------
CAPITAL AND RESERVES
Called up share capital................................................................... 1,192 1,192
Share premium account..................................................................... 8,875 8,875
Revaluation reserve....................................................................... 36 35
Other reserves............................................................................ 383 370
Capital redemption reserve................................................................ 583 583
Profit and loss account................................................................... 6,189 5,872
----------- -----------
SHAREHOLDERS' FUNDS....................................................................... 17,258 16,927
----------- -----------
----------- -----------
Equity shareholders' funds................................................................ 17,258 16,927
Non-equity shareholders' funds............................................................ -- --
----------- -----------
17,258 16,927
----------- -----------
----------- -----------
</TABLE>

F-59
<PAGE>
RAINFORD INTERIM FINANCIAL STATEMENTS (CONTINUED)

GROUP CASHFLOW STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996

<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
THREE MONTHS THREE MONTHS
TO JUNE 30, TO JUNE 30,
1995 1996
------------- -------------
L'000 L'000
<S> <C> <C>
NET CASH OUTFLOW FROM OPERATING ACTIVITIES........................................... (2,647) (3,058)
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest............................................................................. 50 13
Dividends paid....................................................................... (3) --
------ ------
NET CASH INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE................. 47 13
TAXATION
UK corporation tax paid (including advance corporation tax).......................... (15) (343)
INVESTING ACTIVITIES
Purchase of own shares on behalf of employee benefit trust........................... (56) --
Purchase of tangible fixed assets.................................................... (406) (472)
Disposal of tangible fixed assets.................................................... 74 22
------ ------
NET CASH OUTFLOW FROM INVESTING ACTIVITIES........................................... (388) (450)
------ ------
NET CASH OUTFLOW BEFORE FINANCING.................................................... (3,003) (3,838)
FINANCING
Repayment of loans................................................................... (5,090) (90)
Net proceeds from issuance of share capital.......................................... 9,067 --
Redemption of preferred shares....................................................... (1,167) --
Capital element of finance lease repayments.......................................... (58) (199)
------ ------
NET CASH OUTFLOW FROM FINANCING...................................................... 2,752 (289)
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS................................................ (251) (4,127)
------ ------
------ ------
</TABLE>

F-60
<PAGE>
RAINFORD INTERIM FINANCIAL STATEMENTS (CONTINUED)

NOTES TO THE GROUP INTERIM FINANCIAL STATEMENTS (UNAUDITED)

1. TAXATION

The charge for taxation for the three months to June 30, 1996 is based on
the estimated effective rate for the year as a whole.

2. EARNINGS PER SHARE

The basic earnings per share figure is based on the loss of L331,000 divided
by the weighted average number of shares in issue, being 23,843,704 shares.
Earnings represent profit after taxation. The fully diluted earnings per share
is based on the loss of L331,000 divided by 26,020,764 shares, being the
weighted average number of shares in issue, together with the shares to be
issued on the exercise of all outstanding share options.

3. INTERIM REPORT AND RESULTS

The interim report and results are unaudited and do not constitute full
accounts within the meaning of Section 240 of the Companies Act of 1985. The
unaudited interim financial statements should be read in conjunction with the
Rainford's audited group accounts for the year ended March 31, 1996. The results
of operations for the interim periods are not necessarily indicative of the
results to be expected for the full year.

F-61
<PAGE>
[ALTERNATE]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)

ISSUED JANUARY 14, 1998

RELTEC CORPORATION

COMMON STOCK
-----------------

OF THE SHARES OF COMMON STOCK OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND SHARES ARE BEING OFFERED INITIALLY IN THE UNITED
STATES AND CANADA BY THE U.S. UNDERWRITERS. SEE "UNDERWRITERS." ALL OF THE
SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON
STOCK OF THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL
PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $ AND $ . SEE
"UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS TO BE
CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
------------------------

APPLICATION WILL BE MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK EXCHANGE
UNDER THE SYMBOL "RLT."
------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR INFORMATION THAT

SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------------

PRICE $ A SHARE
-------------------

MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY INTERNATIONAL

GOLDMAN SACHS INTERNATIONAL
DEUTSCHE MORGAN GRENFELL
LEHMAN BROTHERS
J.P. MORGAN SECURITIES LTD.

, 1998
<PAGE>
PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses expected to be incurred in
connection with the issuance and distribution of Common Stock registered hereby,
all of which expenses, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the New York Stock Exchange listing application fee, are estimates:

<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
- ------------------------------------------------------------------------------------------------------- ---------
<S> <C>
Securities and Exchange Commission registration fee.................................................... $ 47,200
National Association of Securities Dealers, Inc. filing fee............................................ 16,500
New York Stock Exchange listing application fee........................................................ *
Legal fees and expenses................................................................................ *
Accounting fees and expenses........................................................................... *
Printing and engraving fees and expenses............................................................... *
Blue Sky fees and expenses............................................................................. *
Transfer Agent fees and expenses....................................................................... *
Miscellaneous expenses................................................................................. *
---------
Total............................................................................................ *
---------
---------
</TABLE>

- ------------------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Company is a Delaware corporation. Reference is made to Section
102(b)(7) of the Delaware General Corporation Law (the "DGCL"), which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payments of dividends of unlawful stock purchase or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit.

Reference is also made to Section 145 of the DGCL, which provides that a
corporation may indemnify any person, including an officer or director, who is,
or is threatened to be made, party to any threatened, pending or completed legal
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person was an officer, director, employee or agent
of such corporation or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. The
indemnity may include expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided such officer,
director, employee or agent acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the corporation's best interest and, for
criminal proceeding, had no reasonable cause to believe that his conduct was
unlawful. A Delaware corporation may indemnify any officer or director in any
action by or in the right of the corporation under the same conditions, except
that no indemnification is permitted without judicial approval if the officer or
director is adjudged to be liable to the corporation. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify him against the expenses that
such officer or director actually and reasonably incurred.

II-1
<PAGE>
Article V of the Bylaws of the Company (filed as Exhibit 3.2) provides for
indemnification of the officers and directors to the full extent permitted by
applicable law.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since August 1, 1995, the Company has sold unregistered securities in the
amounts, at the times and for the aggregate amounts of consideration listed
below. The securities were sold to purchasers directly by the Company, and such
sales did not involve any underwriter. The Company considers these securities to
have been offered and sold in transactions not involving any public offering and
therefore, to be exempted from registration under Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act") and Rule 701 and Regulation S
thereunder.

On August 1, 1995, the Company issued 29,000,000 shares of Common Stock to
the KKR Partnerships and management investors under the Company's 1995 Stock
Purchase and Option Plan For Employees of Reltec Holdings, Inc. and Subsidiaries
(the "Employee Stock Plan") for aggregate consideration of $145,000,000. Of such
shares, 92,000 shares have been retired by the Company.

On September 7, 1995, the Company issued 7,000,000 shares of Common Stock to
one of the KKR Partnerships for consideration of $35,000,000.

On November 10, 1995, the Company issued 306,600 shares of Common Stock to
management investors under its Employee Stock Plan for aggregate consideration
of $1,533,000. Of such shares, 22,000 shares have been retired by the Company.

Between January 25, 1996 and August 6, 1996, the Company issued 2,000 shares
of Common Stock to one individual investor for consideration of $10,000 and
84,849 shares of Common Stock to one of the Company's employee benefit plans for
aggregate consideration of $424,245. In addition, during the same period the
Company issued 1,000 shares of Common Stock to replace a lost share certificate,
which shares subsequently were retired by the Company.

On August 30, 1996, the Company issued 6,434,783 shares of Common Stock to
one of the KKR Partnerships for aggregate consideration of $32,173,915.

On September 3, 1996, the Company issued 2,990,862 shares of Common Stock to
non-U.S. management investors under its Employee Stock Plan for aggregate
consideration of $34,394,913 pursuant to a sale exempt from registration
pursuant to Regulation S under the Securities Act. Of such shares, 41 shares
have been retired by the Company.

In September 1996, the Company issued 1,000 shares of its Series A
Redeemable Preferred Stock to one of the KKR Partnerships for consideration of
$1,000,000.

Between September 9, 1996 and March 27, 1997, the Company issued 155,527
shares of Common Stock to management investors under its Employee Stock Plan for
aggregate consideration of $1,811,777. Of such shares, 17,829 shares have been
retired by the Company. In addition, during the same period the Company issued
26,060 shares of Common Stock to one of the Company's employee benefit plans for
aggregate consideration of $312,375.

On April 1, 1997, the Company issued 4,000,000 shares to one of the KKR
Partnerships for aggregate consideration of $50,000,000.

Between May 12, 1997 and December 26, 1997, the Company issued 144,080
shares of Common Stock to management investors under its Employee Stock Plan for
aggregate consideration of $1,801,000 and 25,717 shares of Common Stock to one
of the Company's employee benefit plans for aggregate consideration of $321,462.
In addition, during the same period the Company issued 2,000 shares of Common
Stock to replace a lost share certificate retired by the Company.

II-2
<PAGE>
ITEM 16. EXHIBITS.

(a) EXHIBITS:

The following exhibits are filed pursuant to Item 601 of Regulation S-K.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>

*1.1 Form of Underwriting Agreement among RELTEC Corporation and the Underwriters named therein.

3.1 Certificate of Incorporation of RELTEC Corporation.

3.2 Bylaws of RELTEC Corporation.

*4.1 Form of Common Stock Certificate.

4.2 See Exhibits 3.1 and 3.2 of this Registration Statement for provisions of the Certificate of
Incorporation and Bylaws of RELTEC Corporation defining the rights of holders of Common Stock.

*5.1 Opinion of Latham & Watkins regarding the legality of the securities being issued.

10.1 RELTEC Holdings, Inc. Deferred Compensation Plan (Effective August 1, 1995) for elected officers and
other key employees.

10.2 RELTEC Holdings, Inc. Directors' Deferred Compensation Plan (Effective January 1, 1996).

10.3 Reliance Comm/Tec Corporation Special Retirement Program for Elected Offers (Effective August , 1995).

10.4 Reliance Comm/Tec Corporation Supplemental Retirement Plan for Key Employees (Effective August , 1995).

10.5 Amended and Restated 1995 Stock Purchase and Option Plan for Employees of RELTEC Holdings, Inc. and
Subsidiaries.

*10.6 1998 Equity Participation Plan of RELTEC Corporation.

10.7 Amended and Restated Credit Agreement, dated as of September 20, 1996 (the "Amended and Restated Credit
Agreement"), among RELTEC Holdings, Inc., RELTEC (UK) Limited, various lending institutions and The Chase
Manhattan Bank, as Agent.

10.8 Form of DRF ("domestic revolving facility") Note under the Amended and Restated Credit Agreement.

10.9 Form of MCRF ("multi-currency revolving facility") Note under the Amended and Restated Credit Agreement.

10.10 Form of Swingline Note under the Amended and Restated Credit Agreement.

10.11 Amended and Restated Company Pledge Agreement, dated as of September 20, 1996, among RELTEC Holdings,
Inc. and The Chase Manhattan Bank, as Agent.

10.12 U.K. Pledge Agreement, dated as of September 20, 1996, among RELTEC (UK) Limited and The Chase Manhattan
Bank, as Agent.

10.13 Amended and Restated Subsidiary Pledge Agreement, dated as of September 20, 1996, among RELTEC
Corporation, RELTEC Foreign Holdings, Inc. and The Chase Manhattan Bannk, as Agent.

10.14 Amended and Restated Subsidiary Guarantee, dated as of September 20, 1996, among RELTEC Corporation,
RELTEC Holdings, Inc. and The Chase Manhattan Bank, as Agent.

*11.1 Statement regarding computation of per share earnings.

21.1 Subsidiaries of RELTEC Corporation.
</TABLE>

II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
23.1 Consent of Deloitte & Touche LLP regarding the financial statements of RELTEC Corporation.

23.2 Consent of Grant Thornton LLP regarding the financial statements of Rainford Group plc.

*23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 hereto).

24.1 Powers of Attorney (included on the signature page hereto).

27.1 Financial Data Schedule.
</TABLE>

- ------------------------
* To be filed by amendment.

As permitted by Item 601(b)(4) of Regulation S-K, the Company has not filed
with this Registration Statement certain instruments defining the rights of
holders of long-term debt of the Company, if any, because the total amount of
securities authorized under any of such instruments does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated basis. The
Company agrees to furnish a copy of any such agreements to the Securities and
Exchange Commission upon request.

(b) FINANCIAL STATEMENT SCHEDULES:

Not applicable.

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.

(2) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of New York, State of New
York on January 14, 1998.

<TABLE>
<S> <C> <C>
RELTEC CORPORATION

By: /s/ Dudley P. Sheffler
-----------------------------------------
Name: Dudley P. Sheffler
Title: President, Chief Executive Officer
</TABLE>

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Dudley P. Sheffler, Scott A. Fine and
Valerie A. Gentile as true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including pre-effective
and post-effective amendments) to this Registration Statement, and any
Registration Statement filed pursuant to Rule 462 under the Securities Act of
1933, and to file the same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes may lawfully do or cause to be done by
virtue thereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

/s/ DUDLEY P. SHEFFLER
- ------------------------------ President, Chief Executive January 14, 1998
Dudley P. Sheffler Officer and Director

/s/ JAMES H. GREENE, JR.
- ------------------------------ Director January 14, 1998
James H. Greene, Jr.

/s/ HENRY R. KRAVIS
- ------------------------------ Director January 14, 1998
Henry R. Kravis

/s/ ALEXANDER NAVAB, JR.
- ------------------------------ Director January 14, 1998
Alexander Navab, Jr.

/s/ GEORGE R. ROBERTS
- ------------------------------ Director January 14, 1998
George R. Roberts

/s/ BARRY HOUGHTON, MBE
- ------------------------------ Director January 14, 1998
Barry Houghton, MBE

/s/ JOHN L. WILSON Vice President--Controller
- ------------------------------ (principal accounting January 14, 1998
John L. Wilson officer)

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>

*1.1 Form of Underwriting Agreement among RELTEC Corporation and the Underwriters named therein.
3.1 Certificate of Incorporation of RELTEC Corporation.
3.2 Bylaws of RELTEC Corporation.
*4.1 Form of Common Stock Certificate.
4.2 See Exhibits 3.1 and 3.2 of this Registration Statement for provisions of the Certificate of
Incorporation and Bylaws of RELTEC Corporation defining the rights of holders of Common Stock.
*5.1 Opinion of Latham & Watkins regarding the legality of the securities being issued.
10.1 RELTEC Holdings, Inc. Deferred Compensation Plan (Effective August 1, 1995) for elected officers and
other key employees.
10.2 RELTEC Holdings, Inc. Directors' Deferred Compensation Plan (Effective January 1, 1996).
10.3 Reliance Comm/Tec Corporation Special Retirement Program for Elected Offers (Effective August , 1995).
10.4 Reliance Comm/Tec Corporation Supplemental Retirement Plan for Key Employees (Effective August , 1995).
10.5 Amended and Restated 1995 Stock Purchase and Option Plan for Employees of RELTEC Holdings, Inc. and
Subsidiaries.
*10.6 1998 Equity Participation Plan of RELTEC Corporation.
10.7 Amended and Restated Credit Agreement, dated as of September 20, 1996 (the "Amended and Restated Credit
Agreement"), among RELTEC Holdings, Inc., RELTEC (UK) Limited, various lending institutions and The Chase
Manhattan Bank, as Agent.
10.8 Form of DRF ("domestic revolving facility") Note under the Amended and Restated Credit Agreement.
10.9 Form of MCRF ("multi-currency revolving facility") Note under the Amended and Restated Credit Agreement.
10.10 Form of Swingline Note under the Amended and Restated Credit Agreement.
10.11 Amended and Restated Company Pledge Agreement, dated as of September 20, 1996, among RELTEC Holdings,
Inc. and The Chase Manhattan Bank, as Agent.
10.12 U.K. Pledge Agreement, dated as of September 20, 1996, among RELTEC (UK) Limited and The Chase Manhattan
Bank, as Agent.
10.13 Amended and Restated Subsidiary Pledge Agreement, dated as of September 20, 1996, among RELTEC
Corporation, RELTEC Foreign Holdings, Inc. and The Chase Manhattan Bannk, as Agent.
10.14 Amended and Restated Subsidiary Guarantee, dated as of September 20, 1996, among RELTEC Corporation,
RELTEC Holdings, Inc. and The Chase Manhattan Bank, as Agent.
*11.1 Statement regarding computation of per share earnings.
21.1 Subsidiaries of RELTEC Corporation.
23.1 Consent of Deloitte & Touche LLP regarding the financial statements of RELTEC Corporation.
23.2 Consent of Grant Thornton LLP regarding the financial statements of Rainford Group plc.
*23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit 5.1 hereto).
24.1 Powers of Attorney (included on the signature page hereto).
27.1 Financial Data Schedule.
</TABLE>

- ------------------------
* To be filed by amendment.

<PAGE>

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RELTEC HOLDINGS, INC.

RELTEC HOLDINGS, INC. (the "Company"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:

FIRST: That by unanimous written consent of the Board of Directors of
the Company dated January 14, 1998, a resolution was adopted approving an
amendment to the Certificate of Incorporation increasing the number of
authorized shares of Common Stock and Preferred Stock and changing the name of
the Company to RELTEC Corporation. The resolution setting forth the amendment
is as follows:

RESOLVED, that the form, terms and provisions of the Certificate
of Incorporation of the Corporation be amended as set forth in Exhibit
A, hereto;

Exhibit A
to
RELTEC Holdings, Inc. Board of Directors
Unanimous Written Consent
dated January 14, 1998
amending the Company's Certificate of Incorporation

Article 1 of the Certificate of Incorporation shall be deleted in
its entirety and the following inserted in lieu thereof:

1. The name of the corporation is RELTEC Corporation

Article 4 of the Certificate of Incorporation shall be deleted in
its entirety and the following inserted in lieu thereof:

4. The total number of shares of stock which the Corporation
shall have authority to issue is One Hundred Seventy Million
(170,000,000), consisting of One Hundred Fifty Million (150,000,000)
shares of common stock, par value $.01 per share, and Twenty Million
(20,000,000) shares of preferred stock, par value $.01 per share (the
"Preferred Stock"). The designation, powers, preferences and
relative, participating, optional or other special rights, including
voting rights, qualifications, limitations or restrictions of the
Preferred Stock shall be established by resolution of the Board of
Directors pursuant to Section 151 of the General Corporation Law of
the State of Delaware."

SECOND: That thereafter, the proposed amendment was determined to be
advisable and was approved by holders of not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted by the
stockholders of the Company by written consent pursuant to Section 228 of the
General Corporation Law of the State of Delaware dated January 14, 1998.

<PAGE>

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Dudley P. Sheffler, its
President, and by Valerie A. Gentile, its Secretary, as of this 14th day of
January, 1998.

RELTEC Holdings, Inc.

By: ______________________________
Dudley P. Sheffler, President

[CORPORATE SEAL]

Attest: ______________________________________
Valerie A. Gentile, Secretary

<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
RELTEC HOLDINGS, INC.

RELTEC HOLDINGS, INC. (the "Company"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY:

FIRST: That the Board of Directors of the Company in a meeting held on
July 18, 1996 duly adopted a resolution approving an amendment to the
Certificate of Incorporation increasing the number of authorized shares of
Common Stock to a total of 60 million shares. The resolution setting forth the
amendment is as follows:

IT WAS UNANIMOUSLY RESOLVED, that an amendment to the Company's
Certificate of Incorporation increasing the number of authorized
shares of Common Stock by 10 million shares to a total of 60 million
shares is hereby approved and that the officers of the Company hereby
are, or any one of them acting singly hereby is, authorized to
prepare, execute and file with the State of Delaware on behalf of the
Company, an amendment to the Company's Certificate of Incorporation
increasing the number of authorized shares of Common Stock as set
forth above.

THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.

IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this certificate to be signed by Dudley P. Sheffler, its
President, and by Susan M. Clark, its Secretary, this 28th day of August, 1996.

RELTEC Holdings, Inc.

By: /s/ Dudley P. Sheffler
-----------------------------
Dudley P. Sheffler, President

[CORPORATE SEAL]

Attest: /s/ Susan M. Clark
-------------------------
Susan M. Clark, Secretary

<PAGE>

CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL AND
OTHER SPECIAL RIGHTS OF PREFERRED
STOCK AND QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF

SERIES A REDEEMABLE PREFERRED STOCK

RELTEC HOLDINGS, INC.

Pursuant to Section 151 of the
General Corporation Law of the State of Delaware

RELTEC HOLDINGS, INC. (the "Corporation"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the
Corporation, in a meeting held on August 27, 1996, adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:

WHEREAS, the Board of Directors of the Corporation is authorized, within
the limitations and restrictions stated in the Certificate of Incorporation of
the Corporation, to fix and amend by resolution or resolutions the designation
of each series of Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and the powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof,
including, without limiting the generality of the foregoing, such provisions as
may be desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and such other subjects or
matters as may be fixed by resolution or resolutions or the Board of Directors
under the General Corporation Law of Delaware; and

WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series:

NOW, THEREFORE, BE IT RESOLVED, that there is hereby authorized such number
and series of Preferred Stock on the terms and with the provisions herein set
forth:

1. DESIGNATION, NUMBER OF SHARES, PAR VALUE AND RANKING. The shares of
the series of Preferred Stock authorized by this resolution shall be designated
as "Series A Redeemable Preferred Stock." The number of shares initially
constituting the Series A Redeemable Preferred Stock shall be 1,000, which shall
not be increased without the consent of holders of a majority of the outstanding
Series A Redeemable Preferred Stock. The Series A Redeemable Preferred Stock
shall, with respect to dividend rights and rights on liquidation, winding up,
and dissolution, rank senior to all series and classes of the Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation. Unless
specifically designated as junior to, or senior to, the Series A Redeemable
Preferred Stock with respect to dividend rights or rights on liquidation,
winding up or dissolution, all other series of Preferred Stock and other classes
of preferred stock of the Corporation hereinafter authorized or outstanding
shall be on a parity with the Series A Redeemable Preferred Stock with respect
to such rights. All securities of the Corporation to which the Series A
Redeemable Preferred Stock ranks senior, including the Common Stock, are

<PAGE>

collectively referred to herein as the "Junior Securities"; all securities of
the Corporation with which the Series A Redeemable Preferred Stock ranks on a
parity are collectively referred to herein as the "Parity Securities"; and all
securities of the Corporation to which the Series A Redeemable Preferred Stock
ranks junior are collectively referred to herein as the "Senior Securities."
Subject to Section 3, the Series A Redeemable Preferred Stock shall be subject
to the creation of Junior Securities, Parity Securities and Senior Securities.

2. DIVIDENDS.

(a) The holders of the outstanding Series A Redeemable Preferred
Stock shall be entitled to receive, out of any funds legally available
therefor, cash dividends at the annual rate of $105.00 per share for the
year (s) ended December 31, 1996, 1997 and 1998, $115.00 per share for the
year ended December 31, 1999, $125.00 per share for the year ended December
31, 2000 and $130.00 per share for each annual period thereafter until
redeemed by the Corporation, payable quarterly on January 1, April 1, July
1, and October 1 of each year beginning January 1, 1997 (hereinafter, the
"Dividend Payment Dates"), as the Board of Directors may from time to time
determine, when and as declared by the Board of Directors. Such dividends
shall be paid to the holders of record at the close of business on the date
specified by the Board of Directors of the Corporation at the time such
dividend is declared; provided, however, that such date shall not be more
than 60 days nor less than 10 days prior to the respective Dividend Payment
Date. All dividends paid pursuant to this Section shall be paid pro rata
to the holders entitled thereto.

(b) Dividends shall be cumulative with respect to each share of
Series A Redeemable Preferred Stock, and shall accrue (whether or not
declared and whether or not there shall be funds legally available for the
payment of dividends), without interest, from the date such share of Series
A Redeemable Preferred Stock is issued. Dividends in arrears may be
declared by the Board of Directors of the Corporation and paid on any date
fixed by such Board, without reference to any regular Dividend Payment
Date.

(c) Any dividend paid upon the Series A Redeemable Preferred Stock at
a time when any accrued dividends for any prior period are delinquent shall
be expressly declared as a dividend in whole or partial payment of the
accrued dividend for the earliest period for which dividends are then
delinquent, and shall be so designated to each stockholder to whom payment
is made.

(d) Notwithstanding anything contained herein to the contrary, no
dividends on shares of Series A Redeemable Preferred Stock shall be
declared by the Board of Directors or paid or set apart for payment by the
Corporation at such time as the terms and provisions of any agreement
relating to its indebtedness prohibits such declaration, payment or setting
apart for payment or provides that such declaration, payment or setting
apart for payments would constitute a breach thereof or a default
thereunder, or if such declaration or payment shall be restricted or
prohibited by law.

3. VOTING RIGHTS. Except as required by law or Section 1, holders of
Series A Redeemable Preferred Stock shall have no voting rights and their
consent shall not be required for authorizing or taking any corporate action,
and except that, without the affirmative consent or approval of a majority of
the outstanding shares of the Series A Redeemable Preferred Stock (given by
written consent in lieu of a meeting or by vote at a meeting of the holders of
Series A Redeemable Preferred Stock duly called for such purpose), the
Corporation will not (i) in any manner, directly or indirectly, alter or change
the terms, preferences, rights or powers of the Series A Redeemable Preferred
Stock (whether by amendment, alteration or repeal of any provision of the
Certificate of Incorporation, by merger or otherwise), (ii) create, authorize or
issue any class of stock ranking prior to, or parity with, the Series A
Redeemable Preferred Stock with respect to dividends or upon liquidation,
dissolution, winding up or otherwise, or increase the authorized number of
shares of any such class or series, or reclassify any authorized stock of the

<PAGE>

Corporation into any such prior or parity shares or create, authorize or issue
any obligation or security convertible into or evidencing the right to purchase
any such prior or parity shares, (iii) declare, pay or set apart for payment any
dividend (other than dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Junior Securities) or
other distribution upon Junior Securities if any accrued dividends payable upon
the Series A Redeemable Preferred Stock for any prior period are delinquent or
(iv) directly or indirectly, redeem, purchase or otherwise acquire for any
consideration any Parity Securities or Junior Securities or discharge any
mandatory or optional redemption, sinking fund or other similar obligation in
respect of Parity Securities or Junior Securities, except for purchases or
redemptions pursuant to or in accordance with the (w) 1995 Stock Purchase and
Option Plan, as amended (the "Plan"), (x) agreements entered into under such
Plan between the Corporation and certain employees of the Corporation, (y) any
other employee compensation or incentive plans or agreements which may be
entered into from time to time by the Corporation, and (z) Put/Call Agreement by
and among the Corporation, Rysaffe Trustee Company, as trustee of the Barry
Houghton Settlement and Rysaffe Trustee Company, as trustee of the Barry
Houghton 1988 Settlement.

4. REDEMPTION FOR CASH.

(a) OPTIONAL REDEMPTION BY THE CORPORATION. The Corporation, at its
option, may at any time and from time to time redeem shares of the Series A
Redeemable Preferred Stock in whole or in part, at a redemption price of
$1,000 per share, plus an amount equal to any and all accumulated dividends
accrued and unpaid thereon (whether or not such dividends have been
declared) to and including the date fixed for such redemption
(hereinafter, the "Redemption Price"). If less than all the outstanding
shares of Series A Redeemable Preferred Stock are to be redeemed, the
shares shall be chosen pro rata, by lot or in such equitable manner as
determined by the Board of Directors of the Corporation in its sole
discretion.

(b) NOTICE OF REDEMPTION BY THE CORPORATION AND PAYMENT OF REDEMPTION
PRICE. Notice of every proposed redemption pursuant to Section 4 (a)
(herein the "Notice of Redemption") of the Series A Redeemable Preferred
Stock shall be mailed by or on behalf of the Corporation, by first class
registered or certified mail, postage prepaid, to the holders of record of
the shares to be redeemed at their respective addresses as they shall
appear on the records of the Corporation, not less than 30 nor more than 60
days prior to the date fixed for redemption. Such Notice of Redemption
shall state the Redemption Price, the number of shares of Series A
Redeemable Preferred Stock to be redeemed and, if less than all shares held
by such holder are to be redeemed from such holder, the number of shares to
redeemed from such holder, the place at which and the date on which (the
"Redemption Date") the shares called for redemption will, upon presentation
and surrender of the certificates of stock evidencing such shares, be
redeemed. Upon presentation and surrender of the certificates of stock
evidencing such shares in accordance with the Notice of Redemption, the
Corporation or its representative shall pay the redemption Price to the
holder of record of such surrendered shares.

(c) OPTIONAL REDEMPTION AT REQUEST OF SERIES A REDEEMABLE PREFERRED
STOCKHOLDERS. At any time and from time to time on or after the occurrence
of the earlier of (i) a Triggering Event (as defined below) or (ii) after
July 1, 2003, any holder or holders of record of Series A Redeemable
Preferred Stock shall have the option to cause the Corporation to redeem
any or all of their shares of Series A Redeemable Preferred Stock for an
amount equal to the Redemption Price. "triggering event" shall mean (a) a
merger, consolidation or share exchange involving the Corporation, unless
the Corporation is the surviving entity and the shares of capital stock
outstanding immediately prior to such merger, consolidation or share
purchase are not subject to purchase, redemption, exchange, cancellation or
any other change; (b) a sale, lease or other disposition in a single
transaction or a series of related transactions of all or a majority of the
assets of the Corporation, including by or through the sale, lease or other
disposition of the capital stock or assets of, or a merger or consolidation
involving, any subsidiary of the Corporation; or (c) the date on which
Kohlberg Kravis Roberts & Co. and its affiliates (the "KKR investors")
cease

<PAGE>

collectively to own beneficially, directly or indirectly, at least 70% of
the aggregate voting capital stock of the Corporation owned by the KKR
Investors on the date of, and immediately after giving effect to the
acquisition of Rainford Group plc. Notice of any such request for
redemption (the "Request for Redemption") shall be mailed to the
Corporation by first class registered or certified mail, postage prepaid,
not less than 30 nor more than 60 days prior to the date such stockholder
requests redemption. Such Request for Redemption shall state the number of
shares of Series A Redeemable Preferred Stock to be redeemed and the
Redemption Date. Upon presentation and surrender of the certificates of
stock evidencing such shares in accordance with the request for Redemption
at the principal executive office of the Corporation, or at such other
place as may be mutually agreed, the Corporation or its representative
shall pay the Redemption Price to the holder of record of such surrendered
share. Notwithstanding anything contained herein to the contrary, no
shares of Series A Redeemable Preferred Stock shall be redeemed by the
Corporation pursuant to this Section 4(c) at such time as the terms and
provisions of any agreement relating to its indebtedness prohibits such
redemption or provides that such redemption would constitute a breach
thereof or a default thereunder, or if such redemption shall be restricted
or prohibited by law, provided that if the Corporation is unable or shall
fail to discharge its obligation to redeem shares of the Series A
Redeemable Preferred Stock pursuant to this Section 4(c), such obligation
shall be discharged as soon as the Corporation is able to discharge such
obligation.

(d) LIMITATION ON REDEMPTION RIGHTS. In no event shall the
Corporation redeem less than all of the outstanding shares of the Series A
Redeemable Preferred Stock unless all accumulated dividends accrued and
unpaid on the Series A Redeemable Preferred Stock (whether or not such
dividends have been declared) shall have been, or contemporaneously are,
declared and paid on all outstanding shares of the Series A Redeemable
Preferred Stock.

(e) EFFECT OF REDEMPTION. From and after the Redemption Date,
dividends on the shares of Series A Redeemable Preferred Stock to be
redeemed shall cease to accrue (unless default shall be made by the
Corporation in promptly providing money for the payment of the Redemption
Price to the holders of the redeemed shares who deliver shares of Series A
Redeemable Preferred Stock in accordance with the terms of the applicable
notice) and said share shall no longer be deemed to be outstanding and
shall have the status of authorized but unissued shares of Preferred Stock,
without designation as to series until such shares are once more designated
as part of a particular series by the Board of Directors pursuant to the
provisions of the Corporation's Certificate of Incorporation, and all
rights of the holders thereof as stockholders of the Corporation shall
cease and terminate (except the right to receive from the Corporation the
Redemption Price).

5. LIQUIDATION RIGHTS. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series A Redeemable Preferred Stock then outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether such assets are capital or surplus and
whether or not any dividends are declared, an amount equal to $1,000 for each
share outstanding (the "Liquidation Preference"), plus an amount equal to all
accrued and unpaid dividends thereon to the date payment is made available to
the holders of the Series A Redeemable Preferred Stock, before any payment shall
be made or any assets distributed to any holder of Junior Securities but after
payment or distribution of all amounts to holders of Senior Securities. Except
as provided in the preceding sentence, holders of Series A Preferred Stock shall
not be entitled to any distribution in the event of liquidation, dissolution or
winding up of the affairs of the Corporation. If the assets of the Corporation
are not sufficient to pay in full the liquidation payments payable to the
holders of outstanding shares of any Parity Securities, then the holders of all
such shares and such Parity Securities shall share ratably in such distribution
of assets in accordance with the amount that would be payable on such
distribution if the amounts to which the holders of outstanding shares of Series
A Redeemable Preferred Stock and such Parity Securities are entitled were paid
in full. For the purposes of this Section 5, neither the voluntary sale, lease,
conveyance, exchange or transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the property or assets of the
Corporation

<PAGE>

nor the consolidation or merger of the Corporation with one or more other
corporations shall be deemed to be a liquidation, dissolution or winding up,
voluntary or involuntary. All payments for which this Section 5 provides shall
be in cash, property (valued at its fair market value, as determined by the
Board of Directors in good faith) or a combination thereof.

6. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction with any other
person or entity in which the shares of Common Stock are exchanged for or
changed into other stock or securities of any other person or entity, or cash or
any other property, then in any such case the then outstanding shares of Series
A Redeemable Preferred Stock shall at the same time, if the Corporation is not
the surviving corporation in any such consolidation, merger, combination or
other transaction, be exchanged or changed into an equal number of shares of
preferred stock of such other person or entity with terms substantially
identical to those of the Series A Redeemable Preferred Stock.

7. REACQUIRED SHARES. Any shares of Series A Redeemable Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without designation as to series until such share are once more
designated as part of a particular series by the Board of Directors pursuant to
the provisions of the Corporation's Certificate of Incorporation.

8. EXCLUSION OF OTHER RIGHTS. Except as may otherwise be required by
law, the shares of Series A Redeemable Preferred Stock shall not have any
preferences or relative, participating, optional or other special rights other
than those specifically set forth in this Certificate of Designations (as such
Certificate of Designations may be amended from time to time) and in the
Corporation's Certificate of Incorporation.

9. HEADINGS. The headings of the various Sections and subsections
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.

10. SEVERABILITY OF PROVISIONS. If any right, preference or limitation of
the Series A Redeemable Preferred Stock set forth in this Certificate of
Designations (as such Certificate of Designations may be amended from time to
time) is invalid, unlawful, or incapable of being enforced by reason of any rule
of law or public policy, all other rights, preferences and limitations set forth
in this Certificate of Designation (as so amended) which can be given effect
without the invalid, unlawful or unenforceable right, preference or limitation
shall, nevertheless, remain in full force and effect, and no right, preference
or limitation herein set forth shall be deemed dependent upon any other such
right, preference or limitation.

[Signature page on the following page]

<PAGE>

IN WITNESS WHEREOF, RELTEC Holdings, Inc. has caused this certificate to be
made under the seal of the Corporation signed by its President and Secretary,
respectively, this 29th day of August, 1996.

/s/ Dudley P. Sheffler
----------------------
Dudley P. Sheffler
President

/s/Susan M. Clark
Attest: ----------------------
Susan M. Clark
Secretary

<PAGE>

CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
K-TEC HOLDINGS, INC.

K-TEC HOLDINGS, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware (the "Corporation"), DOES HEREBY CERTIFY:

FIRST: That by unanimous written consent of the
Board of Directors of the Corporation dated October 9, 1995, a
resolution was duly adopted setting forth a proposed amendment of
the Certificate of Incorporation of the Corporation, declaring
said amendment to be advisable and calling for approval of said
proposed amendment by the stockholders of the Corporation. The
resolution setting forth the amendment is as follows:

RESOLVED, that it is hereby proposed that Article 1 of the
Certificate of Incorporation of the Corporation be amended
so that the same as amended would read as follows:

"FIRST: The name of the corporation (the "Corporation") is
RELTEC Holdings, Inc."

SECOND: That thereafter, pursuant to a resolution of its
Board of Directors, the proposed amendment was determined to be
advisable and was approved by holders of not less than the
minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to
vote thereon were present and voted by the stockholders of the
Corporation by written consent pursuant to Section 228 of the
General Corporation Law of the State of Delaware dated October 9,
1995.

THIRD: That said amendment was duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunto affixed and this certificate to be signed by
Dudley P. Sheffler, its President, and by Susan M. Clark, its
Secretary, this 9th day of October, 1995.

K-Tec Holdings, Inc.

/s/ Dudley P. Sheffler
By: -----------------------------
Dudley P. Sheffler, President

[CORPORATE SEAL]

Attest: /s/ Susan M. Clark
-------------------------
Susan M. Clark, Secretary

<PAGE>

RESTATED CERTIFICATE OF INCORPORATION

K-TEC HOLDINGS, INC.

It is hereby certified that:

1. The present name of the corporation (hereinafter called the
"Corporation") is K-TEC HOLDINGS, INC., which is the name under which the
Corporation was originally incorporated; and the date of filing the original
Certificate of Incorporation of the Corporation with the Secretary of State
of the State of Delaware is June 5, 1995. An amendment to the Certificate of
Incorporation of the Corporation was filed with the Secretary of State of the
State of Delaware on July 6, 1995 (as amended, the "Certificate of
Incorporation, as amended").

2. The Certificate of Incorporation, as amended, of the Corporation is
hereby amended by striking out Article 4 thereof and by substituting in lieu
there a new Article 4 which is set forth in the Restated Certificate of
Incorporation hereinafter provided for.

3. The provisions of the Certificate of Incorporation of the
Corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of K-Tec Holdings, Inc.

4. The Corporation has not received any payment for any of its stock.

5. The amendment and the restatement herein certified have been duly
adopted by at least a majority of the directors who have been elected and
qualified in the manner and by the vote prescribed by Section 241 and Section
245 of the General Corporation Law of the State of Delaware.

6. The Certificate of Incorporation of the Corporation, as amended and
restated herein, shall at the effective time of this Restated Certificate of
Incorporation, read as follows:

<PAGE>

"RESTATED CERTIFICATE OF INCORPORATION

K-TEC HOLDINGS, INC.

1. The name of the corporation (the "Corporation") is:

K-Tec Holdings, Inc.

2. The address of its registered office in the State of Delaware is 32
Loockerman Square, Suite L-100, in the City of Dover, County of Kent. The name
of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.

3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.

4. The total number of shares of stock which the Corporation shall have
authority to issue is fifty-one million (51,000,000), consisting of fifty
million (50,000,000) shares of common stock, par value $.01 per share, and
one million (1,000,000) shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The designation, powers, preferences and relative,
participating, optional or other special rights, including voting rights,
qualifications, limitations or restrictions of the Preferred Stock shall be
established by resolution of the Board of Directors pursuant to Section 151
of the General Corporation Law of the State of Delaware.

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<PAGE>

5. The name and mailing address of the incorporator is:

Ilona F. Bush
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071

6. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, amend or
repeal the By-laws of the Corporation.

7. Election of directors need not be by written ballot unless the
By-laws of the Corporation shall so provide.

8. No director of this Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of flduclary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit."

Signed on July 26, 1995.

K-TEC HOLDINGS, INC.,
a Delaware corporation

By: /s/ James H. Greene, Jr.
-----------------------------
James H. Greene, Jr.,
President

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<PAGE>

EXHIBIT 3.2

BYLAWS

OF
K-TEC HOLDINGS, INC.
<PAGE>

BYLAWS

K-TEC HOLDINGS, INC.

