WESTINGHOUSE AIR BRAKE CO /DE/, S-4/A, 1999-06-18

WESTINGHOUSE AIR BRAKE CO /DE/
S-4/A, 1999-06-18
RAILROAD EQUIPMENT

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As filed with the Securities and Exchange Commission on , 1999

Registration No. 333-77017
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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Westinghouse Air Brake Company
(Exact Name of Registrant as Specified in Its Charter)

Delaware 3743 25-1615902
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification Number)
jurisdiction of Classification Code
incorporation or Number)
organization)

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1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
Telephone: (412) 825-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Robert J. Brooks
Chief Financial Officer and Chief Accounting Officer
1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
Telephone: (412) 825-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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with a copy to:
David L. DeNinno, Esquire
Reed Smith Shaw & McClay LLP
435 Sixth Avenue
Pittsburgh, Pennsylvania 15219
Telephone: (412) 288-3214

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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, check the following box and
list the Securities Act Registration 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
Registration Statement number of the earlier effective Registration Statement
for the same offering: [_]

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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, as amended, or until the Registration Statement
shall become effective on such date as the Securities Exchange Commission,
acting pursuant to said Section 8(a), may determine.
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++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in the prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is prohibited. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Subject to Completion, Dated , 1999

OFFER TO EXCHANGE

9 3/8% Series B2 Senior Notes due 2005
for Any and All Outstanding 9 3/8% Series B Senior Notes due 2005

Westinghouse Air Brake Company

The exchange offer will expire at 5:00 p.m.,
New York City time, on , 1999, unless extended

LOGO

MATERIAL TERMS OF THE EXCHANGE OFFER

. Expires at 5:00 p.m., New York City time, on , 1999, unless
extended.

. The only conditions to completing the exchange offer are that: (1) the
exchange offer not violate applicable law or any applicable
interpretation of the staff of the Securities and Exchange Commission,
(2) no injunction, order or decree has been issued which would prohibit,
prevent or materially impair our ability to proceed with the exchange
offer, and (3) any necessary governmental approvals have been obtained.

. All unregistered notes that are validly tendered and not validly
withdrawn will be exchanged.

. Tenders of unregistered notes may be withdrawn at any time prior to the
expiration of the exchange offer.

. The terms of the registered notes to be issued in the exchange offer are
substantially identical to the unregistered notes that we issued on
January 12, 1999, except for certain transfer restrictions and
registration rights.

. We will not receive any proceeds from the exchange offer.

. If you fail to tender your unregistered notes while the exchange offer is
open, you will continue to hold unregistered securities and your ability
to transfer them could be adversely affected.

You should carefully consider the risk factors relating to the exchange offer
that we describe starting on page 14 of this prospectus.

Neither the Securities and Exchange Commission
nor any state securities commission has approved
or disapproved of these securities or passed upon
the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal
offense.

The date of this prospectus is , 1999
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TABLE OF CONTENTS

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Summary................................................................... 1
Summary Selected Historical and Pro Forma Financial Data.................. 9
Risk Factors.............................................................. 14
Special Note Regarding Forward-Looking Statements......................... 20
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Unaudited Pro Forma Condensed Combined Financial Statements and Related
Notes.................................................................... 46
Management................................................................ 55
Security Ownership of Certain Beneficial Owners and Management............ 57
Description of Certain Indebtedness....................................... 59
Terms of the Exchange Offer............................................... 61
Description of the New Notes.............................................. 69
Book-Entry; Delivery and Form............................................. 91
Exchange and Registration Rights.......................................... 94
Certain Federal Income Tax Consequences................................... 96
Plan of Distribution...................................................... 100
Where You Can Find More Information....................................... 100
Legal Matters............................................................. 101
Experts................................................................... 102
Index to Financial Statements............................................. F-1
</TABLE>

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We are a Delaware corporation. Our principal executive offices are located
at 1001 Air Brake Avenue, Wilmerding, Pennsylvania 15148, and our telephone
number is (412) 825-1000. Our web site is located at http://www.wabco-rail.com.
Information contained on our web site does not constitute part of this
prospectus.

The prospectus incorporates important business and financial information
about WABCO that is not included in or delivered with the prospectus. The
information is available without charge to Note holders upon written or oral
request to Alvaro Garcia-Tunon, Vice President and Treasurer, at WABCO at the
address and phone number listed above. To obtain timely delivery, you must
request the information no later than , 1999 (five business days prior
to the expiration date of the exchange offer). See also "Where You Can Find
More Information."

You should rely only on the information incorporated by reference or
provided in this prospectus. We have authorized no one to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information in this prospectus or the prospectus supplement is accurate as of
any date other than the date on the front of the document.

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SUMMARY

In this prospectus, "WABCO," "we," "us," and "our" refer to Westinghouse Air
Brake Company and its consolidated subsidiaries, unless the context otherwise
requires.

This summary highlights information contained elsewhere in this prospectus.
You should carefully read the entire prospectus, including "Risk Factors"
beginning on page 14.

Westinghouse Air Brake Company

We are one of North America's largest manufacturers of value-added equipment
for locomotives, railway freight cars and passenger transit vehicles. We
believe that we maintain more than half of the market share in North America
for our primary braking-related equipment, as well as a significant market
share in North America for our other principal products. We also sell products
in Europe, Australia, South America and Asia. Our products are intended to
enhance safety, improve productivity and reduce maintenance costs for our
customers. Our major product offerings include electronic controls and
monitors, air brakes, couplers, door controls, draft gears and brake shoes. We
aggressively pursue technological advances with respect to both new product
development and product enhancements and we believe that our new and enhanced
products developed since 1992 accounted for approximately 25% of our net sales
in 1998. Recent acquisitions have also added significantly to growth in our net
sales and growth of earnings before interest, taxes, depreciation and
amortization, which is commonly referred to as EBITDA. We had net sales of
$670.9 million and EBITDA of $129.0 million for the twelve months ended
December 31, 1998.

We also provide value-added service centers to railroads and operators of
passenger transit systems, operating 15 repair and upgrade sites in North
America, Australia and the United Kingdom. Through our service centers, we
capitalize on the increased outsourcing of repair and upgrade business by
railroads and transit authorities.

We are located at 1001 Air Brake Avenue, Wilmerding, Pennsylvania 15148, and
our telephone number is (412) 825-1000.

Our Products

We have significant product and service lines within each of our three
product groups. Our new product development programs also strengthen our sales
both to original equipment manufacturers of railroad vehicles and equipment and
to end-users, including operators of rail vehicles such as railroads, transit
authorities, utilities and leasing companies. We believe that we have a
competitive advantage in our markets based upon the range of our products, as
well as the quality and competitive pricing associated with our products and
our ability to offer support to purchasers through our service and upgrade
centers. Our company's products and services (listed by our three product
groups) include:

.Our Railroad Group, which accounted for 58% of our revenues for the year ended
December 31, 1998, and which sells freight cars, locomotives and electronics
for the railroads.

.Our Transit Group, which accounted for 32% of our revenues for the year ended
December 31, 1998, and which sells passenger transit equipment.

.Our Molded Products Group, which accounted for 10% of our revenues for the
year ended December 31, 1998, and which sells brake shoes, disc brake pads and
other rubber products.

Pending Merger with MotivePower

On June 2, 1999 we agreed to merge with MotivePower Industries, Inc.
MotivePower will be the surviving corporation. Each share of our common stock
will be converted into 1.3 shares of MotivePower's common stock. Immediately
upon completion of the merger, our stockholders will own approximately 55% of
MotivePower's common stock. The merger is intended to be a tax-free
reorganization for federal income tax purposes. For accounting purposes, it
will be accounted for as a pooling of interests. Completion of the merger is
subject to various conditions, including approval by our stockholders and the
stockholders of MotivePower. MotivePower has filed a registration statement
with the Securities and Exchange Commission with respect to the shares of
MotivePower common stock to be issued in the merger. That registration
statement contains a joint proxy statement/prospectus further describing the
merger. See "Where You Can Find More Information."

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The Exchange Offer

On January 12, 1999, we issued $75 million in aggregate principal amount of
our 9 3/8% Senior Notes due 2005 (the "Old Notes") in a private placement. We
entered into an exchange and registration rights agreement with Chase
Securities, Inc., the initial purchaser of the Old Notes, in which we agreed to
deliver to you this prospectus and to complete an offer to exchange the Old
Notes for registered notes with substantially identical terms (the "New Notes")
except that the New Notes will have been registered under the Securities Act of
1933 and will not bear legends restricting their transfer. Completing this
exchange offer will satisfy our obligations under the exchange and registration
rights agreement.

We believe that you may resell the New Notes without compliance with the
registration and prospectus delivery requirements of the Securities Act,
subject to certain limited conditions. We issued the Old Notes under an
indenture that grants you certain rights. The New Notes also will be issued
under that indenture and you will have the same rights under the indenture as
the holders of the Old Notes. You should read the discussion under the headings
"Terms of the Exchange Offer" and "Description of the New Notes" for further
information. References to the "Notes" apply to both the Old Notes and the New
Notes.

Summary of the Terms of the Exchange Offer

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The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of New Notes registered under the
Securities Act for each $1,000 principal amount
of Old Notes. In order to be exchanged, an Old
Note must be properly tendered and accepted. All
Old Notes that are validly tendered and not
validly withdrawn will be exchanged for New
Notes.

As of this date, there is $75 million aggregate
principal amount of Old Notes outstanding.

We will issue the New Notes promptly after the
expiration of the exchange offer.

Exchange and Registration
Rights Agreement...........
We are offering to exchange your unregistered Old
Notes for registered New Notes with substantially
the same terms. The exchange offer is intended to
satisfy our obligations under the exchange and
registration rights agreement. After the exchange
offer is completed, you will no longer be
entitled to any exchange or registration rights
with respect to your Old Notes.

The exchange and registration rights agreement
requires us to file a registration statement for
a continuous offering in accordance with Rule 415
under the Securities Act for your benefit if you
would not receive freely tradable registered
notes in the exchange offer or you are ineligible
to participate in the exchange offer and indicate
that you wish to have your Old Notes registered
under the Securities Act. See "Terms of the
Exchange Offer--Procedures For Tendering Old
Notes."

Resales of the Registered Based on an interpretation by the staff of the
Notes...................... Commission set forth in no-action letters issued
to third parties, we believe that New
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Notes issued pursuant to the exchange offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred if you are not a
broker-dealer and if you meet the following
conditions:

. The New Notes to be acquired by you in the
exchange offer are acquired by you in the
ordinary course of your business;

. you are not engaging in and do not intend to
engage in a distribution of the New Notes;

. you do not have an arrangement or
understanding with any person to participate
in the distribution of the registered notes;
and

. you are not an "affiliate" of ours, as that
term is defined in Rule 405 under the
Securities Act.

If you do not meet the above conditions, you may
incur liability under the Securities Act if you
transfer any New Note without delivering a
prospectus meeting the requirements of the
Securities Act. We do not assume or indemnify you
against that liability.

A broker-dealer who acquired Old Notes directly
from us cannot exchange those Old Notes in the
exchange offer. Otherwise, each broker-dealer
that receives New Notes in the exchange offer for
its own account in exchange for Old Notes which
were acquired by that broker-dealer as a result
of market-making activities or other trading
activities must acknowledge that it will deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resales of
the registered notes. For a period of 90 days
after the date of this prospectus, we will make
this prospectus available to a broker-dealer to
use for an offer to resell or to otherwise
transfer these registered notes.

Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless we decide
to extend the exchange offer. We do not intend to
extend the exchange offer, although we reserve
the right to do so.

Accrued Interest on the New
Notes and the Old Notes....
Each New Note will bear interest from its
issuance date. Holders of Old Notes that are
accepted for exchange will receive, in cash,
accrued interest on the Old Notes to, but not
including, the issuance date of the New Notes.
The interest will be paid with the first interest
payment on the New Notes. Interest on the Old
Notes accepted for exchange will cease to accrue
upon issuance of the New Notes.

Conditions to the Exchange The only conditions to completing the exchange
Offer...................... offer are that the exchange offer not violate
applicable law or any applicable interpretation
of the Commission staff, that no injunction,
order or decree has been issued which would
prohibit, prevent or materially impair our
ability to proceed with the exchange offer and
that any necessary governmental approvals have
been obtained. See "Terms of the Exchange Offer--
Conditions."
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Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes.................. exchange offer must complete, sign and date the
accompanying letter of transmittal, or a
facsimile thereof, in accordance with the
instructions contained in this prospectus and in
the letter of transmittal, and mail or otherwise
deliver the letter of transmittal, together with
the Old Notes and any other required
documentation, to the exchange agent at the
address set forth in this prospectus. By
executing the letter of transmittal, each holder
will represent to us that, among other things,
the New Notes acquired pursuant to the exchange
offer are being obtained in the ordinary course
of business of the person receiving such New
Notes, whether or not such person is the holder,
that neither the holder nor any such other person
has any arrangement or understanding with any
person to participate in the distribution of such
New Notes and that neither the holder nor any
such other person is an "affiliate," as defined
under Rule 405 of the Securities Act, of WABCO.
See "Terms of the Exchange Offer--Procedures for
Tendering Old Notes." Following the consummation
of the exchange offer, holders of Old Notes
eligible to participate but who do not tender
their Old Notes will not have any further
exchange rights and such Old Notes will continue
to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the
market for such Old Notes could be adversely
affected.

Special Procedures for
Beneficial Owner...........
If you are the beneficial owner of Old Notes and
they are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and you wish to tender your Old Notes,
you should promptly contact the person in whose
name your Old Notes are registered and instruct
that person to tender on your behalf. If you wish
to tender on your own behalf, you must, prior to
completing and executing the letter of
transmittal and delivering your Old Notes, either
make appropriate arrangements to register
ownership of the Old Notes in your name or obtain
a properly completed bond power from the person
in whose name your Old Notes are registered. The
transfer of registered ownership may take
considerable time. See "Terms of the Exchange
Offer--Procedures for Tendering Old Notes."

Guaranteed Delivery If you wish to tender your Old Notes and:
Procedures.................

. they are not immediately available;

. time will not permit your Old Notes or other
required documents to reach the exchange agent
before the expiration of the exchange offer;
or

. you cannot complete the procedure for book-
entry transfer on a timely basis;

you may tender your Old Notes in accordance with
the guaranteed delivery procedures set forth in
"Terms of the Exchange Offer--Procedures for
Tendering Old Notes."
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Acceptance of Old Notes and
Delivery of Registered
Notes......................
Except under the circumstances described above
under "Conditions to the Exchange Offer," we will
accept for exchange any and all Old Notes that
are properly tendered in the exchange offer prior
to 5:00 p.m., New York City time, on the
expiration date. The New Notes to be issued to
you in the exchange offer will be delivered
promptly following the expiration date. See
"Terms of the Exchange Offer."

Withdrawal.................. You may withdraw the tender of your Old Notes at
any time prior to 5:00 p.m., New York City time,
on the expiration date. We will return to you any
Old Notes not accepted for exchange for any
reason without expense to you as promptly as we
can after the expiration or termination of the
exchange offer.

Exchange Agent.............. The Bank of New York is serving as the exchange
agent in connection with the exchange offer.

Consequences of Failure to If you do not participate in the exchange offer,
Exchange................... upon completion of the exchange offer, the
liquidity of the market for your Old Notes could
be adversely affected. You may be unable to sell
or transfer your Old Notes and the value of your
Old Notes may decline. See "Risk Factors--Failure
to Follow The Exchange Offer Procedures Could
Adversely Affect Holders."

Shelf Registration If any holder of the Old Notes (other than any
Statement.................. such holder that is our "affiliate" within the
meaning of Rule 405 under the Securities Act) is
not eligible under applicable securities laws to
participate in the exchange offer, and such
holder has satisfied certain conditions relating
to the provision of information to us for use
therein, we have agreed to register the Old Notes
on a shelf registration statement and to use our
efforts to cause it to be declared effective by
the Commission as promptly as practical on or
after the consummation of the exchange offer. We
have agreed to maintain the effectiveness of such
shelf registration statement for, under certain
circumstances, a maximum of two years, to cover
resales of the Old Notes held by any such
holders.

Federal Income Tax The exchange of the Old Notes will not be a
Consequences............... taxable event for federal income tax purposes.
See "Certain Federal Income Tax Consequences."

Summary of the Terms of the New Notes

The New Notes............... $75 million principal amount of 9 3/8% Senior
Notes due 2005, Series B2.

Maturity.................... June 15, 2005.

Interest.................... The New Notes will pay interest in cash at the
rate of 9 3/8% per annum, payable on June 15 and
December 15 of each year, commencing December 15,
1999.
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Sinking Fund................ None.

Optional Redemption......... At our option, we may redeem any or all of New
Notes, at any time on or after June 15, 2000, for
a redemption price initially equal to 104.688% of
their principal amount, plus any accrued and
unpaid interest. The redemption price will
decrease by equal amounts each year to 100% of
the principal amount of the Notes, plus any
accrued and unpaid interest on and after June 15,
2002. See "Description of the New Notes--Optional
Redemption."

Change of Control........... Upon a change of control of WABCO, as described
in the indenture, you will have the right to
require us to make an offer to repurchase the New
Notes at a purchase price equal to 101% of their
principal amount, plus any accrued and unpaid
interest. We can not assure that we will have
sufficient funds available at the time of any
change of control to repurchase the Notes. We
cannot otherwise redeem the Notes. See
"Description of the New Notes--Certain
Covenants--Change of Control."

Ranking..................... The Notes will be:

. equal in right of payment with all of our
existing and future unsubordinated debt; and

. senior in right of payment to any of our
future subordinated debt.

The Notes are not:

. guaranteed by our subsidiaries; however, our
senior secured credit agreement is
unconditionally guaranteed by all of our
subsidiaries, which guarantee is limited to
$250 million in the aggregate so long as the
Old Notes remain outstanding; and

. secured by any collateral; however, our senior
secured credit agreement is secured by
substantially all of our assets (including all
of the stock of our domestic subsidiaries and
65% of the stock of most of our foreign
subsidiaries) and substantially all of the
assets of all of our subsidiaries.

The effect of the subsidiaries' guarantee of the
senior secured credit agreement is to cause the
Notes to effectively be subordinate to and rank
below all liabilities of our subsidiaries. Our
March 31, 1999 balance sheet had liabilities of
our subsidiaries, excluding guarantees and
intercompany obligations, of $66.0 million.

Further, the effect of the security interests
granted under the senior secured credit agreement
is to cause the Notes to effectively be
subordinate to and rank below the debt of that
facility. As of March 31, 1999, our total
indebtedness was $470.5 million, all of which was
unsubordinated indebtedness. Approximately $276.1
million of such indebtedness was secured
indebtedness under the senior secured credit
agreement. See "Description of the New Notes--
Ranking," "Description of Certain Indebtedness"
and "Capitalization."
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Certain Covenants........... The indenture contains certain covenants for your
benefit as holders of the Notes that will, among
other things, restrict our ability to:

. incur indebtedness;

. pay dividends and redeem stock;

. undertake certain transactions with our
affiliates;

. grant liens;

. sell assets;

. invest in and distribute from certain
subsidiaries;

. use proceeds from sales of assets and
subsidiary stock;

. undertake sale/leaseback transactions; and

. consolidate, merge and sell assets.

These covenants are subject to a number of
important exceptions. See "Description of the New
Notes--Certain Covenants."

Form of New Notes........... The New Notes will be available initially only in
book-entry form. Except as described under "Book-
Entry; Delivery and Form," we expect that the New
Notes will be represented by a global Note which
will be deposited with, or on behalf of,
Depository Trust Company (with links to the
Euroclear System and Cedel Bank, Societe Anonyme)
and registered in its name or in the name of its
nominee. Beneficial interests in the global note
representing the New Notes will be shown on, and
transfers thereof will be effected through,
records maintained by DTC and its participants.
After the initial issuance of the global Note,
notes in certificated form will be issued in
exchange for the global note only under limited
circumstances as set forth in the indenture. See
"Book-Entry; Delivery and Form."

Use of Proceeds............. We used proceeds from issuance of the Old Notes
to repay certain indebtedness. We will not,
however, receive any proceeds from the exchange
offer. See "Use of Proceeds."
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SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

How We Prepared the Financial Statements

We are providing the following information to aid you in your analysis of
the financial aspects of the exchange offer. We derived this information from
the MotivePower and WABCO audited financial statements for the years ended
December 31, 1994 through 1998 and the unaudited financial statements for the
three months ended March 31, 1999 and 1998. The information is only a summary
and you should read it together with the historical financial statements and
related notes included in this prospectus or contained in the annual reports
and other information that have been filed with the Commission. See "Where You
Can Find More Information."

Pooling of Interests Accounting Treatment

We expect that the merger of MotivePower and WABCO, as described at the end
of the section entitled "Business," will be accounted for as a "pooling of
interests." This means that, for accounting and financial reporting purposes,
we will treat the companies as if they had always been combined.

We have presented unaudited pro forma condensed combined financial
information that reflects the pooling of interests method of accounting to give
you a better picture of what the businesses of MotivePower and WABCO might have
looked like had they been combined since the beginning of the periods
presented. We prepared the pro forma condensed combined statements of income
and pro forma condensed combined balance sheet by adding or combining the
historical amounts of each company. The accounting policies of MotivePower and
WABCO are substantially comparable. However, adjustments were made to conform
the classification of amortization expense and income taxes receivable in the
unaudited pro forma condensed combined financial statements. The companies may
have performed differently had they always been combined. You should not rely
on the unaudited pro forma condensed combined financial information as being
indicative of the historical results that we would have had or the future
results that we will experience after the merger.

Merger-Related Expenses

We estimate that merger-related fees and expenses, consisting primarily of
SEC filing fees, fees and expenses of investment bankers, attorneys and
accountants, and financial printing and other related charges, will be
approximately $20-25 million.

Integration-Related Expenses

We estimate that costs of approximately $35-$40 million will be incurred for
severance and other integration-related expenses, including the elimination of
duplicate facilities and excess capacity, operational realignment and related
workforce reductions. These expenditures are necessary to reduce costs and
operate efficiently. These costs will be charged to operations in the periods
the obligations occur and therefore are not reflected in the unaudited pro
forma condensed combined financial statements.

Periods Covered

The summary unaudited pro forma condensed combined financial data combines
MotivePower's and WABCO's results for the years ended December 31, 1994 through
1998 and the three months ended March 31, 1999 and 1998, and give effect to the
merger as if it had occurred at the beginning of the periods presented. The
combined balance sheet data in the table below combines the balance sheets of
MotivePower and WABCO as of December 31, 1994 through 1998 and as of March 31,
1999 and 1998.

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Summary Historical Financial Data of WABCO

The following summary historical financial data for each of the years ended
December 31, 1994 through 1998 has been derived from our audited consolidated
financial statements. The following summary historical financial data for the
three months ended March 31, 1999 and 1998 has been derived from our unaudited
consolidated financial statements. This information is only a summary and you
should read it together with our historical financial statements and related
notes contained in this prospectus and in the annual and quarterly reports and
other information that we have filed with the Commission. See "Where You Can
Find More Information."