TABLE OF CONTENTS

Page
----

ARTICLE I - OFFICES ...........................................................1
Section 1. REGISTERED OFFICES ..........................................1
Section 2. OTHER OFFICES ...............................................1

ARTICLE II MEETINGS OF STOCKHOLDERS ...........................................1
Section 1. PLACE OF MEETINGS ...........................................1
Section 2. ANNUAL MEETING OF STOCKHOLDERS ..............................1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF ...............1
Section 4. VOTING ......................................................1
Section 5. PROXIES .....................................................2
Section 6. SPECIAL MEETINGS ............................................2
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS ............................2
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST ..............2
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .....3

ARTICLE II - DIRECTORS ........................................................3
Section 1. THE NUMBER OF DIRECTORS .....................................3
Section 2. VACANCIES ...................................................3
Section 3. POWERS ......................................................4
Section 4. PLACE OF DIRECTORS' MEETINGS ................................4
Section 5. REGULAR MEETINGS ............................................4
Section 6. SPECIAL MEETINGS ............................................4
Section 7. QUORUM ......................................................4
Section 8. ACTION WITHOUT MEETING ......................................4
Section 9. TELEPHONIC MEETINGS .........................................4
Section 10. COMMITTEES OF DIRECTORS .....................................5
Section 11. MINUTES OF COMMITTEE MEETINGS ...............................5
Section 12. COMPENSATION OF DIRECTORS ...................................5

ARTICLE IV - OFFICERS .........................................................5
Section 1. OFFICERS ....................................................5
Section 2. ELECTION OF OFFICERS ........................................6
Section 3. SUBORDINATE OFFICERS ........................................6
Section 4. COMPENSATION OF OFFICERS ....................................6
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES .......................6

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<PAGE>

Page
----

Section 6. CHAIRMAN OF THE BOARD .......................................6
Section 7. PRESIDENT ...................................................6
Section 8. VICE PRESIDENTS .............................................7
Section 9. SECRETARY ...................................................7
Section 10. ASSISTANT SECRETARY .........................................7
Section 11. TREASURER ...................................................7
Section 12. ASSISTANT TREASURER .........................................7

ARTICLE V - INDEMNIFICATION OF DIRECTORS AND OFFICERS .........................8

ARTICLE VI - INDEMNIFICATION OF EMPLOYEES AND AGENTS .........................10

ARTICLE VII - CERTIFICATES OF STOCK ..........................................10
Section 1. CERTIFICATES ...............................................10
Section 2. SIGNATURES ON CERTIFICATES .................................10
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES .........10
Section 4. LOST CERTIFICATES ..........................................11
Section 5. TRANSFERS OF STOCK .........................................11
Section 6. FIXED RECORD DATE ..........................................11
Section 7. REGISTERED STOCKHOLDERS ....................................11

ARTICLE VIII - GENERAL PROVISIONS ............................................12
Section 1. DIVIDENDS ..................................................12
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES ....................12
Section 3. CHECKS .....................................................12
Section 4. FISCAL YEAR ................................................12
Section 5. CORPORATE SEAL .............................................12
Section 6. MANNER OF GIVING NOTICE ....................................12
Section 7. WAIVER OF NOTICE ...........................................12
Section 8. ANNUAL STATEMENT ...........................................13

ARTICLE IX - AMENDMENTS ......................................................13
Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS .....................13

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<PAGE>

BYLAWS

K-TEC HOLDINGS, INC.

ARTICLE I
OFFICES

Section 1. REGISTERED OFFICES. The registered office shall be in the
City of Dover, County of Kent, State of Delaware.

Section 2. OTHER OFFICES. The corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held
at any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.

Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of
stockholders shall be held each year on a date and a time designated by the
Board of Directors. At each annual meeting directors shall be elected and any
other proper business may be transacted.

Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority
of the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat.

Section 4. VOTING. When a quorum is present at any meeting, in all
matters other than the election of directors, the vote of the holders of a
majority of the stock
<PAGE>

having voting power present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of the statutes, or the Certificate of Incorporation, or these
Bylaws, a different vote is required in which case such express provision shall
govern and control the decision of such question. Directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors.

Section 5. PROXIES. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize another
person or persons to act for him by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to said meeting, unless said instrument provides for a longer period. All
proxies must be filed with the Secretary of the corporation at the beginning of
each meeting in order to be counted in any vote at the meeting. Each stockholder
shall have one vote for each share of stock having voting power, registered in
his name on the books of the corporation on the record date set by the Board of
Directors as provided in Article VII, Section 6 hereof.

Section 6. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be called
by the President or the Secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning a
majority in amount of the entire capital stock of the corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.

Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders
are required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which notice shall state the place, date and hour of
the meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.

Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The
officer who has charge of the stock ledger of the corporation shall prepare and
make, at least ten days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.

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<PAGE>

Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise provided in the Certificate of Incorporation, any action
required to be taken at any annual or special meeting of stockholders of the
corporation, or any action which may be taken at any annual or special meeting
of such stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware, its principal place of business, or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent shall bear the date of
signature of each stockholder who signs the consent and no written consent shall
be effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section 9 to the corporation, written consents signed by a sufficient
number of holders to take action are delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be given
to those stockholders who have not consented in writing.

ARTICLE III
DIRECTORS

Section 1. THE NUMBER OF DIRECTORS. The number of directors which
shall constitute the whole Board shall be not less than two (2) nor more than
six (6), the exact number to be determined from time to time by resolution
adopted by the Board of Directors. The first Board shall consist of two (2). The
directors need not be stockholders. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until his successor is elected and
qualified; provided, however, that unless otherwise restricted by the
Certificate of Incorporation or by law, any director or the entire Board of
Directors may be removed, either with or without cause, from the Board of
Directors at any meeting of stockholders by a majority of the stock represented
and entitled to vote thereat.

Section 2. VACANCIES. Vacancies on the Board of Directors by reason
of death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created directorships resulting from any increase in the
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. The
directors so chosen shall hold office until the next annual election of
directors and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are no directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board (as constituted
immediately prior to any such increase), the Court of Chancery

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<PAGE>

may, upon application of any stockholder or stockholders holding at least ten
percent of the total number of the shares at the time outstanding having the
right to vote for such director, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.

Section 3. POWERS. The property and business of the corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these Bylaws expressly conferred upon
them, the Board may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.

Section 4. PLACE OF DIRECTORS' MEETINGS. The directors may hold
their meetings and have one or more offices, and keep the books of the
corporation outside of the State of Delaware.

Section 5. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by the Board.

Section 6. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President on forty-eight hours' notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the President or the Secretary in like manner and on like notice on
the written request of two directors unless the Board consists of only one
director; in which case special meetings shall be called by the President or
Secretary in like manner or on like notice on the written request of the sole
director.

Section 7. QUORUM. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and the vote of a
majority of the directors present at any meeting at which there is a quorum,
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation or by
these Bylaws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present. If only one director is authorized, such sole director shall
constitute a quorum.

Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.

Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, members of the Board of Directors,
or any

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<PAGE>

committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.

Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or disqualification of a member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the corporation, and
may authorize the seal of the corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.

Section 11. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.

Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board of Directors
shall have the authority to fix the compensation of directors. The directors may
be paid their expenses, if any, of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors or a stated salary as director. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.

ARTICLE IV
OFFICERS

Section 1. OFFICERS. The officers of this corporation shall be
chosen by the Board of Directors and shall include a Chairman of the Board of
Directors or a President, or both, and a Secretary. The corporation may also
have at the discretion of the Board of Directors such other officers as are
desired, including a Vice-Chairman of the Board of Directors, a Chief Executive
Officer, a Treasurer, one or more Vice Presidents,

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<PAGE>

one or more Assistant Secretaries and Assistant Treasurers, and such other
officers as may be appointed in accordance with the provisions of Section 3
hereof. In the event there are two or more Vice Presidents, then one or more may
be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these Bylaws otherwise provide.

Section 2. ELECTION OF OFFICERS. The Board of Directors, at its
first meeting after each annual meeting of stockholders, shall choose the
officers of the corporation.

Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint
such other officers and agents as it shall deem necessary who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.

Section 4. COMPENSATION OF OFFICERS. The salaries of all officers
and agents of the corporation shall be fixed by the Board of Directors.

Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of
the corporation shall hold office until their successors are chosen and qualify
in their stead. Any officer elected or appointed by the Board of Directors may
be removed at any time by the affirmative vote of a majority of the Board of
Directors. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.

Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such
an officer be elected, shall, if present, preside at all meetings of the Board
of Directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
these Bylaws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed In Section 7 of this Article IV.

Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio number of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.

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<PAGE>

Section 8. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of and be subject to all the restrictions upon the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.

Section 9. SECRETARY. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes and
the minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep in
safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an Assistant Secretary. The
Board of Directors may give general authority to any other officer to affix the
seal of the corporation and to attest the affixing by his signature.

Section 10. ASSISTANT SECRETARY. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors, or if there be no such determination, the Assistant
Secretary designated by the Board of Directors, shall, in the absence or
disability of the Secretary, perform the duties and exercise the powers of the
Secretary and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.

Section 11. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, as shall
render to the Board of Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as Treasurer and of
the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or wider his control belonging to the corporation.

Section 12. ASSISTANT TREASURER. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors, or if there be no such determination, the Assistant
Treasurer designated by the Board of Directors, shall, in the absence or
disability of the Treasurer, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.

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<PAGE>

ARTICLE V
INDEMNIFICATION OF DIRECTORS AND OFFICERS

(a) The corporation shall indemnify to the maximum extent permitted
by law any person who or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

(b) The corporation shall indemnify to the maximum extent permitted
by law any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director or officer of the corporation, or is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no such indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the Court of Chancery of Delaware or the court in which such action or suit
was brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.

(c) To the extent that a director or officer of the corporation
shall be successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in paragraphs (a) and (b), or in defense of any claim,
issue or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.

(d) Any indemnification under paragraphs (a) and (b) (unless ordered
by a court) shall be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in paragraphs (a) and (b).

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<PAGE>

Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders. The corporation,
acting through its Board of Directors or otherwise, shall cause such
determination to be made if so requested by any person who is indemnifiable
under this Article V.

(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this Article V.

(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.

(g) The Board of Directors may authorize, by a vote of a majority of
a quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Article V.

(h) For the purposes of this Article V, references to "the
corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors or officers so that any
person who is or was a director or officer of such constituent corporation, or
is or was serving at the request of such constituent corporation as a director
or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article V with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.

(1) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director or officer of the corporation which imposes duties on, or involves
services by, such director or officer with respect to an

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<PAGE>

employee benefit plan, its participants or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be deemed
to have acted in a manner "not opposed to the best interests of the corporation"
as referred to in this section.

(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.

(k) The corporation shall be required to indemnify a person in
connection with an action, suit or proceeding (or part thereof) initiated by
such person only if the action, suit or proceeding (or part thereof) was
authorized by the Board of Directors of the corporation.

ARTICLE VI
INDEMNIFICATION OF EMPLOYEES AND AGENTS

The corporation may indemnify every person who was or is a party or
is or was threatened to be made a party to any action, suit, or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was an employee or agent of the corporation or, while an employee
or agent of the corporation, is or was serving at the request of the corporation
as an employee or agent or trustee of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including counsel fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the extent permitted by applicable law.

ARTICLE VII
CERTIFICATES OF STOCK

Section 1. CERTIFICATES. Every holder of stock of the corporation
shall be entitled to have a certificate signed by, or in the name of the
corporation by, the Chairman or Vice Chairman of the Board of Directors, or the
President or a Vice President, and by the Secretary or an Assistant Secretary,
or the Treasurer or an Assistant Treasurer of the corporation, certifying the
number of shares represented by the certificate owned by such stockholder in the
corporation.

Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures
on the certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent, or registrar at the date
of issue.

Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. If
the corporation shall be authorized to issue more than one class of stock or

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<PAGE>

more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualification, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate which the corporation shall issue to represent such
class or series of stock, provided that, except as otherwise provided in section
202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the corporation shall issue to represent such class or series of stock, a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

Section 4. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.

Section 5. TRANSFERS OF STOCK. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.

Section 6. FIXED RECORD DATE. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
the stockholders, or any adjournment thereof, or entitled to receive payment of
any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting. In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date which shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors.

Section 7. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact

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<PAGE>

thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.

ARTICLE VIII
GENERAL PROVISIONS

Section 1. DIVIDENDS. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.

Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment
of any dividend there may be set aside out of any funds of the corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve fund to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.

Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.

Section 4. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

Section 5. CORPORATE SEAL. The corporate seal shall have inscribed
thereon the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.

Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions
of the statutes or of the Certificate of Incorporation or of these Bylaws,
notice is required to be given to any director or stockholder; it shall not be
construed to mean personal notice, but such notice may be given in writing, by
mail, addressed to such director or stockholder, at his address as it appears on
the records of the corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by telegram.

Section 7. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of the statutes or of the Certificate of
Incorporation or of these Bylaws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.

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<PAGE>

Section 8. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and at any special meeting of the stockholders when called
for by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.

ARTICLE IX
AMENDMENTS

Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These Bylaws may
be altered, amended or repealed or new Bylaws may be adopted by the stockholders
or by the Board of Directors, when such power is conferred upon the Board of
Directors by the Certificate of Incorporation, at any regular meeting of the
stockholders or of the Board of Directors or at any special meeting of the
stockholders or of the Board of Directors if notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
special meeting. If the power to adopt, amend or repeal Bylaws is conferred upon
the Board of Directors by the Certificate of Incorporation it shall not divest
or limit the power of the stockholders to adopt, amend or repeal Bylaws.

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<PAGE>

CERTIFICATE OF SECRETARY

I, the undersigned, do hereby certify:

(1) That I am the duly elected and acting Secretary of K-Tec
Holdings, Inc., a Delaware corporation; and

(2) That the foregoing bylaws constitute the bylaws of said
corporation as duly adopted by the written consent of the Incorporator of said
corporation as of June 5, 1995.

IN WITNESS WHEREOF, I have hereunto subscribed my name this 5th day
of June, 1995.

/s/ Alex Navab
-----------------------------------------
Secretary

<PAGE>

RELTEC HOLDINGS, INC.

DEFERRED COMPENSATION PLAN

(Effective August 1, 1995)

Effective August 1, 1995, RELTEC Holdings, Inc., a Delaware corporation
("Holdings"), adopts this Plan for the benefit of certain persons and subject to
the terms and provisions set forth below.

1. A "Key Employee" for the purposes of this Plan is a person who is either
(i) an elected officer of a Company or (ii) an employee of a Company who is
designated as a "Key Employee" for purposes of this Plan by Holdings' Board
of Directors or a duly-constituted Board Committee of Holdings' Board
(hereinafter, either the Board of Directors or such a Committee shall be
referred to as the "Board"). A "Company" for the purposes of this Plan
shall include any subsidiary or affiliate of Holdings which adopts this
Plan with the approval of Holdings.

2. Annually the Board shall determine which Key Employees, if any, shall
receive a deferred compensation award and the amount thereof under this,
Deferred Compensation Plan, as the same may be amended from time to time
(the "Plan"). All such amounts determined for any Key Employee shall be
credited to an account maintained for such Key Employee on the books of the
Company.

<PAGE>

3. In addition to any amounts credited to the accounts of any Key Employees
pursuant to Section 2 above, the Company shall credit to the account of any
employee of the Company (including both Key Employees and employees who are
not Key Employees) an amount equal to the difference, if any, between (a)
the amount contributed by the Company for the employee as a matching
employer contribution or otherwise pursuant to Article 4 of the RELTEC
Corporation Savings and Investment Plan (or comparable plan) (the "S&I
Plan") with respect to any period; and (b) the amount that would have been
contributed by the Company for the employee if the Company's contribution
was determined without regard to any limitations on contributions
specifically required by any provision of the federal laws as set forth in
the S&I Plan. Such amounts shall be credited to the accounts of the
affected employees at such times as Holdings, acting through one of its
officers, shall direct (but not less frequently than annually) and, to the
extent such amounts are credited to the accounts after such amounts would
have been contributed to the S&I Plan in the absence of such limitations,
Holdings, acting through one of its officers, shall direct that additional
interest, as determined by Holdings, be credited to the accounts to
reflect the timing difference. The provisions of this Section 2 shall
generally be effective with respect to amounts contributed to the S&I Plan
for periods commencing on and after August

2
<PAGE>

1, 1995. During the period August 1, 1995 through December 31, 1995,
however, a Company adopting the Plan effective August 1, 1995, shall also
credit to the account of any employee affected by this Section 2, such
amount as the Company would have credited to such employee's account had
both this Deferred Compensation Plan and the S&I Plan been in effect from
January 1, 1995 through July 31, 1995, and such employee's rate of
compensation (as compensation is described under the S&I Plan) been the
same for the period January 1, 1995 through July 31, 1995, as for the
period August 1, 1995 through December 31, 1995.

4. Each account shall be credited on a quarterly basis with interest at a rate
to be determined on whatever basis the Board shall from time to time
specify. Until the Board may otherwise specify, the interest to be
credited to the accounts shall be determined quarterly on the basis of an
annual rate equivalent to the weighted average prime lending rate of Chase
Manhattan Bank, N.A., New York, New York, for the three months ending on
the last day of the quarter upon the average daily balance in each account
during such quarter.

5. A detailed record of the accounts shall be maintained, and promptly after
the end of each calendar year Holdings or its designee shall deliver to
each person for whom an account is

3
<PAGE>

maintained a statement setting forth the amount credited to his account at
the end of the year and the transactions in such account during that
calendar year.

6. The amounts credited to an employee's account shall become distributable to
him at his normal retirement age (as defined in and determined under the
Company's Retirement Plan, as amended) or earlier with the approval of the
Board; provided, however, that except as otherwise provided in the next
sentence, any single distribution or the first in a series of distributions
permitted or required under this Plan shall be made in the month of January
of the year following the year in which the event that requires or permits
such distribution occurs. If, however, normal retirement age is reached
during the month of December in any year, or if the event is an early
retirement which, pursuant to approval of the Board, causes the amount
credited to the employee's account to become subject to distribution in the
month of December of any year, such single distribution or first
distribution in a series of distributions shall be made in the month of
January of the second year thereafter. In the sole and exclusive
discretion of the Board, all amounts credited to an employee's account
shall be distributed to the employee in a single distribution or in a
series of approximately equal

4
<PAGE>

distributions over a period not to exceed 10 years, subject to appropriate
tax withholding.

7. In the event of the death of an employee before commencement or completion
of the distribution of the amount credited to his account, the amount then
credited to his account shall be distributed to the person entitled thereto
under the provisions of any written designation previously filed with the
Board, or, in the absence of any such designation, to the spouse (if
surviving) of the employee, or otherwise to the employee's estate. Such
distribution may take the form of a single distribution or a series of
distributions, as provided for above, as determined by the Board; provided,
however, that if the employee's death occurred after the commencement and
before the completion of a series of distributions and the Board determines
to distribute the remaining account balance in series, the distribution
shall take the form of a continuation of the same series of distributions
originally determined by the Board.

8. In the event of the liquidation of a Company, or the sale of substantially
all its assets, or its merger or consolidation, the Board may make any
alterations in the provisions for distributing the amounts credited to the
accounts which are appropriate and equitable under the circumstances and
which are consistent with the spirit and

5
<PAGE>

purposes of the Plan, with respect to the affected employees.

9. Notwithstanding Section 8 above, in the event of a Change of Control (as
hereinafter defined), Holdings shall notify each employee and each other
person entitled to payments under the Plan as promptly as practicable after
the occurrence of such event, of the person's right to receive, in lieu of
all future amounts payable to him under the Plan, a single lump sum payment
of the amount then credited to his account. The required payment shall be
made to each person no later than thirty (30) days after the occurrence of
such event. For purposes of the Plan, the term "Change of Control" shall
mean:

(i) the acquisition of beneficial ownership totalling thirty percent (30%)
or more of Holdings' shares of common stock;

6
<PAGE>

Directors who were either sitting at the beginning of such twelve (12)
month period or elected to the Board during such twelve (12) month
period with the approval of three-quarters (3/4) of the Directors who
were sitting at the beginning of such twelve (12) month period.

10. In the event the Company shall fail to make any payment provided for in
Section 9 above that is actually due following the occurrence of a Change
of Control, the affected person shall be entitled to receive such payment
due together with interest from the due date of such payment until such
payment is made at a rate equal to the prime rate as publicly announced by
Chase Manhattan Bank, N.A., New York, New York, PLUS seven (7) percentage
points.

11. Nothing in this Plan shall be interpreted to limit or otherwise preclude
any person from enforcing his right to receive any payment provided under
Section 9 above. In the event that the Company shall fail to make any such
payment that is actually due following the occurrence of a Change of
Control, all professional fees reasonably incurred by the affected person
in connection with enforcing his right to receive any such payment
(including, for example, fees of accountants and attorneys) shall be paid
by the Company and, if any such fee payments by the Company generate
taxable

7
<PAGE>

income to such person, the Company shall pay such additional amounts to
such person to make him whole on an after-tax basis.

12. Any notices required under the Plan shall be in writing and effective when
received by the person to whom the notice is sent. Notices to an employee
or the successor-in-interest of a deceased employee shall be addressed to
such person at his then current mailing address on file at the Company.
Notices to the Company shall be addressed to the President of the Company
at the Company's headquarters.

13. In construing any provisions of the Plan, the masculine gender shall
include the feminine or neuter, and the singular number shall include the
plural, and VICE VERSA, as the context may require.

14. All questions of interpretation and application of those provisions shall
be decided by the Board, whose decisions thereon shall be final and binding
on all parties.

15. In the absence of bad faith, neither any member or former member of the
Board or any Company Board, nor any other person administering the Plan
shall have any liability to Holdings, a Company or to any other person,
firm or corporation based on or arising out of the Plan.

8
<PAGE>

16. The right of any person to payments under this Plan shall be that of a
general, unsecured creditor of the Company only, and no person shall have
any legal or equitable interest in, charge against, or lien on any assets
of the Company to secure any such payments.

17. This Plan may at any time be discontinued by the Board in its entirety or
changed in part or in its entirety with respect to a Company by the Board;
provided, however, that no change or discontinuance shall accelerate the
obligation to make payments to any person not otherwise currently entitled
to payments under the Plan, unless otherwise specifically so determined by
the Board, relieve the Company of its obligations to make payments to any
person then entitled to payments under the Plan, or reduce any existing
account balance.

18. Except for amounts payable in respect of a deceased employee, an employee
may not assign his right to receive any amounts under the Plan without the
prior written consent of Holdings.

IN WITNESS WHEREOF, RELTEC HOLDINGS, INC. by its appropriate officers
duly authorized, has executed this document effective as set forth herein.

RELTEC HOLDINGS, INC.

9
<PAGE>

By:___________________________

And:__________________________

APPROVED AND ADOPTED

RELTEC CORPORATION

By:___________________________

And:__________________________

<PAGE>

RELTEC HOLDINGS, INC.

DIRECTORS' DEFERRED COMPENSATION PLAN

(Effective January 1, 1996)

Effective January 1, 1996, RELTEC Holdings, Inc., a Delaware corporation
("Holdings"), adopts this Plan for the benefit of certain persons and subject to
the terms and provisions set forth below.

1. A "Director" for the purposes of this Plan is a person who is a nonemployee
member of the Board of Directors of Holdings. A "Board" for purposes of
this Plan is the Holdings' Board of Directors.

2. "Compensation" for the purposes of this Plan means the total fees payable
to a Director by Holdings during a calendar year for services as a
Director.

3. In order to participate in the Plan, a Director must execute a compensation
deferral agreement to have his Compensation deferred by a specified
percentage for crediting under this Plan. A compensation deferral
agreement shall be filed by a Director with Holdings (or its designee) on a
form prescribed by it and shall be filed at such times as Holdings may
specify, but in all cases prior to the time such Compensation is to be
earned by the Director. For the initial year of the Plan, a Director may
elect to

<PAGE>

participate and defer Compensation earned after the date of such election,
effective as of the first day of any month following the date the Director
files the compensation deferral agreement with Holdings (or its designee).
Except as otherwise provided in the immediately preceding sentence or as
may be agreed upon otherwise between a Director and Holdings, an election
to participate and defer Compensation must be made in the calendar year
preceding the calendar year in which the Compensation to be deferred is to
be earned. A compensation deferral election for the initial year of the
Plan is irrevocable with respect to the Compensation to be deferred for the
remainder of the initial year of the Plan. After the initial year of the
Plan, once a compensation deferral election is made, such election is
irrevocable with respect to the Compensation to be deferred for the
following year. Elections to participate and defer Compensation shall
continue in effect at the percentage rate elected until such election is
revoked or modified by the Director in writing to Holdings (or its
designee), but such change or revocation shall be effective only with
respect to Compensation to be earned in and after the calendar year in
which such change or revocation is made by the Director. Any new or
modified compensation deferral election shall take effect only as to
Compensation to be earned after such new or modified election is filed with
Holdings (or its designee). Holdings shall credit the Compensation that a

2
<PAGE>

Director elects to defer for a calendar year to an account maintained for
such Director on the books of Holdings. Such amounts shall be credited to
the accounts of such Directors at such time as Holdings, acting through one
of its officers, shall direct (but not less frequently than annually).

4. Each account shall be credited on an annual basis with interest at a rate
to be determined on whatever basis the Board shall from time to time
specify. Until the Board may otherwise specify, the interest to be
credited to the accounts shall be determined quarterly on the basis of an
annual rate equivalent to the weighted average prime lending rate of Chase
Manhattan Bank, N.A., New York, New York, for the three months ending on
the last day of the quarter upon the average daily balance in each account
during such quarter.

5. A detailed record of the accounts shall be maintained, and promptly after
the end of each calendar year Holdings (or its designee) shall deliver to
each person for whom an account is maintained a statement setting forth the
amount credited to his account at the end of the year and the transactions
in such account during that calendar year.

3
<PAGE>

6. The amounts credited to a Director's account shall become distributable to
him on the date he ceases to be a Director or earlier with the approval of
the Board; provided, however, that except as otherwise provided in the next
sentence, any single distribution or the first in a series of distributions
permitted or required under this Plan shall be made in the month of January
of the year following the year in which the event that requires or permits
such distribution occurs. If, however, the date a Director ceases to be a
Director occurs in the month of December in any year, or if pursuant to
approval of the Board, the amount credited to the Director's account
becomes subject to distribution in the month of December of any year, such
single distribution or first distribution in a series of distributions
shall be made in the month of January of the second year thereafter. In
the sole and exclusive discretion of the Board, all amounts credited to a
Director's account shall be distributed to the Director in a single
distribution or in a series of approximately equal distributions over a
period not to exceed 10 years, subject to appropriate tax withholding.

7. In the event of the death of a Director before commencement or completion
of the distribution of the amount credited to his account, the amount then
credited to his account shall be distributed to the person entitled thereto
under the

4
<PAGE>

provisions of any written designation previously filed with the Board, or,
in the absence of any such designation, to the spouse (if surviving) of the
Director, or otherwise to the Director's estate. Such distribution may
take the form of a single distribution or a series of distributions, as
provided for above, as determined by the Board; provided, however, that if
the Director's death occurred after the commencement and before the
completion of a series of distributions and the Board determines to
distribute the remaining account balance in series, the distribution shall
take the form of a continuation of the same series of distributions
originally determined by the Board.

8. In the event of the liquidation of Holdings, or the sale of substantially
all its assets, or its merger or consolidation, the Board may make any
alterations in the provisions for distributing the amounts credited to the
accounts which are appropriate and equitable under the circumstances and
which are consistent with the spirit and purposes of the Plan, with respect
to the affected Directors.

9. Notwithstanding Section 8 above, in the event of a Change of Control (as
hereinafter defined), Holdings shall notify each Director and each other
person entitled to payments under the Plan as promptly as practicable after
the occurrence of

5
<PAGE>

such event, of the person's right to receive, in lieu of all future amounts
payable to him under the Plan, a single lump sum payment of the amount then
credited to his account. The required payment shall be made to each person
no later than thirty (30) days after the occurrence of such event. For
purposes of the Plan, the term "Change of Control" shall mean:

(i) the acquisition of beneficial ownership totalling thirty percent (30%)
or more of Holdings' shares of common stock;

(ii) a change in the membership of the Board at any time during any twelve
(12) month period such that, following such change, at least thirty
percent (30%) of the members of the Board were not members of the
Board at the start of such twelve (12) month period but only if the
election of such new members of the Board was not approved by at least
three-quarters (3/4) of the Directors who were either sitting at the
beginning of such twelve (12) month period or elected to the Board
during such twelve (12) month period with the approval of
three-quarters (3/4) of the Directors who were sitting at the
beginning of such twelve (12) month period.

6
<PAGE>

10. In the event Holdings shall fail to make any payment provided for in
Section 9 above that is actually due following the occurrence of a Change
of Control, the affected person shall be entitled to receive such payment
due together with interest from the due date of such payment until such
payment is made at a rate equal to the prime rate as publicly announced by
Chase Manhattan Bank, N.A., New York, New York, plus seven (7) percentage
points.

11. Nothing in this Plan shall be interpreted to limit or otherwise preclude
any person from enforcing his right to receive any payment provided under
Section 9 above. In the event that Holdings shall fail to make any such
payment that is actually due following the occurrence of a Change of
Control, all professional fees reasonably incurred by the affected person
in connection with enforcing his right to receive any such payment
(including, for example, fees of accountants and attorneys) shall be paid
by Holdings and, if any such fee payments by Holdings generate taxable
income to such person, Holdings shall pay such additional amounts to such
person to make him whole on an after-tax basis.

12. Any notices required under the Plan shall be in writing and effective when
received by the person to whom the notice is sent. Notices to a Director
or the successor-in-interest of a deceased Director shall be addressed to
such person at his

7
<PAGE>

then current mailing address on file at Holdings. Notices to Holdings
shall be addressed to the General Counsel and Secretary of Holdings.

13. In construing any provisions of the Plan, the masculine gender shall
include the feminine or neuter, and the singular number shall include the
plural, and vice versa, as the context may require.

14. All questions of interpretation and application of the provisions of the
Plan shall be decided by Holdings, acting through its authorized officer or
officers, whose decisions thereon shall be final and binding on all
parties.

15. In the absence of bad faith, neither any member or former member of the
Board nor any other person administering the Plan shall have any liability
to Holdings, or to any other person, firm or corporation based on or
arising out of the Plan.

16. The right of any person to payments under this Plan shall be that of a
general, unsecured creditor of Holdings only, and no person shall have any
legal or equitable interest in, charge against, or lien on any assets of
Holdings to secure any such payments.

8
<PAGE>

17. This Plan may at any time be discontinued by the Board in its entirety or
changed in part or in its entirety; provided, however, that no change or
discontinuance shall accelerate the obligation to make payments to any
person not otherwise currently entitled to payments under the Plan, unless
otherwise specifically so determined by the Board, relieve Holdings of its
obligations to make payments to any person then entitled to payments under
the Plan, or reduce any existing account balance.

18. Except for amounts payable in respect of a deceased Director, a Director
employee may not assign his right to receive any amounts under the Plan
without the prior written consent of Holdings.

IN WITNESS WHEREOF, RELTEC HOLDINGS, INC. by its appropriate officers
duly authorized, has executed this document effective as set forth herein.

RELTEC HOLDINGS, INC.

By:___________________________

And:__________________________

<PAGE>

RELIANCE COMM/TEC CORPORATION SPECIAL RETIREMENT PROGRAM

FOR ELECTED OFFICERS

(Effective August , 1995)

1. Participants in the Special Retirement Program for Elected Officers (the
"Program") shall be individuals who from time to time have been elected and
served as principal officers of Reliance Comm/Tec Corporation (the
"Company") by the Board of Directors and who participated in the
predecessor plan of the Reliance Electric Company.

2. A principal officer of the Company must have served as such for at least
two years and upon retirement must have had at least ten years of service
with the Company in order to become a Participant in the Program. (Service
hereunder will include service with Reliance Electric Company.) Except as
otherwise provided in Section 3 hereof, the retirement allowance provided
by the Program shall commence effective upon retirement commencement.

3. An individual retiring at or after age 55 and prior to the normal
retirement date shall be eligible to become a Participant provided such is
consented to by the Board of Directors of the Company. In such cases, the
retirement allowance provided by the Program will commence upon the
retirement date if the individual has then attained at least

<PAGE>

age 60, or, if he has not then attained age 60, upon his attainment of that
age. No consent shall be required for eligibility to participate in the
case of an individual retiring at or after the normal retirement date. In
no event shall an individual be eligible to participate in the Program in
the event of retirement prior to attaining age 55.

4. The maximum retirement allowance provided by the Program will be 50% of the
average of the three best years of total compensation (salary plus annual
bonus, whether paid in cash or credited to a deferred account) less pension
attributable to Company contributions under the Company Retirement Plan,
Supplemental Retirement Plan, and under any retirement plan of a prior
employer payable following retirement from the Company, and less 50% of
primary social security benefit. While pension under the Company
Supplemental Retirement Plan based on deferred compensation under the
Company and/or Reliance Deferred Compensation Plan will be deducted from
the retirement allowance provided by the Program, assets distributable as
such deferred compensation will continue to be payable in accordance with
the terms of the Deferred Compensation Plan and will, of course, not be so
deducted.

<PAGE>

(a) The maximum allowance of 50% will be payable to the person holding, on
retirement, the office of Chief Executive Officer irrespective of
years of services in excess of ten on his retirement and the maximum
allowance of 50% will be payable to any other Participant with a total
of fifteen years of service with the Company upon retirement.

(b) For at least ten but less than fifteen years of service on the
retirement of Participants other than the Chief Executive Officer, the
retirement allowance will be reduced by .2777% for each month of
service less than 180 months on retirement.

(c) A joint and survivor or other election made under the Company
Retirement Plan will automatically be applicable to the retirement
allowance provided by the Program with an appropriate actuarial
adjustment (but without any actuarial reduction due to the fact that
the early retirement allowance provided by the Program will begin to
be paid prior to age 65).

5. Group insurance coverage (i.e. life and medical) for the retiring officer
in existence at the time of early retirement will be continued in full
until normal retirement date with the exclusion of any form of salary
continuation

<PAGE>

such as weekly health and accident benefits or long-term disability.

6. Each payment under the Program is subject to the condition that the
Participant has not engaged in competition with the Company at any time
prior to the date of payment.

7. The Company reserves the right to amend or terminate the Program provided
that such amendment or termination shall not apply to Participants in the
Program at the time of such amendment or termination.

8. DEFINITIONS: For purposes of the Program, the following terms shall have
the meanings set forth below:

(a) "Financial Event" shall mean either

(i) the existence, at any point in time after the date of this
Amendment, of a publicly held debt security issued by the Company
which is rated below "B" (or its equivalent) by Standard & Poor's
or any successor organization, or if, and only if, there is not
outstanding any publicly held debt security issued by the Company
which is rated by Standard & Poor's or any successor
organization, a

<PAGE>

material, continuing event of default under any financing
agreement the Company may have with an institutional lender, but
only if such default is not cured or waived as provided in any
such agreement; or

(ii) failure by the Company to make two (2) consecutive payments as
required under the Program,

(b) "Change of Control" shall mean either

(i) the acquisition of beneficial ownership of thirty percent (30%)
of the Company's shares of Class A Common stock by a person or
group of persons under common control unless such acquisition is
approved by the Board; or

<PAGE>

were either sitting at the beginning of such twelve (12) month
period or elected to the Board during such twelve (12) month
period with the approval of three-quarters (3/4) of the Directors
who were sitting at the beginning of such twelve (12) month
period.

(c) "Eligible Retiree" shall mean only those individuals listed in the
attached Exhibit I to this Amendment, or the successor-in-interest of
such individual who is deceased, whose benefits under this Program are
not secured or otherwise guaranteed by a third party at the time a
Change of Control or Financial Event occurs.

9. In the event of either a Change of Control or a Financial Event, the
Company shall notify each Eligible Retiree within thirty (30) days of the
Change of Control or Financial Event, of the occurrence of such event and
of such Eligible Retiree's right to elect to receive, in lieu of all future
amounts payable to him under the Plan, a single lump sum payment of the
actuarial equivalent of such future payments. Such actuarial equivalent
shall be calculated using the following factors and assumptions:

<PAGE>

(a) discount rate based on the interest rate promulgated from time to time
by the Federal Pension Benefit Guaranty Corporation for the purposes
of determining immediate annuities plus a penalty of two and
one-quarter (2-1/4) percentage points;

(b) mortality rate used in actuarial valuations of the Program (as of the
date of this Plan, the 1986 Projected Experience Mortality Table).

Such election may be made by giving notice to the Company no later than one
hundred eighty (180) days after the Eligible Retiree receives notice of his
right to make such election. The Company shall make the required payment to
any Eligible Retiree who elects to receive such a single lump sum payment
no later than thirty (30) days after the Company's receipt of such
election.

10. In the event that the Company shall fail to make any payment provided for
in Section 9 above that is actually due to an Eligible Retiree following
the occurrence of either a Change of Control or a Financial Event, such
Eligible Retiree shall be entitled to receive such payment due together
with interest from the due date of such payment until such payment is made
at a rate equal to the prime rate as

<PAGE>

publicly announced by Citibank, N.A., New York, New York, plus seven (7)
percentage points.

11. In the event that the Company shall fail to make any payment provided for
in Section 9 above that is actually due to an Eligible Retiree following
the occurrence of either a Change of Control or a Financial Event, all
professional fees reasonably incurred by such Eligible Retiree in
connection with enforcing his right to receive any such payment (including,
for example, fees of accountants, actuaries, and attorneys) shall be paid
by the Company and, if any such fee payments by the Company generate
taxable income to such Eligible Retiree the Company shall pay such
additional amounts to the Eligible Retiree to make him whole on an
after-tax basis.

12. Any notices required under the Program shall be in writing and effective
when received by the person to whom the notice is sent. Notices to an
Eligible Retiree shall be addressed to such person at his then current
mailing address on file at the Company. Notices to the Company shall be
addressed to the President of the Company at the Company's headquarters.

<PAGE>

13. In construing any provisions of the Program, the masculine gender shall
include the feminine or neuter, and the singular number shall include the
plural, and vice versa, as the context may require.

<PAGE>

EXHIBIT I TO THE
RELIANCE COMM/TEC CORPORATION
SPECIAL RETIREMENT PROGRAM FOR ELECTED OFFICERS
(Effective August , 1995)

<PAGE>

RELIANCE COMM/TEC CORPORATION

SUPPLEMENTAL RETIREMENT PLAN

FOR KEY EMPLOYEES

(Effective August , 1995)

Effective August , 1995, Reliance Comm/Tec Corporation, a Delaware
corporation (the "Company"), adopts this Plan for the benefit of certain persons
subject to the terms and provisions set forth below.

1. A "Key Employee" for the purposes of this Plan is a person who is either
(i) an elected officer of the Company and who participated in the
predecessor plan of Reliance Electric Company, or (ii) an employee of the
Company or an affiliate of the Company who is designated as a "Key
Employee" for purposes of this Plan by the Company's Board of Directors or
a duly-constituted Board Committee (hereinafter, either the Board of
Directors or such a Committee shall be referred to as the "Board") and who
participated in the predecessor plan of Reliance Electric Company.

2. Any Key Employee who is entitled to a payment or payments from awards under
the Company's Deferred Compensation Plan as the same has been or may be
amended from time to time (the "Deferred Compensation Plan") or the
Reliance Electric Company Deferred Compensation Plan and who upon
termination of his employment with the Company (other than by death), is
entitled to a pension of any kind under the Reliance

<PAGE>

Comm/Tec Corporation Retirement Plan as the same has been or may be amended
from time to time (the "Retirement Plan") shall, subject to all provisions
of this Plan, be entitled to a supplemental pension from the Company as
hereinafter provided.

The supplemental pension payable to or for any Key Employee under
this paragraph 2 of the Plan shall be a monthly payment equal to
one-twelfth of (i) 2% of the average of his deferred compensation awards on
and after December 16, 1963 under the Deferred Compensation Plan and the
Deferred Compensation Plan of Reliance Electric Company during the five
consecutive years falling within the 10 years prior to his retirement which
yield the highest amount, multiplied by the total number of his years of
employment (including fractions thereof) with the Company or an affiliate
of the Company (and Reliance Electric Company) as an office employee not in
excess of 20 years, plus (ii) 3/4 of 1% of such average multiplied by the
total number of such years of employment in excess of 20 years but not in
excess of 35 years; provided, however, that if a Key Employee dies prior to
receiving 120 monthly payments and he is survived by a widow, she shall
receive a supplemental pension equal to one-half (1/2) of that computed
under the foregoing clause hereof until a combined total of 120 monthly
payments have been made to such Key Employee and/or

<PAGE>

to his widow under this Plan or both have died, whichever occurs first. In
no event shall any payments be made under this Section 2 if the Key
Employee dies prior to his termination of employment with the Company which
entitled him to a pension under the Retirement Plan, nor shall any payments
be made under this Section 2 after a Key Employee's death if he is not
survived by a widow.

3. In addition to any supplemental pension payable to any Key Employee
pursuant to any other provisions of the Plan, the Company shall pay to any
employee of the Company or an affiliate of the Company (including both Key
Employees and employees who are not Key Employees) or, as appropriate, to
his spouse, and/or designated beneficiary, and/or estate, on a monthly
basis, the amount, if any, by which the monthly amount which would have
been payable to him under the Retirement Plan, if such amount was
calculated without regard to any limitations on benefits specifically
required by any provisions of the Federal laws as set forth in the
Retirement Plan, exceeds the monthly amount actually payable to him under
the Retirement Plan after giving effect to such provisions. Such amount
shall be paid in the same manner and subject to the same terms and
conditions as are provided in the Retirement Plan and in accordance with
such optional form of payment under the Retirement Plan as the employee may
elect; provided, however, that if the lump sum actuarial

<PAGE>

equivalent (determined using reasonable actuarial assumptions selected by
the Company) does not exceed Twenty-Five Thousand Dollars ($25,000) the
Company may, in its discretion, pay to the employee the full value of his
benefits under this Section 3 in a single lump sum cash payment.

4. In addition to any amounts payable pursuant to any other provision hereof,
the Company shall pay to any Key Employee whose employment with the Company
and all affiliates terminates after the effective date of the Plan, or, as
appropriate, to his spouse, and/or designated beneficiary, and/or estate, a
monthly payment equal to the amount, if any, by which the pension payment
he would have received under the Retirement Plan, if such payment was
calculated on the basis of all of his years of service with the Company and
all affiliates (and Reliance Electric Company) (without regard to any break
in service except as set forth below), exceeds his actual pension payment
under the Retirement Plan; provided, however, that for purposes of this
Plan, years of service with the Company and all affiliates (and Reliance
Electric Company) before a break in service shall not be taken into account
in computing his service if the number of consecutive one-year breaks in
service equals or exceeds the aggregate number of such years of service
before such break. If any amount is to be paid pursuant to the

<PAGE>

provisions of this paragraph 4, it shall be paid in the same manner and
subject to the same terms and conditions (except as expressly set forth
herein) as are provided in said Retirement Plan and in accordance with such
optional form of payment under said Retirement Plan as the Key Employee may
elect.