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<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
------------------ -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- --------- --------- --------- ---------
(unaudited) (thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $191,204 $158,136 $670,909 $564,441 $453,512 $424,959 $347,469
Gross profit............ 61,545 51,796 219,179 186,118 153,349 146,058 117,925
Operating income........ 28,897 24,755 104,666 89,975 79,718 89,302 73,368
Net income.............. 11,920 10,858 41,654 37,263 32,725 33,725 36,841
EBITDA(1)............... 35,616 31,270 128,955 114,943 102,049 108,141 89,409
Diluted earnings per
share ................. $ 0.46 $ 0.42 $ 1.62 $ 1.42 $ 1.15 $ 1.27 $ 0.92
Cash dividends per
share.................. 0.01 0.01 0.04 0.04 0.04 0.01 0.00
Ratio of Earnings to
Fixed Charges(2)....... 4.0 4.0 3.1 2.8 2.9 2.7 6.4
<CAPTION>
March 31, December 31,
------------------ -----------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $609,460 $434,339 $596,184 $410,879 $363,236 $263,407 $187,728
Total debt.............. 470,490 364,946 467,817 364,934 341,690 305,935 78,060
Shareholders' equity
(deficit).............. (19,362) (66,731) (33,853) (79,263) (76,195) (108,698) 46,797
</TABLE>
- --------
(1) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation and amortization and extraordinary losses due to write off of
previously capitalized debt issuance costs. EBITDA is used here because we
believe it is an indicator of our ability to service existing and future
indebtedness. EBITDA should not be considered as an alternative to net
income as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles. Our
computation of EBITDA may not be comparable to similarly titled measures
of other companies.

(2) The ratio of earnings to fixed charges has been calculated by dividing
income from continuing operations before income taxes plus fixed charges
by fixed charges. Fixed charges consist of interest expense on
indebtedness, amortization of debt expense and 33% of rental payments
under operating leases (an amount estimated by management of the interest
components of such rentals). The ratio of earnings to fixed charges as of
March 31, 1999 and December 31, 1998 is not materially affected by this
offering.

10
<PAGE>

Summary Historical Financial Data of MotivePower

The following summary historical financial data for each of the years ended
December 31, 1994 through 1998 has been derived from MotivePower's audited
consolidated financial statements. The following summary historical financial
data for the three months ended March 31, 1999 and 1998 has been derived from
MotivePower's unaudited consolidated financial statements. This information is
only a summary and you should read it together with MotivePower's historical
financial statements and related notes contained in this prospectus and in the
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q and other
information that they have filed with the Commission. See "Where You Can Find
More Information."

<TABLE>
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
----------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- --------- --------- --------- ---------
(unaudited) (thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $107,274 $ 82,853 $365,218 $305,930 $291,407 $263,718 $368,537
Gross profit (loss)..... 27,523 21,356 81,322 72,342 56,847 (5,167) (5,478)
Operating income
(loss)................. 14,805 11,003 40,363 34,618 24,232 (51,113) (49,977)
Net income (loss)....... 7,878 6,648 32,197 20,276 11,509 (40,414) (42,793)
EBITDA(1)............... 18,418 14,439 66,082 47,119 39,787 (39,374) (37,570)
Diluted earnings (loss)
per share(2)(4)........ $ 0.28 $ 0.24 $ 1.15 $ 0.74 $ 0.44 $ (1.56) $ (1.65)
Cash dividends
per share(2)(3)........ 0.00 0.00 0.00 0.00 0.00 0.03 2.21
<CAPTION>
March 31, December 31,
----------------- --------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
-------- -------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ $407,812 $285,607 $371,198 $283,102 $234,044 $280,948 $311,297
Total debt.............. 134,164 50,833 105,798 50,507 49,592 120,118 108,176
Shareholders' equity.... 186,637 151,441 177,929 144,548 120,980 94,527 114,124
</TABLE>
- --------
(1) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation and amortization and extraordinary losses due to write off of
previously capitalized debt issue costs. EBITDA should not be considered
as an alternative to net income as a measure of operating results or to
cash flows as a measure of liquidity in accordance with generally accepted
accounting principles. MotivePower's computation of EBITDA may not be
comparable to similarly titled measures of other companies.
(2) Reflects a three-for-two common stock split in the form of a 50 percent
stock dividend effective April 2, 1999.
(3) Includes a special dividend to Morrison Knudsen Corporation of $2.13 per
share on 16,724,000 shares paid in 1994.
(4) The diluted loss per share for 1994 is a supplemental pro forma amount.

11
<PAGE>

Summary Unaudited Pro Forma Condensed Combined Financial Data

The following summary unaudited pro forma condensed combined financial data
has been derived from and should be read with the "Unaudited Pro Forma
Condensed Combined Financial Statements and Related Notes." This information is
based on the historical consolidated balance sheets and related historical
consolidated statements of income of MotivePower and WABCO giving effect to the
merger using the pooling of interests method of accounting for business
combinations. This information is for illustrative purposes only. The companies
may have performed differently had they always been combined. You should not
rely on the summary unaudited pro forma condensed combined financial data as
being indicative of the historical results that would have been achieved had
the companies always been combined or the future results that the combined
company will experience after the merger.

<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
------------------- -----------------------------------------
1999 1998 1998 1997 1996
---------- -------- -------------- --------------------------
(unaudited) (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income
Data:
Net sales............... $298,478 $240,989 $1,036,127 $870,371 $744,919
Gross profit............ 89,068 73,152 300,501 258,460 210,196
Operating income........ 43,702 35,758 145,029 124,593 103,950
Income before
extraordinary item..... 20,267 17,978 79,196 57,539 45,298
EBITDA(1)............... 54,034 45,709 195,037 162,062 141,836
Diluted earnings per
common share
before extraordinary
item(2)(3)............. $ 0.33 $ 0.29 $ 1.29 $ 0.94 $ 0.72
Cash dividends per
share(2)(3)(4)......... $ 0.00 $ 0.00 $ 0.02 $ 0.02 $ 0.02
<CAPTION>
March 31, December 31,
------------------- -----------------------------------------
1999 1998 1998 1997 1996
---------- -------- -------------- --------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets............ 1,015,052 719,946 967,382 693,981 597,280
Total debt.............. 604,654 415,779 573,615 415,441 391,282
Shareholders' equity.... 167,275 84,710 144,076 65,285 44,785
</TABLE>
- --------
(1) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation, amortization and extraordinary losses due to write off of
previously capitalized debt issuance costs. EBITDA is used here because we
believe it is an indicator of our ability to service existing and future
indebtedness. EBITDA should not be considered as an alternative to net
income as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles. Our
computation of EBITDA may not be comparable to similarly titled measures of
other companies.
(2) Reflects the effects of a three-for-two split of MotivePower common stock
in the form of a 50 percent stock dividend effective April 2, 1999.
(3) Reflects the exchange of 1.3 shares of MotivePower common stock for each
share of our common stock outstanding.
(4) Includes a special dividend to Morrison Knudson Corporation of $2.13 on
16,724,000 shares which was paid in 1994.

12
<PAGE>

Selected Historical Financial Data For WABCO
(Dollars in Thousands)

The following selected historical financial data for each of the years ended
December 31, 1994 through 1998 has been derived from our audited consolidated
financial statements and for the three months ended March 31, 1999 and 1998 the
data has been derived from our unaudited consolidated financial statements.
This information is only a summary and you should read it together with our
historical audited financial statements and related notes contained in this
prospectus and in the annual and quarterly reports and other information that
we have filed with the Commission. See "Where You Can Find More Information."

<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31,
-------------------- -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- --------- --------
(unaudited) (thousands of except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data
Net sales............... $ 191,204 $ 158,136 $670,909 $564,441 $453,512 $ 424,959 $347,469
Cost of sales........... 129,659 106,340 451,730 378,323 300,163 278,901 229,544
--------- --------- -------- -------- -------- --------- --------
Gross profit.......... 61,545 51,796 219,179 186,118 153,349 146,058 117,925
Operating expenses...... 32,648 27,041 114,513 96,143 73,631 56,756 44,287
--------- --------- -------- -------- -------- --------- --------
Income from
operations........... 28,897 24,755 104,666 89,975 79,718 89,302 73,638
Interest expense and
other, net............. 9,162 7,242 32,136 29,385 26,070 30,793 11,184
--------- --------- -------- -------- -------- --------- --------
Income before taxes
and extraordinary
item................. 19,735 17,513 72,530 60,590 53,648 58,509 62,454
Income taxes............ 7,346 6,655 27,561 23,327 20,923 23,402 25,613
--------- --------- -------- -------- -------- --------- --------
Income before
extraordinary item... 12,389 10,858 44,969 37,263 32,725 35,107 36,841
(Loss) on early
extinguishment of
debt................... 469 -- (3,315) -- -- (1,382) --
--------- --------- -------- -------- -------- --------- --------
Net income............ $ 11,920 $ 10,858 $ 41,654 $ 37,263 $ 32,725 $ 33,725 $ 36,841
========= ========= ======== ======== ======== ========= ========
Diluted Earnings per
Common Share
Income before
extraordinary item..... $ .48 $ .42 $ 1.75 $ 1.42 $ 1.15 $ 1.32 $ .92
Loss on early
extinguishment of
debt................... (.02) -- (.13) -- -- (.05) --
--------- --------- -------- -------- -------- --------- --------
Net income............ $ .46 $ .42 $ 1.62 $ 1.42 $ 1.15 $ 1.27 $ .92
========= ========= ======== ======== ======== ========= ========
Cash dividends per
share.................. $ .01 $ .01 $ .04 $ .04 $ .04 $ .01 $ .00
Weighted average diluted
shares outstanding..... 25,776 25,669 25,708 26,173 28,473 26,639 40,000
--------- --------- -------- -------- -------- --------- --------
Other Financial Data
EBITDA(1)............... 35,616 31,270 128,955 114,943 102,049 108,141 89,409
Depreciation and
Amortization........... 6,785 6,384 25,208 24,624 22,249 18,634 16,057
Capital Expenditures.... 6,533 5,329 28,957 29,196 12,855 16,205 12,853
Interest Expense(2)..... 9,096 7,373 31,217 29,729 26,152 30,998 10,898
Ratio of Earnings to
Fixed Charges(3)....... 4.0 4.0 3.1 2.8 2.9 2.7 6.4
<CAPTION>
As of March 31, As of December 31,
-------------------- -------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
--------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital......... $121,062 $ 58,741 $ 95,411 $ 48,719 $ 48,176 $ 36,674 $ 46,640
Property, plant and
equipment, net......... 128,066 109,990 124,981 108,367 95,844 72,758 67,346
Total assets............ 609,460 434,339 596,184 410,879 363,236 263,407 187,728
Total debt.............. 470,490 364,946 467,817 364,934 341,690 305,935 78,060
Shareholders' equity
(deficit).............. (19,362) (66,731) (33,853) (79,263) (76,195) (108,698) 46,797
</TABLE>
- --------
(1) "EBITDA" is defined as net income plus income taxes, interest expense,
depreciation and amortization and extraordinary losses due to write off of
previously capitalized debt issuance costs. EBITDA is used here because we
believe it is an indicator of our ability to service existing and future
indebtedness. EBITDA should not be considered as an alternative to net
income as a measure of operating results or to cash flows as a measure of
liquidity in accordance with generally accepted accounting principles. Our
computation of EBITDA may not be comparable to similarly titled measures
of other companies.
(2) Pro forma after giving effect to the offering, the interest expense for
the three months ended March 31, 1999 and the year ended December 31, 1998
would have been $9.1 million and $32.7 million.
(3) The ratio of earnings to fixed charges has been calculated by dividing
income from continuing operations before income taxes plus fixed charges
by fixed charges. Fixed charges consist of interest expense on
indebtedness, amortization of debt expense and 33% of rental payments
under operating leases (an amount estimated by management of the interest
components of such rentals). The ratio of earnings to fixed charges as of
March 31, 1999 and December 31, 1998 is not materially affected by this
offering.

13
<PAGE>

RISK FACTORS

In addition to the other information contained in this prospectus, the
following factors should be considered carefully before tendering Old Notes in
exchange for New Notes. The risk factors set forth below are generally
applicable to the Old Notes as well as the New Notes.

We Are Highly Leveraged And Have A Deficit In Stockholders' Equity.

Our company has substantial debt. As of March 31, 1999, our total
indebtedness was approximately $470.5 million. See "Capitalization."

As of March 31, 1999, we had a $19.4 million deficit in stockholders'
equity. As of March 31, 1999, our total indebtedness was $470.5 million, of
which approximately $276.1 million was outstanding under our credit agreement
with a consortium of commercial banks, $75.0 million was outstanding under the
Notes and $100.0 million was outstanding under our previously existing 9 3/8%
Senior Notes due 2005 and issued in 1995. As of March 31, 1999, we had the
ability to incur up to approximately $44.3 million of additional indebtedness
under the credit agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Description of Certain Indebtedness."

Our debt requires the dedication of a substantial portion of our future cash
flow to the payment of principal and interest on indebtedness. It may,
therefore, limit our ability to fund future working capital, capital
expenditure, research and development costs and other general corporate
requirements. It may also increase our vulnerability to adverse economic and
industry conditions, limit our flexibility in planning for, or reacting to,
changes in our business and industry, place us at a competitive disadvantage
compared to our competitors that have less debt, and limit our ability to
borrow additional funds.

Our Credit Facilities Limit Our Ability To Take Certain Actions.

Our credit agreement contains covenants that, among other things, limit the
payment of dividends and the incidence of additional debt and restricts
mergers, acquisitions and sales of assets (including stock of subsidiaries). In
addition, a "change in control" constitutes an event of default. Change in
control is defined to include:

. ownership of more than 35% of the common stock by any person other than
certain designated persons or entities; or

. a combination of certain designated persons or entities ceasing to own
35% of the common stock.

We are also required to maintain specified financial ratios and meet certain
other financial tests.

The indenture under which our $100 million in existing notes were issued in
1995 and the indenture pertaining to these Notes also contain covenants that,
among other things, limit our ability, as well as the ability of certain of our
subsidiaries, to:

. incur indebtedness;

. pay dividends on and redeem capital stock;

. create restrictions on investments in unrestricted subsidiaries;

. make distributions from certain subsidiaries;

. use proceeds from the sale of assets and subsidiary stock;

. enter into transactions with affiliates;

. create liens; and

. enter into sale/leaseback transactions.

14
<PAGE>

The 1995 existing notes indenture and the indenture to the Notes also
restrict, subject to certain exceptions, our ability to consolidate and merge
with, or to transfer all or substantially all our assets to, another person. In
addition, upon the occurrence of a change of control under the existing notes
indenture and the indenture to the Notes, each holder of the existing notes and
these Notes will have the right to require us to repurchase all or a portion of
the notes held by such holder, at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest, if any, to the date of
repurchase. We can not assure that we will have the financial ability to
repurchase the notes upon a change of control. In addition, the exercise of
such rights could trigger cross-default provisions in the credit agreement with
bank lenders and lead to our bankruptcy.

Although we believe that we will be able to maintain compliance with our
current financial tests, we can not assure that we will be able to do so. The
restrictions imposed by such covenants may adversely affect our ability to make
acquisitions or take advantage of favorable business opportunities. Failure to
comply with the terms of such covenants could result in acceleration of the
indebtedness represented by the Notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," "Description of the New Notes" and "Description of Certain
Indebtedness."

The Notes Are Effectively Subordinated.

Although the Notes rank side by side in right of payment with indebtedness
outstanding under the credit agreement, such debt under the credit agreement is
secured by substantially all of our assets and those of our domestic
subsidiaries. The Notes are unsecured and therefore do not have the benefit of
such collateral. If an event of default occurs under the credit agreement, the
lenders under the credit agreement will have preferential claims to those
assets and may foreclose upon such collateral to the exclusion of the holders
of the Notes, notwithstanding the existence of an event of default with respect
to the Notes. Accordingly, in such an event, our assets which secure
obligations under the credit agreement would first be used to repay in full
amounts outstanding under the credit agreement before being available to pay
the Notes.

The Notes are not guaranteed by our subsidiaries. The credit agreement is
unconditionally guaranteed by all of our domestic subsidiaries. The Notes will
be effectively subordinated to all of the liabilities of our subsidiaries,
including trade payables. This is because your only access to the assets of the
subsidiaries is through the stock of the subsidiaries. WABCO owns the stock of
our subsidiaries, while direct creditors of the subsidiaries (including the
lenders under the credit agreement, who have guarantees from the subsidiaries,
and trade creditors of the subsidiaries) have direct access to the subsidiaries
assets. At March 31, 1999, the total liabilities of our subsidiaries (including
trade payables) were approximately $66.0 million (exclusive of guarantees by
such subsidiaries under the credit agreement and intercompany obligations).

Termination Fees And A Stock Option Agreement With MotivePower Could Require Us
To Make Material Payments To MotivePower If We Terminate The Pending Merger
Transaction.

We must pay to MotivePower a termination fee of $15 million plus $2 million
in expenses if the merger agreement terminates under specified circumstances.
We have also entered into a stock option agreement which provides MotivePower
the right to acquire up to 19% of our outstanding common stock under specified
conditions (with the profit that MotivePower can derive from the option limited
to $15 million).

The Pending Merger With MotivePower Creates Business Uncertainties.

Although the pending merger is expected to create a more competitive
enterprise, there are a number of risks to WABCO in connection with the merger.
These risks are described in detail in the joint proxy statement/prospectus for
the merger transaction. See "Where You Can Find More Information."

We Operate In A Very Competitive Marketplace.

We operate in a competitive marketplace and face substantial competition
from a number of established competitors in the United States and abroad, some
of which may have greater financial resources. Price

15
<PAGE>

competition is strong and, coupled with the existence of a limited number of
cost conscious purchasers, has historically limited our ability to increase
prices. In addition to price, competition is based on product performance and
technological leadership, quality, reliability of delivery and customer service
and support. We can not assure that competition in one or more of our markets
will not adversely affect our company and our results of operations.

Our Foreign Operations Are Subject To A Number Of International Risks.

We conduct international operations through a variety of wholly-owned
subsidiaries, majority-owned subsidiaries and equity interests located in North
America, the United Kingdom, Canada, France, Australia, India and Italy. We are
also exploring the possibility of expansion into other international markets.
Any international operations that we establish will be subject to risks similar
to those affecting our North American operations in addition to a number of
other risks. These include, among others:

. governmental expropriation;

. foreign taxation;

. difficulty in enforcing intellectual property rights;

. language and other cultural barriers;

. political and economic instability;

. lack of complete operating control;

. lack of local business experience;

. foreign currency fluctuations;

. trade barriers; and

. exchange controls;

In addition, various jurisdictions outside the United States have laws
limiting the right and ability of non-United States subsidiaries and affiliates
to pay dividends and remit earnings to affiliated companies unless specified
conditions exist.

Our financial performance on a U.S. dollar denominated basis can be
significantly affected by fluctuations in currency exchange rates. From time to
time, we enter into agreements to reduce our foreign currency exposure. These
agreements have not been and are not expected to be material.

Our ability to expand sales of our products internationally, in particular
our locomotive and freight braking-system product lines, is limited by the
necessity of obtaining regulatory approval in new jurisdictions, as well as by
the additional expense of modifying products to comply with local railroad
equipment requirements. This limitation is particularly notable in Western
Europe.

Our Acquisition Strategy Is Not Guaranteed To Be Foolproof.

An important component of our business strategy is to continue to grow by
making additional acquisitions of complementary businesses. We have
historically financed acquisitions through a combination of secured and
unsecured borrowings, augmented by internally generated cash flow. Our future
growth and financial success will be dependent in part upon a number of factors
relating to acquisitions including, among others, our ability to:

. identify acceptable acquisition candidates;

. secure advantageous financing;

. consummate the acquisition of such businesses on terms that are
favorable to us;

. attain customer retention levels at acquired businesses that are
advantageous to us; and

. promptly and profitably integrate the acquired operations into our
operations.

We can not assure that we will be successful with respect to such factors.
We also cannot assure that we will adequately anticipate all of the changing
demands our growth will impose on our internal systems, procedures and
structure. Any failure to adequately anticipate and respond to such changing
demands could have a material adverse effect on us.

16
<PAGE>

Our Industry Is Subject To A Number Of Economic Factors Relating To The
Railroad Industry In General.

The railway industry has historically been subject to significant
fluctuations due to overall economic conditions and the level of use of
alternate methods of transportation. In economic downturns, railroads may defer
certain expenditures in order to conserve cash in the short term, and
reductions in freight traffic may reduce demand for our replacement products.
We can not assure that economic conditions will remain favorable or that there
will not be significant fluctuations adversely affecting the industry as a
whole and, as a result, our company.

The passenger transit railroad industry is also cyclical. New passenger
transit car orders vary from year to year and are influenced greatly by major
replacement programs and by the construction or expansion of transit systems by
transit authorities. A substantial portion of our net sales has been, and we
expect that a material portion of our future net sales may be, derived from
contracts with metropolitan transit and commuter rail authorities and Amtrak.
To the extent that future funding for proposed public projects is curtailed or
withdrawn altogether as a result of changes in political, economic, fiscal or
other conditions beyond our control, such projects may be delayed or cancelled,
resulting in a potential loss of new business.

The Success Of Our New Products Can Not Be Guaranteed.

We have dedicated significant resources to the development, manufacture and
marketing of new products. Decisions to develop and market new transportation
products are typically made without firm indications of customer acceptance.
Moreover, by their nature, new products may require alteration of existing
business methods or threaten to displace existing equipment in which customers
may have a substantial capital investment. We can not assure that any new
products that we develop will gain widespread acceptance in the marketplace or
that such products will be able to compete successfully with other new products
or services that may be introduced by competitors.

Government Laws And Regulations May Affect Our Future Performance.

We are subject to a variety of federal, state and local environmental laws
and regulations. Although we believe that we are in material compliance with
all of the various regulations applicable to our business, we can not assure
that requirements will not change in the future or that we will not incur
significant costs to comply with such requirements.

We Are Currently Involved In Asbestos Litigation.

We acquired the North American operations of the railway products group of
American Standard, Inc. in 1990. There are various pending claims by employees
of third parties who allege they were exposed to asbestos while handling
American Standard products manufactured prior to the acquisition (American
Standard discontinued the use of asbestos in its products in 1980). We believe
that pursuant to the asset purchase agreement by which we acquired the railway
products group, American Standard remains liable for all asbestos claims filed
against our company. Although we believe that American Standard is willing and
able to fulfill its indemnity obligation, there can be no assurance that
American Standard will not dispute or become unable to perform its obligations.
If this occurs, we may be materially adversely affected.

With respect to asbestos claims against our friction products subsidiary,
RFPC, we believe that the American Standard asset purchase agreement requires
American Standard to indemnify our company and RFPC for 50% of any liability
and defense costs that RFPC may incur with respect to asbestos claims. The
remaining costs should be covered by insurance. American Standard's indemnity
obligation with respect to RFPC claims expires in March 2000 in connection with
claims that are initiated after that date. Again, although we believe that
American Standard is willing and able to fulfill its indemnity obligation with
respect to RFPC asbestos claims, there can be no assurance that American
Standard will not dispute or become unable to perform its obligations. If this
occurs, we may be materially adversely affected.