5. All questions of interpretation and application of the provisions of this
Plan shall be decided by the Board whose decisions thereon shall be final
and binding on all parties. In the absence of bad faith, no officer of the
Company nor any member or former member of the Board nor any other person
administering the provisions of this Plan shall have any liability to the
Company, any employee or his widow, or to any other person, firm or
corporation based on or arising out of payments under or the administration
of this Plan.

6. The right of any person to payments under this Plan shall be that of a
general, unsecured creditor of the Company only, and no person shall have
any legal or equitable interest in, charge against, or lien on any assets
of the Company to secure any such payments.

7. This Plan, or any provision hereof, may at any time be changed or
discontinued by the Board; provided, however, that no change or
discontinuance shall either relieve the Company of its obligations, under
and in accordance with the provisions of this Plan, to make payments to any
person then

<PAGE>

entitled to payments under the Plan or reduce any employee's existing claim
for benefits under the Plan.

8. DEFINITIONS: For purposes of the Plan, the following terms shall have the
meanings set forth below:

(a) "Financial Event" shall mean either

(i) the existence, at any point in time after the effective date of
this Plan, of a publicly held debt security issued by the Company
which is rated below "B" (or its equivalent) by Standard & Poor's
or any successor organization, or if, and only if, there is not
outstanding any publicly held debt security issued by the Company
which is rated by Standard & Poor's or any successor
organization, a material, continuing event of default under any
financing agreement the Company may have with an institutional
lender, but only if such default is not cured or waived as
provided in any such agreement; or

(ii) failure by the Company to make two (2) consecutive payments as
required under the Plan.

(b) "Change of Control" shall mean either

(i) the acquisition of beneficial ownership of thirty percent (30%)
of the Company's shares of common stock by a person or group of
persons under common

<PAGE>

control unless such acquisition is approved by the Board; or

(ii) a change in the membership of the Board at any time during any
twelve (12) month period such that, following such change, at
least thirty percent (30%) of the members of the Board were not
members of the Board at the start of such twelve (12) month
period but only if the election of such new members of the Board
was not approved by at least three-quarters (3/4) of the
Directors who were either sitting at the beginning of such twelve
(12) month period or elected to the Board during such twelve (12)
month period with the approval of three-quarters (3/4) of the
Directors who were sitting at the beginning of such twelve (12)
month period.

(c) "Eligible Retiree" shall mean only those individuals listed in the
attached Exhibit I to this Amendment, or the successor-in-interest of
any such individual who is deceased, whose benefits under this Plan
are not secured or otherwise guaranteed by a third party at the time a
Change of Control or Financial Event occurs,

9. In the event of either a Change of Control or a Financial Event, the
Company shall notify each Eligible Retiree within thirty (30) days of the
Change of Control or Financial

<PAGE>

Event, of the occurrence of such event and of such Eligible Retiree's right
to elect to receive, in lieu of all future amounts payable to him under the
Plan, a single lump sum payment of the actuarial equivalent of such future
payments. Such actuarial equivalent shall be calculated using the
following factors and assumptions:

(b) mortality rate used in actuarial valuations of the Plan (as of the
date of this Plan, the 1986 Projected Experience Mortality Table).

Such election may be made by giving notice to the Company no later than one
hundred eighty (180) days after the Eligible Retiree receives notice of his
right to make such election. The Company shall make the required payment
to any Eligible Retiree who elects to receive such a single lump sum
payment no later than thirty (30) days after the Company's receipt of such
election.

10. In the event that the Company shall fail to make any payment provided for
in Section 9 above that is actually due to an Eligible Retiree the
occurrence of either a Change of Control or a Financial Event, such
Eligible Retiree shall be

<PAGE>

entitled to receive such payment due together with interest from the due
date of such payment until such payment is made at a rate equal to the
prime rate as publicly announced by Citibank, N.A. New York, New York, plus
seven (7) percentage points.

11. In the event that the Company shall fail to make any payment provided for
in Section 9 above that is actually due to an Eligible Retiree following
the occurrence of either a Change of Control or a Financial Event, all
professional fees reasonably incurred by such Eligible Retiree in
connection with enforcing his right to receive any such payment (including,
for example, fees of accountants, actuaries, and attorneys) shall be paid
by the Company and, if any such fee payments by the Company generate
taxable income to such Eligible Retiree, the Company shall pay such
additional amounts to the Eligible Retirees to make him whole on an
after-tax basis.

12. Any notices required under the Plan shall be in writing and effective when
received by the person to whom the notice is sent. Notices to an Eligible
Retiree shall be addressed to such person at his then current mailing
address on file at the Company. Notices to the Company shall be addressed
to the President of the Company at the Company's headquarters.

13. In construing any provisions of the Plan, the masculine gender shall
include the feminine or neuter, and the

<PAGE>

singular number shall include the plural, and vice versa, as the context
may require.

14. Except for amounts payable in respect of a deceased employee, an employee
may not assign his right to receive any amounts under the Plan without the
prior written consent of the Company.

IN WITNESS WHEREOF, RELIANCE COMM/TEC CORPORATION, by its appropriate
officers duly authorized, has executed this document
this _____ day of ____________, 1995.

RELIANCE COMM/TEC CORPORATION

By:___________________________

And:__________________________

<PAGE>

EXHIBIT I TO THE
RELIANCE COMM/TEC CORPORATION
SUPPLEMENTAL RETIREMENT PLAN
FOR KEY EMPLOYEES
(Effective August , 1995)

<PAGE>

EXHIBIT 10.5

AMENDED AND RESTATED
1995 STOCK PURCHASE AND OPTION PLAN
FOR EMPLOYEES OF
RELTEC HOLDINGS, INC. AND SUBSIDIARIES

RELTEC Holdings, Inc. (the "Company") adopted the 1995 Stock Purchase and
Option Plan for Employees of RELTEC Holdings, Inc. and Subsidiaries (the "Plan")
effective August 1, 1995. In connection with the Company's offer to acquire all
of the outstanding capital stock of Rainford Group plc ("Rainford") pursuant to
that certain Recommended Cash Offer dated July 23, 1996 (the "Offer"), the
Company is making Roll-over Options (as defined below) available to individuals
holding options to purchase shares of Rainford in return for the cancellation of
options issued under the Rainford Share Option Schemes (as defined below). The
Company also intends to make Grants (as defined below) to certain employees of
Rainford upon or shortly after the consummation of the acquisition of Rainford.
In order to reflect these transactions and to amend the Plan in certain other
respects, the Company, by action of its Board of Directors, has adopted this
Amended and Restated 1995 Stock Purchase and Option Plan for Employees of RELTEC
Holdings, Inc. and Subsidiaries, effective as of July 18, 1996.

1. PURPOSE OF PLAN

The Amended and Restated 1995 Stock Purchase and Option Plan for Employees
of RELTEC Holdings, Inc. and Subsidiaries (the "Plan") is designed:

(a) to promote the long term financial interests and growth of RELTEC
Holdings, Inc. (the "Company") and its Subsidiaries by attracting and retaining
management and personnel with the training, experience and ability to enable
them to make a substantial contribution to the success of the Company's
business;

(b) to motivate personnel by means of growth-related incentives to achieve
long range goals; and

(c) to further the identity of interests of participants with those of the
stockholders of the Company through opportunities for stock or stock-based
ownership in the Company.

2. DEFINITIONS

As used in the Plan, the following words shall have the following meanings:

(a) "Board of Directors" means the Board of Directors of the Company.

(b) "Committee" means the Compensation Committee of the Board of
Directors.

(c) "Common Stock" or "Share" means common stock of the Company which may
be authorized but unissued, or issued and reacquired.

<PAGE>

(d) "Employee" means a person, including an officer, in the regular full-
time employment of the Company or one of its Subsidiaries.

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

(f) "Fair Market Value" means such value of a Share as reported for stock
exchange transactions and/or determined in accordance with any applicable
resolutions or regulations of the Committee in effect at the relevant time.

(g) "Grant" means an award of Purchase Stock or a Non-Qualified Stock
Option made to a Participant pursuant to the Plan and described in Paragraph 5,
including any combination of the foregoing.

(h) "Grant Agreement" means an agreement between the Company and a
Participant that sets forth the terms, conditions and limitations applicable to
a Grant.

(i) "Participant" means an Employee, or other person having a unique
relationship with the Company or one of its Subsidiaries, to whom one or more
Grants have been made and such Grants have not all been forfeited or terminated
under the Plan; provided, however, except with respect to Roll-over Options, no
non-employee directors of the Company or any of its Subsidiaries may be
Participants.

(j) "Rainford" means Rainford Group plc.

(k) "Rainford Options" means the applicable options granted under the
Rainford Share Option Schemes.

(l) "Rainford Share Option Schemes" means the Rainford Group Holdings 1992
Executive Share Option Scheme, the Rainford Group Holdings 1994 Unapproved
Executive Share Option Scheme, the Rainford Group plc Executive Share Option
Scheme, and the Rainford Group plc Savings-Related Share Option Scheme.

(m) "Roll-over Options" means the Non-Qualified Stock Options granted to
individuals who held options under the Rainford Share Option Schemes and who
elected, in connection with the Company's Offer to acquire all of the
outstanding capital stock of Rainford, to receive Non-Qualified Stock Options in
return for the cancellation of some or all of such Rainford Options.

(n) "Stock-Based Grants" means the collective reference to the grant of
Non-Qualified Stock Options and Purchase Stock.

(o) "Stock Options" means the "Non-Qualified Stock Options" described in
Paragraph 5.

2
<PAGE>

(p) "Subsidiary" means any corporation other than the Company in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns 50% or
more of the voting stock in one of the other corporations in such chain.

3. ADMINISTRATION OF PLAN

(a) The Plan shall be administered by the Committee. None of the members
of the Committee shall be eligible to be selected for Grants under the Plan, or
have been so eligible for selection within one year prior thereto; provided,
however, that the members of the Committee shall qualify to administer the Plan
for purposes of Rule 16b-3 (and any other applicable rule) promulgated under
Section 16(b) of the Exchange Act to the extent that the Company is subject to
such rule. The Committee may adopt its own rules of procedure, and the action
of a majority of the Committee, taken at a meeting or taken without a meeting by
a writing signed by such majority, shall constitute action by the Committee.
The Committee shall have the power, authority and discretion to administer,
construe and interpret the Plan and Grant Agreements, to make rules for carrying
out the Plan and to make changes in such rules. Any such interpretations,
rules, and administration shall be consistent with the basic purposes of the
Plan.

(b) The Committee may delegate to the Chief Executive Officer and to other
senior officers of the Company its duties under the Plan subject to such
conditions and limitations as the Committee shall prescribe except that only the
Committee may designate and make Grants to Participants who are subject to
Section 16 of the Exchange Act.

(c) The Committee may employ attorneys, consultants, accountants,
appraisers, brokers or other persons. The Committee, the Company, and the
officers and directors of the Company shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Grants, and all members of the Committee shall be fully protected by the
Company with respect to any such action, determination or interpretation.

4. ELIGIBILITY

The Committee may from time to time make Grants under the Plan to such
Employees, or other persons having a unique relationship with the Company or any
of its Subsidiaries, and in such form and having such terms, conditions and
limitations as the Committee may determine. No Grants (other than Roll-over
Options) may be made under this Plan to non-employee directors of the Company or
any of its Subsidiaries. Grants may be granted singly, in combination or in
tandem. The terms, conditions and limitations of each Grant under the Plan
shall be set forth in a Grant Agreement, in a form approved by the Committee,
consistent, however, with the terms of the Plan; provided, however, such Grant
Agreement shall contain

3
<PAGE>

provisions dealing with the treatment of Grants in the event of the termination,
death or disability of the Participant, and may also include provisions
concerning the treatment of Grants in the event of a change of control of the
Company.

5. GRANTS

From time to time, the Committee will determine the forms and amounts of
Grants for Participants. Such Grants may take the following forms in the
Committee's sole discretion:

(a) NON-QUALIFIED STOCK OPTIONS - These are options to purchase
Common Stock which are not "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended. At the time of
grant, the Committee shall determine, and shall have contained in the Grant
Agreement or other Plan rules, the option exercise period, the option exercise
price, and such other conditions or restrictions on the grant or exercise of the
Stock Option as the Committee deems appropriate, which may include the
requirement that the grant of Stock Options is predicated on the acquisition of
Purchase Stock under Paragraph 5(b) by the Participant. In addition to other
restrictions contained in the Plan and Grant Agreement, Stock Options granted
under this Paragraph 5(a), (i) may not be exercised more than 10 years after the
date of grant and (ii) except for Roll-over Options, may not have an option
exercise price less than 50% of the Fair Market Value of Common Stock on the
date the option is granted. Payment of the option exercise price shall be made
in cash or in shares of Common Stock, or a combination thereof, in accordance
with the terms of the Plan, the Grant Agreement and any applicable guidelines of
the Committee in effect at the time.

(b) PURCHASE STOCK - Purchase Stock is Common Stock with restrictions
or conditions on the Participant's right to transfer or sell such stock, offered
to a Participant at such price as determined by the Committee, the acquisition
of which will make him eligible to receive Stock Options under the Plan;
provided, however, that the price of such Purchase Shares may not be less than
50% of the Fair Market Value of the Common Stock on the date such shares of
Purchase Stock are offered.

6. LIMITATIONS AND CONDITIONS

(a) The number of Shares available for Grants under this Plan shall be
5,000,000 shares of the authorized Common Stock as of July 18, 1996. The number
of Shares subject to Grants under this Plan to any one Participant shall not be
more than one million shares. Unless restricted by applicable law, Shares
related to Grants that are forfeited, terminated, cancelled or expire
unexercised, shall immediately become available for Grants.

(b) No Grants shall be made under the Plan beyond ten years after the
effective date of the Plan, but the terms of Grants made on or before the
expiration thereof may extend beyond such expiration. At the time a Grant is
made or amended or the terms or conditions of a Grant are changed, the Committee
may provide for limitations or conditions on such Grant.

4
<PAGE>

(c) Nothing contained herein shall affect the right of the Company or any
Subsidiary to terminate any Participant's employment at any time or for any
reason.

(d) Deferrals of Grant payouts may be provided for, at the sole discretion
of the Committee, in the Grant Agreements.

(e) Except as otherwise prescribed by the Committee, the amounts of the
Grants for any employee of a Subsidiary, along with interest, dividends, and
other expenses accrued on deferred Grants shall be charged to the Participant's
employer during the period for which the Grant is made. If the Participant is
employed by more than one Subsidiary or by both the Company and a Subsidiary
during the period for which the Grant is made, the Participant's Grant and
related expenses will be allocated between the companies employing the
Participant in a manner prescribed by the Committee.

(f) Other than as specifically provided by will or by the applicable laws
of descent and distribution, no benefit under the Plan shall be subject in any
manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to do so shall be void. No such benefit
shall, prior to receipt thereof by the Participant, be in any manner liable for
or subject to the debts, contracts, liabilities, engagements, or torts of the
Participant.

(g) Participants shall not be, and shall not have any of the rights or
privileges of, stockholders of the Company in respect of any Shares purchasable
or otherwise acquired in connection with any Grant unless and until certificates
representing any such Shares have been issued by the Company to such
Participants.

(h) No election as to benefits or exercise of Stock Options or other
rights may be made during a Participant's lifetime by anyone other than the
Participant except by a legal representative appointed for or by the
Participant.

(i) Absent express provisions to the contrary, no Grant under this Plan
shall be deemed compensation for purposes of computing benefits or contributions
under any retirement plan of the Company or its Subsidiaries and shall not
affect any benefits under any other benefit plan of any kind or subsequently in
effect under which the availability or amount of benefits is related to level of
compensation. This Plan is not a "Pension Plan" or "Welfare Plan" under the
Employee Retirement Income Security Act of 1974, as amended.

(j) Unless the Committee determines otherwise, no benefit or promise under
the Plan shall be secured by any specific assets of the Company or any of its
Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries be
designated as attributable or allocated to the satisfaction of the Company's
obligations under the Plan.

7. TRANSFERS AND LEAVES OF ABSENCE

5
<PAGE>

For purposes of the Plan, unless the Committee determines otherwise: (a) a
transfer of a Participant's employment without an intervening period of
separation among the Company and any Subsidiary shall not be deemed a
termination of employment, and (b) a Participant who is granted in writing a
leave of absence shall be deemed to have remained in the employ of the Company
or a Subsidiary during such leave of absence.

8. ADJUSTMENTS

In the event of any change in the outstanding Common Stock (including an
exchange for cash) by reason of a stock split, spin-off, stock dividend, stock
combination or reclassification, recapitalization, reorganization,
consolidation, merger, change of control, or similar event, the Committee may
adjust appropriately the number and kind of Shares subject to the Plan and
available for or covered by Grants and Share prices related to outstanding
Grants, the financial or other "targets" specified in each Grant Agreement for
determining the exercisability of Stock Options, and make such other revisions
to outstanding Grants as it deems are equitably required.

9. MERGER, CONSOLIDATION, EXCHANGE,
ACQUISITION, DISTRIBUTION, LIQUIDATION OR DISSOLUTION

In its absolute discretion, and on such terms and conditions as it deems
appropriate, coincident with or after the grant of any Stock Option, the
Committee may provide that such Stock Option cannot be exercised after the
consummation of the merger or consolidation of the Company into another
corporation, the exchange of all or substantially all of the assets of the
Company for the securities of another corporation, the acquisition by another
corporation of 80% or more of the Company's then outstanding shares of voting
stock or the recapitalization, reclassification, liquidation or dissolution of
the Company, or other adjustment or event which results in shares of Common
Stock being exchanged for or converted into cash, securities or other property,
and if the Committee so provides, it shall, on such terms and conditions as it
deems appropriate in its absolute discretion, also provide, either by the terms
of such Stock Option or by a resolution adopted prior to the consummation of
such merger, consolidation, exchange, acquisition, recapitalization,
reclassification, liquidation or dissolution, that, for some period of time
prior to such upon the consummation of such transaction or event, such Stock
Option shall be exercisable as to all shares subject thereto, notwithstanding
anything to the contrary herein (but subject to the provisions of Paragraph
6(b)) and that, upon the consummation of such event, such Stock Option shall
terminate and be of no further force or effect; provided, however, that the
Committee may also provide, in its absolute discretion, that even if the Stock
Option shall remain exercisable after any such event, from and after such event,
any such Stock Option shall be exercisable only for the kind and amount of cash,
securities and/or other property, or the cash equivalent thereof (net of any
applicable exercise price), receivable as a result of such event by the holder
of a number of shares of stock for which such Stock Option could have been
exercised immediately prior to such event.

In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's

6
<PAGE>

Common Stock, the Committee may in its discretion make an appropriate and
equitable adjustment to any Stock Option exercise price to reflect such
diminution.

10. AMENDMENT AND TERMINATION

The Committee shall have the authority to make such amendments to any terms
and conditions applicable to outstanding Grants as are consistent with this Plan
provided that, except for adjustments under Paragraph 8 or 9 hereof, no such
action shall modify such Grant in a manner adverse to the Participant without
the Participant's consent except as such modification is provided for or
contemplated in the terms of the Grant. The Board of Directors may amend,
suspend or terminate the Plan.

11. FOREIGN GRANTS AND RIGHTS

The Committee may make Grants to individuals who are subject to the laws of
nations other than the United States, which Grants may have terms and conditions
that differ from the terms provided elsewhere in the Plan for the purpose of
complying with foreign laws.

12. WITHHOLDING TAXES

The Company shall have the right to deduct from any cash payment made under
the Plan any federal, state or local income or other taxes required by law to be
withheld with respect to such payment. It shall be a condition to the
obligation of the Company to deliver Shares upon the exercise of a Stock Option
or upon delivery of any Purchase Stock that the Participant pay to the Company
such amount as may be requested by the Company for the purpose of satisfying any
liability for such withholding taxes. Any Grant Agreement may provide that the
Participant may elect, in accordance with any conditions set forth in such Grant
Agreement, to pay a portion or all of such withholding taxes in shares of Common
Stock.

13. EFFECTIVE DATE AND TERMINATION DATES

The Plan shall be effective on and as of August 1, 1995 and the Amended and
Restated Plan shall be effective as of July 18, 1996 and shall terminate on
August 1, 2005, subject to earlier termination by the Board of Directors
pursuant to Paragraph 10.

* * * * * * * * * *

<PAGE>

EXHIBIT 10.7

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

AMENDED AND RESTATED CREDIT AGREEMENT

among

RELTEC HOLDINGS, INC.,

RELTEC (UK) LIMITED,

VARIOUS LENDING INSTITUTIONS

and

THE CHASE MANHATTAN BANK

AGENT
____________________________________

Dated as of September 20, 1996
____________________________________

$450,000,000

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

<PAGE>

TABLE OF CONTENTS

Page
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SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . 1
1.01 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . 5
1.03 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . 6
1.04 Notes; Register . . . . . . . . . . . . . . . . . . . . . . . . 7
1.05 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.06 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . 8
1.07 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.08 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . . 10
1.09 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . 11
1.10 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.11 Change of Lending Office. . . . . . . . . . . . . . . . . . . . 15
1.12 Replacement of Banks. . . . . . . . . . . . . . . . . . . . . . 15

SECTION 2. Letters of Credit. . . . . . . . . . . . . . . . . . . . . . . 16
2.01 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 16
2.02 Existing Letters of Credit. . . . . . . . . . . . . . . . . . . 17
2.03 Letter of Credit Requests; Notices of Issuance. . . . . . . . . 17
2.04 Agreement to Repay Letter of Credit Drawings. . . . . . . . . . 17
2.05 Letter of Credit Participations . . . . . . . . . . . . . . . . 18
2.06 Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . 20

SECTION 3. Fees; Commitments. . . . . . . . . . . . . . . . . . . . . . . 21
3.01 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.02 Additional Charges. . . . . . . . . . . . . . . . . . . . . . . 22
3.03 Voluntary Reduction of Commitments. . . . . . . . . . . . . . . 22
3.04 Mandatory Adjustments of Commitments, etc.. . . . . . . . . . . 22

SECTION 4. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . 24
4.02 Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . 25
4.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . 26
4.04 Net Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 27

SECTION 5. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . 30
5.01 Conditions Precedent to Restatement Effective Date. . . . . . . 30
5.02 Conditions Precedent to All Credit Events . . . . . . . . . . . 34

SECTION 6. Representations, Warranties and Agreements . . . . . . . . . . 34

(i)

<PAGE>

Page
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6.01 Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . 34
6.02 Corporate Power and Authority . . . . . . . . . . . . . . . . . 34
6.03 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.04 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.05 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . 35
6.06 Governmental Approvals. . . . . . . . . . . . . . . . . . . . . 36
6.07 True and Complete Disclosure. . . . . . . . . . . . . . . . . . 36
6.08 Financial Condition; Financial Statements . . . . . . . . . . . 36
6.09 Security Interests. . . . . . . . . . . . . . . . . . . . . . . 37
6.10 Representations and Warranties in Transaction Documents . . . . 37
6.11 Tax Returns and Payments. . . . . . . . . . . . . . . . . . . . 38
6.12 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . 38
6.13 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.14 Intellectual Property, etc. . . . . . . . . . . . . . . . . . . 39
6.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 39
6.16 Labor Relations; Collective Bargaining Agreements . . . . . . . 40
6.17 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.18 Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . 41

SECTION 7. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . 41
7.01 Reporting Requirements. . . . . . . . . . . . . . . . . . . . . 41
7.02 Books, Records and Inspections. . . . . . . . . . . . . . . . . 45
7.03 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.04 Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . 45
7.05 Corporate Franchises. . . . . . . . . . . . . . . . . . . . . . 45
7.06 Compliance with Statutes, etc.. . . . . . . . . . . . . . . . . 46
7.07 Good Repair . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.08 Compliance with Environmental Laws. . . . . . . . . . . . . . . 46
7.09 End of Fiscal Years; Fiscal Quarters. . . . . . . . . . . . . . 47

SECTION 8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . 47
8.01 Changes in Business . . . . . . . . . . . . . . . . . . . . . . 47
8.02 Consolidation, Merger or Sale of Assets, etc. . . . . . . . . . 47
8.03 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.04 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.05 Advances, Investments and Loans . . . . . . . . . . . . . . . . 54
8.06 Capital Expenditures. . . . . . . . . . . . . . . . . . . . . . 54
8.07 Creation of Subsidiaries. . . . . . . . . . . . . . . . . . . . 54
8.08 Prepayments of Indebtedness, Modifications of Agreements, etc.. 54
8.09 Dividends, etc. . . . . . . . . . . . . . . . . . . . . . . . . 55
8.10 Transactions with Affiliates. . . . . . . . . . . . . . . . . . 56
8.11 Leverage Ratio. . . . . . . . . . . . . . . . . . . . . . . . . 57
8.12 Interest Coverage . . . . . . . . . . . . . . . . . . . . . . . 57

(ii)

<PAGE>

Page
----

SECTION 9. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 57
9.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.02 Representations, etc. . . . . . . . . . . . . . . . . . . . . . 57
9.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.04 Default Under Other Agreements. . . . . . . . . . . . . . . . . 58
9.05 Bankruptcy, etc.. . . . . . . . . . . . . . . . . . . . . . . . 58
9.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.07 Pledge Agreement. . . . . . . . . . . . . . . . . . . . . . . . 59
9.08 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.09 Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.10 Change of Control . . . . . . . . . . . . . . . . . . . . . . . 60

SECTION 10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 60

SECTION 11. The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.01 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . 88
11.03 Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . 88
11.04 Reliance by Agent. . . . . . . . . . . . . . . . . . . . . . . 89
11.05 Notice of Default. . . . . . . . . . . . . . . . . . . . . . . 89
11.06 Non-Reliance . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.07 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . 90
11.08 The Agent in Individual Capacity . . . . . . . . . . . . . . . 90
11.09 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . 90

SECTION 12. Company Guaranty. . . . . . . . . . . . . . . . . . . . . . . 91
12.01 The Company Guaranty . . . . . . . . . . . . . . . . . . . . . 91
12.02 Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . 91
12.03 Nature of Liability. . . . . . . . . . . . . . . . . . . . . . 91
12.04 Independent Obligation . . . . . . . . . . . . . . . . . . . . 91
12.05 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . 92
12.06 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
12.07 Subordination. . . . . . . . . . . . . . . . . . . . . . . . . 93
12.08 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
12.09 Enforcement. . . . . . . . . . . . . . . . . . . . . . . . . . 94

SECTION 13. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 94
13.01 Payment of Expenses, etc.. . . . . . . . . . . . . . . . . . . 94
13.02 Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . 95
13.03 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
13.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . 96
13.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . 98
13.06 Payments Pro Rata. . . . . . . . . . . . . . . . . . . . . . . 98
13.07 Calculations; Computations . . . . . . . . . . . . . . . . . . 99

(iii)

<PAGE>

Page
----

13.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of
Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 100
13.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 101
13.10 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . 101
13.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . 101
13.12 Amendment or Waiver. . . . . . . . . . . . . . . . . . . . . . 101
13.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
13.14 Domicile of Loans. . . . . . . . . . . . . . . . . . . . . . . 102
13.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 102
13.16 Judgment Currency. . . . . . . . . . . . . . . . . . . . . . . 102
13.17 Bank Register. . . . . . . . . . . . . . . . . . . . . . . . . 103

ANNEX I -- Commitments
ANNEX II -- Bank Addresses
ANNEX III -- Existing Letters of Credit
ANNEX IV -- Litigation
ANNEX V -- Tax Matters
ANNEX VI -- Subsidiaries
ANNEX VII -- Existing Indebtedness
ANNEX VIII -- Existing Liens

EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B-1 -- Form of DRF Note
EXHIBIT B-2 -- Form of MCRF Note
EXHIBIT B-3 -- Form of Swingline Note
EXHIBIT C-1 -- Form of Opinion of Latham & Watkins
Special Counsel to the Borrower
EXHIBIT C-2 -- Form of Opinion of General Counsel to
RELTEC Holdings, Inc.
EXHIBIT C-3 -- Form of Opinion of Clifford Chance,
Special UK Counsel to
RELTEC (UK) Limited
EXHIBIT C-4 -- Form of Opinion of White & Case,
Special Counsel to the Banks
EXHIBIT D -- Form of Officers' Certificate
EXHIBIT E-1 -- Form of Company Pledge Agreement
EXHIBIT E-2 -- Form of UK Pledge Agreement
EXHIBIT E-3 -- Form of Subsidiary Pledge Agreement
EXHIBIT F -- Form of Subsidiaries Guaranty
EXHIBIT G -- Form of Solvency Certificate
EXHIBIT H -- Form of Consent Letter

(iv)

<PAGE>

Page
----

EXHIBIT I -- Form of Assignment Agreement

(v)

<PAGE>

AMENDMENT AND RESTATEMENT dated as of September 20, 1996, to CREDIT
AGREEMENT dated as of July 31, 1995, among RELTEC HOLDINGS, INC., a Delaware
corporation, RELTEC (UK) LIMITED, a United Kingdom corporation, the lending
institutions listed from time to time on Annex I hereto (each a "Bank" and,
collectively, the "Banks") and THE CHASE MANHATTAN BANK, as Agent. Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 10 are used herein as so defined.

W I T N E S S E T H :
- - - - - - - - - -

WHEREAS, the Company and certain financial institutions are parties to
a Credit Agreement, dated as of July 31, 1995 (as the same has been amended,
modified or supplemented prior to the date hereof, the "Original Credit
Agreement"); and

WHEREAS, the parties hereto wish to amend and restate the Original
Credit Agreement as herein provided;

NOW, THEREFORE, the parties hereto agree that the Original Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows, provided if the Restatement Effective Date has not occurred on or prior
to October 31, 1996 this amendment and restatement shall be void and of no
further effect, with the Original Credit Agreement to remain in effect;

NOW, THEREFORE, IT IS AGREED:

SECTION 1. AMOUNT AND TERMS OF CREDIT.

1.011 COMMITMENTS. (A) Subject to and upon the terms and conditions
herein set forth, each Bank severally agrees to make the loan or loans (together
with Swingline Loans described in (B) below, each a "Loan" and, collectively,
the "Loans") to the Borrowers as described below, which Loans shall be drawn, to
the extent such Bank has a commitment under such Facility, under the DRF
Facility or the MCRF Facility, as set forth below:

(a) Loans under the DRF Facility (each a "DRF Loan" and, collectively,
the "DRF Loans"): (i) shall be made at any time and from time to time on
and after the Restatement Effective Date and prior to the Maturity Date;
(ii) shall be made to the Company; (iii) shall be made and maintained in
Dollars; (iv) except as hereinafter

<PAGE>

provided, may, at the option of the Company, be incurred and maintained as,
and/or converted from or into, Base Rate Loans or Euro Rate Loans, PROVIDED
that all DRF Loans made as part of the same Borrowing shall, unless
otherwise specifically provided herein, consist of DRF Loans of the same
Type; (v) may be repaid and reborrowed in accordance with the provisions
hereof; and (vi) shall not exceed for any Bank at the time of the making of
any such DRF Loan, and after giving effect thereto, that aggregate
principal amount which, when added to the sum of (I) the aggregate
principal amount of all other DRF Loans then outstanding from such Bank and
(II) the product of (A) such Bank's DRF Percentage and (B) the sum of (1)
the aggregate principal amount of all Dollar Swingline Loans then
outstanding and (2) the aggregate amount of all Letter of Credit
Outstandings at such time, equals the DRF Commitment of such Bank at such
time.

(b) Loans under the MCRF Facility (each an "MCRF Loan" and,
collectively, the "MCRF Loans"): (i) shall be made at any time and from
time to time on and after the Restatement Effective Date and prior to the
Maturity Date; (ii) shall be made to the Company and/or the UK Borrower;
(iii) may be made and maintained in Dollars, Pounds Sterling, Deutsche
Marks and/or Yen, as requested by the applicable Borrower; (iv) except as
hereinafter provided, will be made and maintained as Euro Rate Loans,
PROVIDED that (x) MCRF Loans denominated in Dollars and Pounds Sterling
may, at the option of the respective Borrower be incurred and maintained
as, and/or converted from or into Base Rate Loans and (y) all MCRF Loans
made as part of the same Borrowing shall, unless otherwise specifically
provided herein, consist of MCRF Loans of the same Type; (v) may be repaid
and reborrowed in accordance with the provisions hereof; and (vi) shall not
exceed for any Bank at the time of the making of any such MCRF Loan, and
after giving effect thereto, that aggregate Principal Amount which, when
added to the sum of (I) the aggregate Principal Amount of all other MCRF
Loans then outstanding from such Bank and (II) the product of (A) such
Bank's MCRF Percentage and (B) the aggregate Principal Amount of all
Sterling Swingline Loans then outstanding, equals the MCRF Commitment of
such Bank at such time.

(B) Subject to and upon the terms and conditions herein set forth,
the Swingline Lender severally agrees, at any time and from time to time on and
after the Restatement Effective Date and prior to the Swingline Maturity Date,
to make a loan or loans (each a "Swingline Loan" and, collectively, the
"Swingline Loans") to the Company and/or the UK Borrower, which Swingline Loans:

(i) shall (a) if made to the UK Borrower, be made in Pounds
Sterling (each a "Sterling Swingline Loan" and, collectively, the "Sterling
Swingline Loans") or (b) if made to the Company, be made in Dollars (each a
"Dollar Swingline Loan" and, collectively, the "Dollar Swingline Loans");

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(ii) shall be Base Rate Loans;

(iii) shall have the benefit of the provisions of Section 1.01(C);

(iv) shall not at any time exceed in aggregate Principal Amount the
Swingline Commitment at such time;

(v) if made as a Dollar Swingline Loan, shall not exceed in
aggregate Principal Amount at the time of the making of such Swingline
Loan, and after giving effect thereto, when added to the sum of (I) the
aggregate Principal Amount of all other Dollar Swingline Loans outstanding
at such time, (II) the aggregate Principal Amount of all DRF Loans
outstanding at such time and (III) the Letter of Credit Outstandings at
such time, the Total DRF Commitment then in effect;

(vi) if made as a Sterling Swingline Loan, shall not exceed in
aggregate Principal Amount at the time of the making of such Swingline
Loan, and after giving effect thereto, when added to the sum of (I) the
aggregate Principal Amount of all other Sterling Swingline Loans
outstanding at such time and (II) the aggregate Principal Amount of all
MCRF Loans outstanding at such time, the Total MCRF Commitment then in
effect; and

(vii) may be repaid and reborrowed in accordance with the provisions
hereof.

On (x) the Swingline Maturity Date, all Swingline Loans shall be repaid in full
and (y) the last Business Day of each calendar quarter, all Swingline Loans
shall be repaid in full and may not be reborrowed until the next succeeding
Business Day, PROVIDED that repayment of the Swingline Loans pursuant to this
clause (y) shall not be required on any such last Business Day to the extent
that (1) all Swingline Loans have been repaid in full at any time during such
calendar quarter or (2) the Swingline Lender has notified the Company that it
has waived such payment. The Swingline Lender will not make a Swingline Loan
after it has received a written notice (not subsequently withdrawn) from the
Required Banks that one or more of the applicable conditions to Credit Events
specified in Section 5 are not then satisfied. In addition, the Swingline
Lender shall not be required to make a Swingline Loan while a Bank Default
exists unless the Swingline Lender has entered into arrangements satisfactory to
it and the Company to eliminate the Swingline Lender's risk with respect to the
participation in Mandatory Borrowings by the Defaulting Bank or Banks, including
by cash collateralizing same.

(C) On any Business Day, the Swingline Lender may, in its sole
discretion, give notice to the Agent that all then outstanding Swingline Loans
shall be funded with a Borrowing of DRF Loans (to the extent constituting Dollar
Swingline Loans) and/or a Borrowing of MCRF Loans denominated in Pounds Sterling
(to the extent constituting Sterling Swingline Loans) (PROVIDED that such notice
shall be deemed to have been automatically given

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by the Swingline Lender upon the occurrence of an Event of Default under Section
9.05), in which case a Borrowing of DRF Loans and/or a Borrowing of MCRF Loans
(each such Borrowing, a "Mandatory Borrowing"), in each case constituting Base
Rate Loans, shall be made on the immediately succeeding Business Day by all
Banks with DRF Commitments or MCRF Commitments, as the case may be, PRO RATA
based on said DRF Commitments or MCRF Commitments, as the case may be, and the
proceeds thereof shall be applied directly to repay the Swingline Lender for all
outstanding Swingline Loans. Each Bank hereby irrevocably agrees to make such
DRF Loans and/or MCRF Loans upon one Business Day's notice pursuant to each
Mandatory Borrowing in the amount and in the manner specified in the preceding
sentence and on the date specified in writing by the Swingline Lender
notwithstanding:

(i) whether any conditions specified in Section 5 are then
satisfied;

(ii) whether a Default or an Event of Default has occurred and is
continuing;

(iii) the date of such Mandatory Borrowing;

(iv) the aggregate Principal Amount of all DRF Loans and/or MCRF
Loans then outstanding; and

(v) the amount of the Total DRF Commitment, the Total MCRF
Commitment and/or the Total Commitment at such time.

In the event that any Mandatory Borrowing cannot for any reason be made on the
date otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code in respect of the
Company), each Bank with a DRF Commitment and a MCRF Commitment (other than the
Swingline Lender) hereby agrees that it shall forthwith purchase from the
Swingline Lender (without recourse or warranty) such assignment of its
outstanding Swingline Loans as shall be necessary to cause each such Bank to
share in such Swingline Loans ratably based upon its DRF Commitment and MCRF
Commitments, as the case may be, PROVIDED that all interest payable on such
Swingline Loans shall be for the account of the Swingline Lender until the date
the respective assignment is purchased and, to the extent attributable to the
purchased assignment, shall be payable to the Bank purchasing same from and
after such date of purchase.

(D) The aggregate principal amount of each Borrowing (other than any
Mandatory Borrowing) shall not be less than the Minimum Borrowing Amount for
such Borrowing. More than one Borrowing may be incurred on any day, PROVIDED
that at no time shall there be outstanding more than 20 Borrowings of Euro Rate
Loans.

1.012 NOTICE OF BORROWING. (a) Whenever a Borrower desires to incur
Revolving Loans hereunder, it shall give the Agent at the appropriate Notice
Office, (x) prior

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to 12:00 Noon (11:00 A.M. in the case of Alternate Currency Loans) (Local Time),
at least three Business Days' prior written notice (or telephonic notice
promptly confirmed in writing) of each Borrowing of Euro Rate Loans and (y)
prior to 10:00 A.M. (Local Time) on the proposed date thereof written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of Base Rate
Loans. Each such notice (each such notice, together with each notice of the
incurrence of Swingline Loans pursuant to Section 1.02(b), a "Notice of
Borrowing") shall be in the form of Exhibit A-1 and shall be irrevocable and
shall specify: (i) the identity of the Borrower; (ii) the Facility pursuant to
which such Borrowing is being made and, in the case of MCRF Loans, the
Applicable Currency for such Loans; (iii) the aggregate Principal Amount of the
Loans to be made pursuant to such Borrowing (stated in Dollars and in the
Alternate Currency Equivalent); (iv) the date of Borrowing (which shall be a
Business Day); (v) in the case of DRF Loans and of MCRF Loans denominated in
Dollars or Pounds Sterling, whether the respective Borrowing shall consist of
Base Rate Loans or Euro Rate Loans; and (vi) if Euro Rate Loans, the Interest
Period to be initially applicable thereto. The Agent shall promptly give each
Bank written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing, of such Bank's proportionate share thereof and of the other
matters covered by the Notice of Borrowing.

(b) Whenever a Borrower desires to incur Swingline Loans hereunder,
it shall give the Agent at the appropriate Notice Office written notice (or
telephonic notice promptly confirmed in writing) of each Borrowing of Swingline
Loans prior to 1:00 P.M. (Local Time) on the date of such Borrowing. Each such
notice shall be irrevocable and shall specify (i) the identity of the Borrower,
(ii) the aggregate Principal Amount of the Swingline Loans to be made pursuant
to such Borrowing (stated in Dollars and in the case of Sterling Swingline
Loans, in Pounds Sterling) and (iii) the date of Borrowing (which shall be a
Business Day). The Agent shall promptly give the Swingline Lender written
notice (or telephonic notice promptly confirmed in writing) of each proposed
Borrowing of Swingline Loans and of the other matters covered by the Notice of
Borrowing.

(c) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(C), with each Borrower irrevocably agreeing, by its incurrence of
any Swingline Loan, to the making of Mandatory Borrowings as set forth in such
Section.

(d) Without in any way limiting the obligation of any Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Agent may act prior to receipt of written confirmation without liability upon
the basis of such telephonic notice believed by the Agent in good faith to be
from an Authorized Officer of such Borrower entitled to give telephonic notices
under this Agreement on behalf of the Borrower. In each such case, the Agent's
record of the terms of such telephonic notice shall be conclusive absent
manifest error.