17
<PAGE>

Finally, we believe that Mark IV Industries, Inc., the former owner of
another of our subsidiaries, Vapor Corporation, is obligated to indemnify our
company and Vapor for asbestos claims against Vapor. Although we believe that
Mark IV is willing and able to fulfill its indemnity obligation with respect to
Vapor asbestos claims, there can be no assurance that Mark IV will not dispute
or become unable to perform its obligations. If this occurs, we may be
materially adversely affected.

A Large Percentage Of Our Common Stock Is Held By A Few Entities.

As of December 31, 1998, ownership of our common stock was held in the
following approximate percentages by the following entities:

. our management and the ESOP--58%;

. Vestar Equity Partners, L.P.--7%;

. Charlesbank Capital Partners, LLC--7%;

. Shapiro Capital Management Company, Inc.--6%;

. First Manhattan Co.--5%; and

. all others, including public shareholders--17%.

A stockholders agreement exists among certain members of our company
management (acting through a voting trust), Vestar, Charlesbank and American
Industrial Partners Capital that provides for, among other things, the
composition of our Board of Directors as long as certain minimum stock
percentages are maintained.

Certain of these principal stockholders acting together may have sufficient
voting power to control the election of our Board of Directors and to determine
the outcome of corporate actions requiring stockholder approval. Such ownership
of common stock may also have the effect of delaying, deferring or preventing a
change of control of our company and may adversely affect the voting and other
rights of other holders of common stock. In addition, under the stockholders
agreement, our company, Vestar, Charlesbank, American Industrial Partners and
the management voting trust agreed to nomination procedures which will
determine the composition of the Board of Directors. Vestar, Charlesbank,
American Industrial Partners, the management voting trust and certain other
stockholders have agreed to vote or cause to be voted all shares of common
stock owned by them (or as to which they control the voting) in favor of
persons nominated in accordance with such procedures. As a result, the Board
may be composed of persons selected by Charlesbank, American Industrial
Partners, Vestar, Emilio A. Fernandez, Vice Chairman of our Board and William
E. Kassling, Chairman of our Board and CEO.

Year 2000 Issues May Affect Us.

We believe that our present remediation and replacement programs will
adequately address the Year 2000 issues with respect to our internal systems in
all material respects. However, with respect to our internal systems, we can
not assure that the remediation and replacement programs that are currently
operating will not experience minor disruptions. In addition, we can not assure
that our vendors, suppliers and other service providers will successfully
resolve their own Year 2000 issues in a manner that avoids significant impact
to our company. We have received written assurances from some of our suppliers
and customers and other providers acknowledging the Year 2000 issues and
stating their present intention to be compliant. We have not received
assurances from all of our suppliers and other providers and there is no
guarantee that one or more key suppliers and other providers will not fail to
become compliant in time to avoid a disruption to our business which would have
a significant adverse impact on our company. Certain failures of our company or
our suppliers, vendors and other service providers to completely overcome the
Year 2000 issue could result in substantial and material impact on our
business, operations and financial results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Effects of Year
2000."

18
<PAGE>

Our forecasted costs and timing for completion of our Year 2000 programs are
based on our best estimates, which in turn are based on numerous assumptions of
future events, including the continued availability and cost of necessary
personnel and other resources, third party modification plans, and other
factors. However, we cannot be certain that these estimates will be achieved
and actual results could differ materially from these estimates.

There Is No Established Market For The Resale Of The Notes.

Prior to this exchange offer, there was no existing trading market for the
Old Notes and there were no registered notes. Although Chase Securities, the
initial purchaser of the Notes, informed us that it intended to make a market
in the Notes, it was not obligated to do so and any such market making may be
discontinued at any time without notice, at the sole discretion of Chase
Securities. In addition, such market making activity may be limited during the
pendency of the exchange offer or the effectiveness of a shelf registration
statement in lieu thereof. Accordingly, we can not offer any assurance as to
the development or liquidity of any market for the New Notes, although we
expect that the New Notes will be eligible for trading through The Private
Offerings, Resales and Trading through Automated Linkages Market, also known as
the "PORTAL market." The PORTAL market acts as a facilitator of SEC Rule 144A
and provides regulatory oversight for the clearance and settlement of domestic
and foreign debt and equity securities through designated clearing and
depository organizations. It includes equity, fixed income and derivative
securities. Settlement in the PORTAL market and via DTC occurs much faster than
does delivery or traditional European clearance and settlement, which may take
weeks.

The exchange offer is not conditioned upon any minimum or maximum aggregate
principal amount of Notes being tendered for exchange. We cannot assure the
liquidity of the trading market for the New Notes, or, in the case of non-
exchanging holders of Notes, the trading market for the Old Notes following the
exchange offer. See "Exchange and Registration Rights."

Failure To Follow The Exchange Offer Procedures Could Adversely Affect Holders.

Issuance of the New Notes in exchange for the Old Notes pursuant to the
exchange offer will be made only after a timely receipt by us of such Old
Notes, a properly completed and duly executed letter of transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for New Notes should allow sufficient time to
ensure timely delivery. Our company is under no duty to give notification of
defects or irregularities with respect to the tenders of Old Notes for
exchange.

Old Notes that are not tendered or are tendered but not accepted will,
following the consummation of the exchange offer, continue to be subject to the
existing restrictions upon transfer thereof, and, upon consummation of the
exchange offer certain registration rights under the exchange and registration
rights agreement will terminate. In addition, any holder of Old Notes who
tenders in the exchange offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.

Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes, where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." To the extent that Old Notes are
tendered and accepted in the exchange offer, the trading market for untendered
and tendered but unaccepted Old Notes could be adversely affected. See "The
Exchange Offer."

19
<PAGE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

We have made statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business," and elsewhere in this prospectus that constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties,
and other factors that may cause our or our industry's results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. For those statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.

In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates," "believes,"
"estimates," "predicts," "potential," or "continue" or the negative of such
terms or other comparable terminology.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, events, levels
of activity, performance, or achievements. We do not assume responsibility for
the accuracy and completeness of the forward-looking statements.

The factors that could affect our forward-looking statements include those
listed under "Risk Factors" and the following:

Economic and Industry Conditions

. fluctuations in interest rates

. materially adverse changes in economic or industry conditions generally
or in the markets served by our companies, including North America,
South America, Europe and Australia

. demand for services in the freight and passenger rail industry

. consolidations in the rail industry

. demand for our products and services

. continued outsourcing by our customers

. demand for freight cars, locomotives, passenger transit cars and buses

. industry demand for faster and more efficient braking equipment

Operating Factors

. supply disruptions

. technical difficulties

. changes in operating conditions and costs

. successful introduction of new products

. labor relations

. completion and integration of additional acquisitions

. the development and use of new technology

. Year 2000 disruptions

Competitive Factors

. the actions of competitors

Political Governmental Factors

. political stability in relevant areas of the world

. future regulation/deregulation of our customers and/or the rail industry

20
<PAGE>

. governmental funding for some of our customers

. political developments and laws and regulations, such as forced
divestiture of assets, restrictions on production, imports or exports,
price controls, tax increases and retroactive tax claims, expropriation
of property, cancellation of contract rights, and environmental
regulations

Transaction or Commercial Factors

. the outcome of negotiations with partners, governments, suppliers,
customers or others.

USE OF PROCEEDS

A portion of the net proceeds from the Old Notes were used to repay
$30 million outstanding under an unsecured credit facility, the proceeds of
which were used to fund the Company's acquisition of Rockwell Railroad
Electronics. Such unsecured credit facility was terminated. The balance of the
proceeds were used to reduce revolving credit borrowings under the credit
agreement as required under the terms of the credit agreement. The Chase
Manhattan Bank, an affiliate of the initial purchaser, Chase Securities, is an
agent and lender under both the unsecured credit facility and the credit
agreement. As of December 31, 1998, the unsecured credit facility bore interest
at a rate of 9.75% per annum. As of the same date, interest on the revolving
credit borrowings under the credit agreement bore interest at an average
variable rate of 7.23% per annum.

This exchange offer, relating to the New Notes, is intended to satisfy
certain of our obligations under the purchase agreement and the exchange and
registration rights agreement with respect to the Old Notes. We will not
receive any cash proceeds from the issuance of the New Notes offered hereby. In
consideration for issuing the New Notes contemplated in this prospectus, we
will receive Old Notes in like principal amount, the form and terms of which
are the same in all material respects as the forms and terms of the New Notes
(which replace the Old Notes), except as otherwise described herein. The Old
Notes surrendered in exchange for New Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the New Notes will not result in
any increase or decrease in the indebtedness of our company. As such, no effect
has been given to the exchange offer in the pro forma statements or
capitalization tables.

21
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of WABCO as of March 31,
1999 on a historical basis and as adjusted for the merger with MotivePower.
This table should be read in conjunction with "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
WABCO's consolidated financial statements and the notes thereto set forth in or
incorporated by reference in this prospectus.

<TABLE>
<CAPTION>
March 31, 1999
--------------------------
As Adjusted
Historical for the Merger
---------- --------------
<S> <C> <C>
Debt (including current portion):
Revolving credit notes............................... $ 73,600 $ 200,600
Term loan............................................ 202,500 202,500
9 3/8% Senior Notes, due June 2005................... 100,000 100,000
9 3/8% Series B Senior Notes, due June 2005.......... 75,000 75,000
Pulse acquisition note............................... 16,990 16,990
Industrial Revenue Bonds............................. -- 7,164
Other................................................ 2,400 2,400
--------- ---------
Total Debt......................................... $ 470,490 $ 604,654
========= =========
Shareholders' Equity (Deficit):
Common stock......................................... $ 474 $ 882
Additional paid-in capital........................... 108,066 128,322
Less-Treasury Stock, at cost......................... (187,014) (5,986)
Less-Unearned ESOP Shares, at cost................... (127,397) (127,397)
Retained Earnings.................................... 193,965 178,597
Deferred Compensation................................ (103) 5,531
Accumulated other comprehensive loss................. (7,353) (12,674)
--------- ---------
Total Shareholders' Equity (Deficit)............... (19,362) 167,275
========= =========
Total Capitalization............................... $ 451,128 $ 771,929
========= =========
</TABLE>

22
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our Company's business is comprised of three principal business segments:
Railroad, Transit and Molded Products. Our strategy for growth is focused on
using technological advancements to develop new products, expanding the range
of after-market products and services and penetrating international markets in
each of these three segments. In addition, management continually evaluates
acquisition opportunities that meet our criteria and complement our operating
strategies and product offerings.

Results of Operations

First Quarter 1999 Compared To
First Quarter 1998

Summary Results of Operations

<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------- Percent
1999 1998 Change
--------- --------- -------
Dollars in millions
except per share
<S> <C> <C> <C>
Net sales....................................... 191.2 158.1 20.9
Gross profit margin............................. 32.2% 32.8% nm
Income from operations.......................... 28.9 24.8 16.5
Income before extraordinary item................ $12.4 $10.9 13.8
Extraordinary item, net of tax.................. (.5) -- nm
Net income...................................... 11.9 10.9 9.2
Diluted earnings per share, before extraordinary
item........................................... .48 .42 14.3
Diluted earnings per share...................... .46 .42 9.5
</TABLE>
- --------
nm-not meaningful

Income before extraordinary item for the first three months of 1999
increased $1.5 million, or 13.8%, compared with the same period a year ago.
Because of the $469 thousand, net of tax, extraordinary charge to write-off
certain previously capitalized debt issuance costs, net income increased only
$1.0 million, compared to the first quarter of 1998. Diluted earnings per share
before extraordinary item increased 14.3% to $.48. Income from operations
increased in the comparison primarily due to revenue growth and related gross
profit.

A number of events have occurred over the comparative period that impacted
our results of operations and financial condition including:

. We completed several acquisitions that complement and enhance the mix of
existing products and markets. Acquisitions completed during this
timeframe were Rockwell Railroad Electronics, Comet Industries, Inc,
Lokring Corporation, Hadady Corporation, and United Kingdom of RFS(E).
See "Business." Aggregate incremental revenues from all of the above
acquisitions were $20.9 million in the first quarter of 1999.

. In January 1999, we issued the Old Notes at a premium resulting in an
effective interest rate of 8.5%. As a result of the issuance and payoff
of the unsecured credit facility, we wrote off previously capitalized
debt issuance costs of approximately $469 thousand, net of tax ($.02 per
diluted share) in the first quarter of 1999, which was reported as an
extraordinary item.

23
<PAGE>

Net Sales

The following table sets forth our net sales by business segment:

<TABLE>
<CAPTION>
Three Months
Ended
March 31
-----------------
1999 1998
-------- --------
Dollars in
thousands
<S> <C> <C>
Railroad Group................................................ $118,316 $ 87,686
Transit Group................................................. 54,862 51,531
Molded Products Group......................................... 18,026 18,919
-------- --------
Net sales................................................... $191,204 $158,136
======== ========
</TABLE>

Net sales for the first quarter of 1999 increased $33.1 million, or 20.9%,
to $191.2 million. This increase was primarily attributable to incremental
revenue from the acquisitions referred to above within the Railroad Group.
Increased sales volumes in the Railroad Group also refect a strong OEM market
for freight cars, with approximately 21,600 freight cars delivered in the first
quarter of 1999 compared to 17,800 in the same period of 1998. In spite of this
increase, we anticipate new freight car deliveries in 1999 to be lower than
that of 1998; however, railroad OEM and aftermarket sales are expected to be
reasonably strong for the foreseeable future.

Gross Profit

Gross profit increased 18.8% to $61.5 million in the first quarter of 1999
compared to $51.8 million in the same period of 1998. Gross margin, as a
percentage of sales, was 32.2% compared to 32.8%. Gross margin is dependent on
a number of factors including sales volume and product mix. Incremental revenue
from recent acquisitions at lower margins as compared to our historical results
was the primary reason for the lower margins in the period-to-period
comparison. These lower margins were partially offset by favorable margins on
increased sales in the core Railroad Product Group operations.

Operating Expenses

<TABLE>
<CAPTION>
Three Months
Ended March 31
--------------------- Percent
1999 1998 Change
---------- ---------- -------
Dollars in thousands
<S> <C> <C> <C>
Selling and marketing............................. $ 8,503 $ 6,914 23.0
General and administrative........................ 12,828 11,584 10.7
Engineering....................................... 8,907 6,438 38.4
Amortization...................................... 2,410 2,105 14.5
---------- ----------
Total........................................... $32,648 $27,041 20.7
========== ==========
</TABLE>

Total operating expenses as a percentage of net sales were 17.1% in the
first quarter of 1999 and 1998. Total operating expenses increased $5.6 million
in the quarter-to-quarter comparison of which $5.2 million, or 93% of the
increase, related to operating expenses of the acquired businesses. Excluding
incremental revenues and operating expenses from businesses acquired in the
comparative period, operating expenses as a percentage of sales would have
decreased due to costs incurred in 1998 to install computer system upgrades
that included Year 2000 compliant software. In addition, during the fourth
quarter 1998 and first quarter of 1999, we completed the consolidation of
several facilities as we integrated recently acquired businesses into our core
operations.

Income from Operations

Operating income totaled $28.9 million in the first quarter of 1999 compared
with $24.8 million in the first quarter of 1998. Higher operating income
resulted from higher sales volume and related higher gross profit. As

24
<PAGE>

a percentage of revenue, operating income was 15.1% and is substantially
consistent with that of the prior year. Favorable volume changes at relatively
stable operating margins in the Railroad Group was the primary reason for the
increase in operating income.

Interest and Other Expense

Interest expense totaled $9.1 million, an increase of $1.7 million in the
quarter-to-quarter comparison. The increase was primarily due to financing
costs of recent acquisitions, partially offset by debt repayments.

Income Taxes

The provision for income taxes on income before extraordinary items
increased to $7.3 million for the first quarter of 1999. The effective tax rate
declined to 37.25% in the current quarter from 38.0% a year ago, resulting from
additional benefits through our Foreign Sales Corporation and lower overall
effective state tax rates.

Fiscal Year 1998 Compared To
Fiscal Year 1997

Summary Results of Operations

<TABLE>
<CAPTION>
Year Ended
December 31
------------- Percent
1998 1997 Change
----- ------ -------
Dollars in
millions,
except per
share
<S> <C> <C> <C>
Gross profit margin..................................... 32.7% 33.0% nm
Income from operations.................................. 104.7 90.0 16.3
Income before extraordinary item........................ 45.0 $ 37.3 20.6
Extraordinary item, net of tax.......................... 3.3 -- nm
Net income.............................................. 41.7 37.3 11.8
Diluted earnings per share, before extraordinary item... 1.75 1.42 20.7
Diluted earnings per share.............................. 1.62 1.42 14.1
</TABLE>
- --------
nm-not meaningful

Income before extraordinary item for 1998 increased $7.7 million, or 20.6%,
compared with the same period a year ago. Because of the $3.3 million
extraordinary charge to write-off certain previously capitalized debt issuance
costs, net income increased only $4.4 million, compared to 1997. Diluted
earnings per share before extraordinary item increased 20.7% to $1.75 and
diluted earnings per share increased 14.1% to $1.62. Income from operations
increased in the comparison primarily due to revenue growth and related gross
profit.

A number of events have occurred over the comparative period that impacted
the company's results of operations and financial condition including:

. We completed several acquisitions that complement and enhance the mix of
existing products and markets. Acquisitions completed during this
timeframe were Rockwell Railroad Electronics, Comet, Lokring, Hadady,
RFS (E), Sloan Valve Company, HP s.r.l, Stone Safety Services
Corporation and Stone U.K. Limited, and Thermo King Corporation. See
"Business." Aggregate incremental revenues from all of the above
acquisitions were $63.7 million in 1998.

. In June 1998, we refinanced our credit agreement and subsequently
amended the agreement in October 1998. This resulted in a write off of
previously deferred financing costs of approximately $3.3 million, net
of tax ($.13 per share), which has been reported as an extraordinary
item.

. In March 1997, we repurchased 4 million shares of our common stock held
by a major shareholder for $44 million plus $2 million in related fees.

25
<PAGE>

Net Sales

The following table sets forth, for the period indicated, our net sales by
business segment:

<TABLE>
<CAPTION>
Year Ended
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
<S> <C> <C>
Railroad Group............................................ $ 388,797 $ 310,295
Transit Group............................................. 211,801 189,541
Molded Products Group..................................... 70,311 64,605
---------- ----------
Net sales............................................... $ 670,909 $ 564,441
========== ==========
</TABLE>

Net sales for 1998 increased $106.5 million, or 18.9%, to $670.9 million.
This increase was primarily attributable to incremental revenue in 1998 of
approximately $43.2 million from the acquisitions referred to above within the
Railroad Group. Increased sales volumes in the Railroad Group also reflect a
strong market for freight cars sold to original equipment manufacturers, with
approximately 76,000 freight cars delivered in 1998 compared to 50,000 in 1997.
These increases were partially offset by lower sales in the electronics portion
of the Railroad Group, where in the prior year period product sales benefited
from a federal mandate that certain monitoring equipment be installed in trains
by July 1997. Incremental revenue in 1998 for the acquisitions referred to
above, of approximately $20.5 million, was the primary reason for the increase
in revenues in the Transit Group. We anticipate new freight car deliveries in
1999 to be slightly lower than that of 1998, however, railroad original
equipment manufacturers and after-market sales are expected to be reasonably
strong for the foreseeable future.

Gross Profit

Gross profit increased 17.8% to $219.2 million in 1998 compared to $186.1
million in 1997. Gross margin, as a percentage of sales, was 32.7% as compared
to 33.0%. Gross margin is dependent on a number of factors including sales
volume and product mix. Incremental revenue from recent acquisitions at lower
margins as compared to our historical results, was the primary reason for the
lower margins in the period-to-period comparison. These lower margins were
partially offset by favorable margins on increased sales in the Railroad and
Molded Product Groups.

Operating Expenses

<TABLE>
<CAPTION>
Year Ended
December 31
---------------------Percent
1998 1997 Change
---------- -----------------
Dollars in thousands
<S> <C> <C> <C>
Selling and marketing.............................. $ 30,711 $ 25,364 21.1
General and administrative......................... 45,337 38,153 18.8
Engineering........................................ 30,436 24,386 24.8
Amortization....................................... 8,029 8,240 (2.6)
---------- --------- ----
Total............................................ $ 114,513 $ 96,143 19.1
========== ========= ====
</TABLE>

Total operating expenses as a percentage of net sales were 17.1% in 1998
compared with 17.0% in 1997. Total operating expenses increased in 1998 by
$18.4 million in the period-to-period comparison. Incremental expenses from
acquired businesses totaled $10.2 million or 55% of the increase. In addition,
higher operating expenses reflect costs associated with computer system
upgrades which includes Year 2000 compliant computer software of approximately
$3.5 million and additional engineering efforts associated with new product
development. We anticipate cost savings in 1999 from the consolidation of
several facilities and a related net reduction of employees as recently
acquired businesses are integrated into our core operations.

26
<PAGE>

Income from Operations

Operating income totaled $104.7 million in 1998 compared with $90.0 million
in 1997. Higher operating income results from higher sales volume and related
higher gross profit. As a percentage of revenue, operating income was 15.6% and
is substantially consistent with that of the prior year. Favorable volume
changes in the Railroad and the Molded Products Groups were partially offset by
lower profits, as a percentage of sales, in the Transit Group.

Interest and Other Expense

Interest expense increased $1.5 million to $31.2 million during 1998,
primarily due to financing costs of recent acquisitions, partially offset by
debt repayments.

Other expense for 1998 totaled $0.9 million primarily reflecting the effects
of changes in foreign currency exchange rates associated with a loan to a
wholly-owned subsidiary. The effect of subsequent changes in exchange rates
will be reflected in future periods.

Income Taxes

The provision for income taxes increased $4.2 million to $27.6 million in
1998 compared with 1997. The effective tax rate declined to 38% in 1998 from
38.5% a year ago, resulting from additional benefits through our Foreign Sales
Corporation and lower overall effective state tax rates.

Fiscal Year 1997 Compared To
Fiscal Year 1996

Summary Results of Operations

<TABLE>
<CAPTION>
Year Ended
December 31
---------------------- Percent
1997 1996 Change
---------- ---------- -------
Dollars in millions,
except per share
<S> <C> <C> <C>
Net sales....................................... $ 564.4 $ 453.5 24.5
Gross profit margin............................. 33.0% 33.8% nm
Income from operations.......................... 90.0 79.7 12.9
Net income...................................... 37.3 32.7 14.1
Diluted earnings per share...................... 1.42 1.15 23.5
</TABLE>
- --------
nm-not meaningful

Net income for 1997 increased $4.6 million, or 14.1% compared with 1997.
Diluted earnings per share increased 23.5% to $1.42 per diluted share. The
higher earnings per share reflects the benefits associated with acquisitions
and new products and the 4 million share repurchase. Income from operations
increased in the comparison primarily due to revenue growth and related gross
profit.