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1.013 DISBURSEMENT OF FUNDS. (a) No later than 12:00 Noon (Local
Time) (11:00 A.M. (Local Time) if Alternate Currency Loans) in the case of Euro
Rate Loans, 2:00 P.M. (Local Time) in the case of Base Rate Loans or 3:00 P.M.
(Local Time) in the case of Swingline Loans on the date specified in each Notice
of Borrowing (or pursuant to Section 1.01(C)), each Bank will make available its
PRO RATA share, if any, of each Borrowing requested to be made on such date in
the manner provided below. All amounts shall be made available to the Agent in
Dollars or in the relevant Alternate Currency, as the case may be, and
immediately available funds at the appropriate Payment Office and the Agent
promptly will make available to the applicable Borrower by depositing to its
account at the appropriate Payment Office the aggregate of the amounts so made
available in the type of funds received. Unless the Agent shall have been
notified by any Bank prior to the date of Borrowing that such Bank does not
intend to make available to the Agent its portion of the Borrowing or Borrowings
to be made on such date, the Agent may assume that such Bank has made such
amount available to the Agent on such date of Borrowing, and the Agent, in
reliance upon such assumption, may (in its sole discretion and without any
obligation to do so) make available to the applicable Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the Agent
by such Bank and the Agent has made available same to the applicable Borrower,
the Agent shall be entitled to recover such corresponding amount from such Bank.
If such Bank does not pay such corresponding amount forthwith upon the Agent's
demand therefor, the Agent shall promptly notify the applicable Borrower, and
such Borrower shall immediately pay such corresponding amount to the Agent. The
Agent shall also be entitled to recover from such Bank or such Borrower, as the
case may be, interest on such corresponding amount in respect of each day from
the date such corresponding amount was made available by the Agent to such
Borrower to the date such corresponding amount is recovered by the Agent, at a
rate per annum equal to (x) if paid by such Bank, the overnight Federal Funds
Effective Rate or (y) if paid by such Borrower, the then applicable rate of
interest, calculated in accordance with Section 1.07, for the respective Loans.

(b) Nothing herein shall be deemed to relieve any Bank from its
obligation to fulfill its commitments hereunder or to prejudice any rights which
the applicable Borrower may have against any Bank as a result of any default by
such Bank hereunder.

1.014 NOTES; REGISTER. (a) Each Borrower's obligation to pay the
principal of, and interest on, the Revolving Loans and/or Swingline Loans, if
any, made to it by each Bank shall be evidenced: (i) if DRF Loans by a
promissory note substantially in the form of Exhibit B-1 with blanks
appropriately completed in conformity herewith (each a "DRF Note" and,
collectively, the "DRF Notes"); (ii) if MCRF Loans, by a promissory note
substantially in the form of Exhibit B-2 with blanks appropriately completed in
conformity herewith (each a "MCRF Note" and, collectively, the "MCRF Notes");
and (iii) if Swingline Loans, by a promissory note substantially in the form of
Exhibit B-3 with blanks appropriately completed in conformity herewith (each a
"Swingline Note" and, collectively, the "Swingline Notes").

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(b) The DRF Note issued to a Bank shall: (i) be executed by the
Company; (ii) be payable to the order of such Bank and be dated the Restatement
Effective Date; (iii) be in a stated principal amount equal to the DRF
Commitment of such Bank and be payable in Dollars and in the principal amount of
the outstanding DRF Loans evidenced thereby from time to time; (iv) mature on
the Maturity Date; (v) bear interest as provided in the appropriate clause of
Section 1.07 in respect of the Base Rate Loans and Euro Rate Loans, as the case
may be, evidenced thereby; (vi) be subject to mandatory repayment as provided in
Section 4.02; and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.

(c) The MCRF Note issued to a Bank shall: (i) be executed by each
Borrower; (ii) be payable to the order of such Bank and be dated the Restatement
Effective Date; (iii) be payable in the aggregate Principal Amount of the
outstanding MCRF Loans evidenced thereby from time to time and in the Applicable
Currencies for the MCRF Loans evidenced thereby; (iv) mature on the Maturity
Date; (v) bear interest as provided in the appropriate clause of Section 1.07 in
respect of the Base Rate Loans and Euro Rate Loans, as the case may be,
evidenced thereby; (vi) be subject to mandatory repayment as provided in Section
4.02; and (vii) be entitled to the benefits of this Agreement and the other
Credit Documents.

(d) The Swingline Note issued to the Swingline Lender shall: (i) be
executed by each Borrower; (ii) be payable to the order of the Swingline Lender
and be dated the Restatement Effective Date; (iii) be in a stated principal
amount equal to the Swingline Commitment and be payable in the aggregate
Principal Amount of the outstanding Swingline Loans evidenced thereby from time
to time and in the Applicable Currencies for the Swingline Loans evidenced
thereby; (iv) mature on the Swingline Maturity Date; (v) bear interest as
provided in the appropriate clause of Section 1.07 in respect of the Base Rate
Loans evidenced thereby; (vi) be subject to mandatory repayment as provided in
Section 4.02; and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.

(e) Each Bank will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of its Note, endorse on the reverse side thereof the outstanding
Principal Amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect a Borrower's obligations in
respect of such Loans.

(f) As more fully described in Section 13.17, the Agent shall
maintain at its Payment Office in the United States the Bank Register for the
recordation of the names and addresses of the Banks, the respective DRF
Commitments and MCRF Commitments of the Banks from time to time, and the
Principal Amount of the DRF Loans and the MCRF Loans owing to each Bank from
time to time.

1.015 CONVERSIONS. A Borrower shall have the option to convert on
any Business Day all or a portion at least equal to the applicable Minimum
Borrowing Amount of

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the outstanding Principal Amount of the DRF Loans and/or MCRF Loans denominated
in Dollars or Pounds Sterling into a Borrowing or Borrowings pursuant to such
Facility in the same currency but of the other interest rate option; PROVIDED
that (i) no partial conversion of a Borrowing of Euro Rate Loans shall reduce
the outstanding principal amount of the Euro Rate Loans made pursuant to such
Borrowing to less than the Minimum Borrowing Amount applicable thereto, (ii)
Base Rate Loans may not be converted into Euro Rate Loans if a Default under
Section 9.01 or Event of Default is in existence on the date of the conversion
and the Agent or the Required Banks have determined in its or their sole
discretion not to permit such conversion, and (iii) Borrowings of Euro Rate
Loans resulting from this Section 1.05 shall be limited in numbers as provided
in Section 1.01(D). Each such conversion shall be effected by the relevant
Borrower giving the Agent at the appropriate Notice Office, prior to 12:00 Noon
(11:00 A.M. in the case of Sterling denominated MCRF Loans) (Local Time), at
least three Business Days' (or one Business Day's, in the case of a conversion
into Base Rate Loans) prior written notice (or telephonic notice promptly
confirmed in writing) (each a "Notice of Conversion") specifying the applicable
Facility and the Loans to be so converted, the Type of Loans to be converted
into and, if to be converted into a Borrowing of Euro Rate Loans, the Interest
Period to be initially applicable thereto. The Agent shall give each Bank
prompt notice of any such proposed conversion affecting any of its Loans.

1.016 PRO RATA BORROWINGS. All Borrowings of DRF Loans or MCRF Loans
shall be made by the Banks PRO RATA on the basis of their DRF Commitments or
MCRF Commitments, as the case may be. It is understood that no Bank shall be
responsible for any default by any other Bank in its obligation to make Loans
hereunder and that each Bank shall be obligated to make the Loans provided to be
made by it hereunder, regardless of the failure of any other Bank to fulfill its
commitments hereunder.

1.017 INTEREST. (a) The unpaid principal amount of each Base Rate
Loan shall bear interest from the date of the incurrence thereof until maturity
(whether by acceleration or otherwise) at a rate per annum which shall at all
times be the Applicable Margin plus the Base Rate applicable to such Loan in
effect from time to time.

(b) The unpaid principal amount of each Euro Rate Loan shall bear
interest from the date of the incurrence thereof until maturity (whether by
acceleration or otherwise) at a rate per annum which shall at all times be the
Applicable Margin plus the relevant Euro Rate.

(c) All overdue principal and, to the extent permitted by law, overdue
interest in respect of (i) each Loan denominated in Deutsche Marks or Yen shall,
in each case, bear interest at a rate per annum equal to the rate which is 2% in
excess of the rate of interest applicable to such Loans at maturity and (ii)
each Loan denominated in Dollars or Pounds Sterling shall, in each case, bear
interest at a rate per annum equal to the Dollar Base Rate or Sterling Base
Rate, as the case may be, in effect from time to time plus the sum of (x) 2% and

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(y) the Applicable Margin then in effect for Base Rate Loans under the
respective Facility, PROVIDED that each Euro Rate Loan shall bear interest after
maturity (whether by acceleration or otherwise) until the end of the Interest
Period then applicable thereto at a rate per annum equal to 2% in excess of the
rate of interest applicable thereto at maturity.

(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof and shall be
payable (i) in respect of each Base Rate Loan, quarterly in arrears on the last
Business Day of each March, June, September and December, (ii) in respect of
each Euro Rate Loan, on the last day of each Interest Period applicable thereto
and, in the case of an Interest Period in excess of three months, on the dates
which are successively three months after the commencement of such Interest
Period and (iii) in respect of each Loan (except, in the case of prepayments,
any Base Rate Loans), on any prepayment or conversion (on the amount prepaid or
converted), at maturity (whether by acceleration or otherwise) and, after such
maturity, on demand.

(e) All computations of interest hereunder shall be made in
accordance with Section 13.07(b).

(f) The Agent, upon determining the interest rate for any Borrowing
of Euro Rate Loans for any Interest Period, shall promptly notify the applicable
Borrower and the Banks thereof.

1.018 INTEREST PERIODS. (a) At the time a Borrower gives a Notice
of Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Euro Rate Loans (in the case of the initial Interest Period
applicable thereto) or prior to 10:00 A.M. (Local Time) on the third Business
Day prior to the expiration of an Interest Period applicable to a Borrowing of
Euro Rate Loans, it shall have the right to elect by giving the Agent written
notice (or telephonic notice promptly confirmed in writing) of the Interest
Period applicable to such Borrowing, which Interest Period shall, at the option
of such Borrower, be a one, two or three month period or, in the case of Dollar
and Pounds Sterling denominated Loans only, six month, or to the extent
available to all the Banks at the time requested (as determined in good faith),
a nine or twelve month period. Notwithstanding anything to the contrary
contained above:

(i) All Euro Rate Loans comprising a Borrowing shall at all times
have the same Interest Period;

(ii) the initial Interest Period for any Borrowing of Euro Rate
Loans shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the immediately preceding Interest Period expires;

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(iii) if any Interest Period with respect to Euro Rate Loans begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;

(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, PROVIDED that if any Interest Period with respect
to Euro Rate Loans would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the immediately preceding
Business Day;

(v) no Interest Period with respect to any Borrowing may (x) extend
beyond any date upon which a Scheduled Commitment Reduction is required to
be made if after giving effect to the selection of such Interest Period,
the aggregate Principal Amount of all DRF Loans or all MCRF Loans
maintained as Euro Rate Loans with Interest Periods ending after such date
would exceed the aggregate Principal Amount of DRF Loans or MCRF Loans, as
the case may be, permitted to be outstanding after such Scheduled
Commitment Reduction or (y) extend beyond the Maturity Date; and

(vi) no Interest Period may be elected at any time when a Default
under Section 9.01 or an Event of Default is then in existence and the
Agent or the Required Banks have determined in its or their sole discretion
not to permit such election.

(b) If upon the expiration of any Interest Period applicable to a
Borrowing of Euro Rate Loans, the applicable Borrower has failed to (or may not)
elect a new Interest Period to be applicable to such Euro Rate Loans as provided
above, such Borrower shall be deemed to have elected to convert such Loans into
Base Rate Loans, provided that if such Euro Rate Loans are Deutsche Mark
denominated or Yen denominated, then such Euro Rate Loans shall become due and
payable upon such expiration.

1.019 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x)
in the case of clause (i) or (iv) below, the Agent or (y) in the case of clauses
(ii) and (iii) below, any Bank shall have determined on a reasonable basis
(which determination shall, absent manifest or demonstrable error, be final and
conclusive and binding upon all parties hereto):

(i) on any date for determining the Euro Rate for any Interest
Period that, by reason of any changes arising after the Restatement
Effective Date affecting the applicable interbank market, adequate and fair
means do not exist for ascertaining the applicable interest rate on the
basis provided for in the definition of the respective Euro Rate; or

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(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder in an amount
which such Bank deems material with respect to any Euro Rate Loans (other
than any increased cost or reduction attributable to the imposition of or a
change in the rate of taxes or similar charges) because of (x) any change
since the Restatement Effective Date in any applicable law, governmental
rule, regulation, guideline or order, or in the interpretation or
administration thereof and including the introduction of any new law or
governmental rule, regulation, guideline or order (such as, for example,
but not limited to, a change in official reserve requirements, but, in all
events, excluding reserves payable pursuant to Section 1.09(c)) and/or (y)
other circumstances adversely affecting the applicable interbank market or
the position of such Bank in such market; or

(iii) at any time, that the making or continuance of any Euro Rate
Loan has become unlawful by compliance by such Bank in good faith with any
change (including by interpretation) since the Restatement Effective Date
in any law, governmental rule, regulation, guideline or order or would
conflict with any thereof not having the force of law but with which such
Bank customarily complies or has become impracticable as a result of a
contingency occurring after the Restatement Effective Date which materially
adversely affects the applicable interbank market; or

(iv) at any time that any Alternate Currency is not available in
sufficient amounts, as determined in good faith by the Agent, to fund any
Borrowing of Loans denominated in such Alternate Currency;

then, and in any such event, such Bank (or the Agent in the case of clause (i)
or (iv) above) shall (x) on such date and (y) within 10 Business Days of the
date on which such event no longer exists give notice (by telephone confirmed in
writing) to the Company and the respective Borrower (if other than the Company)
and, except in the case of clause (i) or (iv) above, to the Agent of such
determination (which notice the Agent shall promptly transmit to each of the
other Banks). Thereafter (w) in the case of clause (i) above, Euro Rate Loans
denominated in the affected currency or currencies shall no longer be available
until such time as the Agent notifies the Company and the Banks that the
circumstances giving rise to such notice by the Agent no longer exist (which
notice the Agent agrees to give at such time when such circumstances no longer
exist), and any Notice of Borrowing or Notice of Conversion given by a Borrower
with respect to such Euro Rate Loans, which have not yet been incurred shall be
deemed rescinded by the relevant Borrower or, in the case of a Notice of
Borrowing relating to Dollar denominated or Pounds Sterling denominated Loans
shall, at the option of the applicable Borrower, be deemed converted into a
Notice of Borrowing for Base Rate Loans in such currency on the date of
Borrowing contained in such Notice of Borrowing, (x) in the case of clause (ii)
above, the applicable Borrower shall pay to such Bank, upon written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method

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of calculating, interest or otherwise as such Bank shall reasonably determine)
as shall be required to compensate such Bank for such increased costs or
reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Bank, showing in reasonable detail the basis for
the calculation thereof, which basis must be reasonable, submitted to the
applicable Borrower by such Bank shall, absent manifest or demonstrable error,
be final and conclusive and binding on all the parties hereto), (y) in the case
of clause (iii) above, the applicable Borrower shall take one of the actions
specified in Section 1.09(b) as promptly as possible and, in any event, within
the time period required by law and (z) in the case of clause (iv) above, Loans
in the affected Alternate Currency shall no longer be available until such time
as the Agent notifies the Company and the Banks that the circumstances giving
rise to such notice by the Agent no longer exists (which notice the Agent agrees
to give at such time when such circumstances no longer exist), and any Notice of
Borrowing given by a Borrower with respect to such Alternate Currency Loans
which have not yet been incurred shall be deemed rescinded by such Borrower.

(b) At any time that any Euro Rate Loan is affected by the
circumstances described in Section 1.09(a)(ii) or (iii), the applicable Borrower
may (and in the case of a Euro Rate Loan affected pursuant to Section
1.09(a)(iii) the applicable Borrower shall) either (i) if the affected Euro Rate
Loan is then being made pursuant to a Borrowing, by giving the Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that the
respective Borrower was notified by a Bank pursuant to Section 1.09(a)(ii) or
(iii), cancel said Borrowing, or in the case of Euro Rate Loans denominated in
Dollars or Pounds Sterling either convert the related Notice of Borrowing into
one requesting a Borrowing of Base Rate Loans or require the affected Bank to
make its requested Loan as a Base Rate Loan or (ii) if the affected Euro Rate
Loan is then outstanding, upon at least one Business Day's notice to the Agent,
(A) in the case of a Euro Rate Loan denominated in Dollars or Pounds Sterling,
require the affected Bank to convert each such Loan into a Base Rate Loan and
(B) in the case of all other Alternate Currency Loans, repay all Loans
denominated in such Alternate Currency in full, PROVIDED that, if more than one
Bank is affected at any time, then all affected Banks must be treated the same
pursuant to this Section 1.09(b).

(c) In the event that any Bank shall reasonably determine (which
determination shall, absent manifest error, be final and conclusive and binding
on all parties hereto) at any time that (1) by reason of Regulation D such Bank
is required to maintain reserves in respect of eurodollar loans or liabilities
during any period it has a Euro Rate Loan denominated in Dollars outstanding or
(2) such Bank is required to maintain reserves (including, without limitation,
any marginal, emergency, supplemental, special or other reserves required by
applicable law) which have been established by any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body with jurisdiction over such Bank (including any branch, affiliate or
funding office thereof) in respect of any Alternate Currency Loans or any
category of liabilities which includes deposits by reference to which the
interest rate on any Alternate Currency Loan is determined or any category of
extensions

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of credit or other assets which includes loans by a non-United States office of
any Bank to non-United States residents, then, in either case, unless such
reserves are included in the calculation of the interest rate applicable to such
Euro Rate Loans or in Section 1.09(a)(ii), such Bank shall promptly notify the
Company in writing specifying the additional amounts required to indemnify such
Bank against the cost of maintaining such reserves (such written notice to set
forth in reasonable detail a computation of such additional amounts) and the
applicable Borrower shall pay to such Bank such specified amounts as additional
interest at the time that such Borrower is otherwise required to pay interest in
respect of such Loan or, if later, on written demand therefor by such Bank.

(d) If any Bank shall have determined that after the Restatement
Effective Date, the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Bank or its parent corporation with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, in each case made subsequent to
the Restatement Effective Date, has or would have the effect of reducing by an
amount reasonably deemed by such Bank to be material the rate of return on such
Bank's or its parent corporation's capital or assets as a consequence of such
Bank's commitments or obligations hereunder to a level below that which such
Bank or its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Bank's or
its parent corporation's policies with respect to capital adequacy), then from
time to time, within 15 days after demand by such Bank (with a copy to the
Agent), the Company agrees to pay to such Bank such additional amount or amounts
as will compensate such Bank or its parent corporation for such reduction, it
being understood and agreed that a Bank shall not be entitled to any such
compensation as a result of such Bank's compliance with, or pursuant to any
request or directive to comply with, any such law, rule or regulation that is in
effect on the date hereof. Each Bank, upon determining in good faith that any
additional amounts will be payable pursuant to this Section 1.09(d), will give
prompt written notice thereof to the Company, which notice shall set forth in
reasonable detail the basis of the calculation of such additional amounts, which
basis must be reasonable, although the failure to give any such notice shall not
release or diminish any of the Company's obligations to pay additional amounts
pursuant to this Section 1.09(d) upon the subsequent receipt of such notice. No
Bank shall demand compensation for any reduction referred to in this Section
1.09(d) if it shall not at the time be the general policy or practice of such
Bank to demand such compensation in similar circumstances under comparable
provisions of other credit agreements.

(e) Notwithstanding anything in this Agreement to the contrary, to
the extent any notice or request required by Section 1.09, 1.10, 2.06 or 4.04 is
given by any Bank more than 120 days after such Bank obtained, or reasonably
should have obtained, knowledge of the occurrence of the event giving rise to
the additional costs, reductions in amounts, losses, taxes

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or other additional amounts of the type described in such Section, such Bank
shall not be entitled to compensation under Section 1.09, 1.10, 2.06 or 4.04 for
any amounts incurred or accruing prior to the giving of such notice to the
Borrower.

1.10 COMPENSATION. Each Borrower shall compensate each Bank, upon
its written request (which request shall set forth the detailed basis for
requesting and the method of calculating such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Bank to fund its Euro Rate Loans) which
such Bank reasonably may sustain: (i) if for any reason (other than a default
by such Bank or the Agent) a Borrowing of Euro Rate Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by such Borrower or deemed withdrawn pursuant to
Section 1.09(a)); (ii) if any repayment or conversion of any of its Euro Rate
Loans occurs on a date which is not the last day of an Interest Period
applicable thereto; (iii) if any prepayment of any of its Euro Rate Loans is not
made on any date specified in a notice of prepayment given by such Borrower; or
(iv) as a consequence of (x) any other default by such Borrower to repay its
Loans when required by the terms of this Agreement or (y) an election made
pursuant to Section 1.09(b).

1.11 CHANGE OF LENDING OFFICE. Each Bank agrees that, upon the
occurrence of any event giving rise to the operation of Section 1.09(a)(ii) or
(iii), 1.09(c) or (d), 2.06 or 4.04 with respect to such Bank, it will, if
requested by the applicable Borrower, use reasonable efforts (subject to overall
policy considerations of such Bank) to designate another lending office for any
Loans or Commitments affected by such event, PROVIDED that such designation is
made on such terms that such Bank and its lending office suffer no economic,
legal or regulatory disadvantage, with the object of avoiding the consequence of
the event giving rise to the operation of any such Section. Nothing in this
Section 1.11 shall affect or postpone any of the obligations of any Borrower or
the right of any Bank provided in Section 1.09 or 4.04.

1.12 REPLACEMENT OF BANKS. If (x) a Borrower receives notice from
any Bank requesting increased costs or additional amounts under Section 1.09
(other than 1.09(c)), 2.06 or 4.04 deemed by the Company to be material and
which are not generally being requested by other Banks, (y) any Bank is affected
in the manner described in Section 1.09(a)(iii) or (z) a Bank becomes a
Defaulting Bank, the Company shall have the right, if no Event of Default exists
and unless in the case of clause (x) such Bank has removed or cured the
conditions which resulted in the obligation to pay such increased costs or
additional amounts or agreed to waive and otherwise forego any right it may have
to any payments provided for under Sections 1.09, 2.06 and 4.04 in respect of
such conditions, to replace in its entirety such Bank (the "Replaced Bank"),
upon prior written notice to the Agent and such Replaced Bank, with one or more
other Eligible Transferee or Transferees (collectively, the "Replacement Bank")
acceptable to the Agent (which acceptance shall not be unreasonably withheld),
PROVIDED that

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at the time of any replacement pursuant to this Section 1.12, the Replaced Bank
and the Replacement Bank shall enter into one or more Assignment Agreements
(appropriately completed), pursuant to which: (i) the Replacement Bank shall
acquire all of the Commitments and outstanding Loans of, and Swingline Loan
and/or Letter of Credit participations of, the Replaced Bank and, in connection
therewith, shall pay (x) to the Replaced Bank in respect thereof an amount equal
to the sum of (a) an amount equal to the Principal Amount of, and all accrued
but unpaid interest on, all outstanding Loans of the Replaced Bank (in each case
in the Applicable Currencies) and (b) an amount equal to all accrued, but
theretofore unpaid, Fees owing to the Replaced Bank pursuant to Section 3.01 and
(y) to the Swingline Lender or Letter of Credit Issuer, as the case may be, any
portion of a Mandatory Borrowing or the funding of a drawing, respectively, as
to which the Replaced Bank is then in default; and (ii) each Borrower shall pay
to the Replaced Bank any other amounts payable to the Replaced Bank under this
Agreement (including, without limitation, amounts payable under Section 1.09
and/or 1.10 which have accrued to the date of such replacement). Upon the
execution of the respective assignment documentation, the payment of amounts
referred to in the preceding sentence and, if so requested by the Replacement
Bank, delivery to the Replacement Bank of the applicable Notes executed by the
respective Borrowers, the Replacement Bank shall become a Bank hereunder and the
Replaced Bank shall cease to constitute a Bank hereunder, except with respect to
indemnification provisions under this Agreement, which shall survive as to such
Replaced Bank.

SECTION 2. LETTERS OF CREDIT.

1.021 LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions herein set forth, the Company may request a Letter of Credit Issuer
at any time and from time to time on or after the Restatement Effective Date and
prior to the Maturity Date to issue, for the account of the Company and in
support of (x) trade obligations, workmen's compensation and any other
obligations of the Company and/or its Subsidiaries incurred in the ordinary
course of its business and/or (y) such other obligations of the Company and/or
its Subsidiaries to any other Person that are acceptable to the Agent, and
subject to and upon the terms and conditions herein set forth such Letter of
Credit Issuer agrees to issue from time to time, irrevocable letters of credit
in such form as may be approved by such Letter of Credit Issuer and the Agent
(each such letter of credit, and each Existing Letter of Credit described in
Section 2.02, a "Letter of Credit" and collectively, the "Letters of Credit").

(b) Letters of Credit will be denominated in Dollars provided that
the Loan Notes Guaranty may be denominated in Pounds Sterling.

(c) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the sum of (x) the Letter of
Credit Outstandings at such time and (y) the aggregate principal amount of all
DRF Loans and all Dollar Swingline Loans then outstanding, would exceed an
amount equal to the Total DRF Commitment at such

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time and (ii) each Letter of Credit shall, unless otherwise agreed by the Letter
of Credit Issuer, have an expiry date occurring not later than one year after
such Letter of Credit's date of issuance although any Letter of Credit may be
renewable for successive periods of up to 12 months, but not beyond the Business
Day next preceding the Maturity Date, on terms acceptable to the Agent and the
relevant Letter of Credit Issuer.

(d) Notwithstanding the foregoing, in the event a Bank Default
exists, no Letter of Credit Issuer shall be required to issue any Letter of
Credit unless such Letter of Credit Issuer has entered into arrangements
satisfactory to it and the Company to eliminate such Letter of Credit Issuer's
risk with respect to the participation in Letters of Credit of the Defaulting
Bank or Banks, including by cash collateralizing such Defaulting Bank's or
Banks' participation in the Letter of Credit Outstandings.

1.022 EXISTING LETTERS OF CREDIT. Annex III hereto contains a
description of all letters of credit issued under the Original Credit Agreement
(including any Loan Notes Guaranty) that are outstanding on, and that will
continue in effect after, the Restatement Effective Date. Each such letter of
credit and loan notes guaranty issued by a bank that is a Bank hereunder on the
Restatement Effective Date (each, an "Existing Letter of Credit"), shall
constitute a "Letter of Credit" for all purposes of this Agreement issued, for
purposes of Section 2.05(a), on the Restatement Effective Date.

1.023 LETTER OF CREDIT REQUESTS; NOTICES OF ISSUANCE. (a) Whenever
it desires that a Letter of Credit be issued, the Company shall give the Agent
and the Letter of Credit Issuer written notice (including by way of telecopier)
in the form of Exhibit A-2 thereof prior to 3:00 P.M. (Local Time) at least
three Business Days (or such shorter period as may be acceptable to the relevant
Letter of Credit Issuer) prior to the proposed date of issuance (which shall be
a Business Day) (each a "Letter of Credit Request"), which Letter of Credit
Request shall include an application for such Letter of Credit and any other
documents that such Letter of Credit Issuer customarily requires in connection
therewith. The Agent shall promptly notify each Bank of each Letter of Credit
Request.

(b) Each Letter of Credit Issuer shall, on the date of each issuance
of a Letter of Credit by it, give the Agent, each Bank and the Company written
notice of the issuance of such Letter of Credit, accompanied by a copy to the
Agent of the Letter of Credit or Letters of Credit issued by it. Each Letter of
Credit Issuer shall provide to the Agent a weekly summary describing each Letter
of Credit issued by such Letter of Credit Issuer and then outstanding.

1.024 AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The Company
hereby agrees to reimburse each Letter of Credit Issuer, by making payment to
the Agent, in Dollars (or, in the case of any payment or disbursement made by
the Letter of Credit Issuer in Pounds Sterling, of the Dollar Equivalent of such
payment or disbursement) and in

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immediately available funds at the appropriate Payment Office, for any payment
or disbursement made by such Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "Unpaid Drawing")
immediately after, and in any event on the date on which, such Letter of Credit
Issuer notifies the Agent and the Company of such payment or disbursement (which
notice to the Company shall be delivered reasonably promptly after any such
payment or disbursement), with interest on the amount so paid or disbursed by
such Letter of Credit Issuer, to the extent not reimbursed prior to 3:00 P.M.
(Local Time) on the date of such payment or disbursement, from and including the
date paid or disbursed to but not including the date such Letter of Credit
Issuer is reimbursed therefor at a rate per annum which shall be the rate then
applicable to DRF Loans that are Base Rate Loans of such payment or disbursement
(plus an additional 2% per annum if not reimbursed by the third Business Day
after the date of such payment or disbursement), such interest also to be
payable on demand.

(b) The Company's obligation under this Section 2.04 to reimburse
each Letter of Credit Issuer with respect to Unpaid Drawings (including, in each
case, interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Company may have or have had against such Letter of Credit Issuer, the
Agent, any other Letter of Credit Issuer or any Bank, including, without
limitation, any defense based upon the failure of any drawing under a Letter of
Credit to conform to the terms of the Letter of Credit or any non- application
or misapplication by the beneficiary of the proceeds of such drawing, PROVIDED,
HOWEVER, that the Company shall not be obligated to reimburse a Letter of Credit
Issuer for any wrongful payment made by such Letter of Credit Issuer under a
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Letter of Credit Issuer.

1.025 LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the
issuance by a Letter of Credit Issuer of any Letter of Credit, such Letter of
Credit Issuer shall be deemed to have sold and transferred to each Bank with a
DRF Commitment, and each such Bank (each a "Participant") shall be deemed
irrevocably and unconditionally to have purchased and received from such Letter
of Credit Issuer, without recourse or warranty, an undivided interest and
participation, to the extent of such Bank's DRF Percentage in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder and the
obligations of the Company under this Agreement with respect thereto (although
Letter of Credit Fees shall be payable directly to the Agent for the account of
the Banks as provided in Section 3.01(b) and the Participants shall have no
right to receive any portion of any Facing Fees) and any security therefor or
guaranty pertaining thereto. Upon any change in the DRF Commitments of the
Banks pursuant to Section 1.12 and/or 13.04(b), it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings, there shall be
an automatic adjustment to the participations pursuant to this Section 2.05 to
reflect the new DRF Percentages of the assigning and assignee Bank.

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(b) In determining whether to pay under any Letter of Credit, a
Letter of Credit Issuer shall not have any obligation relative to the
Participants other than to determine that any documents required to be delivered
under such Letter of Credit have been delivered and that they appear to comply
on their face with the requirements of such Letter of Credit. Any action taken
or omitted to be taken by a Letter of Credit Issuer under or in connection with
any Letter of Credit issued by it if taken or omitted in the absence of gross
negligence or willful misconduct, shall not create for such Letter of Credit
Issuer any resulting liability.

(c) In the event that a Letter of Credit Issuer makes any payment
under any Letter of Credit and the Company shall not have reimbursed such amount
in full to such Letter of Credit Issuer pursuant to Section 2.04(a), such Letter
of Credit Issuer shall promptly notify the Agent, and the Agent shall promptly
notify each Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Agent for the account of such Letter of Credit
Issuer, the amount of such Participant's DRF Percentage of such payment in
Dollars (or, in the case of any reimbursed payment made in Pounds Sterling,
Pounds Sterling) and in same day funds, PROVIDED, HOWEVER, and notwithstanding
anything to the contrary in Section 2.05(e), no Participant shall be obligated
to pay to the Agent its DRF Percentage of such unreimbursed amount for any
wrongful payment made by such Letter of Credit Issuer under a Letter of Credit
as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of such Letter of Credit Issuer. If the Agent so
notifies any Participant required to fund a payment under a Letter of Credit
prior to 11:00 A.M. (Local Time) on any Business Day, such Participant shall
make available to the Agent for the account of the relevant Letter of Credit
Issuer such Participant's DRF Percentage of the amount of such payment on such
Business Day in Dollars (or, in the case of any unreimbursed payment made in
Pounds Sterling) Pounds Sterling and in same day funds. If and to the extent
such Participant shall not have so made its DRF Percentage of the amount of such
payment available to the Agent for the account of the relevant Letter of Credit
Issuer, such Participant agrees to pay to the Agent for the account of such
Letter of Credit Issuer, forthwith on demand such amount, together with interest
thereon, for each day from such date until the date such amount is paid to the
Agent for the account of such Letter of Credit Issuer at the Federal Funds
Effective Rate. The failure of any Participant to make available to the Agent
for the account of the relevant Letter of Credit Issuer its DRF Percentage of
any payment under any Letter of Credit shall not relieve any other Participant
of its obligation hereunder to make available to the Agent for the account of
such Letter of Credit Issuer its DRF Percentage of any payment under any Letter
of Credit on the date required, as specified above, but no Participant shall be
responsible for the failure of any other Participant to make available to the
Agent for the account of such Letter of Credit Issuer such other Participant's
DRF Percentage of any such payment.

(d) Whenever a Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Agent has received for the account of
such Letter of Credit Issuer any payments from the Participants pursuant to
clause (c) above, such Letter of Credit Issuer shall pay to the Agent and the
Agent shall promptly pay to each Participant which has paid its

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DRF Percentage thereof, in the currency received and in same day funds, an
amount equal to such Participant's DRF Percentage of the principal amount
thereof and interest thereon accruing after the purchase of the respective
participations.

(e) The obligations of the Participants to make payments to the Agent
for the account of each Letter of Credit Issuer with respect to Letters of
Credit shall be irrevocable and not subject to counterclaim, set-off or other
defense or any other qualification or exception whatsoever and shall be made in
accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:

(i) any lack of validity or enforceability of this Agreement or any
of the other Credit Documents;

(ii) the existence of any claim, set-off, defense or other right
which the Company may have at any time against a beneficiary named in a
Letter of Credit, any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), the Agent, any Letter of Credit
Issuer, any Bank, or other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or
any unrelated transactions (including any underlying transaction between
the Company and the beneficiary named in any such Letter of Credit);

(iii) any draft, certificate or other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or insufficient
in any respect or any statement therein being untrue or inaccurate in any
respect;

(iv) the surrender or impairment of any security for the performance
or observance of any of the terms of any of the Credit Documents; or

(v) the occurrence of any Default or Event of Default.

1.026 INCREASED COSTS. If after the Restatement Effective Date, the
adoption of any applicable law, rule or regulation, or any change therein, or
any change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or actual compliance by any Letter of Credit Issuer or
any Bank with any request or directive (whether or not having the force of law)
by any such authority, central bank or comparable agency (in each case made or
adopted subsequent to the Restatement Effective Date) shall either (i) impose,
modify or make applicable any reserve, deposit, capital adequacy or similar
requirement against Letters of Credit issued by such Letter of Credit Issuer or
such Bank's participation therein, or (ii) shall impose on such Letter of Credit
Issuer or any Bank any other conditions affecting its obligations under this
Agreement in respect of Letters of Credit, any Letter of Credit or such Bank's
participation therein; and the result of any of the foregoing is to increase the
cost to

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such Letter of Credit Issuer or such Bank of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Bank hereunder
(other than any increased cost or reduction attributable to the imposition of or
a change in the rate of taxes or similar charges), then, promptly after receipt
of written demand to the Company by such Letter of Credit Issuer or such Bank (a
copy of which notice shall be sent by such Letter of Credit Issuer or such Bank
to the Agent), the Company shall pay to such Letter of Credit Issuer or such
Bank such additional amount or amounts as will compensate any such Letter of
Credit Issuer or such Bank for such increased cost or reduction, it being
understood and agreed that the Letter of Credit Issuer or any Participant shall
not be entitled to any such compensation as a result of such Person's compliance
with, or pursuant to any request or directive to comply with, any such law, rule
or regulation that is in effect on the date hereof. A certificate submitted to
the Company by any Letter of Credit Issuer or any Bank, as the case may be (a
copy of which certificate shall be sent by such Letter of Credit Issuer or such
Bank to the Agent), setting forth in reasonable detail the basis for the
determination of such additional amount or amounts necessary to compensate any
Letter of Credit Issuer or such Bank as aforesaid shall be conclusive and
binding on the Company absent manifest or demonstrable error, although the
failure to deliver any such certificate shall not release or diminish any of the
Company's obligations to pay additional amounts pursuant to this Section 2.06.

SECTION 3. FEES; COMMITMENTS.

1.031 FEES. (a) The Company agrees to pay to the Agent in Dollars a
facility fee (the "Facility Fee") for the account of each Non-Defaulting Bank
for the period from and including the Restatement Effective Date to but not
including the date the Total Commitment has been terminated, computed for each
day at a per annum rate equal to the Applicable Percentage for such day
multiplied by the then Commitment of such Bank. Such Facility Fee shall be due
and payable quarterly in arrears on the last Business Day of each March, June,
September and December and on the date upon which the Total Commitment is
terminated.

(b) The Company agrees to pay to the Agent, for the account of each
Non-Defaulting Bank, PRO RATA on the basis of its applicable DRF Percentage, in
Dollars a fee in respect of each Letter of Credit (the "Letter of Credit Fee")
computed for each day at a per annum rate equal to the Applicable Percentage for
such day multiplied by the then daily Stated Amount of such Letter of Credit.
Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on
the last Business Day of each March, June, September and December of each year
and on the date upon which the Total Commitment is terminated.

(c) The Company agrees to pay to the Agent for the account of each
Letter of Credit Issuer in Dollars a fee in respect of each Letter of Credit
issued by it (the "Facing Fee") computed for each day at a per annum rate of 1/4
of 1% per annum on the then Stated Amount of such Letter of Credit. Accrued
Facing Fees shall be due and payable quarterly in arrears on

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the last Business Day of each March, June, September and December of each year
and on the date upon which the Total Commitment is terminated.

(d) The Company agrees to pay directly to each Letter of Credit
Issuer upon each issuance of, drawing under, and/or amendment of, a Letter of
Credit issued by it such amount as shall at the time of such issuance, drawing
or amendment be the administrative charge which such Letter of Credit Issuer is
customarily charging for issuances of, drawings under or amendments of, letters
of credit issued by it.

(e) The Company shall pay to the Agent on the Restatement Effective
Date and thereafter for its own account and/or for distribution to the Banks
such fees as heretofore agreed by the Company and the Agent.

(f) All computations of Fees shall be made in accordance with Section
13.07(b).

1.032 ADDITIONAL CHARGES. Within three Business Days of the Company
being notified in writing by the Agent of any Additional Charges, the Company
shall pay to the Agent in Dollars such Additional Charges for the accounts of
the Banks as their interests may appear.

1.033 VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Agent at the applicable Notice Office (which notice the Agent shall
promptly transmit to each of the Banks), the Company shall have the right,
without premium or penalty, to terminate or partially reduce the Unutilized
Total DRF Commitment and/or Unutilized Total MCRF Commitment, as the case may
be, as the Company may elect, PROVIDED that (i) any such termination shall apply
to proportionately and permanently reduce the DRF Commitment and/or MCRF
Commitment, if any, of each of the Banks based on its DRF Percentage or MCRF
Percentage, as the case may be, and (ii) any partial reduction pursuant to this
Section 3.03 shall be in the amount of at least $1,000,000 and shall apply to
reduce the remaining Scheduled Commitment Reductions in such manner as selected
by the Company and notified to the Agent in writing at the time of such partial
reduction.

1.034 MANDATORY ADJUSTMENTS OF COMMITMENTS, ETC. (a) The Total
Commitment (and the Commitment of each Bank) shall terminate on the Maturity
Date.

(b) On each date set forth below, the Total Commitment shall be
permanently reduced by the amount set forth opposite such date below (each such
reduction, a "Scheduled Commitment Reduction"):

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Date Amount
---- ------

September 30, 1999 $ 35,000,000
September 30, 2000 $ 35,000,000
September 30, 2001 $ 35,000,000
September 30, 2002 $ 35,000,000
Maturity Date $310,000,000

(c) Upon the closing of the Specified Receivables Facility pursuant
to the terms thereof, the Total Commitment shall be permanently reduced by the
"Total Commitment" as defined therein.

(d) On the fifth Business Day following the date of receipt thereof
by the Company and/or any Restricted Subsidiary of the Cash Proceeds from any
Asset Sale, then, unless the Modified Ratio is less than 2.5:1.0, the Total
Commitment shall be permanently reduced by an amount equal to 100% of such Net
Cash Proceeds then received from such Asset Sale; PROVIDED that (I) the sum of
(x) the first $100,000,000 of the Net Cash Proceeds from Asset Sales during each
fiscal year of the Company plus (y) up to 50% of any greater amount of the Net
Cash Proceeds received in any fiscal year from Asset Sales shall be excluded
from the requirement to so reduce the Total Commitment to the extent the Company
elects, as hereinafter provided, to cause such Net Cash Proceeds to be
reinvested in Reinvestment Assets (a "Reinvestment Election") and (II) in no
event shall the Total Commitment be reduced to less than $225 million pursuant
to this clause (d). The Company may exercise its Reinvestment Election (within
the parameters specified in the preceding sentence) with respect to an Asset
Sale if (x) no Event of Default exists on the date of delivering the
Reinvestment Notice referred to below and (y) the Company delivers a
Reinvestment Notice to the Agent by the fifth Business Day following the date of
the consummation of the respective Asset Sale, with such Reinvestment Election
being effective with respect to the Net Cash Proceeds of such Asset Sale equal
to the Anticipated Reinvestment Amount specified in such Reinvestment Notice.

(e) On the 91st day following the date of receipt thereof by the
Company, the Total Commitment shall be permanently reduced by an amount equal to
100% of the net cash proceeds from the incurrence of Permitted Subordinated Debt
(less any of such proceeds theretofore used to effect Permitted Acquisitions or
to repay Indebtedness theretofore incurred to finance Permitted Acquisitions);
PROVIDED that in no event shall the Total Commitment be reduced to less than
$225 million pursuant to this clause (e).

(f) On the Reinvestment Reduction Date with respect to a Reinvestment
Election, the Total Commitment shall be permanently reduced by an amount equal
to the Reinvestment Reduction Amount, if any, for such Reinvestment Election;
PROVIDED that in no

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event shall the Total Commitment be reduced to less than $225 million pursuant
to this clause (f).

(g) Any reduction to the Total Commitment pursuant to Section
3.04(c), (d), (e) or (f) shall be applied to reduce the then remaining Scheduled
Commitment Reductions PRO RATA based upon the then remaining amount of such
Scheduled Commitment Reductions after giving effect to all prior reductions
thereto.

(h) Each partial reduction of the Total Commitment provided for in
this Section 3.04 shall apply PRO RATA to the Commitment of each Bank based on
its RF Percentage and shall reduce such Bank's DRF Commitment and MCRF
Commitment proportionately, PROVIDED that (x) so long as after giving effect
thereto the Total DRF Commitment is not less than the Total MCRF Commitment, any
reduction actually made on the date of any Scheduled Commitment Reduction (other
than the Maturity Date) pursuant to Section 3.04(b) may be applied only to the
Total DRF Commitment at the election of the Company and (y) all reductions
pursuant to any other provision of this Section 3.04 shall apply only to the
Total DRF Commitment until such time as the Total DRF Commitment has been
reduced to $200,000,000, with reductions only to the Total DRF Commitment to be
applied PRO RATA to the DRF Commitment, if any, of each Bank based on its DRF
Percentage and to reduce such Bank's DRF Commitment.

SECTION 4. PAYMENTS.

1.041 VOLUNTARY PREPAYMENTS. Each Borrower shall have the right to
prepay the Loans made to such Borrower, in whole or in part, without premium or
penalty, from time to time on the following terms and conditions: (i) such
Borrower shall give the Agent at the appropriate Payment Office written notice
(or telephonic notice promptly confirmed in writing) of its intent to prepay the
Loans, whether such Loans are DRF Loans, MCRF Loans or Swingline Loans, the
amount of such prepayment and (in the case of Euro Rate Loans) the specific
Borrowing(s) pursuant to which made, which notice shall (I) in the case of Loans
other than Swingline Loans, be received by the Agent by 10:00 A.M. (Local Time)
on the date of such prepayment (and which notice shall promptly be transmitted
by the Agent to each of the Banks) or (II) in the case of Swingline Loans, 12:00
Noon (Local Time) on the date of such prepayment; (ii) each partial prepayment
of any Borrowing shall be in an aggregate principal amount of (x) in the case of
Loans other than Swingline Loans, at least $500,000 (or having a Dollar
Equivalent of at least $500,000) and (y) in the case of Swingline Loans, in an
aggregate principal amount of at least $100,000 (or having a Dollar Equivalent
of at least $100,000), PROVIDED that no partial prepayment of Euro Rate Loans
made pursuant to a Borrowing shall reduce the aggregate principal amount of the
Loans outstanding pursuant to such Borrowing to an amount less than the Minimum
Borrowing Amount applicable thereto; (iii) each prepayment in respect of any
Loans made pursuant to a Borrowing shall be applied PRO RATA among such Loans,
PROVIDED that at such Borrower's election in connection with any

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prepayment of Revolving Loans pursuant to this Section 4.01, such prepayment
shall not be applied to any Revolving Loans of any Defaulting Bank to the extent
its Revolving Loans represent a lower percentage of the aggregate outstanding
Revolving Loans of all Banks than the percentage which is such Defaulting Bank's
RF Percentage; and (iv) any prepayment of Euro Rate Loans made pursuant to this
Section 4.01 on any day other than the last day of an Interest Period applicable
thereto shall be subject to compliance with Section 1.10.

1.042 MANDATORY PREPAYMENTS.

(A) REQUIREMENTS: (i) If on any date (after giving effect to any
other repayments or prepayments on such date) the sum of (i) the aggregate
outstanding principal amount of DRF Loans and Dollar Swingline Loans plus (ii)
the aggregate amount of Letter of Credit Outstandings exceeds the Total DRF
Commitment as then in effect, the Company agrees to and shall repay on such date
that principal amount of Dollar Swingline Loans (and, if insufficient, DRF
Loans) and, after DRF Loans have been paid in full, Unpaid Drawings in an
aggregate amount equal to such excess. If, after giving effect to the
prepayment of all outstanding Dollar Swingline Loans, DRF Loans and Unpaid
Drawings, the aggregate amount of Letter of Credit Outstandings exceeds the
Total DRF Commitment as then in effect, the Company agrees to and shall pay to
the Agent an amount in cash and/or cash equivalents satisfactory to the Agent
and the Company equal to such excess and the Agent shall hold such payment as
security for the obligations of the Company hereunder pursuant to a cash
collateral agreement to be entered into in form and substance reasonably
satisfactory to the Agent and the Company (which shall permit certain
investments in cash equivalents satisfactory to the Agent and the Company until
the proceeds are applied to the secured obligations when due).

(ii) If on any date (after giving effect to any other repayments or
prepayments on such date) the sum of the aggregate outstanding Principal Amount
of MCRF Loans and Sterling Swingline Loans exceeds the Total MCRF Commitment as
then in effect, the Borrowers jointly and severally agree to and shall repay on
such date that Principal Amount of Sterling Swingline Loans (and, if
insufficient, MCRF Loans) in an aggregate amount equal to such excess.

(B) APPLICATION: With respect to each repayment of Loans required
by this Section 4.02, the applicable Borrower shall designate the Types of Loans
which are to be repaid and the specific Borrowing(s) under the affected Facility
pursuant to which made, PROVIDED that (i) such Borrower shall first so designate
all Loans of the respective Facility that are Base Rate Loans and Euro Rate
Loans with Interest Periods ending on the date of repayment prior to designating
any other Euro Rate Loans of such Facility for repayment, (ii) if the
outstanding principal amount of Euro Rate Loans made pursuant to a Borrowing is
reduced below the applicable Minimum Borrowing Amount as a result of any such
prepayment, then all the Loans outstanding pursuant to such Borrowing shall be
converted into Base Rate Loans (or repaid if outstanding in any Alternate
Currency other than Pounds

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Sterling), (iii) each prepayment of any Loans made pursuant to a Borrowing shall
be applied PRO RATA among such Loans and (iv) notwithstanding the provisions of
the preceding clause (iii), no prepayment made pursuant to Section 4.02(A) of
Revolving Loans shall be applied to the Revolving Loans of any Defaulting Bank.
If the applicable Borrower is required to repay any Euro Rate Loans and such
prepayment will result in the relevant Borrower being required to pay breakage
costs under Section 1.10 (any such Euro Rate Loans, "Affected Loans"), such
Borrower may elect, by written notice to the Agent, to have the provisions of
the following sentence be applicable. At the time any Affected Loans are
otherwise required to be prepaid the applicable Borrower may elect to deposit
100% (or such lesser percentage elected by such Borrower as not being repaid) of
the principal amounts that otherwise would have been paid in respect of the
Affected Loans with the Agent to be held as security for the obligations of such
Borrower hereunder pursuant to a cash collateral agreement to be entered into in
form and substance satisfactory to the Agent, with such cash collateral to be
released from such cash collateral account (and applied to repay the principal
amount of such Euro Rate Loans) upon each occurrence thereafter of the last day
of an Interest Period applicable to Euro Rate Loans of the respective Facility
(or such earlier date or dates as shall be requested by such Borrower), with the
amount to be so released and applied on the last day of each Interest Period to
be the amount of such Euro Rate Loans to which such Interest Period applies (or,
if less, the amount remaining in such cash collateral account). In the absence
of a designation by a Borrower as described in the first sentence of this clause
(b), the Agent shall, subject to the above, make such designation in its sole
discretion with a view, but no obligation, to minimize breakage costs owing
under Section 1.10.

1.043 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the Agent
for the ratable (based on its PRO RATA share) account of the Banks entitled
thereto, not later than 2:00 P.M. (Local Time) on the date when due and shall be
made in immediately available funds at the appropriate Payment Office in (x)
Dollars, if such payment is made in respect of any obligation of the Borrowers
under this Agreement except as otherwise provided in the immediately following
clause (y) and (y) the appropriate Alternate Currency, if such payment is made
in respect of principal of or interest on Alternate Currency Loans or Letters of
Credit not denominated in Dollars, it being understood that written notice by a
Borrower to the Agent to make a payment from the funds in such Borrower's
account at the appropriate Payment Office shall constitute the making of such
payment to the extent of such funds held in such account. The principal of, and
interest on, each Alternate Currency Loan shall be paid only in the applicable
Alternate Currency. The Agent will thereafter cause to be distributed on the
same day (if payment was actually received by the Agent prior to 2:00 P.M.
(Local Time) on such day) like funds relating to the payment of principal or
interest or Fees ratably to the Banks entitled thereto. Any payments under this
Agreement which are made later than 2:00 P.M. (Local Time) shall be deemed to
have been made on the next succeeding Business Day. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Business Day,
the due date thereof shall be extended to the next succeeding Business Day

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and, with respect to payments of principal, interest shall be payable during
such extension at the applicable rate in effect immediately prior to such
extension.

1.044 NET PAYMENTS. (a) All payments made by each Borrower
hereunder, under any Note or any other Credit Document, will be made without
setoff, counterclaim or other defense. Except as provided for in Section
4.04(b), all such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
Governmental Authority (but excluding any tax, interest, penalties or additions
to tax imposed on or measured by the net income (or any franchise tax measured
by or imposed on net income) of a Bank pursuant to the laws of the jurisdiction
(or any political subdivision or taxing authority thereof or therein) under
which such Bank is organized or in which the principal office or applicable
lending office of such Bank is located or under the laws of any political
subdivision or taxing authority of any such jurisdiction in which the principal
office or applicable lending office of such Bank is located) and all interest,
penalties or similar liabilities with respect thereto (collectively, "Taxes").
If any Taxes are so levied or imposed, such Borrower agrees to pay the full
amount of such Taxes and such additional amounts as may be necessary so that
every payment of all amounts due hereunder, under any Note or under any other
Credit Document, after withholding or deduction for or on account of any Taxes,
will not be less than the amount provided for herein or in such Note or in such
other Credit Document. If any amounts are payable in respect of Taxes pursuant
to the preceding sentence, such Borrower agrees to reimburse each Bank, upon the
written request of such Bank, for taxes imposed on or measured by the net income
or profits of such Bank pursuant to the laws of the jurisdiction in which such
Bank is organized or in which the principal office or applicable lending office
of such Bank is located or under the laws of any political subdivision or taxing
authority of any such jurisdiction in which the principal office or applicable
lending office of such Bank is located and for any withholding of income or
similar taxes imposed by the United States of America as such Bank shall
determine are payable by, or withheld from, such Bank in respect of such amounts
so paid to or on behalf of such Bank pursuant to the preceding sentence and in
respect of any amounts paid to or on behalf of such Bank pursuant to this
sentence. Each Borrower will furnish to the Agent within 45 days after the date
the payment of any Taxes or any withholding or deduction on account thereof is
due pursuant to applicable law certified copies of tax receipts, or other
evidence reasonably satisfactory to the Bank, evidencing such payment by the
Borrower. Each Borrower agrees to indemnify and hold harmless the Agent and
each Bank, and reimburse the Agent or such Bank upon its written request, for
the amount of any Taxes so levied or imposed and paid or withheld by such Bank.

(b) Each Bank which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) for Federal income tax purposes
agrees with respect to Loans to the Company to provide to the Company and (in
the case of a Bank other than the Agent) the Agent on or prior to the
Restatement Effective Date, or in the case of a Bank that is an

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assignee or transferee of an interest under this Agreement pursuant to Section
1.12 or Section 13.04 (unless the respective Bank was already a Bank hereunder
immediately prior to such assignment or transfer and such Bank is in compliance
with the provisions of this Section 4.04(b)), on the date of such assignment or
transfer to such Bank, (i) two accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001 (or successor forms) certifying to
such Bank's entitlement to a complete exemption from United States withholding
tax with respect to payments to be made by the Company under this Agreement, any
Note or any other Credit Document, or (ii) if the Bank is not a "bank" within
the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either
Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above, (x) a
certificate representing that such non-U.S. Bank is not a bank for purposes of
Section 881(c) of the Code, is not a 10% shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Company and is not a controlled foreign
corporation related to the Company (within the meaning of Section 864(d)(4) of
the Code) (any such certificate, a "Section 4.04(b)(ii) Certificate") and (y)
two accurate and complete original signed copies of Internal Revenue Service
Form W-8 (or successor form) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments by the
Company of interest to be made under this Agreement, any Note or any other
Credit Document. In addition, each Bank agrees that from time to time after the
Restatement Effective Date, when a lapse in time or change in circumstances
renders the previous certification obsolete or inaccurate in any material
respect, it will deliver to the Company two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Bank to a
continued exemption from or reduction in United States withholding tax with
respect to payments by the Company under this Agreement, any Note or any other
Credit Document, or it shall immediately notify the Company and the Agent of its
inability to deliver any such Form or Certificate in which case such Bank shall
not be obligated to deliver any such form or certificate pursuant to this
Section 4.04(b). Notwithstanding anything to the contrary contained in Section
4.04(a), but subject to Section 13.04(b) and the immediately succeeding
sentence, (x) the Company shall be entitled, to the extent it is required to do
so by law, to deduct or withhold income or other similar taxes imposed by the
United States (or any political subdivision or taxing authority thereof or
therein) from interest, fees or other amounts payable hereunder for the account
of any Bank which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) for United States federal income tax purposes
and which has not provided to the Company and the Agent such forms that
establish a complete exemption from such deduction or withholding and (y) the
Company shall not be obligated pursuant to Section 4.04(a) hereof to pay a Bank
in respect of income or similar taxes imposed by the United States or any
additional amounts with respect thereto if such Bank has not provided to the
Company the Internal Revenue Service forms required to be provided to the
Company pursuant to this Section 4.04(b). Notwithstanding anything to the
contrary contained in the preceding sentence, or elsewhere in this Section 4.04
the Company agrees to pay additional amounts and indemnify each Bank in the
manner set forth in Section 4.04(a) in

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respect of any Taxes deducted or withheld by it as described in the previous
sentence as a result of any changes after the Restatement Effective Date in any
applicable law, treaty, governmental rule, regulation, guideline or order, or in
the interpretation thereof, relating to the deducting or withholding of income
or similar Taxes.

(c) Each Bank with an MCRF Commitment (x) that is not organized under
the laws of a jurisdiction of the United Kingdom but that can qualify as a UK
Bank by utilizing a branch or affiliate as its UK Lending Office agrees that it
will do so, unless (i) the appropriate UK tax authority certifies a complete
exemption from UK withholding taxes with respect to payments to such Bank by the
UK Borrower under this Agreement pursuant to the further provisions of this
paragraph (c) or (ii) such utilization will cause such Bank any disadvantage or
cost (not compensated by the Borrowers) deemed by such Bank to be material) or
(y) that is a Treaty Bank (and is not, or does not desire to continue as, a UK
Bank for purposes of this Agreement) agrees that it will promptly file such
forms with the tax authority of the country in which such Bank is a resident
(for each such Bank, its "Resident Country") as appropriate to obtain for such
Bank the full exemption from (or reduction to) UK tax withholding as is
available to such Bank under the income tax treaty between the United Kingdom
and such Bank's Resident Country and that it will take, at the Borrowers'
expense, such follow-up actions as the UK Borrower reasonably requests to obtain
the approval of the appropriate UK tax authority for such exemption (or
reduction) and/or to obtain refunds of amounts theretofore paid by the UK
Borrower pursuant to Section 4.01(a) for the period prior to receipt of such
approval ("UK Tax Refunds").

(d) If the Company determines in good faith that a reasonable basis
exists for contesting any taxes for which indemnification has been demanded
hereunder, the relevant Bank or the Agent, as applicable, shall cooperate with
the Company in challenging such taxes at the Company's expense if so requested
by the Company, PROVIDED that the relevant Bank or the Agent, as the case may
be, shall not be required to so cooperate with the Company in challenging such
taxes if such Bank or the Agent shall determine, in its sole discretion, that
such challenge is or may be adverse to the business, operations or tax position
of such Bank or the Agent. If any Bank or the Agent, as applicable, receives a
refund of a tax for which a payment has been made by a Borrower pursuant to this
Agreement (including any UK Tax Treaty Refunds) or receives any credit, relief
or other tax benefit in connection therewith, which refund or benefit in the
good faith judgment of such Bank or the Agent, as the case may be, is
attributable to such payment made by such Borrower, then the Bank or the Agent,
as the case may be, shall reimburse such Borrower for such amount as the Bank or
Agent, as the case may be, determines to be the proportion of the refund or
benefit as will leave it, after such reimbursement, in no better or worse
position than it would have been in if the payment had not been required. A
Bank or the Agent shall claim any refund or benefit that it determines is
available to it, unless it concludes in its sole discretion that it would be
adversely affected by making such a claim. Notwithstanding any provision of
this Section 4.04(d) to the contrary, (i) the determination of the amount of a
refund or benefit attributable to a payment made by

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a Borrower pursuant to this Agreement shall be made in the sole discretion of
the relevant Bank or the Agent, and (ii) neither the Bank nor the Agent shall be
obliged to disclose any information regarding its tax affairs or computations to
any Borrower in connection with this Section 4.04(d).

(e) Each Bank represents and agrees that, on the date hereof and at
all times during the term of this Agreement, it is not and will not be a conduit
entity participating in a conduit financing arrangement (as defined in Section
7701(1) of the Code and the regulations thereunder) with respect to the
Borrowings by the Company hereunder unless the Company has consented to such
arrangement prior thereto.

SECTION 5. CONDITIONS PRECEDENT.

1.051 CONDITIONS PRECEDENT TO RESTATEMENT EFFECTIVE DATE. This
Agreement shall become effective on the date (the "Restatement Effective Date")
when each of the following conditions are first satisfied:

(a) EFFECTIVENESS; NOTES. On or prior to the Restatement Effective
Date, (i) each Borrower and each of the Banks shall have signed a copy of
this Agreement (whether the same or different copies) and shall have
delivered the same to the Agent at its Notice Office or, in the case of the
Banks, shall have given to the Agent telephonic (confirmed in writing),
written, telex or facsimile transmitted notice (actually received) at its
Notice Office that the same has been signed and mailed to it and (ii) there
shall have been delivered to the Agent for the account of each Bank the
appropriate Note or Notes executed by the appropriate Borrower, in each
case, in the amount, maturity and as otherwise provided herein.

(b) OPINIONS OF COUNSEL. On the Restatement Effective Date, the
Agent shall have received opinions, addressed to the Agent and each of the
Banks and dated the Restatement Effective Date, from (i) Latham & Watkins,
special counsel to the Borrowers, which opinion shall cover the matters
contained in Exhibit C-1 hereto, (ii) the General Counsel of the Company,
which opinion shall cover the matters contained in Exhibit C-2 hereto,
(iii) Clifford Chance, special UK counsel to the UK Borrower, which opinion
shall cover the matters contained in Exhibit C-3 hereto and (iv) White &
Case, special counsel to the Banks, which opinion shall cover the matters
contained in Exhibit C-4 hereto, all in form and substance satisfactory to
the Agent.

(c) CORPORATE PROCEEDINGS. (i) On the Restatement Effective Date,
the Agent shall have received from the Company a certificate, dated the
Restatement Effective Date, signed by the President or any Vice-President
of the Company in the form of Exhibit D hereto with appropriate insertions
and deletions, together with (x) copies of the articles of incorporation
and the by-laws (or other organizational documents) of the

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Company and each Credit Party, (y) the resolutions of the Company and each
Credit Party which shall be reasonably satisfactory to the Agent and (z) a
statement that all of the applicable conditions set forth in Sections
5.01(g), (m) and (n) and 5.02 exist as of such date.

(ii) On the Restatement Effective Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Transaction
Documents shall be reasonably satisfactory in form and substance to the
Agent, and the Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates
and any other records of corporate proceedings and governmental approvals,
if any, which the Agent may have reasonably requested in connection
therewith, such documents and papers, where appropriate, to be certified by
proper corporate or governmental authorities.

(d) ORIGINAL CREDIT AGREEMENT. On the Restatement Effective Date and
concurrently with the initial borrowing hereunder, the Company shall have
(i) repaid in full the outstanding principal amount of all Loans under and
as defined in the Original Credit Agreement, (ii) terminated all letters of
credit issued thereunder (other than Existing Letters of Credit) and (iii)
paid all accrued but unpaid interest and fees under the Original Credit
Agreement, whether or not otherwise then due and payable.

(e) ADVERSE CHANGE, ETC. From August 1, 1996 to the Restatement
Effective Date, nothing shall have occurred (and neither the Banks nor the
Agent shall have become aware of any facts or conditions not previously
known) which the Agent or the Required Banks shall reasonably determine (i)
has, or would reasonably be expected to have, a material adverse effect on
the rights or remedies of the Banks or the Agent under this Agreement or
any other Credit Document, or on the ability of either Borrower to perform
its respective obligations to them, or (ii) has, or would reasonably be
expected to have, a Material Adverse Effect.

(f) LITIGATION. No actions, suits or proceedings shall be pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary or any of their assets on the Restatement Effective Date (i)
with respect to this Agreement or any other Credit Document or (ii) which
the Agent shall determine has, or would reasonably be expected to have, (x)
a Material Adverse Effect or (y) a material adverse effect on rights or
remedies of the Banks or the Agent hereunder or under any other Credit
Document or on the ability of either Borrower to perform its respective
obligations to the Banks hereunder or under any other Credit Document.

(g) APPROVALS. On the Restatement Effective Date, all necessary
governmental and material third party approvals in connection with the
transactions contem-

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plated by the Credit Documents and the other Transaction Documents and
otherwise referred to herein or therein to the extent such approvals are
required to be obtained or made prior to the Restatement Effective Date
shall have been obtained and remain in effect, and all applicable waiting
periods shall have expired without any action being taken by any competent
authority (including any court having jurisdiction) which restrains or
prevents such transactions or imposes, in the judgment of the Required
Banks or the Agent, materially adverse conditions upon the consummation of
such transactions.

(h) PLEDGE AGREEMENTS. (i) On the Restatement Effective Date, the
Company shall have duly authorized, executed and delivered an amended and
restated Pledge Agreement substantially in the form of Exhibit E-1 hereto
(as modified, amended or supplemented from time to time in accordance with
the terms thereof and hereof, the "Company Pledge Agreement") and the UK
Borrower shall have duly authorized, executed and delivered a Pledge
Agreement substantially in the form of Exhibit E-2 hereto (as modified,
amended or supplemented from time to time in accordance with the terms
thereof and hereof, the "UK Pledge Agreement") and each of the Company and
the UK Borrower shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the certificates representing the Pledged Securities
referred to therein, accompanied by executed and undated stock powers, and
such Pledge Agreements shall be in full force and effect.

(ii) On the Restatement Effective Date, each Subsidiary Guarantor
shall have duly authorized, executed and delivered an amended and restated
Pledge Agreement substantially in the form of Exhibit E-3 hereto (as
modified, amended or supplemented from time to time in accordance with the
terms thereof and hereof, the "Subsidiary Pledge Agreement") and shall have
delivered to the Collateral Agent, as pledgee thereunder, all of the
certificates representing the Pledged Securities referred to therein,
accompanied by executed and undated stock powers, and the Subsidiary Pledge
Agreement shall be in full force and effect.

(i) SUBSIDIARY GUARANTY. On the Restatement Effective Date, each
Domestic Subsidiary shall have duly authorized, executed and delivered an
amended and restated Guaranty substantially in the form of Exhibit F hereto
(as modified, amended or supplemented from time to time in accordance with
the terms hereof and thereof, the "Subsidiary Guaranty"), and the
Subsidiary Guaranty shall be in full force and effect.

(j) SOLVENCY. On the Restatement Effective Date, the Agent shall
have received from the Vice-President and Controller of the Company a
certificate in the form of Exhibit G hereto, expressing opinions of value
and other appropriate facts or information regarding the solvency of the
Company and its Subsidiaries taken as a whole.

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(k) FEES. On or prior to the Restatement Effective Date, the Company
shall have paid to the Agent and the Banks all Fees and expenses agreed
upon by such parties to be paid on or prior to such date.

(l) CONSENT LETTER. On the Restatement Effective Date, the Agent
shall have received a letter from The Prentice-Hall Corporation System,
Inc., in the form of Exhibit H hereto indicating its consent to its
appointment by each Borrower and each Subsidiary Guarantor as their agent
to receive service of process.

(m) KKR BRIDGE CONVERSION. On or prior to the Restatement Effective
Date, the total amount of outstanding principal under the KKR Bridge shall
have been converted by exchange or otherwise into common stock of the
Company and 1996 Preferred Stock (the "KKR Bridge Conversion") issued
pursuant to, and evidenced by, agreements, certificates and/or certificates
of designation (the "KKR Bridge Conversion Documents"), a copy of which
certified as true and correct by an Authorized Officer to have been
delivered to the Agent prior to the Restatement Effective Date, which KKR
Bridge Conversion Documents shall be in the form delivered to, and found
acceptable by, the Agent under the Original Credit Agreement or otherwise
in form and substance reasonably satisfactory to the Agent.

(n) ACQUISITION. On or prior to the Restatement Effective Date, the
Company shall have delivered to the Agent all Acquisition Documents,
certified as true and correct by an Authorized Officer, and each of the
conditions precedent to the Company's or TO Sub's obligations to consummate
the Acquisition shall have been satisfied (without any waiver thereto not
agreed to by the Agent) to the reasonable satisfaction of the Agent. The
Acquisition shall have been consummated in substantial compliance with the
terms of the Acquisition Documents and all applicable laws and the TO Sub
shall have become the owner of at least 90% of the outstanding capital
stock of Rainford free and clear of all Liens (other than as created by the
Pledge Agreements).

1.052 CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligation of
the Banks to make each Loan and/or of a Letter of Credit Issuer to issue each
Letter of Credit is subject, at the time thereof, to the satisfaction of the
following condition:

(a) NOTICE OF BORROWING, ETC. The Agent shall have received a Notice
of Borrowing meeting the requirements of Section 1.02 with respect to the
incurrence of Revolving Loans or Swingline Loans, as the case may be, or a
Letter of Credit Request meeting the requirements of Section 2.03 with
respect to the issuance of a Letter of Credit.

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(b) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of each
Credit Event and also after giving effect thereto, (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
made by any Credit Party contained herein or in the other Credit Documents
shall be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of the
date of such Credit Event, except to the extent that such representations
and warranties expressly relate to an earlier date.

The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Company to each of the Banks that all of the
applicable conditions specified in Section 5.01 (in the case of the Credit
Events occurring on the Restatement Effective Date) and/or 5.02, as the case may
be, exist as of that time.

SECTION 6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to
induce the Banks to enter into this Agreement and to make the Loans, and/or to
issue and/or to participate in the Letters of Credit provided for herein, the
Company makes the following representations and warranties to, and agreements
with, the Banks, all of which shall survive the execution and delivery of this
Agreement and each Credit Event:

1.061 CORPORATE STATUS. Each of the Company and its Restricted
Subsidiaries (i) is a duly organized and validly existing corporation or
partnership, as the case may be, in good standing under the laws of the
jurisdiction of its formation and has the corporate or partnership power and
authority, as applicable, to own its property and assets and to transact the
business in which it is engaged and presently proposes to engage and (ii) has
duly qualified and is authorized to do business in all jurisdictions where it is
required to be so qualified except where the failure to be so qualified would
not have a Material Adverse Effect.

1.062 CORPORATE POWER AND AUTHORITY. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
of the Credit Documents to which it is party. Each Credit Party has duly
executed and delivered each Credit Document to which it is party and each Credit
Document to which it is party constitutes the legal, valid and binding
obligation of each Credit Party enforceable in accordance with its terms, except
to the extent that the enforceability thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
generally affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law).

1.063 NO VIOLATION. Neither the execution, delivery and performance
by any Credit Party of the Credit Documents to which it is party nor compliance
with the terms and provisions thereof, nor the consummation of the transactions
contemplated therein (i) will contravene any provision of any material law,
statute, rule, regulation, order, writ, injunction

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or decree of any court or governmental instrumentality applicable to such Credit
Party or its properties and assets, (ii) will conflict or result in any breach
of, any of the terms, covenants, conditions or provisions of, or constitute a
default under, or (other than pursuant to the Credit Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien upon
any of the property or assets of the Company or any of its Restricted
Subsidiaries pursuant to the terms of any material indenture, mortgage, deed of
trust, agreement or other material instrument to which the Company or any of its
Restricted Subsidiaries is a party or by which it or any of its property or
assets are bound or to which it may be subject or (iii) will violate any
provision of the Charter or By-Laws of the Company or the formation documents of
any of its Restricted Subsidiaries.

1.064 LITIGATION. Except as set forth on Annex IV, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened with respect to the Company or any of its Restricted Subsidiaries (i)
that have, or would reasonably be expected to have, a Material Adverse Effect or
(ii) that have, or would reasonably be expected to have, a material adverse
effect on the rights or remedies of the Banks or on the ability of either
Borrower to perform its material obligations to them hereunder and under the
other Credit Documents.

1.065 USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of all
Loans shall be utilized (i) on the Restatement Effective Date, to pay accrued
but unpaid interest on the KKR Bridge, to effect the refinancing of all
Indebtedness under the Original Credit Agreement and to pay certain fees and
expenses related thereto and (ii) for the general corporate and working capital
purposes of the Company and the Subsidiaries.

(b) No part of the proceeds of any Credit Event will be used to
purchase or carry Margin Stock. Neither any Credit Event, nor the use of the
proceeds thereof, will violate or be inconsistent with the provisions of
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System.

1.066 GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required by the
Company or any of its Subsidiaries in connection with (i) the execution,
delivery and performance of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any Credit Document.

1.067 TRUE AND COMPLETE DISCLOSURE. (a) All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
the Company or any of its Subsidiaries in writing to the Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
herein is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of the Company in writing to any

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Bank will be, true and accurate in all material respects on the date as of which
such information is dated or certified and not incomplete by omitting to state
any material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided, it being understood and agreed that for purposes of
this Section 6.07(a), such factual information shall not include projections and
PRO FORMA financial information.

(b) The projections and PRO FORMA financial information contained in
the factual materials referred to in clause (a) above are based on good faith
estimates and assumptions believed by such Persons to be reasonable at the time
made, it being recognized by the Banks that such projections as to future events
are not to be viewed as facts and that actual results during the period or
periods covered by any such projections may differ materially from the projected
results. As of the Restatement Effective Date, there is no fact known to the
Company which has, or would reasonably be expected to have, a Material Adverse
Effect which has not theretofore been disclosed to the Banks or to the Agent on
behalf of the Banks.

1.068 FINANCIAL CONDITION; FINANCIAL STATEMENTS. (a) On and as of
the Restatement Effective Date on a PRO FORMA basis after giving effect to the
Transaction and to all Indebtedness incurred and to be incurred, and Liens
created, and to be created, by the Company in connection therewith, (i) the sum
of the assets, at a fair valuation, of the Company will exceed its debts, (ii)
the Company will not have incurred or intended to, or believe that it will,
incur debts beyond its ability to pay such debts as such debts mature and (iii)
the Company will have sufficient capital with which to conduct its business.
For purposes of this Section 6.08, "debt" means any liability on a claim, and
"claim" means (x) right to payment whether or not such a right is reduced to
judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured; or (y) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.

(b)(i) The consolidated balance sheet of the Company and the
Subsidiaries at December 31, 1995 and the related consolidated statements of
income and cash flows for the fiscal year ended as of said date, which have been
audited by Deloitte & Touche, LLP, independent certified public accountants,
(ii) the consolidated balance sheet of the Company and the Subsidiaries at June
30, 1996 and the related consolidated statements of income and cash flows for
the fiscal quarter ended as of said date and (iii) the PRO FORMA (after giving
effect to the Transaction and the related financings thereof) consolidated
balance sheet of the Company and the Subsidiaries as of June 30, 1996, copies of
each of which have heretofore been furnished to each Bank, present fairly the
financial position of the respective entities at the dates of said statements
and the results for the period covered thereby subject, in the case of quarterly
financials to normal, recurring year-end accruals (or, in the case of the PRO
FORMA

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balance sheet, presents a good faith estimate of the consolidated PRO FORMA
financial condition of the Company and its Subsidiaries after giving effect to
the Transaction and the related financings thereof at the date thereof). All
such financial statements (other than the aforesaid PRO FORMA balance sheets)
have been prepared in accordance with generally accepted accounting principles
and practices consistently applied except to the extent provided in the notes to
said financial statements. Nothing has occurred since the Restatement Effective
Date that has had a Material Adverse Effect.

(c) Except as fully reflected in the financial statements and the
notes thereto described in Section 6.08(b), there were as of the Restatement
Effective Date (after giving effect to the Loans made on such date), no material
Contingent Obligations, contingent liability or liability for taxes, or any
long-term lease or unusual forward or long-term commitment, including, without
limitation, interest rate or foreign currency swap or exchange transaction with
respect to the Company or any of its Subsidiaries which, either individually or
in aggregate, would be material to the Company and its Subsidiaries taken as a
whole, except as incurred in the ordinary course of business consistent with
past practices subsequent to December 31, 1995.

1.069 SECURITY INTERESTS. Once executed and delivered, and until
terminated in accordance with the terms thereof, each of the Pledge Agreements
creates, as security for the obligations purported to be secured thereby, a
valid and enforceable perfected security interest in and Lien on all of the
Collateral subject thereto, superior to and prior to the rights of all third
Persons in favor of the Collateral Agent for the benefit of the Banks. No
filings or recordings are required in order to perfect the security interests
created under any Pledge Agreement.

6.10 REPRESENTATIONS AND WARRANTIES IN TRANSACTION DOCUMENTS. All
representations and warranties of the Company or any Subsidiary set forth in any
of the Transaction Documents were true and correct in all material respects as
of the time such representations and warranties were made and shall be true and
correct in all material respects as of the Restatement Effective Date as if such
representations and warranties were made on and as of such date, unless stated
to relate to a specific earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date.

6.11 TAX RETURNS AND PAYMENTS. Each of the Company and each Material
Subsidiary has timely filed all federal income tax returns and all other
material tax returns, statements, forms and reports for taxes, domestic and
foreign, required to be filed by it and has paid all material taxes and
assessments payable by it which have become due, other than those not yet
delinquent and except for those contested in good faith. Except as set forth in
Annex V, (i) there is no action, suit, proceeding, investigation, audit, or
claim now pending or, to the knowledge of the Company or any of its Material
Subsidiaries, threatened by any authority regarding any Taxes relating to the
Company or any of its Material Subsidiaries and (ii) neither

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the Company nor any of its Material Subsidiaries has entered into an agreement
or waiver extending any statute of limitations relating to the payment or
collection of Taxes of the Company or any Material Subsidiary. The Company and
each of its Subsidiaries have paid, or have provided adequate reserves in
accordance with GAAP (in the good faith judgment of the management of the
Company) for the payment of, all material federal, state and foreign income
taxes applicable for all prior fiscal years and for the current fiscal year to
the date hereof.

6.12 COMPLIANCE WITH ERISA. Except to the extent that all events and
obligations described in the following clauses of this Section 6.12 and at any
time hereafter in existence would not in the aggregate have a Material Adverse
Effect, each Plan is in substantial compliance with ERISA and the Code; no
Reportable Event has occurred with respect to a Plan; no Plan is insolvent or in
reorganization; no Plan has an Unfunded Current Liability which, when added to
the aggregate amount of Unfunded Current Liabilities with respect to all other
Plans at such time, exceeds $15,000,000; no Plan has an accumulated or waived
funding deficiency or has applied for an extension of any amortization period
within the meaning of Section 412 of the Code; all contributions required to be
made with respect to a Plan have been timely made; neither the Company nor any
Subsidiary nor any ERISA Affiliate has incurred any material liability to or on
account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or
4980 of the Code or expects to incur any material liability (including any
indirect, contingent, or secondary liability) under any of the foregoing
Sections with respect to any Plan; no proceedings have been instituted by the
PBGC to terminate or appoint a trustee to administer any Plan; using actuarial
assumptions and computation methods consistent with Part 1 of subtitle E of
Title IV of ERISA, the aggregate liabilities of the Company and its Subsidiaries
and its ERISA Affiliates to all Plans which are multiemployer plans (as defined
in Section 4001(a)(3) of ERISA) in the event of a complete withdrawal therefrom,
as of the close of the most recent fiscal year of each such Plan ended prior to
the date of the most recent Credit Event, would not exceed $50,000; no lien
imposed under the Code or ERISA on the assets of the Company or any Subsidiary
of the Company or any ERISA Affiliate exists or is likely to arise on account of
any Plan; and the Company and its Subsidiaries do not maintain or contribute to
any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which
provides benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or any employee pension benefit plan (as
defined in Section 3(2) of ERISA) the obligations with respect to which could
reasonably be expected to have a material adverse effect on the ability of
either Borrower to perform its obligations under this Agreement. With respect
to Plans that are multiemployer plans (as defined in Section 3(37) of ERISA),
the representations and warranties in this Section 6.12, other than any made
with respect to liability under Section 4201 or 4204 of ERISA are made to the
knowledge of the Company.

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6.13 SUBSIDIARIES. Annex VI hereto lists each Subsidiary, whether
such Subsidiary is a Restricted Subsidiary or an Unrestricted Subsidiary and the
direct and indirect ownership interest of the Company therein, in each case
existing on the Restatement Effective Date but after giving effect to the
Acquisition.

6.14 INTELLECTUAL PROPERTY, ETC. The Company and each of its
Restricted Subsidiaries has obtained all material patents, trademarks,
servicemarks, trade names, copyrights, licenses and other material rights, free
from burdensome restrictions, that are necessary for the operation of their
business taken as a whole as presently conducted and as proposed to be
conducted.

6.15 ENVIRONMENTAL MATTERS. (a) Each of the Company and its
Subsidiaries is in compliance with all Environmental Laws governing its business
except to the extent that any such failure to comply (together with any
resulting penalties, fines or forfeitures) would not reasonably be expected to
have a Material Adverse Effect. All licenses, permits, registrations or
approvals required for the business of the Company and each Subsidiary, as
conducted as of the Restatement Effective Date, under any Environmental Law have
been secured and the Company and each of its Subsidiaries is in substantial
compliance therewith, except for such licenses, permits, registrations or
approvals the failure to secure or to comply therewith is not reasonably likely
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is in any respect in noncompliance with, breach of or default under
any applicable writ, order, judgment, injunction, or decree to which the Company
or such Subsidiary is a party or which would affect the ability of the Company
or such Subsidiary to operate any real property and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliance, breaches or defaults as would not reasonably be
expected to, in the aggregate, have a Material Adverse Effect. There are as of
the Restatement Effective Date no Environmental Claims pending or, to the best
knowledge of the Company, threatened which (i) question the validity, term or
entitlement of the Company or any of its Subsidiaries for any permit, license,
order, registration or approval required under any Environmental Law for the
operation of any material facility which the Company or any of its Subsidiaries
currently operates and (ii) wherein an unfavorable decision, ruling or finding
would reasonably be expected to have a Material Adverse Effect. There are no
facts, circumstances, conditions or occurrences on any Real Property at any time
owned or operated by the Company or any of its Subsidiaries or, to the knowledge
of the Company, on any property adjacent to any such Real Property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
the Company or any of its Subsidiaries or any Real Property of the Company or
any Subsidiary, or (ii) to cause any Real Property of the Company or any of its
Subsidiaries to be subject to any restrictions on the ownership, occupancy, use
or transferability of such Real Property under any Environmental Law, except in
each such case, such Environmental Claims or restrictions that individually or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect.

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(b) Hazardous Materials have not at any time been (i) generated, used,
treated or stored on, or transported to or from, any Real Property at any time
owned and operated by the Company or any of its Subsidiaries or (ii) released on
any such Real Property, in each case where such occurrence or event is
reasonably likely to have a Material Adverse Effect.

6.16 LABOR RELATIONS; COLLECTIVE BARGAINING AGREEMENTS. There is
(i) no significant unfair labor practice complaint pending against the Company
or any of its Restricted Subsidiaries or, to the knowledge of the Company,
threatened against any of them, before the National Labor Relations Board, and
no significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is now pending against the Company or
any of its Restricted Subsidiaries or, to the knowledge of the Company,
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against the Company or any of its Restricted
Subsidiaries or, to the knowledge of the Company, threatened against the Company
or any of its Restricted Subsidiaries and (iii) to the knowledge of the Company,
no union representation question exists with respect to the employees of the
Company or any of its Restricted Subsidiaries, except (with respect to any
matter specified in clause (i), (ii) or (iii) above, either individually or in
the aggregate) such as would not reasonably be expected to have a Material
Adverse Effect.

6.17 INDEBTEDNESS. Annex VII sets forth a true and complete list of
all Indebtedness (other than Indebtedness aggregating $100,000) of the Company
and each of its Subsidiaries (after giving effect to the Transaction) incurred
prior to, but which is to remain outstanding after, the Restatement Effective
Date, in each case showing the aggregate principal amount, amortization and
interest rate thereof (and available commitments, if any, thereunder) and the
name of the respective borrower and any other entity which directly or
indirectly guaranteed such debt.

6.18 TRANSACTION. On and as of the Restatement Effective Date, (i)
all material consents and approvals of, and filings and registrations with, and
all other actions in respect of, all governmental agencies, authorities or
instrumentalities required to be obtained, given, filed or taken in order to
make or consummate each component of the Transaction will have been obtained,
given, filed or taken and are or will be in full force and effect (or effective
judicial relief with respect thereto will have been obtained) and (ii) each
component of the Transaction shall have been consummated in accordance, in all
material respects, with the applicable Transaction Documents and in compliance,
in all material respects, with all applicable laws.