Net Sales

The following table sets forth, for the period indicated, our net sales by
business segment:

<TABLE>
<CAPTION>
Year Ended December 31
-----------------------
1997 1996
----------- -----------
Dollars in thousands
<S> <C> <C>
Railway Group........................................... $ 310,295 $ 294,021
Transit Group........................................... 189,541 100,902
Molded Products Group................................... 64,605 58,589
----------- -----------
Net sales............................................. $ 564,441 $ 453,512
=========== ===========
</TABLE>

27
<PAGE>

Net sales for the year ended December 31, 1997 increased $110.9 million, or
24.5%, to $564.4 million. The Transit Group acquisitions of Vapor, Stone,
Thermo King and HP contributed $85.5 million of the increase. In addition,
increased volumes in all groups favorably affected the comparison.

Gross Profit

Gross profit increased 21.4% to $186.1 million in 1997 compared to $153.3
million in 1996. Gross margin, as a percentage of sales, was 33.0% in 1997 and
33.8% in 1996. The effect of lower margins of the recently acquired businesses
was the primary factor for the change.

Operating Expenses

<TABLE>
<CAPTION>
Year Ended
December 31
--------------------- Percent
1997 1996 Change
---------- ---------- -------
Dollars in thousands
<S> <C> <C> <C>
Selling and marketing............................. $ 25,364 $ 18,643 36.1
General and administrative........................ 38,153 28,890 32.1
Engineering....................................... 24,386 18,244 33.7
Amortization...................................... 8,240 7,854 4.9
---------- ----------
Total........................................... $ 96,143 $ 73,631 30.6
========== ==========
</TABLE>

Total operating expenses increased $22.5 million in the year-to-year
comparison primarily reflecting the effect of acquisitions completed in 1997
and 1996. Incremental expenses in 1997 from acquired businesses totaled $15.3
million. In addition, higher operating expenses reflect costs associated with
certain strategic initiatives including expanded international marketing
activities and additional engineering efforts associated with new product
development.

Income from Operations

Operating income totaled $90.0 million in 1997 compared with $79.7 million a
year earlier. Higher operating income reflects higher sales volume and related
gross profit.

Interest Expense

Interest expense increased $3.6 million to $29.7 million during 1997,
primarily due to funding costs associated with repurchases of common stock and
acquisitions, partially offset by debt repayments.

Income Taxes

The provision for income taxes increased $2.4 million to $23.3 million in
1997, compared with $20.9 million in 1996. The effective tax rate declined to
38.5% in 1997 from 39.0% in 1996.

Liquidity and Capital Resources

Liquidity is provided primarily by operating cash flow and borrowings under
our credit facilities.

Operating cash flow decreased $6.6 million in the first quarter of 1999 as
compared to the first quarter of 1998 as a result of a 27% increase in working
capital since December 31, 1998. These changes are primarily due to higher
accounts receivables and inventory levels related to sales growth. In addition,
inventory levels have increased within the Transit Group as production
continues for future product deliveries related to the Metropolitan Transit
Authority/New York City Transit project. Deliveries are expected to commence in
the second half of 1999.

28
<PAGE>

Gross capital expenditures were $6.5 million and $5.3 million in the first
quarter of 1999 and 1998, respectively. The majority of capital expenditures
reflect spending for replacement and cost savings. Gross capital expenditures
were $29.0 million, $29.6 million and $13.2 million in 1998, 1997 and 1996,
respectively. We expect 1999 capital expenditures for equipment purchased for
similar purposes to approximate $25 to $30 million.

In 1998, 1997 and 1996, our cash flow from operating activities was
approximately $42 million, $67 million and $59 million, respectively. The
decrease in operating cash flow from 1997 to 1998 was primarily related to an
increase in working capital due to higher accounts receivables and increased
inventory levels associated with increased sales growth and acquired businesses
with large working capital requirements. These additional working capital
requirements resulted in less operating cash flow for debt repayments in 1998
as compared to 1997. Our acquisitions of businesses also resulted in increased
borrowings.

In 1998, we completed the Rockwell, Comet, Lokring, RFS(E) and Hadady
acquisitions for an aggregate purchase price of $112.9 million consisting of
debt and cash. In 1997, we completed the Stone, Thermo King, Sloan and HP
acquisitions for an aggregate purchase price of $16.0 million. In 1996, we
acquired Vapor Group and Futuris Industrial Products Pty. Ltd for an aggregate
purchase price of $78.9 million. See "Business." These transactions utilized
borrowings for the purchase price. Also, in 1995, we acquired Pulse for $54.9
million, consisting of $20 million in bank borrowings, a $17.0 million note
payable and the company's common stock valued at $17.9 million at the time of
the acquisition.

In the quarter ending March 31, 1999, we issued $75 million of additional
Senior Notes and used the proceeds to repay amounts outstanding on certain term
debt and the balance to repay a portion of our revolving credit facility,
thereby increasing amounts available under the credit agreement (see below for
additional information).

In March 1997, the repurchase of our stock held by Scandanavian Incentive
Holding B.V. occurred. See "Business." We financed the 4 million share
repurchase that was part of the SIH sale through borrowings under our credit
facility.

The following table sets forth our outstanding indebtedness and average
interest rates at March 31, 1999. The revolving credit note and term loan
interest rates are variable and dependent on market conditions. Interest on the
Pulse note can vary with changes to prime.

<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
Dollars in thousands
<S> <C> <C>
Credit Agreement, matures 12/2003
Revolving credit, 6.3%................................... $ 73,600 $105,555
Term loan, 6.3%.......................................... 202,500 202,500
9 3/8% Senior notes due 6/2005............................. 175,000 100,000
Unsecured credit facility.................................. -- 30,000
Pulse note, 9.5%, due 1/2004............................... 16,990 16,990
Comet notes................................................ -- 10,200
Other...................................................... 2,400 2,572
-------- --------
Total.................................................... $470,490 $467,817
======== ========
</TABLE>

As of March 31, 1999 and December 31, 1998, we had $20,264 and $30,579 of
debt that is due to be repaid within one year.

29
<PAGE>

Credit Agreement

The credit agreement provides for an aggregate credit facility of $350
million, consisting of up to $170 million of June 1998 term loans, up to $40
million of September 1998 term loans, and up to $140 million of revolving
loans. At March 31, 1999, amounts available under the revolving credit facility
increased to $44.3 million.

In January 1999, we completed the private placement of $75 million of Old
Notes (with an effective rate of 8.5%) which mature in June 2005. The January
issuance improved our financial liquidity by (i) using a portion of the
proceeds to repay $30 million of debt associated with the Rockwell Railroad
Electronics acquisition that bore interest at 9.56%, and; (ii) using a portion
of the proceeds to repay variable-rate revolving credit borrowings thereby
increasing amounts available under the revolving credit facility.

Principal repayments of term loan borrowings are due in semi-annual
installments until maturity in December 2003. See Note 5 to "Notes to
Consolidated Financial Statements".

The credit agreement limits us with respect to declaring or making cash
dividend payments and prohibits us from declaring or making other distributions
whether in cash, property, securities or a combination thereof, with respect to
any shares of our capital stock subject to certain exceptions, including an
exception pursuant to which we will be permitted to pay cash dividends on our
common stock in any fiscal year in an aggregate amount up to $15 million minus
the aggregate amount of prepayments of the Pulse note during such fiscal year
so long as no default in the payment of interest or fees has occurred
thereunder. The credit agreement contains various other covenants and
restrictions including, without limitation, the following: a limitation on the
incurrence of additional indebtedness; a limitation on mergers, consolidations
and sales of assets and acquisitions (other than mergers and consolidations
with certain subsidiaries, sales of assets in the ordinary course of business,
and acquisitions for which the consideration paid by our company does not
exceed $50 million individually or $150 million in the aggregate); a limitation
on liens; a limitation on sale and leasebacks; a limitation on investments,
loans and advances; a limitation on certain debt payments; a limitation on
capital expenditures; a minimum interest expense coverage ratio; and a maximum
leverage ratio. All debt incurred under the credit agreement is secured by
substantially all of our assets and our domestic subsidiaries and is guaranteed
by our domestic subsidiaries.

9 3/8% Senior Notes Due June 2005

In June 1995 the company issued $100 million of 9 3/8% Senior Notes due June
2005. In January 1999, we issued the Old Notes at a premium resulting in an
effective rate of 8.5%. As a result of the issuance and payoff of the unsecured
credit facility, we wrote off previously capitalized debt issuance costs of
approximately $.02 per diluted share in the first quarter of 1999.

The terms of the existing $100 million notes and the Notes are substantially
the same, and the existing notes and Notes were issued pursuant to indentures
that are substantially the same. The Notes bear interest at

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<PAGE>

the rate of 9 3/8% and mature in June 2005. The net proceeds of the existing
notes were used to prepay term loans outstanding under the then existing credit
agreement. The net proceeds of the Notes were used to repay the unsecured
credit facility and to reduce revolving credit borrowings.

The Notes are senior unsecured obligations of our company and rank pari
passu in right of payment with all existing and future indebtedness under (i)
capitalized lease obligations, (ii) the credit agreement, (iii) indebtedness of
our company for money borrowed and (iv) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which we are
responsible or liable unless, in the case of clause (iii) or (iv), in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes.

The indentures pursuant to which the existing notes and the Notes were
issued contain certain restrictive covenants which, among other things, limit
our ability and certain of our subsidiaries to incur indebtedness, pay
dividends on and redeem capital stock, create restrictions on investments in
unrestricted subsidiaries, make distributions from certain subsidiaries, use
proceeds from the sale of assets and subsidiary stock, enter into transactions
with affiliates, create liens and enter into sale/leaseback transactions. The
indenture also restricts, subject to certain exceptions, our company's ability
to consolidate and merge with, or to transfer all or substantially all of its
assets to, another person.

Unsecured Credit Facility

In October 1998, we obtained a $30 million unsecured credit facility from a
group of commercial banks for the purpose of financing the acquisition of
Rockwell Railroad Electronics. At December 31, 1998, the interest rate on the
note was 9.75% per annum. In January 1999, this facility was repaid with
proceeds of the offering of the Notes.

Pulse Note

As partial payment for the Pulse acquisition, we issued a $17 million note
due January 31, 2004. Interest is payable semiannually and accrues at 9.5%
until February 1, 2001; and from February 1, 2001 until January 31, 2004,
interest will accrue at the prime rate charged by Chase Manhattan Bank on
December 31, 2000 plus 1% (with a maximum adjustment of 2%).

Comet Notes

In connection with the Comet acquisition, we issued notes totaling $12.2
million, of which unsecured notes totaling $6.2 million were delivered by us
and a note in the amount of $6 million was delivered by a subsidiary and
secured by the acquired assets. The notes bore interest at the rate of 10% per
annum and were scheduled to mature on October 8, 1999. These notes were repaid
in January 1999.

ESOP

In connection with the establishment of the ESOP, we made a $140 million
loan to the ESOP, which was used to purchase 9,336,000 shares of our
outstanding common stock. The ESOP loan initially had a term of 50 years with
interest at 8.5% and was collateralized by the shares purchased by the ESOP.
Company contributions to the ESOP will be used to repay the ESOP loan's annual
debt service requirements of approximately $12 million. We are obligated to
contribute amounts sufficient to repay the ESOP loan. The ESOP uses such
company contributions to repay the ESOP loan. Approximately 187,000 shares were
to be allocated annually to participants over a 50-year period. These
transactions occur simultaneously and, for accounting purposes, offset each
other. The net effect of the ESOP is that our common stock is allocated to
employees in lieu of a retirement plan that was previously a cash-based defined
benefit plan and, accordingly, results in reduced annual cash outlays by an
estimated $3 to $4 million.

Management believes, based upon current levels of operations and forecasted
earnings, that cash flow from operations, together with available borrowings
under the credit agreement, will be adequate to make payments

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<PAGE>

of principal and interest on debt, including the Notes, to make required
contributions to the ESOP, to permit anticipated capital expenditures, and to
fund working capital requirements and other cash needs for the foreseeable
future, including 1999.

Nevertheless, we will remain leveraged to a significant extent and our debt
service obligations will continue to be substantial. Our debt requires the
dedication of a substantial portion of future cash flows to the payment of
principal and interest on indebtedness, thereby reducing funds available for
capital expenditures and future business opportunities that we believe are
available. We believe that cash flow and liquidity will be sufficient to meet
our debt service requirements. If our sources of funds were to fail to satisfy
our cash requirements, we may need to refinance our existing debt or obtain
additional financing. There is no assurance that such new financing
alternatives would be available, and, in any case, such new financing, if
available, would be expected to be more costly and burdensome than the debt
agreements currently in place. We intend to reduce our indebtedness in 1999
through generating operating income and by reducing working capital
requirements and other measures.

Effects of Year 2000

We have information system improvement initiatives in process that include
both new computer hardware and software applications. The new system is
substantially operational and is Year 2000 compliant. The estimated cost of the
project is expected to be in the $8 to $10 million range with the majority of
costs (approximately $8 million) previously incurred. The majority of the
expenditures incurred for hardware and purchased software related to this
project has been capitalized and are amortized over their estimated useful
lives. Other costs, such as training and advisory consulting, are expensed as
incurred. These expenditures are not expected to have a significant impact on
our future results of operations or financial condition.

We have identified other equipment that we use in our operations that have
non-information system characteristics and have embedded technology components,
such as those items with internal clocks. We will need to replace this type of
equipment but do not believe a possible Year 2000 failure will have a
significant impact on our operations. The estimated cost of replacement
equipment is not considered significant.

We have received written assurances from some of our suppliers and customers
and other providers acknowledging Year 2000 issues and stating their present
intention to be compliant; however, not all customers, vendors and providers
have provided such assurances.

We will continue to evaluate our information technology applications, as
well as those of our suppliers, regularly, and based on such evaluation, revise
our Year 2000 readiness planning accordingly. We have been evaluating our Year
2000 preparedness in a number of areas, including our information technology
infrastructure, external resources, physical plant and production facilities,
equipment and machinery, products and inventory.

In the evaluation and prioritization of Year 2000 concerns, we seek to
develop potential solutions to the Year 2000 issues identified in our planning,
consider these solutions in light of our other information technology and
business priorities, prioritize the various remediation tasks, and develop an
implementation schedule. Identified problems are corrected as soon as
practicable after identification.

We are in the process of developing contingency plans and actions for Year
2000 issues related to both internal and external systems. As part of this
planning, we are evaluating the incremental cost of the contingency
alternatives as compared to the perceived level of risk for Year 2000 problems.
In some cases we have determined that the perceived level of risk does not
justify the cost of the contingency alternative. Contingency plans involve
consideration of a number of possible actions, including, to the extent
necessary or justified, the selection of alternative service providers and
adjustments to staffing strategies, as ordering and billing procecdures could
be done manually. We plan to continue developing and modifying our contingency
plans throughout 1999 as we monitor and evaluate the progress of our internal
and external Year 2000 compliance program.

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With regard to contingency planning, as noted, we are assessing the Year
2000 readiness of our key suppliers, distributors, customers and service
providers. Toward that objective, since we have not received assurances from
all of our suppliers and other service providers that they will be compliant,
we have begun to evaluate the risks to us that the failure of others to be Year
2000 ready would cause a material disruption to, or have a material effect on,
the Company's financial condition, business or operations. In this regard, we
are considering the advisability of augmenting our inventories of certain raw
materials and finished products, securing additional sources for certain
supplies and services, arranging for back-up utilities, and exploring the use
of manual paper flow to handle both the distribution and sales channels, among
other things.

Our products are generally sold with a limited warranty for defects. We have
reviewed our products currently in use by our customers or being sold and do
not believe that there will be material increases in warranty or liability
claims arising out of year 2000 non-compliance. However, a material increase in
such claims could have a material adverse effect on our financial condition,
future results of operations and liquidity. If large scale systems failures
occur, it could have a significant adverse effect on our financial condition,
future results of operations and liquidity.

Effects of Inflation; Seasonality

General price inflation has not had a material impact on our results of
operations. Some of our company's labor contracts contain negotiated salary and
benefit increases and others contain cost of living adjustment clauses that
would cause our cost automatically to increase if inflation were to become
significant. The company's business is not seasonal, although the third quarter
results generally tend to be slightly lower than other quarters, reflecting
vacation and down time at its major customers during this period.

Conversion to the Euro Currency

On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency, known as the "Euro". We conduct business in member countries.
The transition period for the introduction of the Euro is from January 1, 1999
through June 30, 2002. The company is assessing the issues involved with the
introduction of the Euro; however, it does not expect conversion to the Euro to
have a material impact on its operations or financial results. In all
probability, the effect will be positive as pricing between countries and
foreign divisions will be more predictable.

Recent Accounting Pronouncement

In June 1998, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This Statement establishes accounting and reporting
standards requiring that every derivative instrument be measured at its fair
value and the changes in fair value be recorded currently in earnings unless
specific hedge accounting criteria are met. Statement No. 133 is effective for
fiscal years beginning after June 15, 1999, and accordingly, the company
anticipates adopting this standard January 1, 2000. Management continues to
evaluate the impact this standard will have on results of operations and
financial condition.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

In the ordinary course of business, we are exposed to risks that increases
in interest rates may adversely affect funding costs associated with $246
million of variable-rate debt (considering the effects of interest rate swaps),
which represents 52% of total long-term debt at March 31, 1999. Management has
entered into pay-fixed, receive-variable interest rate swap contracts that
partially mitigate the impact on variable-rate debt of interest rate increases
(see Note 5 to the "Notes to Consolidated Financial Statements"). At March 31,
1999, an instantaneous 100 basis point increase in interest rates would reduce
the company's earnings by $1.6 million, net of tax, assuming no additional
intervention strategies by management.

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<PAGE>

Foreign Currency Exchange Risk

We routinely enter into several types of financial instruments for the
purpose of managing our exposure to foreign currency exchange rate fluctuations
in countries in which the company has significant operations. As of March 31,
1999, our company had no significant instruments outstanding.

We are also subject to certain risks associated with changes in foreign
currency exchange rates to the extent its operations are conducted in
currencies other than the U.S. dollar. At March 31, 1999, approximately 74% of
our net sales are in the United States, 12% in Canada and 14% in other
international locations, primarily Europe.

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<PAGE>

BUSINESS

Westinghouse Air Brake Company was formed in 1990 through the acquisition of
the Railway Products Group of American Standard Inc. We believe that we are
North America's largest manufacturer of value-added equipment for locomotives,
railway freight cars and passenger transit vehicles. Our company's primary
manufacturing operations are in the United States and Canada and revenues have
historically been predominantly from North America. In recent years, the
proportion of international sales has increased significantly, in line with our
strategy to expand our business outside North America.

Our customer base consists of freight transportation companies, locomotive
and freight car original equipment manufacturers, transit car builders and
public transit systems.

We believe that we maintain a market share in North America in excess of 50%
for our primary braking related equipment and a significant market share in
North America for our other principal products. We also sell our products in
Europe, Africa, Australia, South America and Asia.

Export sales from our United States operations were $60.7 million, $57.3
million and $61.5 million for the years ended December 31, 1998, 1997 and 1996,
respectively. The following data reflects income from operations by major
geographic area attributed to our operations within each of the following
regions.

<TABLE>
<CAPTION>
Income from Operations
------------------------
Year ended December 31,
------------------------
1998 1997 1996
-------- ------- -------
In thousands
<S> <C> <C> <C>
United States.......................................... $ 76,873 $76,208 $67,881
Canada................................................. 20,364 9,918 8,827
Other international.................................... 7,429 3,849 3,010
-------- ------- -------
Total................................................ $104,666 $89,975 $79,718
======== ======= =======
</TABLE>

Our major products are intended to enhance safety, improve productivity and
reduce maintenance costs for our customers. Our major product offerings include
electronic controls and monitors, air brakes, couplers, door controls, draft
gears and brake shoes. We aggressively pursue technological advances with
respect to both new product development and product enhancements.

We have completed a number of strategic acquisitions since 1995. The
following is a summary of these acquisitions:

. In October 1998, we purchased Rockwell Railroad Electronics, the
railroad electronics business, from Rockwell Collins, Inc. for a total
purchase price of approximately $80.0 million.

. In October 1998, we purchased the air brake repair business of Comet
Industries, Inc. for a total purchase price of approximately $13.2
million.

. In July 1998, we acquired the assets of Lokring Corporation for a total
purchase price of $5.1 million. The acquired products include a fitting
that connects non-welded joints.

. In April 1998, we completed the acquisition of the transit coupler
product line of Hadady Corporation for a total purchase price of $4.6
million, which included amounts for designs and drawings.

. In April 1998, we acquired the railway repair business in the United
Kingdom of RFS (E) Limited for a total purchase price of approximately
$10.0 million.

. In October 1997, we purchased the rail products business and related
assets of Sloan Valve Company for $2.5 million. The acquired products
included slack adjusters, angle cocks and retainer valves.

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<PAGE>

. During July 1997, we acquired 100% of the stock of HP s.r.l. for a total
purchase price of $5.8 million, which included the assumption of $2.3
million in debt. HP is a leading supplier of door controls for transit
rail cars and buses in the Italian market.

. In May 1997, we purchased Stone Safety Services Corporation and Stone
U.K. Limited, thus acquiring one of the world's leading suppliers of air
conditioning equipment for the transit industry with an established
product base in North America, Europe and the Far East. In connection
with this acquisition, in June 1997, we acquired the heavy rail air
conditioning business of Thermo King Corporation. The aggregate purchase
price for these acquisitions was approximately $7.7 million.

. In September 1996, we acquired the Vapor Group, a passenger transit door
manufacturer in the United States and Europe, for $63.9 million.

. In January 1996, we acquired Futuris Industrial Products Pty. Ltd. an
Australian friction products manufacturer, for approximately $15.0
million.

. In January 1995, we acquired Pulse Electronics, a privately held
manufacturer of end-of-train monitors and other electronic products for
the railway industry for $54.9 million.

Also, in March 1997, an agreement was reached with one of the company's
major shareholders, Scandinavian Incentive Holding B.V., whereby we
repurchased 4 million shares of our common stock held by SIH for $46 million,
including fees. In conjunction with this transaction, SIH also sold its
remaining 6 million shares of our common stock to Vestar Equity, Charlesbank,
American Industrial Partners and certain members of senior management.

Our Products

We have significant product and service lines within each of our three
product groups. Our new product development programs also strengthen our sales
both to the original equipment manufacturer and to end-users, that include
operators of rail vehicles such as railroads, transit authorities, utilities
and leasing companies. We believe that we have a competitive advantage in our
markets based on the range of our products, as well as the quality and
competitive pricing associated with our products and our ability to offer
support to purchasers through our service and upgrade centers. Our company's
products and services (listed by our three product groups) include:

. Our Railroad Group, which accounted for 58% of our revenues for the year
ended December 31, 1998

. Freight Car--We manufacture, sell and service air brake equipment,
brake valves, draft gears, hand brakes and slack adjusters for
freight cars.