SECTION 7. AFFIRMATIVE COVENANTS. The Company hereby covenants and
agrees that so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes are outstanding and the Loans,
together with interest, Fees and all other Obligations hereunder, have been paid
in full:

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1.071 REPORTING REQUIREMENTS. The Company will furnish to each of
the Banks:

(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any
event within 90 (or if an SEC Reporting Requirement does not then exist,
120) days, after the close of each fiscal year of the Company, the
consolidated balance sheet of the Company and its Restricted Subsidiaries
as at the end of such fiscal year and the related consolidated statements
of income, of stockholder's equity and of cash flows for such fiscal year,
in each case setting forth comparative figures for the preceding fiscal
year of the Company, if any, and examined by independent certified public
accountants of recognized national standing whose opinion shall not be
qualified as to the scope of audit or as to the status of the Company or
any of its Restricted Subsidiaries as a going concern, together with a
certificate of such accounting firm stating that in the course of its
regular audit of the business of the Company and its Restricted
Subsidiaries, which audit was conducted in accordance with generally
accepted auditing standards, nothing came to the attention of such
accounting firm which would lead it to believe that any Default or Event of
Default as they relate to accounting matters has occurred and is continuing
or if in the opinion of such accounting firm such a Default or Event of
Default has occurred and is continuing, a statement as to the nature
thereof.

(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within 45 (or if an SEC Reporting Requirement does not then exist,
60) days, after the close of each of the first three quarterly accounting
periods in each fiscal year of the Company, the consolidated balance sheet
of the Company and its Restricted Subsidiaries as at the end of such
quarterly period and the related consolidated statements of income, of
stockholder's equity and of cash flows for such quarterly period and for
the elapsed portion of the fiscal year ended with the last day of such
quarterly period, in each case setting forth comparative figures for the
related periods in the prior fiscal year of the Company, if any, and which
shall be certified by the Chief Financial Officer or other Authorized
Officer of the Company, subject to changes resulting from normal year-end
audit adjustments.

(c) BUDGET. As soon as available and in any event within 60 days
after the commencement of each fiscal year of the Company, a consolidated
budget of the Company and its Restricted Subsidiaries in reasonable detail
for each of the four fiscal quarters of such fiscal year, as customarily
prepared by management for its internal use, setting forth, with
appropriate discussion, the principal assumptions upon which such plans are
based.

(d) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Sections 7.01(a) and (b), (x) a
certificate of the Chief Financial Officer or other Authorized Officer of
the Company to the effect that no Default or

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Event of Default exists or, if any Default or Event of Default does exist,
specifying the nature and extent thereof, which certificate shall set forth
the calculations required to establish whether the Company was in
compliance with the provisions of Sections 8.11 and 8.12 as at the end of
such fiscal year or quarter, as the case may be, and (y) if the date of
such statements is the first day following the end of a Cost Synergy
Period, a Subsequent Cost Adjustment Certificate applicable to such Cost
Synergy Period.

(e) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within five Business Days after any senior officer of the Company or any of
its Restricted Subsidiaries obtains knowledge thereof, notice of (x) the
occurrence of any event which constitutes a Default or Event of Default,
which notice shall specify the nature thereof, the period of existence
thereof and what action the Company proposes to take with respect thereto
and (y) any litigation or governmental or regulatory proceeding pending
against the Company or any of its Subsidiaries which would reasonably be
expected to have a Material Adverse Effect or a material adverse effect on
the Collateral or the ability of any Borrower to perform its material
obligations hereunder or under any other Credit Document.

(f) AUDITORS' REPORTS. Promptly upon receipt thereof, a copy of each
other report or "management letter," if any, submitted to the Company or
any of its Restricted Subsidiaries by their independent accountants or
independent actuaries in connection with any annual, interim or special
audit made by them of the books of the Company or any Restricted
Subsidiary.

(g) ERISA. Promptly upon completion thereof and request from the
Agent therefor, deliver to each of the Banks a complete copy of the annual
report (Form 5500) of each Plan (including, to the extent required, the
related financial and actuarial statements and opinions and other
supporting statements, certifications, schedules and information) required
to be filed with the Internal Revenue Service. As soon as possible and, in
any event, within 10 days after the Company, any Subsidiary or any ERISA
Affiliate knows or has reason to know of the occurrence of any of the
following, the Company will deliver to each of the Banks a certificate of
the Chief Financial Officer of the Company setting forth details as to such
occurrence and the action, if any, that the Company, such Subsidiary or
such ERISA Affiliate is required or proposes to take, together with any
notices required or proposed to be given to or filed with or by the
Company, the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant
or the Plan administrator with respect thereto: that a Reportable Event has
occurred; that an accumulated funding deficiency has been incurred or an
application may reasonably be expected to be or has been made to the
Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including any required installment payments) or an
extension of any amortization period under Section 412 of the Code with
respect to a Plan; that a contribution required to be made to a Plan has

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not been timely made; that a Plan has been or may be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA;
that a Plan has an Unfunded Current Liability giving rise to a Lien under
ERISA or the Code; that proceedings may be or have been instituted to
terminate or appoint a trustee to administer a Plan; that a proceeding has
been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan; that the Company, any Subsidiary or any ERISA
Affiliate will or may reasonably be expected to incur any liability
(including any indirect, contingent, or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan
under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or
502(i) or 502(l) of ERISA; or that the Company or any Subsidiary may
reasonably be expected to incur any material liability, not incurred on the
Restatement Effective Date, pursuant to the adoption or amendment of any
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
provides benefits to retired employees or other former employees (other
than as required by Section 601 of ERISA) or pursuant to the adoption or
amendment of any employee pension benefit plan (as defined in Section 3(2)
of ERISA). In addition to any certificates or notices delivered to the
Banks pursuant to the first and second sentences hereof, copies of any
notices received by the Company, any Subsidiary, or any ERISA Affiliate
from a governmental agency with respect to any Plan that could reasonably
be expected to result in a material liability to the Company, any
Subsidiary, or any ERISA Affiliate shall be delivered to the Banks no later
than 10 days after the date such notice has been received by the Company,
the Subsidiary or the ERISA Affiliate, as applicable.

(h) ENVIRONMENTAL MATTERS. Promptly upon, and in any event within 10
Business Days after, an officer of the Company or any of its Restricted
Subsidiaries obtains knowledge thereof, notice of one or more of the
following environmental matters: (i) any pending or threatened (in
writing) material Environmental Claim against, or for which liability would
attach to, the Company or any of its Restricted Subsidiaries or any Real
Property owned or operated by the Company or any of its Restricted
Subsidiaries; (ii) any condition or occurrence on or arising from any Real
Property owned or operated by the Company or any of its Restricted
Subsidiaries that (a) results in material noncompliance by the Company or
any of its Restricted Subsidiaries with any applicable material
Environmental Law or (b) would reasonably be expected to form the basis of
a material Environmental Claim against, or for which liability would attach
to, the Company or any of its Restricted Subsidiaries or any such Real
Property; (iii) any condition or occurrence on any Real Property owned or
operated by the Company or any of its Restricted Subsidiaries that could
reasonably be expected to cause such Real Property to be subject to any
material restrictions on the ownership, occupancy, use or transferability
by the Company or any of its Restricted Subsidiaries of such Real Property
under any Environmental Law; and (iv)

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the taking of any material removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned or operated by the Company or any of its Restricted Subsidiaries as
required by any Environmental Law or any governmental or other
administrative agency. All such notices shall describe in reasonable
detail the nature of the claim, investigation, condition, occurrence or
removal or remedial action and the Company's or such Restricted
Subsidiary's response thereto.

(i) SUBSEQUENT COST ADJUSTMENT CERTIFICATES. Promptly upon the
Company determining that it will not realize the cost reduction synergies
set forth in any Cost Adjustment Certificate, a Subsequent Cost Adjustment
Certificate setting forth the reduced cost reduction synergies estimated in
good faith to be realized from the related acquisition during the relevant
Cost Synergy Period.

(j) OTHER INFORMATION. Promptly upon transmission thereof, copies of
any filings and registrations with, and reports to, the SEC by the Company
or any of its Restricted Subsidiaries (other than amendments to any
registration statement (to the extent such registration statement, in the
form it becomes effective, is delivered to the Banks), exhibits to any
registration statement and any registration statements on Form S-8) and
copies of all financial statements, proxy statements, notices and reports
as the Company or any of its Restricted Subsidiaries shall send to analysts
generally or to the holders of any of their publicly issued Indebtedness in
their capacity as such holders (in each case to the extent not theretofore
delivered to the Banks pursuant to this Agreement) and, with reasonable
promptness, such other information or documents (financial or otherwise) as
the Agent on its own behalf or on behalf of the Required Banks may
reasonably request from time to time.

1.072 BOOKS, RECORDS AND INSPECTIONS. The Company will, and will
cause each of its Restricted Subsidiaries to, permit officers and designated
representatives of the Agent or the Required Banks to visit and inspect any of
the properties or assets of the Company and any of its Restricted Subsidiaries
in whomsoever's possession (but only to the extent it is within the Company's or
such Restricted Subsidiary's control to permit such inspection), and to examine
the books of account of the Company and any of its Restricted Subsidiaries and
discuss the affairs, finances and accounts of the Company and of any of its
Restricted Subsidiaries with, and be advised as to the same by, its and their
officers and, so long as done in the presence of a senior officer of the
Company, its and their independent accountants and independent actuaries, if
any, all at such reasonably agreed upon times and intervals and to such
reasonable extent as the Agent or the Required Banks may request.

1.073 INSURANCE. The Company will, and will cause each of its
Restricted Subsidiaries to, at all times maintain in full force and effect
insurance with reputable and solvent insurers in such amounts and covering such
risks and liabilities and with such

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deductibles or self-insured retentions as are in accordance with normal industry
practice. The Company will, and will cause each of its Restricted Subsidiaries
to, furnish annually to the Agent a summary of the insurance carried.

1.074 PAYMENT OF TAXES. The Company will pay and discharge, and will
cause each Restricted Subsidiary to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto which, if unpaid, would reasonably be expected to
become a Lien or charge upon any material part of the properties of the Company
or any Restricted Subsidiary, PROVIDED that neither the Company nor any
Restricted Subsidiary shall be required to pay any such tax, assessment, charge,
levy or claim which is being contested in good faith and by proper proceedings
if it has maintained adequate reserves (in the good faith judgment of the
Company) with respect thereto in accordance with GAAP.

1.075 CORPORATE FRANCHISES. The Company will do, and will cause each
Restricted Subsidiary that is a Material Subsidiary to do, or cause to be done,
all things necessary to preserve and keep in full force and effect its corporate
existence, rights and authority; PROVIDED that any transaction permitted by
Section 8.02 will not constitute a breach of this Section 7.05.

1.076 COMPLIANCE WITH STATUTES, ETC. The Company will, and will
cause each Subsidiary to, comply with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property other than those the non-compliance with which would not have,
and which would not be reasonably expected to have, a Material Adverse Effect or
a material adverse effect on the Collateral or the ability of any Borrower to
perform its material obligations under any Credit Document.

1.077 GOOD REPAIR. The Company will, and will cause each Restricted
Subsidiary that is a Material Subsidiary to, ensure that its material properties
and material equipment used or useful in its business in whomsoever's possession
they may be, are kept in good repair, working order and condition, normal wear
and tear excepted, and that from time to time there are made in such properties
and equipment all needful and proper repairs, renewals, replacements,
extensions, additions, betterments and improvements thereto, to the extent and
in the manner customary for companies in similar businesses.

1.078 COMPLIANCE WITH ENVIRONMENTAL LAWS. (i) The Company will
comply, and will cause each of its Subsidiaries to comply, with all
Environmental Laws applicable to the ownership, lease or use of all Real
Property now or hereafter owned, leased or operated by the Company or any
Subsidiary, will promptly pay or cause to be paid all costs and expenses
incurred in connection with such compliance, and will keep or cause to be kept
all such Real

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Property free and clear of any Liens imposed pursuant to such Environmental Laws
and (ii) neither the Company nor any of its Subsidiaries will generate, use,
treat, store, release or dispose of, or permit the generation, use, treatment,
storage, release or disposal of Hazardous Materials on any Real Property now or
hereafter owned, leased or operated by the Company or any of its Subsidiaries,
or transport or permit the transportation of Hazardous Materials to or from any
such Real Property, except to the extent that the failure to comply with the
requirements specified in clause (i) or (ii) above, either individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. If required to do so under any applicable directive or order of any
governmental agency, the Company agrees to undertake, and cause each of its
Restricted Subsidiaries to undertake, any clean up, removal, remedial or other
action necessary to remove and clean up any Hazardous Materials from any Real
Property owned, leased or operated by the Company or any of its Restricted
Subsidiaries in accordance with, in all material respects, the requirements of
all applicable Environmental Laws and in accordance with, in all material
respects, such orders and directives of all governmental authorities, except to
the extent that the Company or such Restricted Subsidiary is contesting such
order or directive in good faith and by appropriate proceedings and for which
adequate reserves have been established to the extent required by generally
accepted accounting principles; PROVIDED that it will not constitute a breach of
this Section 7.08 if a Person other than the Company and its Restricted
Subsidiaries takes such action on behalf of the Company and its Restricted
Subsidiaries.

1.079 END OF FISCAL YEARS; FISCAL QUARTERS. The Company will, for
financial reporting purposes, cause (i) each of its, and each of its Restricted
Subsidiaries', fiscal years to end on December 31 of each year and (ii) to the
extent permitted by law, each of its, and each of its Subsidiaries', fiscal
quarters to end on March 31, June 30, September 30 and December 31 of each year.

SECTION 8. NEGATIVE COVENANTS. The Company hereby covenants and
agrees that on the Restatement Effective Date and thereafter for so long as this
Agreement is in effect and until such time as the Total Commitment has been
terminated, no Notes remain outstanding and the Loans, together with interest,
Fees and all other Obligations incurred hereunder are paid in full:

1.081 CHANGES IN BUSINESS. The Company will not (x) engage in any
business other than the ownership of the capital stock of RELTEC, TO Sub and one
or more Unrestricted Subsidiaries, the providing of management and other similar
services to the Subsidiaries, the transactions permitted pursuant to the Credit
Documents and the issuance of the Permitted Subordinated Debt and (y) permit at
any time the business activities taken as a whole conducted by itself and its
Subsidiaries to be altered in a substantial and material manner from the
business activities taken as a whole (including incidental or related
activities) conducted by the Company and its Subsidiaries on the Restatement
Effective Date.

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1.082 CONSOLIDATION, MERGER OR SALE OF ASSETS, ETC. The Company will
not, and will not permit any Restricted Subsidiary to, wind up, liquidate or
dissolve its affairs, or enter into any transaction of merger or consolidation
or sell or otherwise dispose of any of its property or assets (but excluding any
sale or disposition of inventory or obsolete or excess equipment in the ordinary
course of business or resulting from any casualty or condemnation of any assets
of the Company or any of its Subsidiaries), or purchase, lease or otherwise
acquire (in one transaction or a series of related transactions) all or any part
of the property or assets of any Person (excluding any purchases, leases or
other acquisitions of inventory, materials or equipment in, and for use in, the
ordinary course of business) or agree to do any of the foregoing at any future
time, except that the following shall be permitted:

(a) Consolidated Capital Expenditures by the Company and its
Restricted Subsidiaries permitted by Section 8.06;

(b) the investments permitted pursuant to Section 8.05;

(c) the merger or consolidation of any Restricted Subsidiary with or
into a Subsidiary Guarantor or the liquidation or dissolution of (x) any
Restricted Subsidiary into a Subsidiary Guarantor or (y) of any Restricted
Subsidiary that is not a Material Subsidiary;

(d) the Company or any of its Restricted Subsidiaries may enter into
leases of property or assets in the ordinary course of business not
otherwise in violation of this Agreement;

(e) the Company may sell or dispose of (other than to a Restricted
Subsidiary) any shares of an Unrestricted Subsidiary held by the Company on
such terms as are approved by the Board of Directors of the Company;

(f) the sale or disposition by the Company and/or its Restricted
Subsidiaries of assets (including by way of mergers and consolidations),
PROVIDED that (x) the aggregate consideration received from all such sales
and dispositions shall not exceed $350,000,000, (y) each such sale shall be
in an amount at least equal to the fair market value thereof (as
determined by the Board of Directors of the Company) and for proceeds of
cash alone, PROVIDED that the Company or such Restricted Subsidiary may
receive consideration in a form other than cash so long as such
consideration does not constitute more than 50% of the consideration of
such sale and the aggregate Principal Amount of such noncash proceeds do
not exceed $125,000,000 and (z) the Net Cash Proceeds of any such sale are
applied to reduce the Total Commitment to the extent provided in Section
3.04(d), and PROVIDED FURTHER, that except as provided in Section 8.02(i),
the sale or disposition of the capital stock of any Restricted Subsidiary
shall

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be prohibited unless it is for all of the outstanding capital stock of such
Restricted Subsidiary;

(g) the transfer, conveyance, lease or sale to (x) any Subsidiary
Guarantor of all or any part of the business, properties or assets of the
Company or any of its Restricted Subsidiaries and/or (y) any Foreign
Subsidiary of properties or assets of the Company or any of its Restricted
Subsidiaries to the extent that, after giving effect to such transfer,
conveyance, lease or sale the amount of all transfers, conveyances, leases
or sales plus Investments in Restricted Foreign Subsidiaries and/or Foreign
Investments made by the Company and the Subsidiary Guarantors since the
Restatement Effective Date minus the sum of (1) the aggregate amount of all
dividends and other distributions received by the Company or any Subsidiary
Guarantor from any Restricted Foreign Subsidiaries or with respect to any
Foreign Investments since the Restatement Effective Date and (2) the
aggregate amount of all principal repayments of advances and loans received
by the Company or any Subsidiary Guarantor from any Restricted Foreign
Subsidiaries or from an entity in which a Foreign Investment has been made
since the Restatement Effective Date in respect of loans and advances made
by the Company or any Subsidiary Guarantor to such Restricted Foreign
Subsidiaries or entities does not exceed 40% of the consolidated total
assets of the Company and the Subsidiary Guarantors taken as a whole,
determined in accordance with GAAP, at the last day of the Test Period most
recently ended;

(h) the Company or any Restricted Subsidiary may (x) sell accounts
receivable in connection with the Specified Receivables Facility and (y)
sell or discount foreign accounts receivable consistent with past practice,
PROVIDED that any such sale or discount pursuant to this subclause (y)
shall be made without recourse to the Company or any of its Subsidiaries;
and

(i) a Subsidiary IPO.

To the extent the Required Banks (or such other number of Banks as required by
Section 13.12) waive the provisions of this Section 8.02 with respect to the
sale, transfer or other disposition of any Collateral, or any Collateral is
sold, transferred or disposed of as permitted by this Section 8.02, (i) such
Collateral shall be sold, transferred or disposed of free and clear of the Liens
created by the respective Pledge Agreement; (ii) if such Collateral includes all
of the capital stock of a Subsidiary Guarantor, such capital stock shall be
released from the Pledge Agreement and such Subsidiary shall be released from
the Subsidiary Guaranty; and (iii) the Agent and the Collateral Agent shall be
authorized to take actions deemed appropriate by them in order to effectuate the
foregoing.

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1.083 LIENS. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create, incur, assume or suffer to exist any Lien
upon or with respect to any property or assets of any kind (real or personal,
tangible or intangible) of the Company or any such Restricted Subsidiary whether
now owned or hereafter acquired, except:

(a) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves (in
the good faith judgment of the management of the Company) have been
established;

(b) Liens in respect of property or assets imposed by law which were
incurred in the ordinary course of business, such as carriers',
warehousemen's, materialmen's and mechanics' Liens and other similar Liens
arising in the ordinary course of business, and which do not in the
aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Company or any Restricted Subsidiary;

(d) Liens securing Indebtedness in existence on the Restatement
Effective Date which (x) are listed, and the property subject thereto on
the Restatement Effective Date described, in Annex VIII or (y) are
otherwise permitted under this Section 8.03, and Liens securing extensions,
renewals or refinancings of any of the Indebtedness secured by the Liens
referred to in clause (d)(x) PROVIDED that any such extension, renewal or
refinancing is permitted by Section 8.04(c);

(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.08;

(f) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of the
payment for borrowed money);

(g) Leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of its Restricted
Subsidiaries taken as a whole and any interest or title of a lessor under
any lease not in violation of this Agreement;

(h) Easements, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect

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with the ordinary conduct of the business of the Company or any of its
Restricted Subsidiaries taken as a whole;

(i) Liens arising from financing statements regarding leases not in
violation of this Agreement;

(j) Liens created by virtue of Capitalized Lease Obligations
permitted by Section 8.04(b), PROVIDED that such Liens are only in respect
of the property or assets subject to, and secure only, the respective
Capital Lease;

(k) Liens created pursuant to the Specified Receivables Facility;

(l) Liens (x) placed upon property, plant or equipment used in the
ordinary course of business of the Company or any of its Restricted
Subsidiaries at the time of (or within 270 days after) the acquisition
thereof by the Company or any such Subsidiary to secure Indebtedness
incurred to pay all or a portion of the purchase price thereof, PROVIDED
that the Lien encumbering the property, plant or equipment so acquired does
not encumber any other asset of the Company or any such Restricted
Subsidiary; or (y) existing on specific tangible assets at the time
acquired by the Company or any of its Restricted Subsidiaries or on assets
of a Person at the time such Person first becomes a Subsidiary, PROVIDED
that (i) any such Liens were not created at the time of or in contemplation
of the acquisition of such assets or Person by the Company or any of its
Restricted Subsidiaries, (ii) in the case of any such acquisition of a
Person, any such Lien attaches only to specific tangible assets of such
Person and not assets of such Person generally, (iii) the Indebtedness
secured by any such Lien does not exceed 100% of the fair market value of
the asset to which such lien attaches, determined at the time of the
acquisition of such asset or the time at which such Person becomes a
Subsidiary and (iv) the Indebtedness secured thereby is permitted by
Section 8.04(b);

(m) ground leases in respect of real property on which facilities
owned or leased by the Company or any of its Restricted Subsidiaries are
located;

(n) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods;

(o) Liens on goods the purchase price of which is financed by a
documentary letter of credit issued for the account of the Company or any
of its Restricted Subsidiaries, PROVIDED that such Lien secures only the
obligations of the Company or such Restricted Subsidiary in respect of such
letter of credit;

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(p) Liens securing Indebtedness permitted by Section 8.04(l)(i) or
(to the extent attaching to the same assets as secured the Indebtedness
being refinanced) (ii) PROVIDED that such Liens attach only to the assets
of the corporation or corporations that became Restricted Subsidiaries as
contemplated by Section 8.04(l);

(q) Liens securing Indebtedness permitted by Section 8.04(n) to the
extent attaching only to the assets of the Foreign Subsidiaries incurring
such Indebtedness; and

(r) Liens not otherwise permitted by the foregoing clauses (a)
through (q) securing any Indebtedness of the Company or any Restricted
Subsidiaries, PROVIDED that the aggregate principal amount of Indebtedness
secured by Liens permitted by this clause (r) shall not exceed $30,000,000
at any time.

1.084 INDEBTEDNESS. The Company will not, and will not permit any of
its Restricted Subsidiaries to, contract, create, incur, assume or suffer to
exist any Indebtedness, except:

(a) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;

(b) Indebtedness subject to Liens permitted by Section 8.03(l) or
constituting Capitalized Lease Obligations, PROVIDED that the aggregate
principal amount of such Indebtedness and Capitalized Lease Obligations
under all Capital Leases shall not exceed $40,000,000 at any time
outstanding;

(c) Existing Indebtedness and any extensions, renewals or
refinancings of any of the Indebtedness referred to in this clause (c),
PROVIDED that (x) such Indebtedness is not increased from that outstanding
at the time of any such extension, renewal or refinancing, (y) the maturity
of any such Indebtedness is not shortened or (z) the direct and contingent
obligors with respect to such Indebtedness are not changed;

(d) Indebtedness constituting intercompany loans and advances by (x)
the Company and/or any Subsidiary Guarantor to (i) the Company, (ii) any
Subsidiary Guarantor or (iii) to the extent permitted by Section 8.02(g),
any Foreign Subsidiary, PROVIDED that each such loan or advance shall be
evidenced by a promissory note which shall be pledged to the Collateral
Agent pursuant to the applicable Pledge Agreement and (y) Foreign
Subsidiaries to the Company and/or any Subsidiary Guarantor;

(e) Indebtedness under Permitted Subordinated Debt issued by the
Company so long as before, and after giving effect thereto, the Company
will be in PRO FORMA

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compliance with the requirements of Sections 8.11 and 8.12 (as if such
Permitted Subordinated Debt were incurred on the last day of the Test
Period at such time) and the net cash proceeds thereof are applied to
effect Permitted Acquisitions or to reduce the Total Commitment to the
extent provided in Section 3.04(e);

(f) Indebtedness arising under the Specified Receivables Facility;

(g) Indebtedness in respect of bankers' acceptance, letter of credit,
warehouse receipt or similar facilities entered into in the ordinary course
of business;

(h) Contingent Obligations incurred by (i) the Subsidiary Guarantors
in respect of Indebtedness of the Company that is permitted to be incurred
under this Agreement and (ii) the Company or any Restricted Subsidiary in
respect of Indebtedness of a Restricted Subsidiary that is permitted to be
incurred under Section 8.04 (other than clauses (c) (to the extent provided
in the proviso thereto), (d), (i) and (n));

(i) Contingent Obligations incurred in the ordinary course of
business in respect of obligations of suppliers, customers, franchisees and
licensees;

(j) Indebtedness incurred to finance a Permitted Acquisition,
PROVIDED that the aggregate amount of Indebtedness incurred pursuant to
this clause (j) shall not exceed $100,000,000 at any time outstanding;

(k) Indebtedness of the Company in respect of Interest Rate
Agreements;

(l) (i) Indebtedness of a corporation that becomes a Restricted
Subsidiary after the Restatement Effective Date as the result of a
Permitted Acquisition if, for the most recently ended Test Period for which
financial statements have been delivered, the Company would be in
compliance on a PRO FORMA basis with Sections 8.11 and 8.12, assuming that
such Permitted Acquisition and the Indebtedness incurred in connection
therewith had occurred and been incurred, respectively, on the first day of
such Test Period, PROVIDED that (x) such Indebtedness existed at the time
such corporation became a Restricted Subsidiary and was not created in
anticipation thereof and (y) such Indebtedness is not guaranteed in any
respect by the Company or any other Subsidiary, and (ii) any refinancing,
refunding, renewal or extension of any Indebtedness specified in clause (i)
above, PROVIDED that (x) the principal amount thereof is not increased
above the principal amount thereof outstanding immediately prior to such
refinancing, refunding, renewal or extension and (y) the direct and
contingent obligors with respect to such Indebtedness are not changed;

(m) Indebtedness of the Company or any Restricted Subsidiary to the
extent that such Indebtedness is assumed in connection with the merger or
consolidation of

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the Company or such Restricted Subsidiary with a Restricted Subsidiary that
has outstanding Indebtedness incurred pursuant to Section 8.04(l), PROVIDED
that the aggregate amount of such Indebtedness, when taken together with
all other Indebtedness incurred pursuant to this clause (m) shall not
exceed $50,000,000 at any time;

(n) Indebtedness of Foreign Subsidiaries in an aggregate amount not
to exceed at any time $75,000,000;

(o) Indebtedness under the Loan Notes; and

(p) Indebtedness (other than Indebtedness incurred in connection with
a Permitted Acquisition) not otherwise permitted by the foregoing clauses
(a) through (o), PROVIDED that the aggregate principal amount of
Indebtedness incurred pursuant to this clause (p) shall not at any time
exceed $100,000,000 at any time outstanding.

1.085 ADVANCES, INVESTMENTS AND LOANS. The Company will not, and
will not permit any of its Restricted Subsidiaries to, lend money or credit or
make advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person (collectively, "Investments"), if prior thereto, or after giving
effect thereto, any Default or Event of Default exists hereunder provided that
Investments in Foreign Subsidiaries and Foreign Investments shall not be made by
the Company or any Subsidiary Guarantor unless Section 8.02(g) is complied with.

1.086 CAPITAL EXPENDITURES. (a) The Company will not, and will not
permit any of its Restricted Subsidiaries to, incur Consolidated Capital
Expenditures during any fiscal year of the Company in an amount in excess of
$50,000,000.

(b) Notwithstanding anything to the contrary contained in clause (a)
above, to the extent that Consolidated Capital Expenditures made by the Company
and its Restricted Subsidiaries during any fiscal year are less than the maximum
amount permitted to be made for such fiscal year pursuant to clause (a) (taking
into account any increase in the amount permitted during such period as a result
of this clause (b)) 100% of such unused amount may be carried forward to the
immediately succeeding fiscal year and utilized to make Consolidated Capital
Expenditures in excess of the amount permitted above in such following fiscal
year, PROVIDED that the aggregate amount of all Consolidated Capital
Expenditures made by the Company and its Restricted Subsidiaries in any fiscal
year shall not exceed $75,000,000.

1.087 CREATION OF SUBSIDIARIES. The Company shall not create or
acquire any Subsidiary other than (i) any corporate entity that is required to
be a party to the Specified Receivables Facility, (ii) any Unrestricted
Subsidiary created or acquired after the Restatement Effective Date in
compliance with the definition of such term, (iii) any Foreign Subsidiary (to

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the extent Section 8.02(g) is not breached by such creation or acquisition) that
is acquired or created in compliance with Section 8.02(g) and unless the Agent
otherwise agrees (taking into consideration the cost and difficulty of providing
such pledge) 65% of the stock of which that is owned by the Company, the UK
Borrower or a Subsidiary Guarantor is pledged to the Collateral Agent pursuant
to a Pledge Agreement and (iv) any other corporate entity (x) that is a Domestic
Subsidiary and a Wholly-Owned Subsidiary which guarantees the Obligations
pursuant to the Subsidiaries Guaranty and (y) 100% of the capital stock of which
is pledged to the Collateral Agent pursuant to a Pledge Agreement.

1.088 PREPAYMENTS OF INDEBTEDNESS, MODIFICATIONS OF AGREEMENTS, ETC.
The Company will not, and will not permit any Restricted Subsidiary to:

(a) make (or give any notice in respect thereof) any voluntary or
optional payment or prepayment or redemption or acquisition for value of
(including, without limitation, by way of depositing with the trustee with
respect thereto money or securities before due for the purpose of paying
when due) or exchange of any Permitted Subordinated Debt once issued,
including, but only prior to the fourth anniversary of the Restatement
Effective Date, any interest accrued thereon (whether or not evidenced by
accrual or similar notes), PROVIDED that the Company may (x) to the extent
such voluntary prepayment is expressly permitted by the terms of the
indenture governing same, at any time voluntarily prepay up to 40% of the
original principal amount of Permitted Subordinated Debt from the proceeds
of any registered public offering of the Company's common stock and (y) at
any time, voluntarily prepay interest accrued on Permitted Subordinated
Debt (whether or not evidenced by accrued or similar notes) from the
proceeds of any such registered public offering;

(b) amend or modify in any manner adverse to the interests of the
Banks (or permit any such amendment or modification of) any of the terms or
provisions of any documents or agreement governing any Permitted
Subordinated Debt once issued; and/or

(c) amend, modify or change in any manner materially adverse to the
interests of the Banks the Certificate of Incorporation (including, without
limitation, and in any event, by the filing of any certificate of
designation) or by-laws of either Borrower, or enter into any new agreement
with respect to the capital stock of either Borrower (to the extent
materially adverse to the interests of the Banks).

1.089 DIVIDENDS, ETC. (a) The Company will not declare or pay any
dividends (other than dividends payable solely in common stock of the Company)
or return any capital to, its stockholders or authorize or make any other
distribution, payment or delivery of property or cash to its stockholders as
such, or redeem, retire, purchase or otherwise acquire, directly or indirectly,
for a consideration, any shares of any class of its capital stock now or

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hereafter outstanding (or any warrants for or options or stock appreciation
rights in respect of any of such shares), or set aside any funds for any of the
foregoing purposes, or permit any Restricted Subsidiary to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of the
Company, now or hereafter outstanding (or any options or warrants or stock
appreciation rights issued with respect to such capital stock) (all of the
foregoing "Dividends"), except for (i) shares of capital stock deemed to be
repurchased upon exercise of stock options if such capital stock represents a
portion of the exercise price of such options, (ii) repurchases of capital stock
and/or options or warrants to purchase its capital stock from management or
former management of the Company and its Subsidiaries in accordance with
arrangements made with such management so long as no Event of Default exists at
the time of such purchase, (iii) Dividends to pay regularly accruing cash
dividends as and when due with respect to any 1996 Preferred Stock then
outstanding provided that no Default under Section 9.01 or Event of Default
exists at the time of payment thereof and after giving effect thereto and (iv)
the Company may pay additional Dividends, PROVIDED that (x) no Default under
Section 9.01 and no Event of Default exists at the time of the payment thereof
and after giving effect thereto, (y) the Ratio at the time of the payment
thereof shall be less than 3.5:1.0 and (z) the aggregate amount expended by the
Company pursuant to this clause (iv) shall not at any time exceed in the
aggregate an amount equal to (a) $20,000,000 plus (b) 50% of Cumulative
Consolidated Net Income at such time.

(b) The Company will not, and will not permit any of its Subsidiaries
to, create or otherwise cause or suffer to exist any encumbrance or restriction
which prohibits or otherwise restricts (A) the ability of any Restricted
Subsidiary to (a) pay dividends or make other distributions or pay any
Indebtedness owed to the Company or any Restricted Subsidiary, (b) make loans or
advances to the Company or any Restricted Subsidiary or (c) transfer any of its
properties or assets to the Company or any Restricted Subsidiary or (B) the
ability of the Company or any of its Restricted Subsidiaries to create, incur,
assume or suffer to exist any Lien upon its property or assets to secure the
Obligations, other than prohibitions or restrictions existing under or by reason
of: (i) this Agreement, the other Credit Documents and the Permitted
Subordinated Debt once issued; (ii) applicable law; (iii) customary
non-assignment provisions entered into in the ordinary course of business and
consistent with past practices; (iv) any restriction or encumbrance with respect
to a Restricted Subsidiary imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
capital stock or assets of such Restricted Subsidiary, so long as such sale or
disposition is permitted under this Agreement; and (v) Liens permitted under
Section 8.03 and any documents or instruments governing the terms of any
Indebtedness or other obligations secured by any such Liens, PROVIDED that such
prohibitions or restrictions apply only to the assets subject to such Liens.

8.10 TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any transaction or series of
transactions with any Affiliate (other than the Company or any Subsidiary
Guarantor) other than in the ordinary

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course of business and on terms and conditions substantially as favorable to the
Company or such Restricted Subsidiary as would be obtainable, in the Company's
reasonable judgment, by the Company or such Restricted Subsidiary at the time in
a comparable arm's-length transaction with a Person other than an Affiliate
except (i) customary annual fees paid to KKR and its Affiliates for services
rendered to the Company and its Subsidiaries and customary investment banking
fees paid to KKR and its Affiliates for services rendered to the Company and its
Subsidiaries in connection with divestitures, acquisitions, financings and
certain other transactions, (ii) customary fees paid to members of the Board of
Directors of the Company and (iii) payments made pursuant to Section 8.09(a).

8.11 LEVERAGE RATIO. The Company will not permit the ratio of (i)
Total Cash Pay Indebtedness as at the end of, to (ii) EBITDA for, the Test
Period last ended at any time during any period set forth below to be greater
than the ratio set forth opposite such period below:

Period Ratio
------ -----
To and including 5.5:1.0
December 31, 1997

Thereafter and To 4.5:1.0
and Including
December 31, 1998

Thereafter 4.0:1.0

8.12 INTEREST COVERAGE. The Company will not permit the Interest
Coverage Ratio for any Test Period to be less than (x) 2.5:1.0 for any Test
Period ending on or prior to and including December 31, 1997; (y) 3.0:1.0 for
any Test Period ending thereafter and on or prior to and including December 31,
1998; and (z) 3.5:1.0 for any Test Period ending thereafter.

SECTION 9. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each an "Event of Default"):

1.091 PAYMENTS. Any Borrower shall (i) default in the payment when
due of any principal of the Loans or (ii) default, and such default shall
continue for five or more days, in the payment when due of any interest on the
Loans or any Fees or any other amounts owing hereunder or under any other Credit
Document; or

1.092 REPRESENTATIONS, ETC. Any representation, warranty or
statement made by any Credit Party herein or in any other Credit Document or in
any statement or certificate

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delivered or required to be delivered pursuant hereto or thereto shall prove to
be untrue in any material respect on the date as of which made or deemed made;
or

1.093 COVENANTS. The Company shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8, or (ii) default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in Section 9.01, 9.02
or clause (i) of this Section 9.03) contained in this Agreement and such default
shall continue unremedied for a period of at least 30 days after the delivery of
written notice to the Company by the Agent or the Required Banks; or

1.094 DEFAULT UNDER OTHER AGREEMENTS. (a) The Company or any of its
Restricted Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) and such default shall continue after
the applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or (ii) default in the observance or performance
of any agreement or condition relating to any such Indebtedness or contained in
any instrument or agreement evidencing, securing or relating thereto (and all
grace periods applicable to such observance, performance or condition shall have
expired), or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders of such Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its stated
maturity; or (b) any such Indebtedness of the Company or any of its Restricted
Subsidiaries shall be declared to be due and payable, or shall be required to be
prepaid (other than by a regularly scheduled required prepayment or redemption),
prior to the stated maturity thereof, PROVIDED that it shall not constitute an
Event of Default pursuant to this Section 9.04 unless the aggregate amount of
all Indebtedness referred to in clauses (a) and (b) above exceeds $15,000,000 at
any one time; or

1.095 BANKRUPTCY, ETC. The Company or any of its Material
Subsidiaries shall commence a voluntary case concerning itself under Title 11 of
the United States Code entitled "Bankruptcy," as now or hereafter in effect, or
any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against the Company or any of its Material Subsidiaries and the
petition is not controverted within 10 days, or is not dismissed within 60 days,
after commencement of the case; or a custodian (as defined in the Bankruptcy
Code) is appointed for, or takes charge of, all or substantially all of the
property of the Company or any Material Subsidiary; or the Company or any of its
Material Subsidiaries commences (including by way of applying for or consenting
to the appointment of, or the taking of possession by, a rehabilitator,
receiver, custodian, trustee, conservator or liquidator (collectively, a
"conservator") of itself or all or any substantial portion of its property) any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency, liquidation, rehabilitation,
conservatorship or similar law of any jurisdiction whether now or hereafter in
effect relating to the Company or any of its Material Subsidiaries; or any such
proceeding is commenced against the Company or any of its Material Subsidiaries
to the extent

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such proceeding is consented to by such Person or remains undismissed for a
period of 60 days; or the Company or any of its Material Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Company or any of its
Material Subsidiaries suffers any appointment of any conservator or the like for
it or any substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Company or any of its Material
Subsidiaries makes a general assignment for the benefit of creditors; or any
corporate action is taken by the Company or any of its Material Subsidiaries for
the purpose of effecting any of the foregoing; or

1.096 ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan shall have had or is likely to have a trustee appointed to
administer such Plan, any Plan is, shall have been or is likely to be terminated
or to be the subject of termination proceedings under ERISA, any Plan shall have
an Unfunded Current Liability, a contribution required to be made to a Plan has
not been timely made, the Company or any Subsidiary or any ERISA Affiliate has
incurred or is likely to incur a liability to or on account of a Plan under
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the Code, or the Company or
any Subsidiary has incurred or is likely to incur liabilities pursuant to one or
more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or employee pension benefit plans (as defined
in Section 3(2) of ERISA); (b) there shall result from any such event or events
the imposition of a Lien, the granting of a security interest, or a liability or
a material risk of incurring a liability; and (c) which Lien, security interest
or liability, individually, and/or in the aggregate, in the opinion of the
Required Banks, will have a Material Adverse Effect; or

1.097 PLEDGE AGREEMENT. (a) Any Pledge Agreement shall cease to be
in full force and effect (other than upon termination thereof in accordance with
its terms), or shall cease to give the Collateral Agent the Liens purported to
be created thereby in favor of the Collateral Agent or (b) the relevant Credit
Party shall default in the due performance or observance of any material term,
covenant or agreement on its part to be performed or observed pursuant to any
Pledge Agreement and such default shall continue beyond any cure or grace period
specifically provided for in such Pledge Agreement; or

1.098 JUDGMENTS. One or more judgments or decrees shall be entered
against the Company and/or any of its Restricted Subsidiaries involving a
liability (not paid or fully covered by insurance) of $15,000,000 or more in the
aggregate for all such judgments and decrees for the Company and its
Subsidiaries and any such judgments or decrees shall not have been vacated,
discharged or stayed or bonded pending appeal within 60 days from the entry
thereof; or

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1.099 GUARANTY. Any Guaranty or any provision thereof shall cease to
be in full force and effect (except as provided therein), or any Guarantor or
any Person acting by or on behalf of any Guarantor shall deny or disaffirm any
Guarantor's obligations under any Guaranty or any Guarantor shall default in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to any Guaranty; or

9.10 CHANGE OF CONTROL. A Change of Control shall occur;

then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Agent shall, upon the written request of the
Required Banks, by written notice to the Company, take any or all of the
following actions, without prejudice to the rights of the Agent or any Bank to
enforce its claims against any Credit Party, except as otherwise specifically
provided for in this Agreement (PROVIDED that, if an Event of Default specified
in Section 9.05 shall occur with respect to the Company, the result which would
occur upon the giving of written notice by the Agent as specified in clauses (i)
and (ii) below shall occur automatically without the giving of any such notice):
(i) declare the Total Commitment terminated, whereupon the Commitment of each
Bank shall forthwith terminate immediately and any Facility Fee shall forthwith
become due and payable without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans, all Unpaid
Drawings and all obligations owing hereunder and thereunder to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrowers; (iii) enforce, as Agent (or direct the Collateral Agent to enforce),
any or all of the Liens and security interests created pursuant to the Pledge
Agreements; (iv) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (v) direct the Company to pay (and the Company
hereby agrees that on receipt of such notice or upon the occurrence of an Event
of Default with respect to the Company under Section 9.05, it will pay) to the
Collateral Agent an amount of cash equal to the aggregate Stated Amount of all
Letters of Credit then outstanding (such amount to be held as security for the
Company's reimbursement obligations in respect thereof).

SECTION 10. DEFINITIONS. As used herein, the following terms shall
have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:

"Acquisition" shall mean the tender offer by the Company or TO Sub of
the outstanding capital stock of Rainford, as effected pursuant to the
Acquisition Documents.

"Acquisition Documents" shall mean the Recommended Cash Offer by
Lazard Brothers & Co. Limited and Salomon Brothers International Limited on
behalf of the Company previously delivered to the Banks under, and in compliance
with the provisions of, the Original Credit Agreement or as otherwise acceptable
to the Agent, and without giving effect to any amendment or modification thereof
not consented to by the Required Banks.

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"Additional Charges" shall mean the additional interest and Fees, if
any, payable as a result of the delivery of a Subsequent Cost Adjustment
Certificate that reduces the cost reduction synergies estimated in the related
Cost Adjustment Certificate, all as calculated by the Agent promptly after
receipt of any such Subsequent Cost Adjustment Certificate on the basis that
such reduced cost reduction synergies had been those that should have been
included in the related Cost Adjustment Certificates, and notified to the
Company and the Banks.

"Affected Loans" shall have the meaning provided in Section 4.02(B).

"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and officers of such Person), controlled by, or under direct or indirect common
control with such Person. A Person shall be deemed to control a second Person
if such first Person possesses, directly or indirectly, the power (i) to vote
10% or more of the securities having ordinary voting power for the election of
directors or managers of such second Person or (ii) to direct or cause the
direction of the management and policies of such second Person, whether through
the ownership of voting securities, by contract or otherwise.

"Agent" shall have the meaning provided in the first paragraph of this
Agreement and shall include any successor to the Agent appointed pursuant to
Section 11.09.

"Agreement" shall mean this Credit Agreement, as the same may be from
time to time further modified, amended and/or supplemented.

"Alternate Currency" shall mean each of Deutsche Marks, Pounds
Sterling and Yen.

"Alternate Currency Equivalent" shall mean the Deutsche Mark
Equivalent, the Sterling Equivalent or the Yen Equivalent, as the case may be.

"Alternate Currency Loan" shall mean any Loan denominated in an
Alternate Currency.

"Anticipated Reinvestment Amount" shall mean, with respect to any
Reinvestment Election, the amount specified in the Reinvestment Notice delivered
by the Company in connection therewith as the portion of the Net Cash Proceeds
from the related Asset Sale that the Company intends to use to purchase,
construct or otherwise acquire Reinvestment Assets.

"Applicable Currency" shall mean Dollars and each Alternate Currency.

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"Applicable Margin" shall mean for Revolving Loans and Swingline
Loans, as the case may be, the applicable percentage set forth below based upon
the RF Level then in effect:

Euro Rate
and Sterling Dollar
Rf Level Base Rate Base Rate
-------- ------------ ---------

RF Level I 1.375% 0.125%
RF Level II 1.200% 0
RF Level III 1.000% 0
RF Level IV 0.750% 0
RF Level V 0.500% 0
RF Level VI 0.425% 0
RF Level VII 0.325% 0

"Applicable Percentage" shall mean on any date, with respect to
Facility Fees and Letter of Credit Fees, as the case may be, the applicable
percentage set forth below based upon the RF Level then in effect:

Facility Letter of
Rf Level Fee Credit Fee
-------- -------- ----------

RF Level I 0.375% 1.125%
RF Level II 0.300% 0.950%
RF Level III 0.250% 0.750%
RF Level IV 0.250% 0.500%
RF Level V 0.250% 0.250%
RF Level VI 0.200% 0.175%
RF Level VII 0.175% 0.075%

"Asset Sale" shall mean the sale, transfer or other disposition by the
Company or any Restricted Subsidiary to any Person other than the Company or any
Subsidiary Guarantor of any asset of the Company or such Restricted Subsidiary
(including the sale of any stock in a Subsidiary IPO) but other than (i) sales,
transfers or other dispositions of inventory or obsolete or excess equipment in
the ordinary course of business; (ii) sales of accounts receivable pursuant to
the Specified Receivables Facility; (iii) sales or discounts of foreign
receivables to the extent permitted by Section 8.02(h)(y); and (iv) other sales,
transfers or other dispositions with proceeds aggregating no more than
$1,000,000 in any fiscal year).

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"Assignment Agreement" shall mean an Assignment Agreement
substantially in the form of Exhibit I hereto.

"Authorized Officer" shall mean, with respect to any Borrower, any
executive officer of such Borrower designated as such in writing to the Agent by
the Borrower to the extent acceptable to the Agent.

"Bank" shall have the meaning provided in the first paragraph of this
Agreement.

"Bank Default" shall mean (i) the refusal (which has not been
retracted) of a Bank to make available its portion of any incurrence of Loans or
any Mandatory Borrowing or to fund its portion of any unreimbursed payment under
Section 2.05(c) or (ii) a Bank having notified the Agent and/or any Borrower
that it does not intend to comply with the obligations under Section 1.01(A) or
1.01(C) and/or Section 2.05(c), in the case of either (i) or (ii) as a result of
the appointment of a receiver or conservator with respect to such Bank at the
direction or request of any regulatory agency or authority.

"Bank Register" shall have the meaning provided in Section 13.17.

"Bankruptcy Code" shall have the meaning provided in Section 9.05.

"Base Rate" shall mean and include each of the Dollar Base Rate and
the Sterling Base Rate.

"Base Rate Loan" shall mean (i) each Swingline Loan, (ii) each Loan
denominated in Dollars and bearing interest at the Dollar Base Rate and (iii)
each Loan denominated in Pounds Sterling and bearing interest at the Sterling
Base Rate.

"Borrower" shall mean and include the Company and the UK Borrower, or
either of them.

"Borrowing" shall mean and include the incurrence of one Type of DRF
Loan or MCRF Loan by a Borrower from all of the Banks having Commitments with
respect to such Facility on a PRO RATA basis on a given date (or resulting from
conversions on a given date), having in the case of Euro Rate Loans the same
Interest Period, PROVIDED that Base Rate Loans incurred pursuant to Section
1.09(b) shall be considered part of any related Borrowing of Euro Rate Loans.

"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) or (iii) below, any day except Saturday, Sunday and any day which
shall be in New York City a legal holiday or a day on which banking institutions
are authorized or required by law

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or other government action to close, (ii) with respect to all notices and
determinations in connection with, and payments of principal and interest on
Euro Rate Loans, any day which is a Business Day described in clause (i) above
and which is also a day for trading by and between banks in the applicable
interbank Eurodollar market and (iii) with respect to all notices and
determinations in connection with, and payments of principal and interest on,
any Alternate Currency Loans, any day which is a Business Day described in
clause (i) and (ii) above and which shall not be a legal holiday or a day on
which banking institutions are authorized or required by law or other government
action to close in the city where the applicable Payment Office of the Agent is
located in respect of such Alternate Currency Loans.

"Capital Lease" as applied to any Person shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.

"Capitalized Lease Obligations" shall mean all obligations under
Capital Leases of the Company or any of its Restricted Subsidiaries in each case
taken at the amount thereof accounted for as liabilities in accordance with
GAAP.

"Cash Proceeds" shall mean, with respect to any Asset Sale, the
aggregate cash payments (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, but only as and
when so received) received by the Company and/or any Restricted Subsidiary from
such Asset Sale.

"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. Section 9601 ET SEQ.

"Change of Control" shall mean and include (i) KKR and its Affiliates
shall cease to own, directly or indirectly, at least 50% of the outstanding
voting stock of the Company (other than as the direct result of one or more
public offerings of the common stock of the Company), (ii) during any period of
two consecutive calendar years, individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election by the Company's Board of Directors or whose nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
directors then in office and/or (iii) any "change in control" or any similar
term as defined in any of the indentures, agreements or instruments governing
any Permitted Subordinated Debt or any other Indebtedness of the Company or any
Restricted Subsidiary.

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"Chase" shall mean The Chase Manhattan Bank.

"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the Restatement
Effective Date and any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.

"Collateral" shall mean all of the Collateral as defined in the Pledge
Agreements.

"Collateral Agent" shall mean the Agent acting as collateral agent for
the Banks pursuant to the Pledge Agreements.

"Commitment" shall mean, with respect to each Bank, the sum of such
Banks' DRF Commitment and MCRF Commitment.

"Company" shall mean RELTEC Holdings, Inc., a Delaware Corporation.

"Company Pledge Agreement" shall have the meaning provided in Section
5.01(h)(i).

"Consolidated Capital Expenditures" shall mean, with respect to any
Person, all expenditures by such Person and its Restricted Subsidiaries which
would be capitalized in accordance with GAAP, including all such expenditures
with respect to fixed or capital assets (including, without limitation,
expenditures for maintenance and repairs which should be capitalized in
accordance with GAAP) and the amount of all Capitalized Lease Obligations
incurred by such Person and its Restricted Subsidiaries (but excluding
expenditures made in connection with the replacement, substitution or
restoration of assets (A) to the extent financed from insurance proceeds paid on
account of the loss of or damage to the assets being replaced or restored or (B)
with awards of compensation arising from the taking by eminent domain or
condemnation of the assets being replaced), PROVIDED that Consolidated Capital
Expenditures shall in any event include the purchase price paid in connection
with the acquisition of any Person (including through the purchase of all of the
capital stock or other ownership interests of such Person or through merger or
consolidation) to the extent allocable to property, plant and equipment.

"Consolidated Net Income" shall mean for any period, the net income
(or loss) of the Company and its Restricted Subsidiaries on a consolidated basis
for such period taken as a single accounting period determined in conformity
with GAAP, PROVIDED that there shall be excluded (i) the income (or loss) of any
Unrestricted Subsidiary or of any other entity (other than a Restricted
Subsidiary) in which any other Person (other than the Company or any of its
Restricted Subsidiaries) has a joint interest, except to the extent of the
amount of dividends or

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other distributions actually paid to the Company or any Restricted Subsidiary by
any such Unrestricted Subsidiary or other entity during such period, (ii) the
income (or loss) of any entity accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any Restricted
Subsidiary or on which its assets are acquired by such Company or any Restricted
Subsidiaries and (iii) the income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary.

"Contingent Obligations" shall mean as to any Person any obligation of
such Person guaranteeing any Indebtedness, leases, dividends or other
obligations ("primary obligations") of any other Person (the "primary obligor")
in any manner, whether directly or indirectly, including, without limitation,
any obligation of such Person, whether or not contingent, (a) to purchase any
such primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof, PROVIDED, HOWEVER, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.

"Cost Adjustment Certificate" shall mean, with respect to an
acquisition, a certificate executed by an Authorized Officer of the Company
setting forth the factually supportable and identifiable cost reduction
synergies estimated in good faith to result from such acquisition during the
Cost Synergy Period relating to such acquisition.

"Cost Synergy Period" shall have the meaning provided in the
definition of EBITDA.

"Credit Documents" shall mean this Agreement, the Notes, the Pledge
Agreements and the Subsidiary Guaranty.

"Credit Event" shall mean the making of any Loans and/or the issuance
of any Letter of Credit.

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"Credit Party" shall mean each Borrower and each Subsidiary Guarantor.

"Creditors" shall mean the Agent and the Banks.

"Cumulative Consolidated Net Income" shall mean, at any time for any
determination thereof, the Consolidated Net Income for the period (taken as one
accounting period) commencing on July 1, 1996 and ending on the last day of the
then most recently ended fiscal quarter of the Company.

"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.

"Defaulting Bank" shall mean any Bank with respect to which a Bank
Default is in effect.

"Deutsche Mark Equivalent" shall mean, at any time for the
determination thereof, the amount of Deutsche Marks which could be purchased
with the amount of Dollars involved in such computation at the spot exchange
rate therefor as quoted by the Agent as of 11:00 A.M. (London time) on the date
two Business Days prior to the date of any determination thereof for purchase on
such date.

"Deutsche Mark Euro Rate" shall mean, for each Interest Period
applicable to a Euro Rate Loan denominated in Deutsche Marks, the rate per annum
that appears on page 3750 of the Dow Jones Telerate Screen (or any successor
page) for Deutsche Mark deposits with maturities comparable to such Interest
Period as of 11:00 A.M. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period or, if such a rate does not
appear on page 3750 of the Dow Jones Telerate Screen (or any successor page),
the offered quotation to first-class banks in the London interbank Eurodollar
market by the Agent for Deutsche Mark deposits of amounts in same day funds
comparable to the outstanding principal amount of the Euro Rate Loan of the
Agent denominated in Deutsche Marks for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable to
such Euro Rate Loan determined as of 11:00 A.M. (London time) on the date which
is two Business Days prior to the commencement of such Interest Period.

"Deutsche Marks" shall mean freely transferable lawful money of
Germany.

"Dividends" shall have the meaning provided in Section 8.09.

"Dollar Base Rate" at any time shall mean the higher of (i) the rate
which is 1/2 of 1% in excess of the Federal Funds Effective Rate and (ii) the
Prime Lending Rate.

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"Dollar Equivalent" shall mean, at any time for the determination
thereof, the amount of Dollars which could be purchased with (or, in the case of
Letters of Credit denominated in an Alternate Currency, the amount of Dollars
necessary to purchase) the amount of the relevant Alternate Currency involved in
such computation at the spot exchange rate therefor as quoted by the Agent as of
11:00 A.M. (London time) on the date two Business Days prior to the date of any
determination thereof for purchase on such date.

"Dollar Swingline Loans" shall have the meaning provided in Section
1.01(B)(i).

"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.

"Domestic Subsidiary" shall mean each Subsidiary that is organized
under the laws of the United States or any state thereof.

"DRF Commitment" shall mean, with respect to each Bank, the amount set
forth opposite such Bank's name in Annex I hereto directly below the column
entitled "DRF Commitment," as the same may be reduced from time to time pursuant
to Section 3.03, 3.04 and/or 9 or (y) adjusted from time to time as a result of
assignments to or from such Bank pursuant to Section 1.12 and/or 13.04.

"DRF Facility" shall mean the Facility evidenced by the Total DRF
Commitment.

"DRF Loan" shall have the meaning provided in Section 1.01(a).

"DRF Note" shall have the meaning provided in Section 1.04(a).

"DRF Percentage" shall mean, at any time for each Bank with a DRF
Commitment, the percentage obtained by dividing such Bank's DRF Commitment by
the Total DRF Commitment, PROVIDED that if the Total DRF Commitment has been
terminated, the DRF Percentage of each Bank shall be determined by dividing such
Bank's DRF Commitment immediately prior to such termination by the Total DRF
Commitment immediately prior to such termination.

"EBIT" shall mean, for any period, (A) the sum of the amounts for such
period of (i) Consolidated Net Income, (ii) provisions for taxes based on
income, (iii) Total Interest Expense, (iv) amortization or write-off of deferred
financing costs to the extent deducted in determining Consolidated Net Income,
(v) board and management fees, (vi) non-recurring charges in an aggregate amount
not to exceed an amount equal to 10% of EBITDA for such period and (vii) losses
on sales of assets (excluding sales in the ordinary course of business)

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and other extraordinary losses and other one-time non-cash charges LESS (B)
gains on sales of assets (excluding sales in the ordinary course of business)
and other extraordinary gains and other one-time non-cash gains, all as
determined for the Company and its Restricted Subsidiaries on a consolidated
basis in accordance with GAAP.

"EBITDA" shall mean, for any period, the sum of the amounts for such
period of (i) EBIT, (ii) depreciation expense, (iii) amortization expense and
(iv) any other non-cash charges, all as determined for the Company and its
Restricted Subsidiaries on a consolidated basis in accordance with GAAP;
PROVIDED that (x) for purposes of computation under Sections 8.11 and 8.12 and
the definition of "Ratio" (i) for any business of the Company or any Restricted
Subsidiary, or for any Restricted Subsidiary, acquired and any Unrestricted
Subsidiary that is converted into a Restricted Subsidiary during a Test Period,
EBITDA for such Test Period shall be determined on a PRO FORMA basis as if such
acquisition or conversion had occurred as of the beginning of such Test Period
and (ii) for any business of the Company or any Restricted Subsidiary, or for
any Restricted Subsidiary, disposed of and any Restricted Subsidiary that is
converted into an Unrestricted Subsidiary during a Test Period, EBITDA for such
Test Period shall be determined on a PRO FORMA basis as if such disposition or
conversion had occurred as of the beginning of such Test Period and (y) for the
purposes only of determining the Ratio for use in the definitions of Applicable
Margin, Applicable Percentage and each of the RF Levels in the event the Company
delivers a Cost Adjustment Certificate to the Agent within 20 Business Days
after completing the related acquisition, EBITDA for the period from the date of
such acquisition to but not including the last day of the fourth full fiscal
quarter of the Company ending after such acquisition (the "Cost Synergy Period")
shall be increased by the amount of the estimated cost reduction synergies set
forth on such Cost Adjustment Certificate as such amount may be reduced as set
forth on any Subsequent Cost Adjustment Certificate, it being understood that
during a Cost Synergy Period relating to a particular acquisition all actual
cost reduction synergies of the types set forth on the related Cost Adjustment
Certificate shall be disregarded in connection with determining the Ratio for
the uses set forth above in this clause (y).

"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in SEC
Regulation D), in each case which is not a direct competitor of the Company or
engaged in the same or similar business as the Company, or any of its
Subsidiaries or is not an Affiliate of any such competitors of the Company or
any of its Subsidiaries.

"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law or any permit issued under any such law
(hereafter "Claims"), including, without limitation, (a) any and all Claims by
governmental or regulatory authorities for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law,

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and (b) any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment caused by Hazardous Materials.

"Environmental Law" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, and rule of common law
now or hereafter in effect and in each case as amended, and any judicial or
administrative order, consent, decree or judgment issued to or rendered against
the Company or any of its Subsidiaries relating to the environment, employee
health and safety or Hazardous Materials, including, without limitation, CERCLA;
RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 2601 ET SEQ.,
the Clean Air Act, 42 U.S.C. Section 7401 ET SEQ.; the Safe Drinking Water Act,
42 U.S.C. Section 3803 ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. Section
2701 ET SEQ.; the Emergency Planning and the Community Right-to-Know Act of
1986, 42 U.S.C. Section 11001 ET SEQ.; the Hazardous Material Transportation
Act, 49 U.S.C. Section 1801 ET SEQ.; and the Occupational Safety and Health Act,
29 U.S.C. Section 651 ET SEQ. (to the extent it regulates occupational exposure
to Hazardous Materials); and any state and local or foreign counterparts or
equivalents, in each case as amended from time to time.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the Restatement Effective Date and any subsequent provisions of ERISA,
amendatory thereof, supplemental thereto or substituted therefor.

"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which, as a result of facts in existence on or after the Restatement
Effective Date, together with the Company or a Restricted Subsidiary would be
deemed to be a "single employer" (i) within the meaning of Section 414(b), (c),
(m) or (o) of the Code or (ii) as a result of the Company or a Restricted
Subsidiary being or having been a general partner of such person.

"Euro Rate" shall mean and include each of the Eurodollar Rate, the
Deutsche Mark Euro Rate, the Sterling Euro Rate and the Yen Euro Rate.

"Euro Rate Loan" shall mean any Loan bearing interest at the Euro
Rate.

"Eurodollar Rate" shall mean, with respect to each Interest Period for
a Euro Rate Loan denominated in Dollars, the offered quotation to first-class
banks in the interbank Eurodollar market by the Agent for dollar deposits of
amounts in same day funds comparable to the outstanding principal amount of the
Euro Rate Loan of the Agent denominated in Dollars, for which an interest rate
is then being determined with maturities comparable to the

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Interest Period to be applicable to such Eurodollar Loan determined as of 11:00
A.M. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period.

"Event of Default" shall have the meaning provided in Section 9.

"Existing Indebtedness" shall mean (x) all Indebtedness listed on
Annex VII and referred to in Section 6.17 and (y) such other Indebtedness of the
Company and its Subsidiaries existing as of the Restatement Effective Date and
not so listed on Annex VII.

"Existing Letter of Credit" shall have the meaning provided in Section
2.02.

"Facility" shall mean any of the Facilities established under this
Agreement, I.E., the DRF Facility or the MCRF Facility.

"Facility Fee" shall have the meaning provided in Section 3.01(a).

"Facing Fee" shall have the meaning provided in Section 3.01(c).

"Federal Funds Effective Rate" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.

"Fees" shall mean all amounts payable pursuant to, or referred to in,
Section 3.01.

"Foreign Investment" shall mean an investment in an entity organized
outside the United States which is not a Foreign Subsidiary.

"Foreign Subsidiary" shall mean each Subsidiary that is not a Domestic
Subsidiary.

"Four Quarter EBITDA" shall mean, as of any date of determination
thereof, EBITDA for the four consecutive fiscal quarters of the Company ending
on such date and taken as one accounting period.

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"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that determinations in accordance with GAAP for purposes of Section 8,
including defined terms as used therein, are subject (to the extent provided
therein) to Section 13.07(a).

"Governmental Authority" shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.

"Guarantee Obligations" shall mean all indebtedness of the UK Borrower
under this Agreement or the other Credit Documents. The word "indebtedness" as
used in the preceding sentence is used in its most comprehensive sense and
includes any and all advances, debts, obligations and liabilities of the UK
Borrower arising under this Agreement or the other Credit Documents, heretofore,
now, or hereafter made, incurred or created, whether voluntarily or
involuntarily, absolute or contingent, liquidated or unliquidated, determined or
undetermined, whether or not such indebtedness is from time to time reduced, or
extinguished and thereafter increased or incurred, whether the UK Borrower may
be liable individually or jointly with others (and whether in its capacity as a
borrower or guarantor), and whether or not such indebtedness may be or hereafter
become otherwise unenforceable.

"Guarantor" shall mean each of the Company and each Subsidiary
Guarantor.

"Guaranty" shall mean and include each of the guaranty of the Company
set forth in Section 12 and the Subsidiary Guaranty.

"Hazardous Materials" shall mean (a) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is friable, urea
formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
and (b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"restricted hazardous materials," "extremely hazardous wastes," "restrictive
hazardous wastes," "toxic substances," "toxic pollutants," "contaminants" or
"pollutants," or words of similar meaning and regulatory effect under any
applicable Environmental Law.

"Indebtedness" of any Person shall mean without duplication (i) all
indebtedness of such Person for borrowed money, (ii) the deferred purchase price
of assets or services which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person, (iii) the face amount of all
letters of credit issued for the account of such Person and, without
duplication, all drafts drawn thereunder, (iv) all Indebtedness of a second
Person secured by any Lien on any property owned by such first Person, whether
or not such indebtedness has been assumed, (v) all Capitalized Lease Obligations
of such Person, (vi) all

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obligations of such Person to pay a specified purchase price for goods or
services whether or not delivered or accepted, I.E., take-or-pay and similar
obligations, (vii) all net obligations of such Person under Interest Rate
Agreements and (viii) all Contingent Obligations of such Person, PROVIDED that
Indebtedness shall not include trade payables and accrued expenses and deferred
revenues, in each case arising in the ordinary course of business.

"Interest Coverage Ratio" shall mean, for any Test Period, the ratio
of (x) EBITDA to (y) Total Cash Interest Expense, in each case for such Test
Period.

"Interest Period" shall mean with respect to any Revolving Loan
constituting a Euro Rate Loan, the interest period applicable thereto as
determined pursuant to Section 1.08.

"Interest Rate Agreement" shall mean any interest rate swap agreement,
any interest rate cap agreement, any interest rate collar agreement or other
similar agreement or arrangement designed to protect against fluctuations in
interest rates.

"Investments" shall have the meaning provided in Section 8.05.

"Judgment Currency" shall have the meaning provided in Section
13.16(a).

"Judgment Currency Conversion Date" shall have the meaning provided in
Section 13.16(a).

"KKR" shall mean Kohlberg Kravis Roberts & Co., L.P., a Delaware
limited partnership.

"KKR Affiliates" shall mean any partnership or fund controlled
directly or indirectly by KKR.

"KKR Bridge" shall have the meaning provided in Section 5.01(m) of the
Original Credit Agreement.

"KKR Bridge Conversion" shall have the meaning provided in Section
5.01(m).

"KKR Bridge Conversion Documents" shall have the meaning provided in
Section 5.01(m).

"Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.

"Letter of Credit" shall have the meaning provided in Section 2.01.

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"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).

"Letter of Credit Issuer" shall mean (i) Chase and/or (ii) such other
Bank requested to so act by the Company and acceptable to the Agent.

"Letter of Credit Outstandings" shall mean, at any time, the sum,
without duplication, of (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings.

"Letter of Credit Request" shall have the meaning provided in Section
2.03(a).

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

"Loan" shall have the meaning provided in Section 1.01.

"Loan Notes" shall mean the loan notes issued by the Company or TO Sub
under and pursuant to the tender offer for the outstanding capital stock of
Rainford in lieu of a payment in cash, all of the terms of which were acceptable
to the Agent under the Original Credit Agreement or shall otherwise be
acceptable to the Agent provided that the principal amount of such Loan Notes
shall not exceed $500,000.

"Loan Notes Guaranty" shall mean the guaranty of the principal and
interest on the Loan Notes issued by Chase (or one of its affiliates) with a
maturity prior to the Maturity Date.

"Local Time" shall mean the local time in effect at (x) the applicable
Notice Office (in the case of Notices of Borrowings and Notices of Conversions)
and (y) the applicable Payment Office in the case of all payments and
disbursements of Loans or Letters of Credit.

"Mandatory Borrowing" shall have the meaning provided in Section
1.01(C).

"Margin Stock" shall have the meaning provided in Regulation U.

"Material Adverse Effect" shall mean a material adverse effect on the
business, assets, liabilities, operations, results of operations or condition
(financial or otherwise) of the Company and its Restricted Subsidiaries taken as
a whole.

"Material Subsidiary" shall mean, at any time, the UK Borrower and any
other Restricted Subsidiary that (x) has assets at such time comprising 5% or
more of the

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consolidated assets of the Company and its Subsidiaries or (y) had net income in
the most recently ended fiscal year of the Company comprising 5% or more of the
consolidated net income of the Company and its Subsidiaries for such fiscal
year.

"Maturity Date" shall mean September 30, 2003.

"MCRF Commitment" shall mean, with respect to each Bank, the amount
set forth opposite such Bank's name in Annex I hereto directly below the column
entitled "MCRF Commitment," as the same may be reduced from time to time
pursuant to Section 3.03, 3.04 and/or 9 or (y) adjusted from time to time as a
result of assignments to or from such Bank pursuant to Section 1.12 and/or
13.04.

"MCRF Facility" shall mean the Facility evidenced by the Total MCRF
Commitment.

"MCRF Loan" shall have the meaning provided in Section 1.01(b).

"MCRF Note" shall have the meaning provided in Section 1.04(a).

"MCRF Percentage" shall mean, at any time for each Bank with an MCRF
Commitment, the percentage obtained by dividing such Bank's MCRF Commitment by
the Total MCRF Commitment, PROVIDED that if the Total MCRF Commitment has been
terminated, the MCRF Percentage of each Bank shall be determined by dividing
such Bank's MCRF Commitment immediately prior to such termination by the Total
MCRF Commitment immediately prior to such termination.

"Minimum Borrowing Amount" shall mean (i) for Dollar denominated loans
that are (x) Base Rate Loans, $1,000,000 and (y) Euro Rate Loans, $2,500,000,
(ii) for Alternate Currency Loans that are Euro Rate Loans, an amount in the
respective Alternate Currency having a Dollar Equivalent of $2,500,000, (iii)
for Sterling denominated MCRF Loans that are Base Rate Loans, an amount in
Pounds Sterling having a Dollar Equivalent of $1,500,000 and (iv) for Swingline
Loans, $250,000 (or the Dollar Equivalent thereof).

"Modified Ratio" shall mean, at the time of any Asset Sale, the Ratio
at such time modified by computing the Four Quarter EBITDA included in such
Ratio on a pro forma basis as if such Asset Sale had occurred as of the
beginning of the period for which such Four Quarter EBITDA is being determined.

"Moody's" shall mean Moody's Investors Service, Inc. and its
successors.

"Net Cash Proceeds" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net of (i) reasonable and customary expenses
of sale incurred in

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connection with such Asset Sale, and other reasonable and customary fees and
expenses incurred, and all state, and local taxes paid or reasonably estimated
to be payable, as a consequence of such Asset Sale and the payment of principal,
premium and interest of Indebtedness secured by the asset which is the subject
of the Asset Sale and required to be, and which is, repaid under the terms
thereof as a result of such Asset Sale, (ii) amounts of any distributions
payable to holders of minority interests in the relevant Person or in the
relevant property or assets, (iii) incremental income taxes paid or payable as a
result thereof and (iv) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities (other than any taxes deducted
pursuant to clauses (i) and (iii) above) associated with the assets sold or
disposed of and retained by the Company or any of its Restricted Subsidiaries.

"1996 Preferred Stock" shall mean the Company's Series A Redeemable
Preferred Stock with an aggregate liquidation preference not to exceed
$1,000,000 issued by the Company pursuant to the KKR Bridge Conversion in
exchange for an equal principal amount of the KKR Bridge.

"Non-Defaulting Bank" shall mean each Bank other than a Defaulting
Bank.

"Note" shall mean and include each DRF Note, each MCRF Note and the
Swingline Note.

"Notice of Borrowing" shall have the meaning provided in Section 1.02.

"Notice of Conversion" shall have the meaning provided in Section
1.05.

"Notice Office" shall mean (x) in respect of notices relating to the
DRF Facility, Letters of Credit and any other notice not referred to in clause
(y) below, the offices of the Agent at (i) One Chase Manhattan Plaza, Sixth
Floor, New York, New York 10081 Attention: Mark Shannon, Telephone (212)
552-2457, Facsimile (212) 552-3263 and (ii) 2 Grand Central Tower, 140 East 45th
Street, 29th Floor, New York, New York 10017, Attention: Sandra Miklave,
Telephone (212) 622-0005, Facsimile (212) 622-0002 and (y) in respect of notices
relating to the MCRF Facility, the office of the Agent at Trinity Tower, 9
Thomas More Street, London EC1 9YT, Attention: Steve Hurford, Telephone
44-171-777-2353, Facsimile 44-171-777-2360/2085, or, in either case, such other
office as the Agent may designate to the Company from time to time.

"Obligation Currency" shall have the meaning provided in Section
13.16(a).

"Obligations" shall mean all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing to
the Agent or any Bank pursuant to the terms of this Agreement or any other
Credit Document.

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"Original Credit Agreement" shall have the meaning provided in the
recitals to this Agreement.

"Participant" shall have the meaning provided in Section 2.05(a).

"Payment Office" shall mean (i) for all purposes other than as
specified in clauses (ii) through (iv) below, the office of the Agent at 4
Metrotech Center, Brooklyn, New York 11245, (ii) in the case of MCRF Loans
denominated in Pounds Sterling and Sterling Swingline Loans, the office of the
Agent, located in London, England, Account Name Chase Manhattan Bank, Account
Number CHAPS 40 52 06, (iii) in the case of MCRF Loans denominated in Deutsche
Marks, the Agent's account located at Chase Bank AG, Frankfurt, Germany, Account
Name Chase Manhattan International, Ltd., Account Number 0101-080002101 and (iv)
in the case of MCRF Loans denominated in Yen, the Agent's Account located at
Chase Manhattan Tokyo, Account Name Chase Manhattan International, Ltd., Account
Number 3401-211623650 or such other office as the Agent may designate to the
Company from time to time.

"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.

"Percentage" shall mean either the DRF Percentage or MCRF Percentage,
as applicable.

"Permitted Acquisition" shall mean any investment or other acquisition
permitted by Section 8.05.

"Permitted Subordinated Debt" shall mean unsecured subordinated debt
issued by the Company and which may be guaranteed by the Subsidiary Guarantors,
PROVIDED that all material terms thereof (such as maturity, interest rate,
amortization and prepayments, covenants, defaults and subordination provisions),
together with any amendment to any thereof, shall be satisfactory to the Agent
and the Required Banks.

"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.

"Plan" shall mean any multiemployer or single-employer plan as defined
in Section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute of) the Company or a Subsidiary or an ERISA
Affiliate, and each such plan for the five year period immediately following the
latest date on which the Company, or a Subsidiary or an ERISA Affiliate
maintained, contributed to or had an obligation to contribute to such plan.

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"Pledge Agreements" shall mean the Company Pledge Agreement, the UK
Pledge Agreement and the Subsidiary Pledge Agreement.

"Pledged Securities" shall mean all the Pledged Securities as defined
in the Pledge Agreements.

"Pounds Sterling" shall mean freely transferable lawful money of the
United Kingdom.

"Prime Lending Rate" shall mean the rate which the Agent announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Agent may make commercial loans or other
loans at rates of interest at, above or below the Prime Lending Rate.

"Principal Amount" shall mean (i) the stated principal amount of each
Revolving Loan denominated in Dollars and of all Dollar Swingline Loans, (ii)
the Stated Amount of, and all Unpaid Drawings under, each Letter of Credit and
(iii) the Dollar Equivalent of each Alternate Currency Loan.

"Rainford" shall mean Rainford Group plc, a United Kingdom
corporation.

"Ratio" shall mean, at any time, the ratio of Total Indebtedness to
Four Quarter EBITDA as determined as of the last day of the last fiscal quarter
for which financial statements have been delivered prior to such time of
determination to the Banks pursuant to Section 7.01(a) or 7.01(b), PROVIDED that
(i) until such time as any such financial statements are first delivered to the
Banks and/or (ii) at any time when the delivery of any such financial statements
are more than 45 days overdue, the ratio shall be deemed to be greater than
5.0:1.0.

"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. Section 6901 ET SEQ.

"Real Property" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.

"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.

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"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing margin requirements.

"Reinvestment Assets" shall mean any assets to be employed in the
business of the Company and its Subsidiaries as described in Section 8.01.

"Reinvestment Election" shall have the meaning provided in Section
3.04(d).

"Reinvestment Notice" shall mean a written notice signed by an
Authorized Officer of the Company stating that the Company, in good faith,
intends and expects to use the portion specified therein of the Net Cash
Proceeds of an Asset Sale to purchase, construct or otherwise acquire
Reinvestment Assets.

"Reinvestment Reduction Amount" shall mean, with respect to any
Reinvestment Election, the amount, if any, on the Reinvestment Reduction Date
relating thereto by which (a) the Anticipated Reinvestment Amount in respect of
such Reinvestment Election exceeds (b) the aggregate amount thereof expended by
the Company and its Subsidiaries to acquire Reinvestment Assets.

"Reinvestment Reduction Date" shall mean, with respect to any
Reinvestment Election, the earlier of (i) the date occurring one year after such
Reinvestment Election and (ii) the date on which the Company shall have
determined not to, or shall have otherwise ceased to, proceed with the purchase,
construction or other acquisition of Reinvestment Assets with the related
Anticipated Reinvestment Amount.

"RELTEC" shall mean RELTEC Corporation, a Delaware corporation.

"Replaced Bank" shall have the meaning provided in Section 1.12.

"Replacement Bank" shall have the meaning provided in Section 1.12.

"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC
Regulation Section 2615.

"Required Banks" shall mean Non-Defaulting Banks with outstanding
Commitments (or, if after the Total Commitment has been terminated, RF
Percentages) constituting at least 51% of the sum of the Commitments of
Non-Defaulting Banks (or, if after the Total Commitment has been terminated, the
aggregate RF Percentages of all Non-Defaulting Banks).

"Resident Country" shall have the meaning provided in Section 4.04(c).

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"Restatement Effective Date" shall have the meaning provided in
Section 5.01.

"Restricted Foreign Subsidiary" shall mean each Foreign Subsidiary
that is a Restricted Subsidiary.

"Restricted Subsidiary" shall mean each Subsidiary other than an
Unrestricted Subsidiary, PROVIDED that an Unrestricted Subsidiary may be
converted into a Restricted Subsidiary upon at least 15 days' prior written
notice from the Company to the Agent to such effect, which notice shall set
forth computations demonstrating that the provisions of Sections 8.11 and 8.12
would have been complied with on a PRO FORMA basis as of the end of the Test
Period last ended if such conversion had occurred on the first day of such Test
Period, it being understood and agreed that an Unrestricted Subsidiary that is
converted into a Restricted Subsidiary pursuant to the foregoing proviso shall
not be eligible to be converted back into an Unrestricted Subsidiary until the
date which is eighteen months after the date of such initial conversion.

"Revolving Loan" shall mean and include each DRF Loan and each MCRF
Loan.

"RF Level" shall mean and include RF Level I, RF Level II, RF Level
III, RF Level IV, RF Level V, RF Level VI or RF Level VII, whichever is then in
effect.

"RF Level I" shall exist at any time that the Ratio is greater than
4.75:1.0.

"RF Level II" shall exist at any time that the Ratio is greater than
4.25:1.0 but not greater than 4.75:1.0.

"RF Level III" shall exist at any time that the Ratio is greater than
3.75:1.0 but not greater than 4.25:1.0.

"RF Level IV" shall exist at any time that the Ratio is greater than
3.25:1.0 but not greater than 3.75:1.0.

"RF Level V" shall exist at any time that the Ratio is greater than
2.75:1.0 but not greater than 3.25:1.0.

"RF Level VI" shall exist at any time the ratio is greater than
2.25:1.0 but not greater than 2.75:1.0.

"RF Level VII" shall exist at any time that the Ratio is not greater
than 2.25:1.0.

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"RF Percentage" shall mean, at any time for each Bank the percentage
obtained by dividing such Bank's Commitment by the Total Commitment, PROVIDED
that if the Total Commitment has been terminated, the RF Percentage of each Bank
shall be determined by dividing such Bank's Commitment immediately prior to such
termination by the Total Commitment immediately prior to such termination.

"S&P" shall mean Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, and its successors.

"Scheduled Commitment Reduction" shall have the meaning provided in
Section 3.04(b).

"SEC" shall mean the United States Securities and Exchange Commission.

"SEC Regulation D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.

"SEC Reporting Requirement" shall exist at any time that the Company
is required, under then existing rules and regulations of or applicable to the
SEC, to file periodic financial reports with the SEC.

"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b)(ii).

"Sharing Event" shall mean (i) the acceleration of the Loans hereunder
or (ii) any Event of Default declared by the Required Banks to be a Sharing
Event.

"Specified Receivables Facility" shall mean an off balance sheet
accounts receivable facility agented by any Bank and in form and substance
satisfactory to the Agent to which all the Banks shall be invited to participate
(PRO RATA on the basis of their RF Percentages) and pursuant to which the
accounts receivable of RELTEC and its Subsidiaries shall be financed.

"Stated Amount" of each Letter of Credit shall mean the maximum
available to be drawn thereunder (regardless of whether any conditions for
drawing could then be met), PROVIDED that the "Stated Amount" of each Letter of
Credit denominated in Pounds Sterling shall be the Dollar Equivalent of the
maximum amount available to be drawn in Pounds Sterling thereunder (regardless
of whether any conditions for drawing could then be met).

"Sterling Base Rate" shall mean at any time a rate per annum equal to
the Bank of England Minimum Lending Rate at such time plus .25%.

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"Sterling Equivalent" shall mean, at any time for the determination
thereof, the amount of Pounds Sterling which could be purchased with the amount
of Dollars involved in such computation at the spot exchange rate therefor as
quoted by the Agent as of 11:00 A.M. (London time) on the date two Business Days
prior to the date of any determination thereof for purchase on such date.

"Sterling Euro Rate" shall mean, with respect to each Interest Period
for a Euro Rate Loan denominated in Pounds Sterling, the offered quotation to
first-class banks in the London interbank Eurodollar market by the Agent for
Pounds Sterling deposits of amounts in same day funds comparable to the
outstanding principal amount of the Euro Rate Loan of the Agent denominated in
Pounds Sterling for which an Interest Period is then being determined with
maturities comparable to the Interest Period to be applicable to such Sterling
Euro Rate Loan determined as of 11:00 A.M. (London time) on the date which is
two Business Days prior to the commencement of such Interest Period.

"Sterling Swingline Loans" shall have the meaning provided in Section
1.01(B)(i).

"Subsequent Cost Adjustment Certificate" shall mean, with respect to
an acquisition as to which a Cost Adjustment Certificate has been delivered, a
certificate executed by an Authorized Officer of the Company setting forth (x)
if delivered pursuant to Section 7.01(i), the reduced estimated cost reduction
synergies resulting from such acquisition or (y) if delivered pursuant to
Section 7.01(d)(y), in reasonable detail the actual factually supportable and
identifiable cost reduction synergies actually realized during the relevant Cost
Synergy Period.

"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Company.

"Subsidiary Guarantor" shall mean, at any time, each Restricted
Subsidiary that is party to the Subsidiary Guaranty.