. Locomotive--We manufacture, sell and service air brake equipment,
compressors, air dryers, slack adjusters and brake cylinders for
locomotives.

. Electronics--We manufacture, sell and service high-quality
electronics for the railroads. These include monitoring products,
control equipment and braking product for locomotives and freight
cars. We believe we are an industry leader in insulating electronic
components to protect them from severe conditions. Such conditions
include extreme temperatures and high shock/vibration environments.
Our acquisition of Rockwell Railroad Electronics on October 5, 1998
significantly strengthened our capabilities in this area by expanding
our freight electronic air brake capability and by increasing our
electronics product line, which now include display and positioning
systems, data communications and monitoring products for locomotives.

. Our Transit Group, which accounted for 32% of our revenues for the year
ended December 31, 1998

. Passenger Transit--We manufacture, sell and service electronic brake
equipment, pneumatic control equipment, air compressors, tread brakes
and disc brakes, couples, collection equipment, overhead
electrification, monitoring systems, wheels, climate control and door
equipment and other components for passenger transit vehicles. We
believe that our ability to manufacture a wide range of these
integrated products provides us with a competitive advantage in the

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<PAGE>

passenger transit market. For example, in 1997, we received contracts
valued at $150 million to provide equipment for 1,080 new passenger
transit cars for the Metropolitan Transportation Authority/New York
City Transit. We expect deliveries to commence in the second half of
1999.

. Our Molded Products Group, which accounted for 10% of our revenues for
the year ended December 31, 1998

. Friction and Other Products and Services--We manufacture and sell
brake shoes, disc brake pads and other rubber products.

Approximately half of our net sales have historically been derived from
products sold directly to original equipment manufacturers of locomotives,
railway freight cars and passenger transit vehicles. The balance of our net
sales is generated from the sale of replacement parts, repair services and
upgrade work purchased by end-users. We believe that our substantial installed
base of products designed for the original equipment manufacturer is a
significant competitive advantage in providing products and services to the
end-user as well. We also believe that end-users tend to purchase our
replacement parts due to the high quality of our products and services. Our
company expects our replacement, repair and upgrade sales for end-users to
increase as a result of increased utilization and aging of rail transport
equipment, as well as technological improvements of our products. As a result
of our substantial sales to end-users, we believe that our company is less
adversely affected by fluctuations in domestic demand for new railroad
vehicles than our competitors because of our substantial sales to end-users.

Industry Overview

Rail traffic, in terms of both freight and passengers, is a key factor
underlying the demand for our products. Government investment in public rail
transportation also plays a significant role. Additionally, railroads
continuously seek to increase the efficiency and productivity of their rail
operations in order to improve profitability. We design an array of products
to meet this goal and believe that through our products and service offerings,
we are well positioned to contribute to and benefit from the railroad
industry's drive to improve efficiency and productivity. For example, our end
of train device, automated single car tester and electro-pneumatic brake all
provide significant cost saving opportunities for our customers.

In connection with the growth of rail traffic, we note that demand for
North American locomotive and freight car products remain strong due to:

. continued growth in revenue ton-miles in the United States (defined as
weight times distance traveled by Class 1 railroads) of 1,376 billion in
1998 as compared to 1,067 billion in 1992;

. continued strong delivery of new freight cars:

. aging freight car fleet, with an average age of 17.8 years in 1998 with
approximately 50% over 17 years old;

. the desire of railroads to gain efficiency improvements from larger,
more efficient aluminum cars;

. aging locomotive fleet, with more than 52% of the fleet over 17 years
old and

. newer alternating current locomotives, which are more powerful and
efficient than direct current locomotives because the alternating
current design gives the locomotive a broader power band than the direct
current locomotives, which in turn provide more start-up traction.

The demand for products related to passenger transit products is driven by
the following:

. replacement building and/or expansion programs by transit authorities;
these programs are funded in part by federal and state governments,
including the recently authorized Intermodal Surface Transportation and
Efficiency Act (providing up to $42 billion to be made available,
subject to appropriations, for transit-related infrastructure between
1998 and 2003); and

. aging United States passenger transit car fleet, with an average age of
21.6 years in 1997 as compared to 19.3 years in 1995.

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<PAGE>

Strategy

We are committed to enhancing our company's position as a producer of value-
added equipment for the rail industry and we will continue to seek ways to
increase its content per rail vehicle. Building on our leading market share,
our strong presence in the end-user market and our technological leadership, we
are pursuing a strategy involving five key elements.

We will continue to expand technology-driven new product development and
product lines.

. We plan to continue to emphasize research and development to create new
and improved products to increase our market share and profitability.

. We are focusing on technological advances, especially in the areas of
electronics, braking products and other on-board systems as a means of
new product growth.

We will continue to increase our repair and upgrade services.

. By continuing to leverage our broad product offering and our large
installed product base, we intend to expand our presence in the repair
and upgrade services market.

. We believe that our services are more cost effective than, and that we
offer product upgrades not available in, most independent repair shops.

. To capitalize on the growing aftermarket, we are developing and
marketing retrofit and upgrade products, which serve as a platform for
offering additional installation, replacement parts and repair services
to our customers.

We intend to grow our international presence.

. The company believes that international sales represent a significant
opportunity for further growth.

. Our net sales outside of the United States and Canada comprised
approximately 17% of our net sales for the year ended December 31, 1998,
compared to 4% in 1994. We intend to increase our existing international
sales by:

.acquisitions,

.direct sales of products through or subsidiaries and licensees; and

.forming joint ventures with railway suppliers having a strong presence
in their local markets.

We will pursue strategic acquisitions.

. We intend to pursue strategic acquisitions that expand our product
lines, increase our aftermarket business, increase our international
sales and increase our technical capabilities.

. An integral component of our company's acquisition strategy is to
realize revenue growth and cost savings through the integration of the
acquired business.

We will continue to improve our manufacturing efficiency and quality.

We intend to retain what we consider to be a leading position as a low cost
producer in the industry while maintaining world-class product quality,
technology and customer responsiveness. We are dedicated to utilizing our
Performance System, which includes continuous improvement across all phases of
our business through:

. our proven Kaizen employee-directed initiatives, which include a
Japanese-developed team concept used to continuously improve quality,
lead time and productivity;

. our total Quality Improvement Program, which is an ongoing program to
continuously improve our manufacturing processes by encouraging feedback
from work "teams," continuing worker training, statistical engineering,
monitoring systems and evaluation of the processes; and

. a continuing emphasis on "lean manufacturing" principles and roadmap to
drive customer satisfaction and enterprise value to world class levels.

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<PAGE>

Each of these efforts enables us to streamline processes, improve product
quality and customer satisfaction, reduce product cycle times and respond more
rapidly to market developments. We believe that our management and employees
are offered appropriate incentives to carry out our strategy. For example,
management currently owns approximately 31% of our common stock and our
employees own common stock through the ESOP.

Backlog

As of April 30, 1999, we had a total backlog of firm orders with an
aggregate sales price of approximately $440.2 million, compared to $460.9
million as of December 31, 1998, and $376.3 million as of December 31, 1997. Of
the April 30, 1999 amount, $138 million is expected to be filled after fiscal
year 1999. Also of that amount, $309.6 million was attributable to passenger
transit products, including products for cars deliverable to the MTA, and the
balance was attributable to railway and other products. Other than the transit
market, backlog is not a significant component of our business, and management
believes it is not an important indicator of future business performance.
Because of our quick turnaround time, our locomotive and freight customers tend
to order products from our company on an as-needed basis. With respect to
original equipment manufacturers passenger transit products, there is a longer
lead time for car deliveries and, accordingly, we carry a larger backlog of
orders. Our contracts are subject to standard industry cancellation provisions,
including cancellations on short notice or upon completion of designated
stages, including, without limitation, contracts relating to the MTA.
Substantial scope-of-work adjustments are common. For these and other reasons,
work in our backlog may be delayed or cancelled and backlog should not be
relied upon as an indicator of our future performance.

Engineering and Development

In furtherance of our strategy of using technology to develop new products,
we are actively engaged in a variety of engineering and development activities.
For the fiscal years ended December 31, 1998, 1997 and 1996, we incurred costs
of approximately $30.4 million, $24.4 million, and $18.2 million, respectively,
on product development and improvement activities (exclusive of manufacturing
support). Such expenditures represented 4.5%, 4.3%, and 4.0% of net sales for
the same periods, respectively. From time to time, we conduct specific research
projects in conjunction with universities, customers and other railroad product
suppliers.

Our engineering and development program is largely focused upon new braking
technologies, with an emphasis on the application of electronics to traditional
pneumatic equipment. Electronic actuation of braking has long been a part of
our transit product line but interchangeability, connectivity and durability
have presented problems to the industry in establishing electronics in freight
railway applications. Efforts are under way to develop the major components of
both hard-wired and radio-activated braking equipment.

Intellectual Property

We have numerous U.S. patents, patent applications pending and trademarks as
well as foreign patents and trademarks throughout the world. We also rely on a
combination of trade secrets and other intellectual property laws,
nondisclosure agreements and other protective measures to establish and protect
our proprietary rights in our intellectual property.

Certain trademarks, among them the name WABCO, were acquired or licensed by
us from American Standard Inc. in 1990 pursuant to our acquisition of the North
American operations of the Railway Products Group of American Standard.

Our company is a party, as licensor and licensee, to a variety of license
agreements. We do not believe that any single agreement, other than the SAB
license discussed in the following paragraph, is of material importance to our
business as a whole.

Our company and SAB WABCO Holdings B.V. entered into a license agreement on
December 31, 1993, pursuant to which SAB WABCO granted us a license to the
intellectual property and know-how related to the

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<PAGE>

manufacturing and marketing of certain disc brakes, tread brakes and low noise
and resilient wheel products. SAB WABCO is a Swedish corporation that was a
former affiliate of our company, both having portions that were owned by the
same parent prior to 1990. Our company is authorized to manufacture and sell
the licensed products in North America (including to original equipment
manufacturers located outside North America if such licensed products are
incorporated into a final product to be sold in North America). SAB WABCO has a
right of first refusal to supply us with bought-in components of the licensed
products on commercially competitive terms. To the extent SAB WABCO files
additional patent or trademark applications, or develops additional know-how in
connection with the licensed products, such additional intellectual property
and know-how are also subject to the SAB license. We may, at our expense,
request the service of SAB WABCO in manufacturing, installing, testing and
maintaining the licensed products and providing customer support. SAB WABCO is
entitled to a free, nonexclusive license of the use of any improvements to the
licensed products developed by us. If any such improvements are patented by us,
SAB WABCO has the right to request the transfer of such patents upon payment of
reasonable compensation therefor; in such cases, we are entitled to a free,
nonexclusive license to use the patented product. We are required to pay a lump
sum fee for certain licensed products as well as royalties based on specified
percentages of sales. The license expires December 31, 2003, but may be renewed
for additional one-year terms.

In connection with our recapitalization in January, 1995, we agreed with SAB
WABCO:

. to use our respective best efforts to negotiate an agreement to
distribute each other's products,

. to explore the feasibility of a joint venture to expand into regions
where neither company is currently represented,

. that the SAB license will be amended to include additional disc brake
and tread brake technology,

. that SAB WABCO will in the future grant to our company a license for the
manufacture and sale of electronic brake equipment that it designs,

. that SAB WABCO will grant to us the right to purchase SAB WABCO's option
on 40% of the shares in SAB WABCO de Brasil, and

. that we will have a right of first refusal to purchase SAB WABCO if
prior to December 31, 1999 the current owner decides to sell more than
50% of its interest in SAB WABCO to a third party, subject to certain
exceptions.

There is no assurance that we will reach agreement on issues relating to
future cooperation or that we will be able to acquire SAB WABCO. Accordingly,
WABCO and SAB WABCO could be competitors in international markets.

Customers

A few customers within each business segment represent a significant portion
of our net sales, however, no one customer represented more than 10% of our
consolidated revenues in 1998. The loss of a few key customers within our
Railroad and Transit Group could have an adverse effect on our financial
condition, results of operations and liquidity.

Competition

Our company operates in a competitive marketplace. Price competition is
strong and the existence of cost conscious purchasers of a limited number has
historically limited our ability to increase prices. In addition to price,
competition is based on product performance and technological leadership,
quality, reliability of delivery and customer service and support. Our
principal competitors vary to some extent across our principal product lines.
However, within North America, New York Air Brake Company, a subsidiary of the
German air brake producer Knorr-Bremse AG, is our principal overall original
equipment manufacturers competitor. Our competition for locomotive, freight and
passenger transit service and repair business is primarily from the railroads'
and passenger transit authorities' in-house operations, as well as New York Air
Brake Company and Knorr-Bremse.

40
<PAGE>

Employees

As of December 31, 1998, we employed approximately 4,300 employees,
approximately 1,200 of whom were unionized. The majority of employees subject
to collective bargaining agreements are within North America and these
agreements are generally effective through 2001 and 2002.

The majority of non-union employees in the United States (approximately
2,000 employees) participate in the ESOP.

Regulation

In the course of our operations, we are subject to various regulations,
agencies and entities. In the United States, these include principally the
Federal Railroad Administration and the Association of American Railroads.

The Federal Railroad Association administers and enforces federal laws and
regulations relating to railroad safety. These regulations govern equipment and
safety standards for freight cars and other rail equipment used in interstate
commerce.

The Association of American Railroads promulgates a wide variety of rules
and regulations governing safety and design of equipment, relationships among
railroads with respect to railcars in interchange and other matters. The
Association of American Railroads also certifies railcar builders and component
manufacturers that provide equipment for use on railroads in the United States.
New products generally must undergo Association of American Railroads testing
and approval processes.

As a result of these regulations and regulations in other countries in which
we derive our revenues, we must maintain certain certifications as a component
manufacturer and for products we sell.

Properties

The following table provides certain summary information with respect to the
principal facilities owned or leased by our company. We believe that our
facilities and equipment are in good condition and that, together with
scheduled capital improvements, are adequate for our present and immediately
projected needs. The Greensburg, PA, Germantown, MD, Niles, IL and Chicago, IL
properties are subject to mortgages to secure our indebtedness under the credit
agreement. Our corporate headquarters are located in the Wilmerding, PA site.

<TABLE>
<CAPTION>
Own/ Approximate
Location Primary Use Primary Segment Lease Square Feet
-------- ----------- --------------- ----- -----------
<S> <C> <C> <C> <C>
Domestic
- --------
Wilmerding, PA.......... Manufacturing/Service Railroad Group Own 850,000(1)
Chicago, IL............. Manufacturing Railroad Group Own 111,500
Germantown, MD.......... Manufacturing/Service Railroad Group Own 80,000
Kansas City, MO......... Service Center Railroad Group Lease 55,891
Bossier City, LA........ Service Center Railroad Group Lease 40,000
Carson City, NV......... Service Center Railroad Group Lease 22,000
Columbia, SC............ Service Center Railroad Group Lease 12,250
Chicago, IL............. Service Center Railroad Group Lease 19,200
Niles, IL............... Manufacturing Transit Group Own 355,300
Spartanburg, SC......... Manufacturing/Service Transit Group Lease 183,600
Plattsburgh, NY......... Manufacturing Transit Group Lease 64,000
Elmsford , NY........... Service Center Transit Group Lease 28,000
Sun Valley , CA......... Service Center Transit Group Lease 4,000
Atlanta, GA............. Service Center Transit Group Lease 1,200
Laurinburg, NC.......... Manufacturing Molded Products Group Own 105,000
Greensburg, PA.......... Manufacturing Molded Products Group Own 97,830
Ball Ground, GA......... Manufacturing Molded Products Group Lease 30,000
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
Own/ Approximate
Location Primary Use Primary Segment Lease Square Feet
-------- ----------- --------------- ----- -----------
<S> <C> <C> <C> <C>
International
Doncaster, UK........... Manufacturing/Service Railroad Group Own 330,000
Stoney Creek, Ontario... Manufacturing/Service Railroad Group Own 189,170
Wallaceburg, Ontario.... Foundry Railroad Group Own 127,555
Burlington, Ontario..... Manufacturing Railroad Group Own 46,209
Burlington, Ontario..... Manufacturing Railroad Group Own 28,165
Winnipeg, Manitoba...... Service Center Railroad Group Lease 20,000
Montreal, Quebec........ Manufacturing Transit Group Own 106,000
Sassuolo, Italy......... Manufacturing Transit Group Lease 30,000
Burton on Trent, UK..... Manufacturing Transit Group Lease 18,000
Etobicoke, Ontario...... Service Center Transit Group Lease 3,800
Wetherill Park, NSW..... Manufacturing Molded Products Group Lease 73,141
Schweighouse, France.... Manufacturing Molded Products Group Lease 30,000
Tottenham, VIC.......... Manufacturing Molded Products Group Lease 26,910
</TABLE>
- --------
(1) Approximately 250,000 square feet are currently used in connection with our
operations. The balance of the space is leased to other companies.

The above information does not include certain facilities scheduled to be
closed during 1999. Leases on the above facilities are long-term and generally
include options to renew.

Environmental Matters

We are subject to a variety of environmental laws and regulations governing
discharges to air and water, the handling, storage and disposal of hazardous or
solid waste materials and the remediation of contamination associated with
releases of hazardous substances. We believe our operations currently comply in
all material respects with all of the various environmental laws and
regulations applicable to our business; however, we can not be assured that
environmental requirements will not change in the future or that we will not
incur significant costs to comply with such requirements.

Under the terms of the purchase agreement and related documents for our 1990
acquisition of American Standard's Railway Products Group, American Standard
indemnified our company for certain items including environmental claims.
American Standard has indemnified us for any claims, losses, costs and expenses
arising from:

. claims made in connection with any of the environmental matters
disclosed by American Standard to us at the time of the 1990
acquisition,

. any pollution or threat to human health or the environment related to
American Standard's (or any previous owner's or operator's) ownership or
operation of the properties acquired by us in the 1990 acquisition,
which pollution or threat was caused or arises out of conditions
existing prior to the 1990 acquisition (limited to environmental laws in
effect as of December 31, 1991), and

. any material environmental claim alleging potential liability for the
release of pollutants or the violation of any federal, state or local
laws or regulations relating to pollution or protection of human health
or the environment, for which American Standard has retained liability.

Such indemnity covers investigatory costs only if the investigation is
undertaken pursuant to a larger environmental claim and to the extent of
American Standard's pro-rata liability for such larger environmental claim.
American Standard has no obligation to indemnify for investigatory costs
incurred by us independently or otherwise unrelated to an indemnifiable event.
American Standard's indemnification obligations are limited to aggregate
amounts in excess of $500,000. We have exceeded this deductible.

42
<PAGE>

In addition, American Standard's indemnification obligation with respect to
friction product related claims only extends to 50% of the amount claimed, up
to a maximum of $14 million (provided liability is asserted directly and solely
against our friction products subsidiary, RFPC).

The indemnification obligations with respect to third party claims survive
until 2000, except those claims which are timely asserted continue until
resolved. If American Standard should be unable to meet its obligations under
this indemnity, we will be responsible for such items. In the opinion of
management, American Standard has the present ability to meet its
indemnification obligations.

WABCO, through RFPC, has been named, along with other parties, as a
potentially responsible party under the North Carolina Inactive Sites Response
Act because of an alleged release or threat of release of hazardous substances
at the "Old James Landfill" site in Laurinburg, NC. We believe that any cleanup
costs for which we may be held responsible are covered by the American Standard
indemnity discussed above and an insurance policy for environmental claims
provided by Manville Corporation, the former 50% owner of RFPC, in connection
with our 1992 acquisition of Manville Corporation's interest in RFPC. Pursuant
to the terms of the purchase agreement for the acquisition of Manville
Corporation's interest in RFPC, Rocky Mountain International Insurance, Ltd.,
an affiliate of Manville Corporation, provided an insurance policy to cover any
claims, losses, costs and expenses relating to, among other things,
environmental liabilities arising from conditions existing at the former
Manville site used by RFPC prior to the acquisition (limited to environmental
laws in effect as of July 1992).

This insurance policy is our sole remedy with respect to covered claims. The
insurance policy survives until July 2002. Active claims for conditions
existing prior to July 1992 will continue to be covered beyond July 2002. The
aggregate limit of coverage under the insurance policy provided by Manville
Corporation is $12.5 million. We have submitted claims and have received
recoveries under the policy for costs of clean up imposed on or incurred by us
in connection with the "Old James Landfill," and Rocky Mountain has
acknowledged coverage under the policy, subject to the stated policy
exclusions. In addition to the insurance policy provided by Manville
Corporation, American Standard's indemnification obligations described above
cover 50% of RFPC-related claims.

We believe that the indemnification agreements and insurance policy referred
to above are adequate to cover any potential liabilities during their
respective terms arising in connection with the above-described environmental
conditions. None of the insurance or indemnification agreements is currently
the subject of any dispute.

Legal Matters

There are various pending lawsuits and claims arising out of the conduct of
our business. These include claims by employees of third parties who allege
they were exposed to asbestos while handling American Standard products
manufactured prior to 1990 acquisition of American Standard's Railway Products
Group. American Standard discontinued the use of asbestos in its products in
1980. American Standard has indemnified us against these claims and is
defending them. Under the terms of the purchase agreement and related documents
for the 1990 acquisition, American Standard has indemnified us for any claims,
losses, costs and expenses arising from, among other things, product liability
claims by third parties, intellectual property infringement actions and any
other claims or proceedings, in each case to the extent they related to events
occurring, products sold or services rendered prior to the 1990 acquisition and
affect the properties acquired by us. American Standard's indemnification
obligations are limited to aggregate amounts in excess of $500,000 and, as
described above, this deductible has already been exceeded. In addition,
American Standard's indemnification obligation with respect to RFPC-related
claims only extends to 50% of the amount claimed, up to a maximum of $14
million (provided liability is asserted directly and solely against RFPC). The
indemnification obligations with respect to third party claims survive until
2000. An insurance policy provided by Manville Corporation, the former 50%
owner of RFPC, covers the other 50% of RFPC related claims up to a maximum of
$12.5 million.

43
<PAGE>

On February 12, 1999, GE Harris Railway Electronics, LLC and GE Harris
Railway Electronic Services, LLC brought suit against us in the U.S. federal
court, in the District of Delaware, for alleged patent infringement and unfair
competition related to a communications system installed in one of our
products. GE Harris is seeking to prohibit our company from future infringement
and is seeking an unspecified amount of money damages to recover, in part,
royalties. While this lawsuit is in the earliest stages, we believe the
technology developed by us does not infringe on the GE Harris patents. We plan
to contest the infringement claims vigorously, in order to present alternative
product lines to customers in the rail industry.

From time to time we are involved in litigation relating to claims arising
out of our operations in the ordinary course of business. As of the date
hereof, we are involved in no litigation that we believe will have a material
adverse effect on our financial condition, results of operations, or liquidity.
We historically have not been required to pay any material liability claims.

Pending Merger with MotivePower

On June 2, 1999, we agreed to merge with and into MotivePower Industries,
Inc., a Pennsylvania corporation. The terms of the merger are set forth in an
Agreement and Plan of Merger dated as of June 2, 1999, between our company and
MotivePower. In the merger, each share of our common stock will be converted
into 1.3 shares of MotivePower's common stock, par value $0.01 per share. We
issued a joint press release with MotivePower announcing the execution of the
Merger Agreement on June 3, 1999.

The merger is intended to constitute a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and will be accounted for as a
pooling of interests.

Consummation of the merger is subject to various conditions, including:

. approval and adoption of the merger agreement and the merger by the
shareholders of each of WABCO and MotivePower;

. the expiration or termination of applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and
the receipt of certain other approvals required under foreign laws;

. registration of the shares of MotivePower common stock to be issued in
the merger under the Securities Act of 1933, as amended;

. receipt of opinions of counsel as to the federal tax treatment of
certain aspects of the merger; and

. satisfaction of certain other conditions.

The merger agreement and the transactions contemplated thereby will be
submitted for adoption and approval at the meetings of the shareholders of each
company. Prior to such meetings, MotivePower will file a registration statement
with the Commission registering under the Securities Act the MotivePower common
stock to be issued in the merger. Such shares of MotivePower common stock will
be offered to our shareholders pursuant to a prospectus that will also serve as
a joint proxy statement for the shareholders' meetings.

The foregoing summary of the merger agreement is qualified in its entirety
by reference to the text of the merger agreement, a copy of which was filed
with the joint proxy statement/prospectus and which is incorporated herein by
reference. See "Where You Can Find More Information."

In connection with the execution of the merger agreement, MotivePower and
our company entered into a stock option agreement pursuant to which we granted
MotivePower an option to purchase up to approximately 19% of the outstanding
shares of our common stock (before giving effect to the WABCO option)
exercisable in the circumstances specified in the WABCO option agreement.
MotivePower and WABCO also entered into

44
<PAGE>

another stock option agreement pursuant to which MotivePower granted us an
option to purchase up to approximately 19% of the outstanding shares of
MotivePower common stock (before giving effect to the MotivePower option)
exercisable in the circumstances specified in the MotivePower option agreement.

The foregoing summaries of the option agreements are qualified in their
entirety by reference to the text of such agreements, copies of which were
filed as Exhibits 2.2 and 2.3 to the joint proxy statement/prospectus and which
are incorporated herein by reference. See "Where You Can Find More
Information."

45
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements
combine the historical consolidated balance sheets and statements of income of
MotivePower and WABCO giving effect to the merger using the pooling of
interests method of accounting for a business combination.

We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
audited consolidated financial statements of MotivePower for the years ended
December 31, 1998, 1997 and 1996 and the unaudited consolidated financial
statements for the three months ended March 31, 1999 and 1998 and from the
audited consolidated financial statements of WABCO for the years ended December
31, 1998, 1997 and 1996 and the unaudited consolidated financial statements for
the three months ended March 31, 1999 and 1998. The information is only a
summary and you should read it in conjunction with our historical financial
statements and related notes contained in this prospectus and annual reports
and other information that have been filed with the Commission. See "Where You
Can Find More Information."

The unaudited pro forma condensed combined statements of income for the
years ended December 31, 1998, 1997 and 1996 and for the three months ended
March 31, 1999 and 1998 assume the merger was effected at the beginning of the
periods presented. The unaudited pro forma condensed combined balance sheet
gives effect to the merger as if it had occurred on March 31, 1999. The
accounting policies of MotivePower and WABCO are substantially comparable.
However, adjustments were made to conform the classification of amortization
expense and income taxes receivable in the unaudited pro forma condensed
combined financial statements.

The unaudited pro forma combined financial information is for illustrative
purposes only. The companies may have performed differently had they always
been combined. You should not rely on the pro forma combined financial
information as being indicative of the historical results that would have been
achieved had the companies always been combined or the future results that the
combined company will experience after the merger.

46
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 1999

<TABLE>
<CAPTION>
MotivePower WABCO Reporting Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Assets
Cash...................... $ 11,170 $ 4,627 $ $ 15,797
Accounts receivable....... 56,615 137,921 194,536
Inventories............... 99,539 107,703 207,242
Deferred taxes............ 7,639 12,842 20,481
Other..................... 7,661 8,731 (2,220) 14,172
-------- --------- --------- ----------
Total current assets.. 182,624 271,824 (2,220) 452,228
Property, plant and
equipment................ 154,726 223,849 378,575
Accumulated depreciation.. (58,249) (95,783) (154,032)
-------- --------- --------- ----------
Property, plant and
equipment, net....... 96,477 128,066 224,543
Other assets:
Goodwill and other
intangibles.............. 87,571 196,535 284,106
Underbillings............. 26,868 -- 26,868
Other noncurrent assets... 14,272 13,035 27,307
-------- --------- --------- ----------
Total other assets.... 128,711 209,570 338,281
-------- --------- --------- ----------
Total assets.......... $407,812 $ 609,460 $ (2,220) $1,015,052
======== ========= ========= ==========
Liabilities
Current portion of long-
term debt................ 557 20,264 20,821
Accounts payable.......... 32,780 51,347 84,127
Accrued income taxes...... -- 10,039 (2,220) 7,819
Customer deposits......... 282 17,310 17,592
Other accrued
liabilities.............. 33,453 51,802 85,255
-------- --------- --------- ----------
Total current
liabilities.......... 67,072 150,762 (2,220) 215,614
Long-term debt............ 133,607 450,226 583,833
Accrued pension and
postretirement costs..... -- 20,454 20,454
Commitments and
contingencies............ 17,692 -- 17,692
Deferred income taxes..... 1,419 3,533 4,952
Other long-term
liabilities.............. 1,385 3,847 5,232
-------- --------- --------- ----------
Total liabilities..... 221,175 628,822 (2,220) 847,777
Shareholders' Equity
Preferred stock........... -- -- --
Common stock.............. 260 474 148 882
Additional paid-in
capital.................. 207,418 108,066 (187,162) 128,322
Treasury stock, at cost... (5,986) (187,014) 187,014 (5,986)
Unearned ESOP shares, at
cost..................... -- (127,397) (127,397)
Retained earnings......... (15,368) 193,965 178,597
Deferred compensation..... 5,634 (103) 5,531
Accumulated other
comprehensive income
(loss)................... (5,321) (7,353) (12,674)
-------- --------- --------- ----------
Total shareholders'
equity............... 186,637 (19,362) 0 167,275
-------- --------- --------- ----------
Liabilities and
shareholders' equity..... $407,812 $ 609,460 $ (2,220) $1,015,052
======== ========= ========= ==========
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

47
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
MotivePower WABCO Proforma Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................. $ 365,218 $ 670,909 $ $1,036,127
Cost of sales.............. (283,896) (451,730) (735,626)
--------- --------- ------ ----------
Gross profit............. 81,322 219,179 300,501
Selling, general and
administrative expenses... (40,959) (76,048) 3,426 (113,581)
Engineering expenses....... -- (30,436) (30,436)
Amortization expense....... -- (8,029) (3,426) (11,455)
--------- --------- ------ ----------
Total operating
expenses................ (40,959) (114,513) 0 (155,472)
Operating income......... 40,363 104,666 0 145,029
Other income (expense):
Interest expense......... (5,894) (31,217) (37,111)
Other income--Argentina.. 10,362 -- 10,362
Other income (expense),
net..................... 3,950 (919) 3,031
--------- --------- ------ ----------
Income before income
taxes and extraordinary
item.................... 48,781 72,530 121,311
Income taxes............... (14,554) (27,561) (42,115)
--------- --------- ------ ----------
Income before extraordinary
item....................... 34,227 44,969 79,196
========= ========= ====== ==========
Earnings per common share--
basic:
Income before
extraordinary item...... $ 1.28 $ 1.79 $ $ 1.33
========= ========= ====== ==========
Earnings per common share--
diluted:
Income before
extraordinary item...... $ 1.23 $ 1.75 $ $ 1.29
========= ========= ====== ==========
Weighted average shares
outstanding:
Basic.................... 26,771 25,081 7,524 59,376
Diluted.................. 27,929 25,708 7,712 61,349
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

48
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
MotivePower WABCO Proforma Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales.................. $ 305,930 $ 564,441 $ $ 870,371
Cost of sales.............. (233,588) (378,323) (611,911)
--------- --------- ------ ---------
Gross profit............. 72,342 186,118 258,460
--------- --------- ------ ---------
Selling, general and
administrative expenses... (37,724) (63,517) 3,333 (97,908)
Engineering expenses....... -- (24,386) (24,386)
Amortization expense....... -- (8,240) (3,333) (11,573)
--------- --------- ------ ---------
Total operating
expenses................ (37,724) (96,143) 0 (133,867)
--------- --------- ------ ---------
Operating income......... 34,618 89,975 0 124,593
Other income (expense):
Interest expense......... (5,163) (29,729) (34,892)
Other income--Argentina.. 2,003 -- 2,003
Other income (expense),
net..................... 531 344 875
--------- --------- ------ ---------
Income before income
taxes................... 31,989 60,590 92,579
Income taxes............... (11,713) (23,327) (35,040)
--------- --------- ------ ---------
Income before extraordinary
item...................... $ 20,276 $ 37,263 $ 0 $ 57,539
========= ========= ====== =========
Earnings per common share--
basic:
Income before
extraordinary item...... $ 0.76 $ 1.45 $ $ 0.96
========= ========= ====== =========
Earnings per common share--
diluted:
Income before
extraordinary item...... $ 0.74 $ 1.42 $ $ 0.94
========= ========= ====== =========
Weighted average shares
outstanding:
Basic.................... 26,541 25,693 7,708 59,942
Diluted.................. 27,314 26,173 7,851 61,338
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

49
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
MotivePower WABCO Proforma Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................... $ 291,407 $ 453,512 $ $ 744,919
Cost of sales............... (234,560) (300,163) (534,723)
--------- --------- ------ ---------
Gross profit.............. 56,847 153,349 210,196
--------- --------- ------ ---------
Selling, general and
administrative expenses.... (32,615) (47,533) 3,407 (76,741)
Engineering expenses........ -- (18,244) (18,244)
Amortization expense........ -- (7,854) (3,407) (11,261)
--------- --------- ------ ---------
Total operating expenses.. (32,615) (73,631) 0 (106,246)
--------- --------- ------ ---------
Operating income.......... 24,232 79,718 0 103,950
Other income (expense):
Interest expense.......... (9,143) (26,152) (35,295)
Other income--Argentina... 1,565 -- 1,565
Other income (expense),
net...................... 3,633 82 3,715
--------- --------- ------ ---------
Income before income taxes
and extraordinary item... 20,287 53,648 73,935
Income taxes................ (7,714) (20,923) (28,637)
--------- --------- ------ ---------
Income before extraordinary
item........................ 12,573 32,725 45,298
========= ========= ====== =========
Earnings per common share--
basic:
Income before
extraordinary item........ $ 0.48 $ 1.15 $ $ 0.72
========= ========= ====== =========
Earnings per common share--
diluted:
Income before
extraordinary item........ $ 0.48 $ 1.15 $ $ 0.72
========= ========= ====== =========
Weighted average shares
outstanding:
Basic..................... 26,345 28,473 8,542 63,360
Diluted................... 26,349 28,473 8,542 63,364
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

50
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
MotivePower WABCO Proforma Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................... $107,274 $ 191,204 $ $ 298,478
Cost of sales............... (79,751) (129,659) (209,410)
-------- --------- ----- ---------
Gross profit.............. 27,523 61,545 89,068
-------- --------- ----- ---------
Selling, general and
administrative expenses.... (12,718) (21,331) 971 (33,078)
Engineering expenses........ -- (8,907) (8,907)
Amortization expense........ -- (2,410) (971) (3,381)
-------- --------- ----- ---------
Total operating expenses.. (12,718) (32,648) 0 (45,366)
-------- --------- ----- ---------
Operating income.......... 14,805 28,897 0 43,702
Other income (expense):
Interest expense.......... (2,194) (9,096) (11,290)
Other income (expense),
net...................... (201) (66) (267)
-------- --------- ----- ---------
Income before income taxes
and extraordinary item... 12,410 19,735 32,145
Income taxes................ (4,532) (7,346) (11,878)
-------- --------- ----- ---------
Income before extraordinary
item....................... 7,878 12,389 20,267
======== ========= ===== =========
Earnings per common share--
basic:
Income before
extraordinary item....... $ 0.29 $ 0.49 $ $ 0.34
======== ========= ===== =========
Earnings per common share--
diluted:
Income before
extraordinary item....... $ 0.28 $ 0.48 $ $ 0.33
======== ========= ===== =========
Weighted average shares
outstanding:
Basic..................... 26,986 25,371 7,611 59,968
Diluted................... 28,146 25,776 7,733 61,655
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

51
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 1998

<TABLE>
<CAPTION>
MotivePower WABCO Proforma Proforma
(as Reported) (as Reported) Adjustments Combined
------------- ------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net sales................... $ 82,853 $ 158,136 $ $ 240,989
Cost of sales............... (61,497) (106,340) (167,837)
-------- --------- ----- ---------
Gross profit.............. 21,356 51,796 73,152
-------- --------- ----- ---------
Selling, general and
administrative expenses.... (10,353) (18,498) 826 (28,025)
Engineering expenses........ -- (6,438) (6,438)
Amortization expense........ -- (2,105) (826) (2,931)
-------- --------- ----- ---------
Total operating expenses.. (10,353) (27,041) 0 (37,394)
-------- --------- ----- ---------
Operating income.......... 11,003 24,755 0 35,758
Other income (expense):
Interest expense.......... (1,213) (7,373) (8,586)
Other income (expense),
net...................... 957 131 1,088
-------- --------- ----- ---------
Income before income taxes
and extraordinary item... 10,747 17,513 28,260
Income taxes................ (3,627) (6,655) (10,282)
-------- --------- ----- ---------
Income before extraordinary
item....................... 7,120 10,858 17,978
======== ========= ===== =========
Earnings per common share--
basic:
Income before
extraordinary item....... $ 0.27 $ 0.43 $ $ 0.30
======== ========= ===== =========
Earnings per common share--
diluted:
Income before
extraordinary item....... $ 0.26 $ 0.42 $ $ 0.29
======== ========= ===== =========
Weighted average shares
outstanding:
Basic..................... 26,709 24,962 7,489 59,160
Diluted................... 27,824 25,669 7,701 61,194
</TABLE>

See Accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements

52
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

Note 1. Basis of Presentation

The unaudited pro forma condensed combined statements of income are based on
the consolidated financial statements of MotivePower and WABCO for the years
ended December 31, 1998, 1997 and 1996 and for the three months ended March 31,
1999 and 1998. The unaudited pro forma condensed combined balance sheet is
based on the consolidated financial statements of MotivePower and WABCO at
March 31, 1999.

MotivePower and WABCO consolidated financial statements are prepared in
conformity with generally accepted accounting principles and require
MotivePower and WABCO management to make estimates that affect the reported
amounts of assets, liabilities, revenues and expenses and the disclosure of
contingent assets and liabilities. In the opinion of MotivePower and WABCO, the
unaudited pro forma condensed combined financial statements include all
adjustments necessary to present fairly the results of the periods presented.
Actual results are not expected to differ materially from these estimates.

Note 2. Accounting Policies and Financial Statement Classifications

The accounting policies of MotivePower and WABCO are substantially
comparable. The unaudited pro forma combined condensed statements of income
reflect reclassification adjustments to conform to the presentation of
amortization expense. The unaudited pro forma combined condensed balance sheet
reflects a reclassification adjustment to conform the presentation of income
taxes receivable and payable.

Certain revenues, costs and other deductions in the consolidated statements
of income for MotivePower and WABCO have been reclassified to conform to the
line item presentation in the pro forma condensed combined statements of
income. Certain assets and liabilities in the consolidated balance sheets for
MotivePower and WABCO have been reclassified to conform to the line item
presentation in the pro forma condensed combined balance sheet.

Note 3. Earnings Per Share (as reported), Pro Forma Earnings Per Share and
Dividends Per Share

The MotivePower earnings per share (as reported) have been restated to
reflect a three-for-two common stock split in the form of a 50 percent stock
dividend effective April 2, 1999.

The pro forma combined net income per common share is based on net income
and the weighted average number of outstanding common shares. Net income per
common share--diluted includes the dilutive effect of stock options and
restricted stock awards. The pro forma combined weighted average number of
outstanding common shares has been adjusted to reflect the exchange ratio of
1.3 shares of MotivePower common stock for each share of WABCO common stock.

The pro forma combined dividends per share reflect the sum of the dividends
paid by MotivePower and WABCO divided by the number of shares that would have
been outstanding for the periods, after adjusting the WABCO shares for the
exchange ratio of 1.3 shares of MotivePower common stock.

Note 4. Intercompany Transactions

Intercompany sales and purchase transactions were not material between the
two companies and therefore are not reflected as adjustments to the unaudited
pro forma condensed combined financial statements.

Note 5. Merger-Related and Integration-Related Expenses

Merger-related fees and expenses, consisting primarily of SEC filing fees,
fees and expenses of investment bankers, attorneys and accountants, and
financial printing and other related charges, are estimated to be

53
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS--(Continued)

approximately $20-25 million. The unaudited pro forma condensed combined
financial statements do not reflect any of these fees and expenses.

We estimate that costs of approximately $35-$40 million will be incurred for
severance and other integration-related expenses, including the elimination of
duplicate facilities and excess capacity, operational realignment and related
workforce reductions. These expenditures are necessary to reduce costs and
operate efficiently. The unaudited pro forma condensed combined financial
statements reflect neither the impact of these charges nor the benefits from
the expected synergies. The costs for severance and other integration-related
expenses will be charged to operations in the periods the obligations occur.

Note 6. Other Pro Forma Adjustments

A pro forma adjustment has been made to reflect the cancellation of WABCO
common stock accounted for as treasury stock and the assumed issuance of
MotivePower common stock in exchange for all of the outstanding WABCO common
stock (based on the exchange ratio of 1.3 shares of MotivePower shares of
common stock for each WABCO share of common stock). The actual number of shares
of MotivePower common stock to be issued in connection with the merger will be
based on the number of shares of WABCO common stock issued and outstanding at
the effective time.

54
<PAGE>

MANAGEMENT

The following table provides information concerning our executive officers
and directors as of April 1, 1999.

<TABLE>
<CAPTION>
Name Age Title
---- --- -----
<S> <C> <C>
William E. Kassling.......... 55 Director, Chairman of the Board and Chief
Executive Officer
Emilio A. Fernandez.......... 54 Director and Vice Chairman
Gregory T.H. Davies.......... 52 Director, President and Chief Operating
Officer
Robert J. Brooks............. 55 Director, Chief Financial Officer and Chief
Accounting Officer
Kevin P. Conner.............. 41 Vice President--Human Resources
Alvaro Garcia-Tunon.......... 46 Vice President--Treasurer
Timothy J. Logan............. 46 Vice President--International
John M. Meister.............. 51 Executive Vice President and General Manager,
Transit Product Group
George A. Socher............. 50 Vice President and Corporate Controller
Kim G. Davis................. 45 Director
James C. Huntington, Jr. .... 71 Director
James P. Kelley.............. 44 Director
James V. Napier.............. 62 Director
</TABLE>

William E. Kassling has been a director, Chairman and Chief Executive
Officer of our company since the 1990 acquisition of the company. Mr. Kassling
was also our President from 1990 through February 1998. From 1984 until 1990 he
headed the Railway Products Group of American Standard Inc. Between 1980 and
1984 he headed American Standard's Building Specialties Group and between 1978
and 1980 he headed Business Planning for American Standard. Mr. Kassling is a
director of Aearo Corporation, Scientific Atlanta, Inc. and Commercial
Intertech, Inc.

Emilio A. Fernandez was named Vice Chairman in March 1998. He has been a
Director and was Executive Vice President of our company since our January 1995
acquisition of Pulse Electronics, Inc. which he co-founded in 1975. From 1996
to February 1998 he was Executive Vice President--Integrated Railway Systems.
Mr. Fernandez is a director of PMI, Inc., a private corporation.

Gregory T. H. Davies joined our company in March 1998 as President and Chief
Operating Officer and in February 1999 became a director. Mr. Davies was
formerly with Danaher Corporation since 1988, where he was Vice President and
Group Executive responsible for its Jacobs Vehicle Systems, Delta Consolidated
Industries and A.L. Hyde Corporation operating units. Danaher designs,
manufactures and markets industrial and consumer products with strong brand
names, proprietary technology and major market positions in both tolls and
components and process/environmental controls. Prior to that, Mr. Davies held
executive positions at Cummins Engine Company and Ford Motor Company.

Robert J. Brooks has been a director and Chief Financial Officer of our
company since the 1990 acquisition of the company. From 1986 until 1990 he
served as worldwide Vice President, Finance for the Railway Products Group of
American Standard. Mr. Brooks is a director of Crucible Materials Corp.

Kevin P. Conner has been Vice President of Human Resources of our company
since the 1990 acquisition of the company. From 1986 until 1990, Mr. Conner was
Vice President of Human Resources of the Railway Products Group of American
Standard.

Alvaro Garcia-Tunon has been Vice President and Treasurer of our company
since August 1995. From 1990 until August 1995 Mr. Garcia-Tunon was Vice
President of Business Development of Pulse Electronics, Inc.

55
<PAGE>

Timothy J. Logan has been Vice President, International since August 1996.
Previously, from 1987 until August 1996, Mr. Logan was Vice President,
International Operations for Ajax Magnethermic Corporation and from 1983 until
1987 he was President of Ajax Magnethermic Canada, Ltd. Ajax Magnethermic
manufactures and services electromagnetic inductive equipment that is used for
the heating of, heat treating, and melting of metals.

John M. Meister has been Vice President and General Manager of our Passenger
Transit Unit since the 1990 acquisition of the company. In 1997, he was
appointed to the newly created position of Executive Vice President and General
Manager, Transit Products Group. From 1985 until 1990 he was General Manager of
the passenger transit business unit for the Railway Products Group of American
Standard.

George A. Socher has been Vice President and Corporate Controller of our
company since July 1995. From 1994 until June 1995, Mr. Socher was Corporate
Controller and Chief Accounting Officer of Sulcus Computer Corp. From 1988
until 1994 he was Corporate Controller of Stuart Medical Inc.

The executive officers are elected annually by the Board of Directors of our
company at an organizational meeting, which is held immediately after each
Annual Meeting of Stockholders.

Kim G. Davis has served as a director since 1997. Mr. Davis has served as
the Managing Director of Charlesbank Capital Partners, LLC, formerly known as
Harvard Private Capital Holdings, Inc., since 1998. Mr. Davis was a private
investor from 1994 to 1998, and was a partner of Kohlberg & Co. prior thereto.

James C. Huntington, Jr. has served as a director since 1995. Mr. Huntington
has been an independent businessman since prior to 1993. He was formerly Senior
Vice President of American Standard, Inc. WABCO was formed in 1990 by acquiring
American Standard's Railway Products Group. Mr. Huntington retired from
American Standard in 1994. He is also a former director of Cyprus Amax Minerals
Company, Alumax, Inc. and Dravo Corporation.