"Subsidiary Guaranty" shall have the meaning provided in Section
5.01(i).

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"Subsidiary IPO" shall mean the public offering of the common stock of
one (and only one) Subsidiary of RELTEC, PROVIDED that (A) the assets and
divisions of such Subsidiary shall be limited to no more than one of the four
divisions of RELTEC existing on the Restatement Effective Date and (B) after
giving effect to such offering the Company shall own directly or indirectly at
least a majority on a fully diluted basis of the economic and voting interest of
such Subsidiary's capital stock.

"Subsidiary Pledge Agreement" shall have the meaning provided in
Section 5.01(h)(ii).

"Swingline Commitment" shall mean the lesser of (x) $30,000,000 and
(y) the Total Commitment.

"Swingline Lender" shall mean Chase.

"Swingline Loans" shall have the meaning provided in Section 1.01(B).

"Swingline Maturity Date" shall mean the date which is five Business
Days prior to the Maturity Date.

"Taxes" shall have the meaning provided in Section 4.04.

"Test Period" shall mean at any time the period (taken as one
accounting period) of four consecutive fiscal quarters then last ended. The
first Test Period for the purposes of Sections 8.11 and 8.12 shall be the four
quarter period ending December 31, 1996.

"TO Sub" shall mean a newly created wholly-owned Domestic Subsidiary
created to effect the Acquisition, which subsidiary shall have executed the
Guaranty and a Pledge Agreement.

"Total Cash Interest Expense" shall mean for any period Total Interest
Expense for such period less any interest expense included therein not payable
in cash when due and any amortization of debt discount during such period,
PROVIDED that for purposes of computations under Section 8.12, (i) for any
business or Restricted Subsidiary acquired and any Unrestricted Subsidiary that
is converted into a Restricted Subsidiary during the Test Period, Total Cash
Interest Expense for such Test Period shall be determined on a PRO FORMA basis
as if such acquisition or conversion had occurred as of the beginning of the
Test Period and (ii) for any business or Restricted Subsidiary disposed of and
any Restricted Subsidiary that is converted into an Unrestricted Subsidiary
during the Test Period, Total Cash Interest Expense for such Test Period shall
be determined on a PRO FORMA basis as if such disposition or conversion had
occurred as of the beginning of the Test Period.

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"Total Cash Pay Indebtedness" shall mean, at any time, all
Indebtedness included in Total Indebtedness other than any Indebtedness the
interest on which is payable in kind and not subject to cash accrual or payment
(or is evidenced by accrual or similar notes not payable in cash) for all prior
periods and all present and future periods until at least the date which is one
calendar quarter after such date of determination.

"Total Commitment" shall mean the sum of the Commitments of each of
the Banks.

"Total DRF Commitment" shall mean the sum of the DRF Commitments of
each of the Banks.

"Total Indebtedness" shall mean all Indebtedness for borrowed money
of, or guaranteed by, the Company and its Restricted Subsidiaries all as
determined on a consolidated basis for the Company and its Restricted
Subsidiaries.

"Total Interest Expense" shall mean, for any period, total interest
expense (including that attributable to Capital Leases in accordance with GAAP)
of the Company and its Restricted Subsidiaries on a consolidated basis with
respect to all outstanding Indebtedness of the Company and its Restricted
Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and net costs
under Interest Rate Agreements, but excluding, however, any amortization of
deferred financing costs, all as determined in accordance with GAAP, PROVIDED
that there shall be excluded all of the foregoing of any Person accrued prior to
the date it becomes a Subsidiary or is merged into or consolidated with the
Company or any of its Restricted Subsidiaries or that Person's assets are
acquired by the Company or any of its Restricted Subsidiaries.

"Total MCRF Commitment" shall mean the sum of the MCRF Commitments of
each of the Banks.

"Transaction" shall include (i) the Acquisition and (ii) the KKR
Bridge Conversion.

"Transaction Documents" shall mean and include the Acquisition
Documents and the KKR Bridge Conversion Documents.

"Treaty Bank" shall mean each Bank with an MCRF Commitment to the
extent such Bank's Resident Country is party to a tax treaty or treaties with
the United Kingdom that would reduce or eliminate the withholding taxes
otherwise payable in respect of payments made by the UK Borrower for the account
of such Bank.

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"Type" shall mean the type of Loan determined with regard to currency
and the interest option applicable thereto.

"UK Bank" shall mean a bank that is carrying on a bona fide banking
business in the United Kingdom as recognized by the United Kingdom's Inland
Revenue.

"UK Borrower" shall mean RELTEC (UK) Limited, a United Kingdom
corporation.

"UK Lending Office" shall mean the office (which may be a branch or an
affiliate of any Bank) specified from time to time by each Bank with an MCRF
Commitment to the Agent and the UK Borrower as the office from which such Bank
will make Loans to the UK Borrower and for whose account all payments will be
made by the UK Borrower, if to be made for the account of such Bank, which
office may be the same office as such Bank utilizes as its lending office for
all other Loans except as otherwise provided in Section 4.01(c).

"UK Pledge Agreement" shall have the meaning provided in Section
5.01(h)(i).

"UK Tax Refunds" shall have the meaning provided in Section 4.04(c).

"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits under
the Plan as of the close of its most recent plan year exceeds the fair market
value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.

"United States" and "U.S." shall each mean the United States of
America.

"Unpaid Drawing" shall have the meaning provided in Section 2.04 and
in the case of a drawing paid in Pounds Sterling shall equal the Dollar
Equivalent of such payment.

"Unrestricted Subsidiary" shall mean each Subsidiary (x) first created
or acquired by the Company after the Restatement Effective Date and such
Subsidiary is designated by the Company as an Unrestricted Subsidiary in a
written notice delivered to the Agent reasonably promptly after such creation or
acquisition, (y) first acquired or created after the Restatement Effective Date
by another Unrestricted Subsidiary created or acquired in compliance with the
provisions of this definition, PROVIDED that the provisions of Section 8.05 are
not breached in connection with such acquisition or creation or (z) that is
converted into an Unrestricted Subsidiary from a Restricted Subsidiary upon at
least 15 days' prior written notice from the Company to the Agent to such
effect, which notice shall set forth computations demonstrating that the
provisions of Sections 8.11 and 8.12 would have been complied with

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on a PRO FORMA basis as of the end of the Test Period last ended if such
conversion had occurred on the first day of such Test Period, it being
understood and agreed that (i) an Unrestricted Subsidiary cannot be owned in
whole or in part by a Restricted Subsidiary and a Restricted Subsidiary cannot
be owned in whole or in part by an Unrestricted Subsidiary, (ii) a Restricted
Subsidiary that is converted into an Unrestricted Subsidiary pursuant to clause
(z) shall not be eligible to be converted back into a Restricted Subsidiary
until the date which is eighteen months after the date of such initial
conversion and (iii) the UK Borrower shall not at any time be an Unrestricted
Subsidiary.

"Unutilized Total DRF Commitment" shall mean, at any time, the excess
of (i) the Total DRF Commitment at such time over (ii) the sum of (x) the
aggregate Principal Amount of all DRF Loans and Dollar Swingline Loans then
outstanding plus (y) the aggregate Letter of Credit Outstandings at such time.

"Unutilized Total MCRF Commitment" shall mean, at any time, the excess
of (i) the Total MCRF Commitment at such time over (ii) the aggregate Principal
Amount of all MCRF Loans and Sterling Swingline Loans then outstanding.

"Wholly-Owned Subsidiary" of any Person shall mean any Subsidiary of
such Person to the extent all the capital stock or other ownership interests in
such Subsidiary, other than directors' or nominees' qualifying shares, are owned
directly or indirectly by such Person.

"Written" or "in writing" shall mean any form of written communication
or a communication by means of telex, facsimile transmission, telegraph or
cable.

"Yen" shall mean freely transferable lawful money of Japan.

"Yen Equivalent" shall mean, at any time for the determination
thereof, the amount of Yen which could be purchased with the amount of Dollars
involved in such computation at the spot exchange rate therefor as quoted by the
Agent as of 11:00 A.M. (London time) on the date two Business Days prior to the
date of any determination thereof for purchase on such date.

"Yen Euro Rate" shall mean, for each Interest Period applicable to a
Euro Rate Loan denominated in Yen, the rate per annum that appears on page 3750
of the Dow Jones Telerate Screen (or any successor page) for Yen deposits with
maturities comparable to such Interest Period as of 11:00 A.M. (London time) on
the date which is two Business Days prior to the commencement of such Interest
Period or, if such a rate does not appear on page 3750 of the Dow Jones Telerate
Screen (or any successor page), the offered quotation to first-class banks in
the London interbank Eurodollar market by the Agent for Yen deposits of amounts
in same day funds comparable to the outstanding principal amount of the Euro
Rate Loan of the Agent denominated in Yen for which an interest rate is then
being determined with

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maturities comparable to the Interest Period to be applicable to such Euro Rate
Loan as of 11:00 A.M. (London time) on the date which is two Business Days prior
to the commencement of such Interest Period.

SECTION 11. THE AGENT.

1.111 APPOINTMENT. Each Bank hereby irrevocably designates and
appoints Chase as Agent (such term to include for the purposes of this Section
11 Chase acting as Collateral Agent) to act as specified herein and in the other
Credit Documents, and each such Bank hereby irrevocably authorizes Chase as the
Agent for such Bank, to take such action on its behalf under the provisions of
this Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Credit Documents, together with such other powers as are
reasonably incidental thereto. The Agent agrees to act as such upon the express
conditions contained in this Section 11. Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Credit Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein or in the other Credit Documents, nor any fiduciary relationship with any
Bank, and no implied covenants, functions, responsibilities, duties, obligations
or liabilities shall be read into this Agreement or otherwise exist against the
Agent. The provisions of this Section 11 are solely for the benefit of the
Agent, and the Banks, and no Credit Party shall have any rights as a third party
beneficiary of any of the provisions hereof. In performing its functions and
duties under this Agreement, the Agent shall act solely as agent of the Banks
and does not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for any Credit Party.

1.112 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care except to the extent otherwise required by Section 11.03.

1.113 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or the
other Credit Documents (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Banks for
any recitals, statements, representations or warranties made by the Company or
any Subsidiary or any of their respective officers contained in this Agreement,
any other Credit Document or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Credit Document or for any failure
of the Company or any Subsidiary or any of their respective officers to perform
its

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obligations hereunder or thereunder. The Agent shall not be under any
obligation to any Bank to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, this
Agreement, or to inspect the properties, books or records of the Company or any
Subsidiary. The Agent shall not be responsible to any Bank for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Credit Document or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Agent to the Banks or by or on behalf of any Borrower
to the Agent or any Bank or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained herein or therein or as to the use of the proceeds of
the Loans or of the existence or possible existence of any Default or Event of
Default.

1.114 RELIANCE BY AGENT. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, facsimile
transmission, telex or teletype message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company),
independent accountants and other experts selected by the Agent. The Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Banks as it deems appropriate or it shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement and the other Credit
Documents in accordance with a request of the Required Banks, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Banks.

1.115 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Bank or the Company or any
other Credit Party referring to this Agreement, describing such Default or Event
of Default and stating that such notice is a "notice of default." In the event
that the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Banks. The Agent shall take such action with respect to such
Default or Event of Default as shall be directed by the Required Banks, PROVIDED
that unless and until the Agent shall have received such directions, the Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable in the best interests of the Banks except to the extent that this
Agreement expressly requires that such action be taken, or not be taken, only

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with the consent or upon the authorization of Required Banks or each of the
Banks as provided in Section 13.12.

1.116 NON-RELIANCE. Each Bank expressly acknowledges that neither
the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates have made any representations or warranties to
it and that no act by the Agent hereinafter taken, including any review of the
affairs of the Company or any Subsidiary, shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon the Agent, or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other condition, prospects and
creditworthiness of the Company and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Bank also
represents that it will, independently and without reliance upon the Agent, or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement, and to make
such investigation as it deems necessary to inform itself as to the business,
assets, operations, property, financial and other condition, prospects and
creditworthiness of the Company and its Subsidiaries. The Agent shall not have
any duty or responsibility to provide any Bank with any credit or other
information concerning the business, operations, assets, property, financial and
other conditions, prospects or creditworthiness of the Company or any Subsidiary
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.

1.117 INDEMNIFICATION. The Banks agree to indemnify the Agent in its
capacity as such ratably according to their respective Loans and unutilized
Commitments, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against the Agent in its capacity as such in any way
relating to or arising out of this Agreement or any other Credit Document, or
any documents contemplated by or referred to herein or the transactions
contemplated hereby or any action taken or omitted to be taken by the Agent
under or in connection with any of the foregoing, but only to the extent that
any of the foregoing is not paid by the Company or any of its Subsidiaries,
PROVIDED that no Bank shall be liable to the Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
Agent's gross negligence or willful misconduct. If any indemnity furnished to
the Agent for any purpose shall, in the opinion of the Agent, be insufficient or
become impaired, the Agent may call for additional indemnity and cease, or not
commence, to do the acts indemnified against until such additional indemnity is
furnished. The agreements in this Section 11.07 shall survive the payment of
all Obligations.

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1.118 THE AGENT IN INDIVIDUAL CAPACITY. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Company and its Subsidiaries as though not acting as Agent
hereunder. With respect to the Loans made by it and all Obligations owing to
it, the Agent shall have the same rights and powers under this Agreement as any
Bank and may exercise the same as though it was not the Agent, and the terms
"Bank" and "Banks" shall include the Agent in its individual capacity.

1.119 SUCCESSOR AGENT. The Agent may resign as the Agent upon 20
days' notice to the Banks and the Company. The Required Banks shall appoint
from among the Banks a successor Agent for the Banks subject to prior approval
by the Company (such approval not to be unreasonably withheld), whereupon such
successor agent shall succeed to the rights, powers and duties of the Agent, and
the term "Agent" shall include such successor agent effective upon its
appointment, and the resigning Agent's rights, powers and duties as the Agent
shall be terminated, without any other or further act or deed on the part of
such former Agent or any of the parties to this Agreement. After the retiring
Agent's resignation hereunder as the Agent, the provisions of this Section 11
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.

SECTION 12. COMPANY GUARANTY.

12.01 THE COMPANY GUARANTY. In order to induce the Banks to enter
into this Agreement and to extend credit hereunder and in recognition of the
direct benefits to be received by the Company from the proceeds of the Loans,
the Company hereby unconditionally and irrevocably guarantees as primary obligor
and not merely as surety the full and prompt payment and performance when due,
upon maturity, acceleration or otherwise, of any and all of Guarantee
Obligations. If any or all Guarantee Obligations become due and payable
hereunder and are not paid, the Company unconditionally promises to pay such
Guarantee Obligations, on demand, together with any and all expenses which may
be incurred by the Agent or the Creditors in collecting any of such Obligations.

12.02 BANKRUPTCY. Additionally, the Company unconditionally and
irrevocably guarantees the payment of any and all Guarantee Obligations to the
Creditors whether or not due or payable by the UK Borrower upon the occurrence
in respect of the Company of any of the events specified in Section 9.05, and
unconditionally and irrevocably promises to pay such Guarantee Obligations, on
demand, in lawful money of the United States.

12.03 NATURE OF LIABILITY. The liability of the Company hereunder is
exclusive and independent of any security for, or other guaranty of, the
Guarantee Obligations, whether executed by the UK Borrower or by any other
party, and the liability of the Company hereunder is not affected or impaired by
(a) any direction as to application of payment by the UK Borrower or by any
other party, (b) any other continuing or other guaranty, undertaking or maximum
liability of a guarantor or of any other party as to the Guarantee Obligations,
(c) any

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payment on, or in reduction of, any such other guaranty or undertaking, (d) any
dissolution, termination or increase, decrease or change in personnel of the UK
Borrower, or (e) any payment made to the Agent or the Creditors on the Guarantee
Obligations which the Agent or such Creditors repay pursuant to court order in
any bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and the Company waives any right to the deferral or modification of
its obligations hereunder by reason of any such proceeding.

12.04 INDEPENDENT OBLIGATION. The obligations of the Company
hereunder are independent of the obligations of any other guarantor, any other
party or the UK Borrower, and a separate action or actions may be brought and
prosecuted against the Company whether or not action is brought against any
other guarantor, any other party or the UK Borrower and whether or not any other
guarantor, any other party or the UK Borrower be joined in any such action or
actions. The Company waives, to the fullest extent permitted by law, the
benefit of any statute of limitations affecting its liability hereunder or the
enforcement thereof. Any payment by the UK Borrower or other circumstance which
operates to toll any statute of limitations as to the UK Borrower shall operate
to toll the statute of limitations as to the Company.

12.05 AUTHORIZATION. The Company authorizes the Agent and the
Creditors without notice, demand or consent (except as shall be required under
the Credit Documents or as required by applicable statute and cannot be waived),
and without affecting or impairing its liability hereunder, from time to time
to:

(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guarantee Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Guaranty herein made
shall apply to such Obligations as so changed, extended, renewed or
altered;

(b) take and hold security for the payment of the Guarantee
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, such Guarantee Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset thereagainst;

(c) exercise or refrain from exercising any rights against the UK
Borrower or others or otherwise act or refrain from acting;

(d) release or substitute any one or more endorsers, guarantors, the
UK Borrower or other obligors;

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(e) settle or compromise any of the Guarantee Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the UK Borrower to its creditors other
than the Banks;

(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the UK Borrower to the Creditors regardless of
what liability or liabilities of the Company or the UK Borrower remain
unpaid;

(g) consent to or waive any breach of, or any act, omission or default
under, this Guaranty or any of the instruments or agreements referred to
herein, or otherwise amend, modify or supplement this Guaranty or any of
such other instruments or agreements; and/or

(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
the Company from its liabilities under this Guaranty.

12.06 RELIANCE. It is not necessary for the Agent or any Creditor to
inquire into the capacity or powers of the UK Borrower or its Subsidiaries or
the officers, directors, partners or agents acting or purporting to act on its
behalf, and any Guarantee Obligations made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.

12.07 SUBORDINATION. Any of the indebtedness of the UK Borrower now
or hereafter owing to the Company, as the case may be, is hereby subordinated to
the Guarantee Obligations; and if the Agent so requests at a time when an Event
of Default exists, all such Indebtedness of the UK Borrower to the Company shall
be collected, enforced and received by the Company for the benefit of the
Creditors and be paid over to the Agent on behalf of the Creditors on account of
the Guarantee Obligations, but without affecting or impairing in any manner the
liability of the Company under the other provisions of this Guaranty. Prior to
the transfer by the Company of any note or negotiable instrument evidencing any
Indebtedness of the UK Borrower to the Company, the Company shall mark such note
or negotiable instrument with a legend that the same is subject to this
subordination.

12.08 WAIVER. (a) The Company waives any right (except as shall be
required by applicable statute and cannot be waived) to require the Agent or the
Creditors (i) to proceed against the UK Borrower, any other guarantor or any
other party, (ii) to proceed against or exhaust any security held from the UK
Borrower, any other guarantor or any other party or (iii) to pursue any other
remedy in the Agent's or the Creditors' power whatsoever. To the extent
permitted by applicable law, the Company waives any defense based on or arising
out of any

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defense of the UK Borrower, any other guarantor or any other party, other than
payment in full of the Guarantee Obligations, based on or arising out of the
disability of the UK Borrower, any other guarantor or any other party, or the
unenforceability of the Guarantee Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the UK Borrower other
than payment in full of the Guarantee Obligations. The Agent and the Creditors
may, at their election, foreclose on any security held by the Agent, the
Collateral Agent or the Creditors by one or more judicial or nonjudicial sales,
whether or not every aspect of any such sale is commercially reasonable (to the
extent such sale is permitted by applicable law), or exercise any other right or
remedy the Agent and the Creditors may have against the UK Borrower, any other
party, or any security, without affecting or impairing in any way the liability
of the Company hereunder except to the extent the Guarantee Obligations have
been paid.

(b) To the extent permitted by applicable law, the Company waives all
presentments, demands for performance, protests and notices, including, without
limitation, notices of nonperformance, notices of protest, notices of dishonor,
notices of acceptance of this Guaranty, and notices of the existence, creation
or incurring of new or additional Guarantee Obligations. The Company assumes
all responsibility for being and keeping itself informed of the UK Borrower's
financial conditions and assets, and of all other circumstances bearing upon the
risk of nonpayment of the Guarantee Obligations and the nature, scope and extent
of the risks which the Company assumes and incurs hereunder, and agrees that the
Agent and the Creditors shall have no duty to advise the Company of information
known to them regarding such circumstances or risks.

12.09 ENFORCEMENT. The Creditors agree that this Guaranty may be
enforced only by the action of the Agent or the Collateral Agent, in each case
acting upon the instructions of the Required Banks and that no Creditor shall
have any right individually to seek to enforce or to enforce this Guaranty or to
realize upon the security to be granted by the Security Documents, it being
understood and agreed that such rights and remedies may be exercised by the
Agent or the Collateral Agent for the benefit of the Creditors upon the terms of
this Guaranty and the Security Documents.

SECTION 13. MISCELLANEOUS.

1.131 PAYMENT OF EXPENSES, ETC. The Company agrees that it shall:
(i) whether or not the transactions herein contemplated are consummated, pay all
reasonable out-of-pocket costs and expenses of the Agent in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (limited, in the case of legal fees, to the reasonable
fees and disbursements of White & Case) and of the Agent and each of the Banks
in connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein and, after an Event of Default shall have
occurred and be

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continuing, the protection of the rights of the Agent and each of the Banks
thereunder (including without limitation the reasonable fees and disbursements
of counsel for the Agent and for each of the Banks); (ii) pay and hold each of
the Banks harmless from and against any and all present and future stamp and
other similar taxes with respect to the foregoing matters and save each of the
Banks harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
such Bank) to pay such taxes; and (iii) indemnify the Agent, the Collateral
Agent, each Bank, its officers, directors, employees, representatives and agents
(collectively, the "Indemnitees") from and hold each of them harmless against
any and all losses, liabilities, claims, damages or expenses incurred by any of
them as a result of, or arising out of, or in any way related to, or by reason
of any investigation, litigation or other proceeding (whether or not the Agent,
the Collateral Agent or any Bank is a party thereto) related to the entering
into and/or performance of any Credit Document or the use of any Letter of
Credit or the proceeds of any Loans hereunder or the Transaction or the
consummation of any transactions contemplated in any Credit Document, including,
without limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding (but
excluding any such losses, liabilities, claims, damages or expenses to the
extent incurred by reason of (x) the gross negligence or willful misconduct of
the Person to be indemnified or of any other Indemnitee who is such Person or an
affiliate of such Person, (y) a bona fide Claim asserted by the Company against
such Person or (z) any dispute solely among the Banks or their participants or
assigns). If any Claim is asserted against any indemnified person, such
indemnified person shall promptly notify the Company and each indemnified person
may, and if requested by the Company shall, in good faith, contest the validity,
applicability and amount of such Claim with counsel selected by such indemnified
person, and shall permit the Company to participate in such contest. In
addition, in connection with any Claim covered by this Section 13.01 against
more than one indemnified person, all such indemnified persons shall be
represented by the same legal counsel selected by such indemnified persons;
PROVIDED, HOWEVER, that if such legal counsel determines in good faith that
representing all such indemnified persons would or could result in a conflict of
interest under the laws or ethical principles applicable to such legal counsel
or that a defense or counterclaim is available to an indemnified person that is
not available to all such indemnified persons, then to the extent reasonably
necessary to avoid such a conflict of interest or to permit unqualified
assertion of such a defense or counterclaim, each indemnified person shall be
entitled to separate representation by a legal counsel selected by that
indemnified person. To the extent that the undertaking to indemnify, pay or
hold harmless any Person set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the indemnified liabilities which is permissible under applicable law.

1.132 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized

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at any time or from time to time, without presentment, demand, protest or other
notice of any kind to any Borrower or to any other Person, any such notice being
hereby expressly waived, to set off and to appropriate and apply any and all
deposits (general or special) and any other Indebtedness at any time held or
owing by such Bank (including, without limitation, by branches and agencies of
such Bank wherever located) to or for the credit or the account of such Borrower
against and on account of the Obligations and liabilities of such Borrower to
such Bank under this Agreement or under any of the other Credit Documents,
including, without limitation, all interests in Obligations of such Borrower
purchased by such Bank pursuant to Section 13.06(b), and all other claims of any
nature or description arising out of or connected with this Agreement or any
other Credit Document, irrespective of whether or not such Bank shall have made
any demand hereunder and although said Obligations, liabilities or claims, or
any of them, shall be contingent or unmatured.

1.133 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered, if to any Borrower, at
the address specified opposite its signature below; if to the Agent, at the
address specified in the definition of "Notice Office" herein; if to any other
Bank, at its address specified for such Bank on Annex II hereto (or as specified
by a Bank when it first becomes a Bank hereunder); or, at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, telecopied, or cabled or sent by overnight courier, and shall be
effective when received.

1.134 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, PROVIDED that no Borrower may assign or
transfer any of its rights or obligations hereunder without the prior written
consent of all the Banks. Each Bank may at any time grant participations in any
of its rights hereunder or under any of the Notes to another financial
institution, PROVIDED that in the case of any such participation, (i) the
participant shall not have any rights under this Agreement or any of the other
Credit Documents, including rights of consent, approval or waiver (the
participant's rights against such Bank in respect of such participation to be
those set forth in the agreement executed by such Bank in favor of the
participant relating thereto), (ii) such Bank's obligations under this Agreement
(including, without limitation, its Commitment hereunder) shall remain
unchanged, (iii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iv) such Bank shall remain the
holder of any Note for all purposes of this Agreement and (v) the Borrowers, the
Agent, and the other Banks shall continue to deal solely and directly with the
assigning Bank in connection with such Bank's rights and obligations under this
Agreement, and all amounts payable by any Borrower hereunder shall be determined
as if such Bank had not sold such participation, except that the participant
shall be entitled to the benefits of Sections 1.09, 1.10 and 4.04 of this
Agreement to the extent that such Bank would be enti-

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tled to such benefits if the participation had not been entered into or sold,
and, PROVIDED FURTHER, that no Bank shall transfer, grant or assign any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (x) extend the Maturity Date (it being
understood that any waiver of the making of any mandatory prepayment of
Revolving Loans, or the application or method of application of any such
prepayment, or the postponement of a Scheduled Commitment Reduction, shall not
constitute an extension of the final maturity thereof), reduce the rate or
extend the time of payment of interest or Fees thereon (except in connection
with a waiver of the applicability of any post-default increase in interest
rates), or reduce the principal amount thereof, or increase such participant's
participating interest in any Commitment over the amount thereof then in effect
(it being understood that a waiver of any Default or Event of Default or of any
mandatory prepayment or a mandatory reduction in the Total Commitment shall not
constitute a change in the terms of any Commitment) or (y) consent to the
assignment or transfer by any Borrower of any of its rights and obligations
under this Agreement.

(b) Notwithstanding the foregoing, with the consent of the Agent, (x)
any Bank may assign all or a portion of its Loans and/or Commitments and its
rights and obligations hereunder to another Bank, and (y) any Bank may assign
all or a portion of its Loans and/or Commitments and its rights and obligations
hereunder to one or more Eligible Transferees, each of which assignees shall
become a party to this Agreement as a Bank by execution of an Assignment
Agreement, PROVIDED that (i) any such assignment to an institution not
theretofore a Bank shall be in an aggregate amount of at least $10,000,000, (ii)
at such time Annex I shall be deemed modified to reflect the Commitments of such
new Bank and of the existing Banks, (iii) upon surrender of the old Notes, new
Notes will be issued, at the Company's expense, to such new Bank and to the
assigning Bank, such new Notes to be in conformity with the requirements of
Section 1.04 (with appropriate modifications) to the extent needed to reflect
the revised Commitments, (iv) the consent of the Agent and the Company shall be
required in connection with any such assignment (which consent shall not be
unreasonably withheld) and (v) the Agent shall receive at the time of each such
assignment, from the assigning or assignee Bank, the payment of a non-refundable
assignment fee of $3,000 and, PROVIDED FURTHER, that such transfer or assignment
will not be effective until recorded by the Agent on a register maintained by
it. To the extent of any assignment pursuant to this Section 13.04(b) to a
Person which is not already a Bank hereunder and which is not a United States
Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal
income tax purposes, the respective assignee Bank shall provide to the Company
and the Agent the appropriate Internal Revenue Service Forms (and, if
applicable, a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Bank's Commitments and
related outstanding Obligations pursuant to this Section 13.04(b) would, at the
time of such assignment, result in increased costs under Section 1.09 from those
being charged by the respective assigning bank prior to such assignment, then
the Borrowers shall not be obligated to pay such increased costs (although the
Borrowers shall be obligated to pay any other

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increased costs of the type described above resulting from the changes specified
in said Section 1.09 after the date of the respective assignment). Nothing in
this clause (b) shall prevent or prohibit any Bank from pledging its Notes or
Loans to a Federal Reserve Bank in support of borrowings made by such Bank from
such Federal Reserve Bank.

(c) Notwithstanding any other provisions of this Section 13.04, no
transfer or assignment of the interests or obligations of any Bank hereunder or
any grant of participation therein shall be permitted if such transfer,
assignment or grant would require a Borrower to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any State.

(d) Each Bank initially party to this Agreement hereby represents,
and each Person that becomes a Bank pursuant to an assignment permitted by this
Section 13.04 will, upon its becoming party to this Agreement, represent that it
is a commercial lender, other financial institution or other "accredited"
investor (as defined in SEC Regulation D) which makes loans in the ordinary
course of its business and that it will make or acquire Loans for its own
account in the ordinary course of such business, PROVIDED that subject to the
preceding clauses (a) and (b), the disposition of any promissory notes or other
evidences of or interests in Indebtedness held by such Bank shall at all times
be within its exclusive control.

(e) Notwithstanding anything else in this Agreement to the contrary,
upon the occurrence of a Sharing Event, all Banks with a Commitment will buy
and/or sell participations in the outstanding Revolving Loans and Letters of
Credit among themselves such that after giving effect thereto the Principal
Amount of the outstanding Revolving Loans made by such Bank and the aggregate
Principal Amount of its participations in Revolving Loans, Unpaid Drawings and
Letters of Credit will equal its RF Percentage of the sum of (i) the Principal
Amount of all outstanding Revolving Loans and (ii) all Letter of Credit
Outstandings at such time.

1.135 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of the Agent or any Bank in exercising any right, power or privilege
hereunder or under any other Credit Document and no course of dealing between
any Borrower and the Agent or any Bank shall operate as a waiver thereof; nor
shall any single or partial exercise of any right, power or privilege hereunder
or under any other Credit Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege hereunder or
thereunder. The rights and remedies herein expressly provided are cumulative
and not exclusive of any rights or remedies which the Agent or any Bank would
otherwise have. No notice to or demand on any Borrower in any case shall
entitle any Borrower to any other or further notice or demand in similar or
other circumstances or constitute a waiver of the rights of the Agent or the
Banks to any other or further action in any circumstances without notice or
demand.

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1.136 PAYMENTS PRO RATA. (a) The Agent agrees that promptly after
its receipt of each payment from or on behalf of any Borrower in respect of any
Obligations, it shall distribute such payment to the Banks (other than any Bank
that has expressly waived its right to receive its PRO RATA share thereof) PRO
RATA based upon their respective shares, if any, of the Obligations with respect
to which such payment was received.

(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Banks is in a greater proportion than the
total of such Obligation then owed and due to such Bank bears to the total of
such Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
to such Banks in such amount as shall result in a proportional participation by
all of the Banks in such amount, PROVIDED that if all or any portion of such
excess amount is thereafter recovered from such Bank, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.

1.137 CALCULATIONS; COMPUTATIONS. (a) The financial statements to
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Company to the Banks), PROVIDED that (i) Unrestricted Subsidiaries shall
not be treated as consolidated subsidiaries for the purposes of all computations
hereunder and (ii) except as otherwise specifically provided herein, all
computations determining compliance with Section 8, including definitions used
therein, shall utilize accounting principles and policies in effect at the time
of the preparation of, and in conformity with those used to prepare, the
historical financial statements of the Company delivered to the Banks pursuant
to Section 6.08(b). At any time the computations determining compliance with
Section 8 utilize accounting principles different from those utilized in the
financial statements furnished to the Banks pursuant to Section 7.01, such
financial statements shall be accompanied by reconciliation work-sheets.

(b) All computations of interest on Base Rate Loans, on Euro Rate
Loans denominated in Pounds Sterling and of Fees shall be made on the actual
number of days elapsed over a year of 365 or 366 days, as appropriate, and all
computations of interest on all other Euro Rate Loans shall be made on the
actual number of days elapsed over a year of 360 days.

(c) For purposes of this Agreement, the Dollar Equivalent of each
Alternate Currency Loan and of each Letter of Credit or Unpaid Drawing
denominated in an Alternate

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Currency shall be calculated on the date when any such Revolving Loan is made or
repaid or any such Letter of Credit is issued or drawn under or any such Unpaid
Drawing is created or repaid and for all such Revolving Loans, Letters of Credit
and Unpaid Drawings on the second Business Day of each month. Such Dollar
Equivalent shall remain in effect until the same is recalculated by the Agent as
provided above and notice of such recalculation is received by the Company, it
being understood that until such notice is received, the Dollar Equivalent shall
be that Dollar Equivalent as last reported to the Company by the Agent. The
Agent shall promptly notify the Company and the Banks of each such determination
of the Dollar Equivalent.

1.138 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK. TO THE
FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER
THAN THE STATE OF NEW YORK GOVERNS THIS AGREEMENT OR ANY OF THE OTHER CREDIT
DOCUMENTS. Any legal action or proceeding with respect to this Agreement or any
other Credit Document may be brought in the courts of the State of New York or
of the United States for the Southern District of New York, and, by execution
and delivery of this Agreement, each Borrower hereby irrevocably accepts for
itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. Each Borrower hereby irrevocably
designates, appoints and empowers The Prentice-Hall Corporation System, Inc.,
with offices on the date hereof at 375 Hudson Street, New York, N.Y. 10014, as
its designee, appointee and agent to receive, accept and acknowledge for and on
its behalf, and in respect of its property, service of any and all legal
process, summons, notices and documents which may be served in any such action
or proceeding. If for any reason such designee, appointee and agent shall cease
to be available to act as such, each Borrower agrees to designate a new
designee, appointee and agent in New York City on the terms and for the purposes
of this provision satisfactory to the Agent under this Agreement. Each Borrower
hereby further irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, to such Borrower, at
its address for notices pursuant to Section 13.03, such service to become
effective 30 days after such mailing. Nothing herein shall affect the right of
the Agent or any Bank to serve process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against any Borrower in any
other jurisdiction.

(b) Each Borrower hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any of the aforesaid actions
or proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in clause (a) above and hereby
further irrevocably waives and agrees not to

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plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.

(c) Each of the parties to this Agreement hereby irrevocably waives
all right to a trial by jury in any action, proceeding or counterclaim arising
out of or relating to this Agreement, the other Credit Documents or the
transactions contemplated hereby or thereby.

1.139 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrowers and the
Agent.

13.10 EFFECTIVENESS. The Agent will give each Borrower and each
Bank prompt written notice of the occurrence of the Restatement Effective
Date.

13.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

13.12 AMENDMENT OR WAIVER. Neither this Agreement nor any terms
hereof or thereof may be changed, waived, discharged or terminated unless such
change, waiver, discharge or termination is in writing signed by the Company and
the Required Banks, PROVIDED that no such change, waiver, discharge or
termination shall, without the consent of each Bank (other than a Defaulting
Bank) directly affected thereby, (i) extend the Maturity Date (it being
understood that any waiver of the making of any mandatory prepayment of
Revolving Loans, or the application or method of application of any such
prepayment, or the postponement of a Scheduled Commitment Reduction, shall not
constitute an extension of such final maturity thereof), reduce the rate or
extend the time of payment of interest or Fees thereon (except in connection
with a waiver of the applicability of any post-default increase in interest
rates), or reduce the principal amount thereof, or increase the Commitment of
any Bank over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default or of any mandatory prepayment or a
mandatory reduction in the Total Commitment shall not constitute a change in the
terms of any Commitment of any Bank), (ii) amend, modify or waive any provision
of this Section 13.12, or Section 11.07, 13.01, 13.04, 13.06(a) or 13.07(b),
(iii) reduce the percentage specified in, or otherwise modify, the definition of
Required Banks or (iv) consent to the assignment or transfer by any Borrower of
any of its rights and obligations under this Agreement. No provision of Section
11 may be amended without the consent of the Agent.

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13.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Section 1.09, 1.10, 2.06, 4.04, 11.07 or 13.01 shall survive the
execution and delivery of this Agreement and the making and repayment of the
Loans.

13.14 DOMICILE OF LOANS. Subject to Section 13.04, each Bank may
transfer and carry its Loans at, to or for the account of any branch office,
subsidiary or affiliate of such Bank, PROVIDED that the Borrowers shall not be
responsible for costs arising under Section 1.09 (other than 1.09(c)), 2.06 or
4.04 resulting from any such transfer (other than a transfer pursuant to Section
1.11) to the extent not otherwise applicable to such Bank prior to such
transfer.

13.15 CONFIDENTIALITY. Subject to Section 13.04, the Banks shall
hold all non-public information obtained pursuant to the requirements of this
Agreement which has been identified as such by the Company in accordance with
its customary procedure for handling confidential information of this nature and
in accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by any BONA FIDE transferee or participant in
connection with the contemplated transfer of any Loans or Commitments or
participation therein (PROVIDED that each such prospective transferee and/or
participant shall execute an agreement for the benefit of the Company with such
prospective transferor Bank containing provisions substantially identical to
those contained in this Section 13.15) or as required or requested by any
governmental agency or representative thereof or pursuant to legal process,
PROVIDED that, unless specifically prohibited by applicable law or court order,
each Bank shall notify the Company of any request by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Bank by such governmental agency)
or pursuant to legal process for disclosure of any such non-public information
prior to disclosure of such information, and PROVIDED FURTHER, that in no event
shall any Bank be obligated or required to return any materials furnished by the
Company or any Subsidiary.

13.16 JUDGMENT CURRENCY. (a) The Credit Parties' obligations
hereunder and under the other Credit Documents to make payments in the
Applicable Currency (the "Obligation Currency") shall not be discharged or
satisfied by any tender or recovery pursuant to any judgment expressed in or
converted into any currency other than the Obligation Currency, except to the
extent that such tender or recovery results in the effective receipt by the
Agent, the Collateral Agent or the respective Bank of the full amount of the
Obligation Currency expressed to be payable to the Agent, the Collateral Agent
or such Bank under this Agreement or the other Credit Documents. If, for the
purpose of obtaining or enforcing judgment against any Credit Party in any court
or in any jurisdiction, it becomes necessary to convert into or from any
currency other than the Obligation Currency (such other currency being
hereinafter referred to as the "Judgment Currency") an amount due in the
Obligation Currency, the conversion shall be made at the Alternate Currency
Equivalent or the Dollar Equivalent thereof, as the case may be, and, in the
case of other currencies, the rate of

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exchange (as quoted by the Agent or if the Agent does not quote a rate of
exchange on such currency, by a known dealer in such currency designated by the
Agent determined, in each case, as of the Business Day immediately preceding the
day on which the judgment is given (such Business Day being hereinafter referred
to as the "Judgment Currency Conversion Date").

(b) If there is a change in the rate of exchange prevailing between
the Judgment Currency Conversion Date and the date of actual payment of the
amount due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of the Obligation Currency which could have been purchased
with the amount of Judgment Currency stipulated in the judgment or judicial
award at the rate of exchange prevailing on the Judgment Currency Conversion
Date.

(c) For purposes of determining the Alternate Currency Equivalent or
the Dollar Equivalent or any other rate of exchange for this Section, such
amounts shall include any premium and costs payable in connection with the
purchase of the Obligation Currency.

13.17 BANK REGISTER. The Borrowers hereby designate the Agent to
serve as their agent, solely for purposes of this Section 13.17, to maintain a
register (the "Bank Register") on which it will record the Commitments from time
to time of each of the Banks, the Loans made by each of the Banks and each
repayment in respect of the principal amount of the Loans of each Bank. Failure
to make any such recordation, or any error in such recordation, shall not affect
the Borrowers' obligations in respect of such Loans. With respect to any Bank,
the transfer of the Commitments of such Bank and the rights to the principal of,
and interest on, any Loan made pursuant to such Commitments shall not be
effective until such transfer is recorded on the Bank Register maintained by the
Agent with respect to ownership of such Commitments and Loans and prior to such
recordation all amounts owing to the transferor with respect to such Commitments
and Loans shall remain owing to the transferor. The registration of assignment
or transfer of all or part of any Commitments and Loans shall be recorded by the
Agent on the Bank Register only upon the acceptance by the Agent of a properly
executed and delivered Assignment Agreement pursuant to Section 13.04(b). The
Borrowers jointly and severally agree to indemnify the Agent from and against
any and all losses, claims, damages and liabilities of whatsoever nature which
may be imposed on, asserted against or incurred by the Agent in performing its
duties under this Section 13.17 other than those resulting from the Agent's
willful misconduct or gross negligence.

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IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.

Address:

5875 Landerbrook Drive RELTEC HOLDINGS, INC.
Suite 250
Mayfield Heights, Ohio 44124
Attention: John L. Wilson By
--------------------------------------
Title:

Address:
C/O RELTEC Holdings, Inc.
5875 Landerbrook Drive RELTEC (UK) LIMITED
Suite 250
Mayfield Heights, Ohio 44124
Attention: John L. Wilson By
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Title:

THE CHASE MANHATTAN BANK,
Individually and as Agent