James P. Kelley has served as director since 1990. Mr. Kelley has served as
the Managing Director of Vestar Capital Partners, Inc., a private equity
investment firm since prior to 1993. Mr. Kelley also serves as a Director of
LaPetite Academy, Inc. and Celestial Seasonings, Inc.

James V. Napier has served as a director since 1995. Mr. Napier has served
as the Chairman of Scientific Atlanta, Inc. since July 1994, and served as
Chairman and interim Chief Executive Officer of Scientific Atlanta, Inc. from
November 1993 to July 1994. Mr. Napier served as Chairman and Chief Executive
Officer of Commercial Tel. Group from prior to 1993 to November 1993. Mr.
Napier also serves as a director of Engelhard Corporation, Vulcan Materials
Company, HBO and Company, Personnel Group of America, Inc. and Intelligent
Systems, Inc.

56
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth, as of December 31, 1998, certain information
concerning each person believed to be the beneficial owner of more than 5% of
our common stock, as well as certain information concerning the beneficial
ownership of common stock by each named director, executive officer and all
directors and executive officers as a group believed to be a beneficial owner
of our common stock.

<TABLE>
<CAPTION>
Number of
Name Shares Percentage
---- ---------- ----------
<S> <C> <C>
U.S. Trust Company, N.A. ........................ 9,297,409(1) 27.43%
as trustee for Westinghouse Air Brake
Company Employee Stock Ownership
Plan and Trust
515 S. Flower Street
Suite 2700
Los Angeles, CA 90071
William E. Kassling.............................. 3,551,424(2) 10.48
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
RAC Voting Trust................................. 3,498,819(3) 10.40
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
James P. Kelley.................................. 2,545,548(4)(5) 7.51
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
Kim G. Davis..................................... 2,406,000(5)(6) 7.10
c/o Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
Charlesbank Capital Partners, LLC................ 2,400,000 7.08
600 Atlantic Avenue, 26th Floor
Boston, MA 02210
Vestar Equity Partners, L.P. .................... 2,400,000 7.08
c/o Vestar Capital Partners, Inc.
Seventeenth Street Plaza
1225 17th Street, Suite 1660
Denver, Colorado 80202
Shapiro Capital Management Company, Inc. ........ 2,139,500 6.31
3060 Peachtree Road,
N.W. Atlanta, GA 30305
First Manhattan Co............................... 1,753,950 5.17
437 Madison Avenue
New York, NY 10022
Emilio A. Fernandez.............................. 665,072(7) 1.96
John M. Meister.................................. 455,216(8) 1.34
Robert J. Brooks................................. 381,589(9) 1.13
Gregory T.H. Davies.............................. 59,192(5) *
James C. Huntington, Jr.......................... 18,000(5) *
James V. Napier.................................. 12,500(5)(10) *
All directors and executive officers as a group 10,405,106(11) 30.70
(13 persons)....................................
</TABLE>

57
<PAGE>

- --------
(1) Under the terms of the Westinghouse Air Brake Company Employee Stock
Ownership Plan and Trust, U.S. Trust Company, N.A., as sole trustee for
the ESOP, is required to vote the shares held by the ESOP in accordance
with the instructions from the ESOP participants for all shares allocated
to such participants' accounts. Shares not allocated to the account of any
employee are voted by the ESOP trustee in the same proportion as the votes
for which participant instructions are given. Allocated shares for which
the ESOP trustee does not receive instructions are voted in the manner
directed by the ESOP Committee, an administrative committee comprised of
persons appointed by the our Board of Directors (currently Messrs.
Kassling, Brooks and Conner). As of December 31, 1998, 771,189 shares were
allocated (including accrued amounts) to participants' accounts, and
8,564,811 shares were not allocated.
(2) Includes 52,105 shares beneficially owned by William E. Kassling, of which
6,500 shares are deposited in the management voting trust. Also includes
1,443,336 shares beneficially owned by Davideco, a Pennsylvania business
trust, which are all deposited in the management voting trust. Also
includes 500 shares beneficially owned by Mr. Kassling's son, beneficial
ownership of which shares is disclaimed, and 3,498,819 shares held of
record by the management voting trust, of which Messrs. Kassling, Brooks
and Conner are trustees, beneficial ownership of which shares is
disclaimed. See note 2 for further discussion on the management voting
trust.
(3) Pursuant to the Second Amended Westinghouse Air Brake Company Voting
Trust/Disposition Agreement dated as of December 13, 1995, certain of our
employees have delivered their shares of our common stock to the trustees
of the management voting trust. The current trustees are Messrs. Kassling,
Brooks and Conner. The trustees of the management voting trust have sole
voting power with respect to all shares reported as beneficially owned by
the management voting trust. The amended management voting trust agreement
expires January 1, 2000 and can be terminated by an affirmative vote of
two-thirds of the shares held by the management voting trust or by the
unanimous vote of the trustees.
(4) Includes 105,548 shares beneficially owned by James P. Kelley. Also
includes 40,000 shares beneficially owned by Vestar Capital Partners,
Inc., of which Mr. Kelley is a Managing Director, beneficial ownership of
which shares is disclaimed. Also includes 2,400,000 shares beneficially
owned by Vestar Equity Partners, L.P., beneficial ownership of which
shares is disclaimed. Vestar Associates, L.P. is the sole general partner
of Vestar Equity Partners, L.P., and Vestar Associates Corporation is the
sole general partner of Vestar Associates, L.P. Mr. Kelley is also
Managing Director of Vestar Associates Corporation.
(5) Includes options that are exercisable within 60 days of March 22, 1999.
(6) Includes 2,400,000 shares beneficially owned by Charlesbank Capital
Partners, LLC, formerly known as Harvard Private Capital Holdings, Inc.,
of which Kim G. Davis is a Managing Director, beneficial ownership of
which shares is disclaimed.
(7) Includes 395,476 shares beneficially owned by Emilio A. Fernandez. Also
includes 257,175 shares beneficially owned by Mr. Fernandez's wife and
12,421 shares beneficially owned by his son, beneficial ownership of which
shares is disclaimed.
(8) Includes 255,216 shares beneficially owned by John M. Meister, of which
250,000 shares are deposited in the management voting trust. Also includes
200,000 shares held in trust for Mr. Meister's children, beneficial
ownership of which shares is disclaimed. Mr. Meister is trustee of such
trust.
(9) Includes 21,589 shares beneficially owned by Robert J. Brooks, of which
9,300 shares are deposited in the management voting trust. Also includes
360,000 shares beneficially owned by Suebro, Inc., a Delaware holding
company, which are all deposited in the management voting trust. Does not
include 3,498,819 shares held of record by the management voting trust.
Such shares are included in the reported holdings of William E. Kassling.
(10) Includes 7,000 shares beneficially owned by James V. Napier and 500 shares
held in Mr. Napier's Keogh account.
(11) Includes notes 2 and 4 through 10.
* Less than 1%

58
<PAGE>

DESCRIPTION OF CERTAIN INDEBTEDNESS

Credit Agreement

Our credit agreement with a consortium of banks provides for an aggregate
credit facility of $350 million, consisting of up to $170 million of June 1998
term loans, up to $40 million of September 1998 term loans, and up to $140
million of revolving loans. In addition, the credit agreement provides for
swingline loans of up to an aggregate amount of $5 million, and for the
issuance of letters of credit in an aggregate face amount of up to $50 million.
Swingline loans and the issuance of letters of credit will reduce the amount of
revolving loans that may be incurred under the revolving credit facility.

As of December 31, 1998, $162.5 million of June 1998 term loans, $40.0
million of the September 1998 term loans and $105.6 million of the revolving
loans were outstanding (plus $24.5 million of outstanding letters of credit).
We used the June 1998 term loans to refinance term loans originally made in
1995 which were used to purchase shares of common stock from existing
stockholders, make a $140 million loan to our ESOP which was used to fund
purchases of common stock from the management voting trust established by our
management shareholders, pay the fees and expenses incurred in connection with
such share purchase, ESOP loan and the acquisition of Pulse Electronics, and
repay a portion of the seller note issued in connection with the acquisition of
Pulse. The September 1998 term loans were used to finance a portion of the
acquisition of Rockwell Railroad Electronics. The revolving loans were used to
repay the outstanding revolving loans under the 1995 revolving credit facility
and to finance a portion of the Rockwell acquisition. The balance of the
revolving loans may be used by our company for general corporate purposes and
the making of certain acquisitions. As of December 31, 1998, we had
approximately $12.0 million of revolving loans availability.

The net proceeds of the offering related to the Old Notes were used to repay
a $30 million unsecured credit facility the proceeds of which were used to
finance a portion of the Rockwell acquisition. The balance of the proceeds were
used to reduce revolving credit borrowings under the credit agreement. See "Use
of Proceeds."

The following summary sets forth the principal terms of the credit
agreement:

The June 1998 term loans under the credit agreement are due in semi-annual
payments, commencing on December 31, 1998 with the final payment due June 30,
2003, and the September 1998 term loans will be due in semi-annual payments
commencing on June 30, 2000 with the final payment due June 30, 2003. Revolving
loans will be due December 31, 2003. Our scheduled debt payments under the
credit agreement for the periods ending December 31, 1999, 2000, 2001, 2002 and
2003 will be $20.0 million, $32.5 million, $40.0 million, $50.0 million, and
$60.0 million, respectively. For either term loans or revolving loans, we can
choose from the following interest rate options: (a) the Alternate Base Rate,
which is the greater of (i) Chase Manhattan Bank's prime rate, (ii) the Base CD
Rate plus 1% and (iii) the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers plus .50 of 1%, plus an applicable margin ranging from 0%
to .50% based on our Leverage Ratio, or (b) the Adjusted LIBO Rate, which is
the London interbank overseas rate for dollar deposits, as adjusted for
statutory reserve requirements, plus an applicable margin ranging from .625% to
1.50% based on our Leverage Ratio. Swingline loans are subject exclusively to
the Alternate Base Rate. Interest is payable periodically. In addition, we are
required to pay certain fees to the administrative agents and participating
lending institutions, including a commitment fee (ranging from .25% to .375%)
on the unborrowed amount of the revolving credit commitment based upon our
Leverage Ratio and fees relating to the issuance of letters of credit under the
credit agreement.

In addition to the scheduled principal payments described above, the credit
agreement requires principal prepayments equal to (i) 100% of the Net Cash
Proceeds (as described below) of any Prepayment Event (as described below)
(other than a Prepayment Event arising under clause (iii) in the description
below, in which case the credit agreement requires principal prepayments equal
to 50% of the Net Proceeds therefrom) and (ii) 50% of Excess Cash Flow (as
described below) for each fiscal year if the Leverage Ratio exceeds 3.25 to
1.00. The following is a general description of the definitions in the credit
agreement of certain terms used above. "Prepayment Event" means (i) any sale,
transfer or other disposition of any business units, assets or other properties
of our company, (ii) the issuance or incurrence of any indebtedness or debt
securities by us or (iii) the issuance or sale of any equity securities by us,
other than the sale, transfer or other disposition of used or

59
<PAGE>

surplus equipment in the ordinary course of business (except for sales,
transfers or other dispositions in excess of $3 million in any year), sales of
inventory in the ordinary course, the receipt of insurance or condemnation
proceeds (except for receipt of proceeds in excess of $3 million in any year),
the receipt of condemnation or insurance proceeds in respect of Mortgaged
Properties, and the receipt of Net Cash Proceeds in an aggregate amount not in
excess of $150 million in respect to any events described in clause (iii)
above. "Net Cash Proceeds" means the gross cash proceeds to our company of any
Prepayment Event, less taxes, reserves and customary fees, commissions and
expenses. "Excess Cash Flow" means, for any period, EBITDA for such period
minus capital expenditures, increases in net working capital, decreases in
long-term reserves, income taxes added back to net income to determine EBITDA,
Cash Interest Expense (as described below), scheduled debt amortization
payments and certain other amounts for such period plus decreases in net
working capital for such period and increases in long-term reserves for such
period. "Interest Expense Coverage Ratio" means, for any period, the ratio of
EBITDA to Cash Interest Expense for such period. "Cash Interest Expense" means,
for any period, the gross interest expense of our company for such period less
gross interest income of our company for such period. "Leverage Ratio" means,
as of any day, the ratio of (i) the sum of the aggregate amount of all loans
under the credit agreement and all other indebtedness of our company on such
day to (ii) EBITDA for the 12-month period ending on such day.

The credit agreement limits us with respect to declaring or making cash
dividend payments and prohibits us from declaring or making other distributions
whether in cash, property, securities or a combination thereof, with respect to
any shares of our capital stock subject to certain exceptions, including an
exception pursuant to which we will be permitted to pay cash dividends on our
common stock in any fiscal year in an aggregate amount up to $15 million over
the aggregate amount of prepayments of the Pulse seller note and the unsecured
credit facility loans being repaid with the proceeds hereof during such fiscal
year so long as no default in the payment of interest or fees has occurred
thereunder. The credit agreement contains various other covenants and
restrictions including, without limitation, the following: a limitation on the
incurrence of additional indebtedness; a limitation on mergers, consolidations
and sales of assets and acquisitions (other than mergers and consolidations
with certain subsidiaries, sales of assets in the ordinary course of business,
and acquisitions for which the consideration paid by WABCO does not exceed $50
million individually or $150 million in the aggregate); a limitation on liens;
a limitation on sale and leasebacks; a limitation on investments, loans and
advances; a limitation on certain debt payments; a limitation on capital
expenditures; a minimum interest expense coverage ratio; and a maximum leverage
ratio. All debt incurred under the credit agreement will be secured by
substantially all of the our assets and those of our domestic subsidiaries and
is guaranteed by our domestic subsidiaries.

The credit agreement contains customary events of default, including payment
defaults, failure of representations to be true in any material respect,
covenant defaults, defaults with respect to other indebtedness of our company,
bankruptcy, certain judgments against us, ERISA defaults and "change of
control" of our company. See "Risk Factors--We are Highly Leveraged and Have a
Deficit in Stockholders' Equity." The occurrence of an event of default will
give the lenders under the credit agreement the right to terminate the
commitment to make additional loans and declare the outstanding loans to be due
and payable, as well as the right to exercise foreclosure on the collateral
granted to the lenders under the credit agreement and related security
documents.

Existing Notes

In June 1995 we issued $100 million of 9 3/8% Senior Notes due 2005. The
proceeds of the notes were used to prepay term loans outstanding under our then
existing credit agreement. The terms of the 1995 notes are the same in all
material respects as the Notes described herein. They were issued pursuant to
an indenture which is substantially the same as the indenture pursuant to which
the Notes are being issued, subject to certain differences to reflect the
manner of sale.

Pulse Notes

As partial payment for the Pulse acquisition, we issued a $17.0 million note
due January 31, 2004. Interest is payable semiannually and accrued until
February 1, 1998 at the per annum rate of 9.5%; and accrues until January 31,
2001, at the prime rate charged by Chase Manhattan Bank on December 31, 1997
plus 1%; and from February 1, 2001 until January 31, 2004, interest will accrue
at the prime rate charged by Chase Manhattan Bank on December 31, 2000 plus 1%.

60
<PAGE>

TERMS OF THE EXCHANGE OFFER

The exchange offer is being made by us to satisfy our obligations pursuant
to the exchange and registration rights agreement, which requires us to use our
best efforts to effect the exchange offer.

We are making the exchange offer in reliance upon the position of the
Commission's staff set forth in certain no-action letters addressed to other
parties in other transactions (including Exxon Capital Holdings Corporation
(available April 13, 1989), Morgan Stanley & Co., Inc. (available June 5, 1991)
and Shearman & Sterling (available July 2, 1993)). However, we have not sought
our own no-action letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the exchange
offer as in such other circumstances. Based on these interpretations by the
staff of the Commission, the New Notes issued pursuant to the exchange offer
may be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) any such holder that is an "affiliate" of the company within
the meaning of Rule 405 under the Securities Act, (ii) an initial purchaser who
acquired the Old Notes directly from us solely in order to resell pursuant to
Rule 144A under the Securities Act or any other available exemption under the
Securities Act, or (iii) a broker-dealer who acquired the Old Notes as a result
of market making or other trading activities) without compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such Notes were acquired in the ordinary course of such holder's
business and such holder was not participating and had no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Notes. Any holder who tenders Old Notes
in the exchange offer for the purpose of participating in a distribution of the
Notes can not rely on such interpretations by the staff of the Commission and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction, unless such
sale is made pursuant to an exemption from such requirements.

Holders of Old Notes not tendered will not have only limited continuing
registration rights and the Old Notes not exchanged will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the markets
for the Old Notes could be adversely affected.

NEITHER OUR BOARD OF DIRECTORS NOR OUR COMPANY MAKES ANY RECOMMENDATION TO
HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ALL OR
ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER. IN ADDITION, NO
ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS OF OLD NOTES
MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE EXCHANGE OFFER
AND, IF SO, THE AGGREGATE AMOUNT OF OLD NOTES TO TENDER AFTER READING THIS
PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING THEIR ADVISERS, IF ANY,
BASED ON THEIR OWN FINANCIAL POSITION AND REQUIREMENTS.

Period for Tendering Old Notes

Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal (which together constitute the
exchange offer), we will accept for exchange Old Notes which are properly
tendered on or prior to the expiration date and not withdrawn as permitted
below. As used herein, expiration date shall be the earlier of (i) 5:00 p.m.,
New York City time, on [ ], 1999 or (ii) the date when all Old Notes have
been tendered; provided, however, that if we, in our sole discretion, have
extended the period of time for which the exchange offer is open, the
expiration date shall be the latest time and date to which the exchange offer
is extended; provided further that in no event will the exchange offer be
extended beyond [ ], 1999. We may extend the exchange offer at any time
and from time to time by giving oral or written notice to the Exchange Agent
and by timely public announcement. Without limiting the manner in which we may
choose to make any public announcement and subject to applicable law, we shall
have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a release to an appropriate news
agency. During any extension of the exchange offer, all Old Notes previously

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<PAGE>

tendered pursuant to the exchange offer will remain subject to the exchange
offer. We intend to conduct the exchange offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.

As of the date of this prospectus, $75,000,000 aggregate principal amount of
the Old Notes is outstanding. This prospectus, together with the letter of
transmittal, is first being sent on or about [ ], 1999, to all holders of
Old Notes known to us. Our obligation to accept Old Notes for exchange pursuant
to the exchange offer is subject to certain conditions as set forth under "--
Conditions" below.

The terms of the New Notes and the Old Notes are identical in all material
respects (except that the New Notes will not contain terms with respect to
transfer restrictions) and would be registered under the Securities Act. The
Old Notes were, and the New Notes will be, issued under the indenture and both
the Old Notes and the New Notes are entitled to the benefits of the indenture.

Old Notes tendered in the exchange offer must be in denominations of
principal amount of $1,000 and any integral multiple thereof. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer, and
not to accept for exchange any Old Notes not theretofore accepted for exchange,
upon the occurrence of any of the conditions of the exchange offer specified
below under "--Conditions." We will give oral or written notice of any
amendment, nonacceptance or termination to the holders of the Old Notes as
promptly as practicable. Any amendment to the exchange offer will not limit the
right of holders to withdraw tendered Old Notes prior to the expiration date.
See "--Withdrawal of Tenders."

Procedures For Tendering Old Notes

The tender to us of Old Notes by a holder thereof as set forth below and the
acceptance thereof by us will constitute a binding agreement between the
tendering holder and us upon the terms and subject to the conditions set forth
in this prospectus and in the accompanying letter of transmittal.

A holder of Old Notes may tender the same by (i) properly completing and
signing the letter of transmittal or a facsimile thereof (all references in
this prospectus to the letter of transmittal shall be deemed to include a
facsimile thereof) and delivering the same, together with the certificate or
certificates representing the Old Notes being tendered and any required
signature guarantees and any other documents required by the letter of
transmittal, to the Exchange Agent at its address set forth below on or prior
to the expiration date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.

THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO US.

If tendered Old Notes are registered in the name of the signer of the letter
of transmittal and the New Notes to be issued in exchange therefor are to be
issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in DTC (also referred to as a "book-entry transfer facility")
whose name appears on a security listing as the owner of Old Notes), the
signature of such signer need not be guaranteed. In any other case, the
tendered Old Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to us and duly

62
<PAGE>

executed by the registered holder, and the signature on the endorsement or
instrument of transfer must be guaranteed by a bank, broker, dealer, credit
union, savings association, clearing agency or other institution (each an
"eligible institution") that is a member of a recognized signature guarantee
medallion program within the meaning of Rule 17Ad-15 under the Exchange Act. If
the New Notes and/or Old Notes not exchanged are to be delivered to an address
other than that of the registered holder appearing on the note register for the
Old Notes, the signature in the letter of transmittal must be guaranteed by an
eligible institution.

The Exchange Agent will make a request within two business days after the
date of receipt of this prospectus to establish accounts with respect to the
Old Notes at the book-entry transfer facility for the purpose of facilitating
the exchange offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of Old Notes by causing such book-entry transfer
facility to transfer such Old Notes into the Exchange Agent's account with
respect to the Old Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at the book-entry
transfer facility, an appropriate letter of transmittal with any required
signature guarantee and all other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the expiration date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.

If a holder desires to accept the exchange offer and time will not permit a
letter of transmittal or Old Notes to reach the Exchange Agent before the
expiration date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address set forth below on or prior to the expiration date, a letter or
facsimile transmission (receipt confirmed by telephone and an original
delivered by guaranteed overnight courier) from an eligible institution setting
forth the name and address of the tendering holder, the names in which the Old
Notes are registered and, if possible, the certificate numbers of the Old Notes
to be tendered, and stating that the tender is being made thereby and
guaranteeing that within three business days after the expiration date, the Old
Notes in proper form for transfer (or a confirmation of book-entry transfer of
such Old Notes into the Exchange Agent's account at the book-entry transfer
facility), will be delivered by such eligible institution together with a
properly completed and duly executed letter of transmittal (and any other
required documents). Unless Old Notes being tendered by the above-described
method are deposited with the Exchange Agent within the time period set forth
above (accompanied or preceded by a properly completed letter of transmittal
and any other required documents), we may, at our option, reject the tender. A
form of the notice of guaranteed delivery which may be used by eligible
institutions for the purposes described in this paragraph is attached as an
exhibit to this prospectus.

A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed letter of transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the book-entry transfer
facility) is received by the Exchange Agent, or (ii) a notice of guaranteed
delivery or letter or facsimile transmission to similar effect (as provided
above) from an eligible institution is received by the Exchange Agent.
Issuances of New Notes in exchange for Old Notes tendered pursuant to a notice
of guaranteed delivery or letter or facsimile transmission to similar effect
(as provided above) by an eligible institution will be made only against
deposit of the letter of transmittal (and any other required documents) and the
tendered Old Notes.

All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by us in our sole discretion, which determination shall be final and binding.
We reserve the absolute right to reject any and all tenders of any particular
Old Notes not properly tendered or not to accept any particular Old Notes which
acceptance might, in the judgment of the company or its counsel, be unlawful.

We also reserve the absolute right to waive any defects or irregularities or
conditions of the exchange offer as to any particular Old Notes either before
or after the expiration date (including the right to waive the ineligibility of
any holder who seeks to tender Old Notes in the exchange offer). The
interpretation of the terms

63
<PAGE>

and conditions of the exchange offer (including the letter of transmittal and
the instructions thereto) by us shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as we
shall determine. Neither the company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.

If the letter of transmittal is signed by a person or persons other than the
registered holder or holders of Old Notes, such Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders appear on the Old Notes.

If the letter of transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
us, proper evidence satisfactory to us of their authority to so act must be
submitted.

By tendering, each holder will represent to us that, among other things, the
New Notes acquired pursuant to the exchange offer are being acquired in the
ordinary course of business of the person receiving such New Notes, whether or
not such person is the holder, that neither the holder nor any such other
person has an arrangement or understanding with any person to participate in
the distribution of such New Notes and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities
Act, of us, or if it is an affiliate it will comply with the registration and
prospectus requirements of the Securities Act to the extent applicable.

Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. See "Plan of Distribution."

Terms and Conditions of the Letter of Transmittal

The letter of transmittal contains, among other things, the following terms
and conditions, which are part of the exchange offer.

The party tendering Old Notes for exchange exchanges, assigns and transfers
the Old Notes to us and irrevocably constitutes and appoints the Exchange Agent
as the transferor's agent and attorney-in-fact to cause the Old Notes to be
assigned, transferred and exchanged. The transferor represents and warrants
that it has full power and authority to tender, exchange, assign and transfer
the Old Notes and to acquire New Notes issuable upon the exchange of such
tendered Notes, and that, when the same are accepted for exchange, we will
acquire good and unencumbered title to the tendered Old Notes, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The transferor also warrants that it will, upon request, execute
and deliver any additional documents deemed by the Exchange Agent or us to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old Notes or transfer ownership of such Old Notes on the account books
maintained by a book-entry transfer facility. The transferor further agrees
that acceptance of any tendered Old Notes by us and the issuance of New Notes
in exchange therefor shall constitute performance in full by us of certain of
its obligations under the exchange and registration rights agreement. All
authority conferred by the transferor will survive the death or incapacity of
the transferor and every obligation of the transferor shall be binding upon the
heirs, legal representatives, successors, assigns, executors and administrators
of such transferor.

The transferor certifies that it is not our "affiliate" within the meaning
of Rule 405 under the Securities Act and that it is acquiring the New Notes
offered hereby in the ordinary course of such transferor's business and that
such transferor has no arrangement with any person to participate in the
distribution of such New

64
<PAGE>

Notes. Each holder, other than a broker-dealer, must acknowledge that it is not
engaged in, and does not intend to engage in, a distribution of New Notes. Each
transferor which is a broker-dealer receiving New Notes for its own account
must acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes. By so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. We will, for a period of 90 days after
the expiration date, make copies of this prospectus available to any broker-
dealer for use in connection with any such resale.

Withdrawal Of Tenders

Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the expiration date.

To withdraw a tender of Old Notes in the exchange offer, a letter or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the expiration date. Any such notice of withdrawal must:

. specify the name of the person having deposited the Old Notes to be
withdrawn,

. identify the Old Notes to be withdrawn (including the certificate
number(s) and principal amount of such Old Notes, or, in the case of Old
Notes transferred by book-entry transfer, the name and number of the
account at the book-entry transfer facility to be credited),

. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the trustee with respect to the
Old Notes register the transfer of such Old Notes into the name of the
person withdrawing the tender and

. specify the name in which any such Old Notes are to be registered, if
different from that of the person withdrawing such tender.

All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by our company, whose determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the exchange offer and
no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering Old Notes" at any time prior to the expiration date.

Conditions

Notwithstanding any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange New Notes for, any Old Notes, and
may terminate or amend the exchange offer as provided herein before the
acceptance of such Old Notes, if:

(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the exchange offer
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or any material adverse development has
occurred in any existing action or proceeding with respect to us or any of
our subsidiaries;

(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in our reasonable
judgment, might materially impair our ability to proceed with the exchange
offer or materially impair the contemplated benefits of the exchange offer
to us; or

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<PAGE>

(c) any governmental approval has not been obtained, which approval we
shall, in our reasonable discretion, deem necessary for the consummation of
the exchange offer as contemplated hereby.

If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:

. refuse to accept any Old Notes and return all tendered Old Notes to the
tendering holders,

. extend the exchange offer and retain all Old Notes tendered prior to the
expiration of the exchange offer, subject, however, to the rights of
holders to withdraw such Old Notes (see "--Withdrawal of Tenders") or

. waive such unsatisfied conditions with respect to the exchange offer and
accept all properly tendered Old Notes which have not been withdrawn.

Exchange Agent

The Bank of New York has been appointed as the Exchange Agent for the
exchange offer. All executed letters of transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>

BY HAND/OVERNIGHT COURIER: BY MAIL:
The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street, Floor 7E
Corporate Trust Services Window New York, New York 10286
Ground Level Attention: Nathalie Simon,
Attention: Nathalie Simon, Reorganization
Reorganization Section
Section

BY FACSIMILE:
(212) 815-6339
</TABLE>

Questions and requests for assistance, requests for additional copies of
this prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the letter of transmittal.

DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ON THE LETTER OF TRANSMITTAL,
OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES SET
FORTH ON THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE A VALID DELIVERY.

Fees and Expenses

We will bear expenses of soliciting tenders. The principal solicitation is
being made by mail; however, additional solicitation may be made by telecopy,
telephone or in person by our and our affiliates' officers and regular
employees.

We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers, or others soliciting
acceptances of the exchange offer. We, however, will pay the Exchange Agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.

We will pay cash expenses to be incurred in connection with the exchange
offer. Such expenses include fees and expenses of the Exchange Agent and
trustee, accounting and legal fees and printing costs, among others.

Accounting Treatment

The New Notes will be recorded at the carrying value of the Old Notes as
reflected in our accounting records on the date of the exchange. Accordingly,
no gain or loss for accounting purposes will be recognized by us upon the
exchange of New Notes for Old Notes. Expenses incurred in connection with the
issuance of the New Notes will be amortized over the term of the New Notes.

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<PAGE>

Consequences Of Failure To Exchange

The Old Notes that are not exchanged for New Notes pursuant to the exchange
offer will remain restricted securities. Accordingly, such Old Notes may be
resold only

. to us (upon redemption thereof or otherwise),

. so long as the Old Notes are eligible for resale pursuant to Rule 144A,
to a person inside the United States whom the seller reasonably believes
is a "qualified institutional buyer," commonly referred to as a "QIB,"
within the meaning of Rule 144A under the Securities Act in a
transaction meeting the requirements of Rule 144A, in accordance with
Rule 144 under the Securities Act, or pursuant to another exemption from
the registration requirements of the Securities Act (and based upon an
opinion of counsel reasonably acceptable to us),

. outside the United States to a foreign person in a transaction meeting
the requirements of Rule 904 under the Securities Act, or

. pursuant to an effective registration statement under the Securities
Act, in each case in accordance with any applicable securities laws of
any state of the United States.

Resale Of The New Notes

With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties
(including Exxon Capital Holding Corporation (available April 13, 1989), Morgan
Stanley Co., Inc. (available June 5, 1999) and Shearman & Sterling (available
July 2, 1993)), we believe that a holder or other person who receives New
Notes, whether or not such person is the holder (other than a person that is
our "affiliate" within the meaning of Rule 405 under the Securities Act) who
receives New Notes in exchange for New Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the exchange offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each participating broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such participating broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes.

As contemplated by these no-action letters and the exchange and registration
rights agreement, each holder accepting the exchange offer is required to
represent to us in the letter of transmittal that:

. the New Notes are to be acquired by the holder or the person receiving
such New Notes, whether or not such person is the holder, in the
ordinary course of business,

. the holder or any such other person (other than a broker-dealer referred
to in the next sentence) is not engaging and does not intend to engage,
in the distribution of the New Notes,

. the holder or any such other person has no arrangement or understanding
with any person to participate in the distribution of the New Notes,

. neither the holder nor any such other person is our "affiliate" within
the meaning of Rule 405 under the Securities Act, and

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<PAGE>

. the holder or any such other person acknowledges that if such holder or
other person participates in the exchange offer for the purpose of
distributing the New Notes it must comply with the registration and
prospectus delivery requirements of the Securities Act in connection
with any resale of the New Notes and cannot rely on those no-action
letters.

As indicated above, each participating broker-dealer that receives an New
Note for its own account in exchange for Old Notes must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes. For
a description of the procedures for such resales by participating broker-
dealers, see "Plan of Distribution."

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DESCRIPTION OF THE NEW NOTES

Generally

The Old Notes were and the New Notes offered hereby will be issued under an
indenture dated as of January 12, 1999 by and among WABCO and The Bank of New
York, as trustee. References to the Notes include the New Notes unless the
context otherwise requires. The following is a summary of the material
provisions of the indenture (a copy of the form of which is filed as an exhibit
to the registration statement of which this prospectus is a part, and which may
be obtained upon request to our company or Chase Securities). The definitions
of certain capitalized terms used in the following summary are set forth below
under "Certain Definitions." For purposes of this section, references to
"WABCO," "we," "us," and "our" include only WABCO and not our subsidiaries.

On January 12, 1999, we issued $75 million aggregate principal amount of Old
Notes under the indenture. The terms of the New Notes are identical in all
material respects to the Old Notes, except for certain transfer restrictions
and registration and other rights relating to the exchange of the Old Notes for
New Notes. The Trustee will authenticate and deliver New Notes for original
issue only in exchange for a like principal amount of Old Notes. Any Old Notes
that remain outstanding after the consummation of the exchange offer, together
with the New Notes, will be treated as a single class of securities under the
indenture. Accordingly, all references herein to specified percentages in
aggregate principal amount of the outstanding New Notes shall be deemed to
mean, at any time after the exchange offer is consummated, such percentage in
aggregate principal amount of the Old Notes and New Notes then outstanding.

The Notes will be unsecured obligations of our company. The Notes are not
guaranteed by our subsidiaries; however, the credit agreement is
unconditionally guaranteed by all of our domestic subsidiaries. So long as the
Old Notes remain outstanding, this guarantee is limited to $250 million in the
aggregate. See "Risk Factors--The Notes Are Effectively Subordinated."

Optional Redemption

The Notes will be redeemable, at our option, in whole or in part, at any
time on or after June 15, 2000, and prior to maturity, upon not less than 30
nor more than 60 days prior notice mailed by first-class mail to each Holder's
registered address, at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date), if redeemed during
the 12-month period commencing on or after June 15 of the years set forth
below:

<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2000............................................................ 104.688%
2001............................................................ 102.344%
2002 and thereafter............................................. 100.000%
</TABLE>

In the case of any redemption of Notes or Old Notes, we will also redeem Old
Notes or Notes, as the case may be, on a pro rata basis.

In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less shall be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.

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<PAGE>

Ranking

The Notes will be senior unsecured obligations of our company,will rank pari
passu in right of payment with all existing and future unsecured Senior
Indebtedness and will be senior in right of payment to future Subordinated
Indebtedness of our company.

The Notes will be effectively subordinated to liabilities of our
subsidiaries, including trade payables, and to the debt under our senior
secured credit facility. See "Risk Factors--The Notes Are Effectively
Subordinated."

The Indenture limits the amount of Indebtedness that may be incurred by us
and our subsidiaries which may rank pari passu in right of payment with the
Notes or which may be secured. See "Description of Certain Indebtedness."

Certain Definitions

"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business, (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.

"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain Covenants--Limitation on
Affiliate Transactions" and "Certain Covenants--Limitation on Sales of Assets
and Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
shares representing five percent (5%) or more of the total voting power of the
Voting Stock (on a fully diluted basis) of the Company or of rights or warrants
to purchase such Voting Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.

"Agent" means any Registrar or Paying Agent or authenticating agent or co-
registrar.

"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, other than permitted Sale/Leaseback Transactions,
including any disposition by means of a merger, consolidation or similar
transaction (each referred to for the purposes of this definition as a
"disposition"), of (i) any shares of Capital Stock of a Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law
to be held by a Person other than the Company or a Restricted Subsidiary), (ii)
all or substantially all the assets of any division or line of business of the
Company or any Restricted Subsidiary or (iii) any other assets of the Company
or any Restricted Subsidiary outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, (x) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Subsidiary to a Wholly-Owned Subsidiary and (y) for purposes
of the covenant described under "Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock" only, a disposition that constitutes a Restricted
Payment permitted by the covenant described under "Certain Covenants--
Limitation on Restricted Payments"); provided, that the receipt of any
insurance proceeds in connection with any casualty shall not be included within
the meaning of "Asset Disposition" except to the extent in excess of $3,000,000
in the aggregate in any fiscal year; provided, however, that to the extent that
the Company shall have reinvested on the date of any required Excess Proceeds
Offer (or certified to the Trustee that it intends to reinvest within 180 days
of such Excess Proceeds Offer) any of such excess proceeds in equipment,
vehicles or other assets used in the Company's principal lines of business, the
resultant Excess Proceeds Offer shall be reduced by the amount so reinvested or
to be reinvested.

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"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).

"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.

"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.

"Business Day" means each day, which is not a Legal Holiday.

"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.

"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock.

"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 180 days or less from the date of acquisition issued or directly
and fully guaranteed or insured by the United States of America or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof); (ii) certificates of
deposit or acceptances with a maturity of 180 days or less from the date of
acquisition of any financial institution that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $300,000,000 and a Keefe Bank Watch (or successor) Rating of B (or
subsequent equivalent rating) or better; (iii) commercial paper with a maturity
of 180 days or less from the date of acquisition issued by a corporation that
is not an Affiliate of the Company organized under the laws of any state of the
United States or the District of Columbia and rated at least A-1 (or subsequent
equivalent rating) by Standard & Poor's Corporation and its successors or at
least P-1 (or subsequent equivalent rating) by Moody's Investors Service, Inc.
and its successors; and (iv) repurchase agreements and reverse repurchase
agreements with terms of more than 30 days relating to obligations of the types
described in clause (i) above entered into with a financial institution of the
type described in clause (ii) above, provided that the terms of such agreements
comply with the guidelines set forth in the Federal Financial Agreements of
Depository Institutions With Securities Dealers and Others, as adopted by the
Comptroller of the Currency on October 31, 1985.

"Change of Control" means the occurrence of any of the following events: (i)
any "person" (as such term is used in Sections 13 (d) and 14 (d) of the
Exchange Act), other than (a) any Designated Person or (b) combination of
Designated Persons, is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause
(i) such person shall be deemed to have "beneficial ownership" of all shares
that any such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than thirty-five percent (35%) of the total voting power of
the Voting Stock of the Company; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company (together with any new directors whose election by
such Board of Directors or whose nomination for

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election by the stockholders of the Company was approved by a vote of a
majority of the directors of the Company then still in office who were either
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 Board of Directors of the Company then in office; (iii) the
Company conveys, transfers or leases all or substantially all its assets to any
person or group, in one transaction or a series of transactions other than any
conveyance, transfer or lease between the Company and a Wholly-Owned Subsidiary
or (iv) the stockholders of the Company shall approve any plan or proposal for
the liquidation or dissolution of the Company.

"Code" means the Internal Revenue Code of 1986, as amended.

"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the Existing Notes Issue Date, including, without limitation, all
series and classes of such common stock.

"Company" means Westinghouse Air Brake Company, a Delaware corporation,
until a successor replaces it in accordance with the covenant described in
"Certain Covenants--Merger and Consolidation," and thereafter means the
successor.

"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the four most recent fiscal
quarters for which the Company has filed financial statements with the SEC
pursuant to the requirements of the Exchange Act prior to the date of such
determination to (ii) Consolidated Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Restricted
Subsidiary has Incurred any Indebtedness since the beginning of such period
that remains outstanding or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Indebtedness as if
such Indebtedness has been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period, except that, in making such
calculation, Indebtedness Incurred under a revolving credit or similar
arrangement to finance seasonal fluctuations in working capital needs shall be
computed on the average daily balance of such Indebtedness during such period
unless such Indebtedness is projected in the reasonable judgment of senior
management of the Company to remain outstanding for a period in excess of 12
months from the date of Incurrence of such Indebtedness, in which case such
Indebtedness will be assumed to have been Incurred on the first day of such
coverage period, (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise
discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any person which becomes a Restricted Subsidiary) or
an acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business, EBITDA
and Consolidated Interest Expense for such period shall be calculated after
giving pro forma effect thereto (including the Incurrence of any Indebtedness)
as if such Investment or acquisition occurred on the first day of such period
and (4) if since the beginning of such period any Person (that subsequently
became a Restricted Subsidiary or was merged with or into the Company or any
Restricted Subsidiary since the

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beginning of such period) shall have made any Asset Disposition, any Investment
or acquisition of assets that would have required an adjustment pursuant to
clause (2) or (3) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto, and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations shall
be determined in good faith by a responsible financial or accounting officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Protection
Agreement applicable to such Indebtedness if such Interest Rate Protection
Agreement has a remaining term in excess of 12 months).

"Consolidated Current Liabilities" as of the date of determination means the
aggregate amount of liabilities of the Company and its consolidated Restricted
Subsidiaries which may properly be classified as current liabilities (including
taxes accrued as estimated), on a consolidated basis, after eliminating (i) all
intercompany items between the Company and any Restricted Subsidiary and
between Restricted Subsidiaries and (ii) all current maturities of long-term
Indebtedness, all as determined in accordance with GAAP consistently applied.

"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus (x)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost (excluding debt issuance cost relating to the Notes), (iii)
capitalized interest, (iv) non-cash interest payments, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs under Interest Rate Protection
Agreements (including amortization of fees), (vii) Preferred Stock dividends in
respect of all Preferred Stock held by Persons other than the Company or a
Wholly-Owned Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations and (ix) interest actually paid by the
Company or any of its consolidated Restricted Subsidiaries under any Guarantee
of Indebtedness of any Person and minus (y) to the extent included in such
total interest expense, any amortization by the Company and its consolidated
Restricted Subsidiaries of (i) capitalized interest or (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing.

"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Restricted Subsidiaries; provided, however, that
there shall not be included in such Consolidated Net Income: (i) any net income
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the limitations contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below) and (B) the Company's equity in a net loss of any Person
(other than an Unrestricted Subsidiary) for such period shall be included in
determining such Consolidated Net Income; (ii) any net income (or loss) of any
Person acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition; (iii) the net
income of any Restricted Subsidiary to the extent that such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions, directly or indirectly, to the
Company, except that the Company's equity in a net loss of any such Restricted
Subsidiary for such period shall be included in determining such Consolidated
Net Income; (iv) any gain (but not loss) realized upon the sale or other
disposition of any property, plant or equipment of the Company or its
consolidated Restricted Subsidiaries (including pursuant to any sale-and-
leaseback arrangement) which is not sold or otherwise disposed of in the
ordinary course of business and any gain (but not loss) realized upon the sale
or other disposition of any

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Capital Stock of any Person; (v) extraordinary gains or losses; and (vi) the
cumulative effect of a change in accounting principles.

"Consolidated Net Tangible Assets" as of any date of determination means the
total amount of assets (less accumulated depreciation and amortization,
allowances for doubtful receivables, other applicable reserves and other
properly deductible items) which would appear on a consolidated balance sheet
of the Company and its consolidated Restricted Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and after giving effect to purchase
accounting and after deducting therefrom, to the extent otherwise included, the
amounts of: (i) Consolidated Current Liabilities; (ii) minority interests in
consolidated Subsidiaries held by Persons other than the Company or a
Restricted Subsidiary; (iii) excess of cost over fair value of assets of
businesses acquired, as determined in good faith by the Board of Directors;
(iv) any revaluation or other write-up in book value of assets subsequent to
the Existing Notes Issue Date as a result of a change in the method of
valuation in accordance with GAAP consistently applied; (v) unamortized debt
discount and expenses and other unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, copyrights, licenses,
organization or developmental expenses and other intangible items (if included
in total assets); (vi) treasury stock (if included in total assets); (vii)
Unallocated ESOP Shares; and (viii) cash set apart and held in a sinking or
other analogous fund established for the purpose of redemption or other
retirement of Capital Stock to the extent such obligation is not reflected in
Consolidated Current Liabilities.

"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Restricted Subsidiaries, determined
on a consolidated basis in accordance with GAAP, as of the end of the most
recent fiscal quarter for which the Company has filed financial statements with
the SEC pursuant to the requirements of the Exchange Act, prior to the taking
of any action for the purpose of which the determination is being made, as (i)
the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (to the extent otherwise
included) (A) any accumulated deficit, (B) any amounts attributable to
Disqualified Stock, (C) Unallocated ESOP Shares, (D) treasury stock and (E) any
cumulative translation adjustment.

"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "Controlling" and "Controlled" shall having meanings correlative
thereto.

"Credit Agreement" means the Credit Agreement dated as of January 31, 1995,
as amended and restated as of February 15, 1995, among the Company, the
financial institutions named therein, Chemical Bank, as Swingline Lender,
Issuing Bank, Administrative Agent and Collateral Agent, Chemical Bank
Delaware, as Issuing Bank, The Bank of New York and Credit Suisse, as Co-
Administrative Agents, and The Bank of New York, as Documentation Agent, as the
same may be amended or modified from time to time, and any agreement evidencing
any refunding, replacement, refinancing or renewal, in whole or in part, of the
Credit Agreement.

"Default" means any event, which is, or after notice or passage of time or
both would be, an Event of Default.

"Designated Person" means Incentive AB, a corporation organized under the
laws of the Kingdom of Sweden, or any of its subsidiaries, Vestar or Vestar
Capital or any of their respective Controlled Affiliates, the ESOP, the Pulse
Shareholders and any of their respective Affiliates, the Voting Trust and any
person or entity holding a beneficial interest in the Voting Trust or the
Capital Stock of the Company held by the Voting Trust on the Existing Notes
Issue Date (or, in the case of any such person or entity, their permitted
transferees).

"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is

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convertible or exchangeable for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes.

"EBITDA" for any period means Consolidated Net Income plus the following to
the extent deducted in calculating such Consolidated Net Income: (a) all income
tax expense of the Company, (b) Consolidated Interest Expense, (c) depreciation
expense, (d) amortization expense and (e) other noncash charges (including any
charges resulting from the write-up of inventory) deducted in determining
Consolidated Net Income (and not already excluded from the definition of the
term "Consolidated Net Income"), in each case for such period.

"ESOP" means collectively, the Westinghouse Air Brake Company Employee Stock
Ownership Plan effective January 1, 1995 and the Westinghouse Air Brake Company
Employee Stock Ownership Trust established effective January 1, 1995 pursuant
to the Westinghouse Air Brake Company Employee Stock Ownership Trust Agreement
between the Company and U.S. Trust Company of California, N.A., as such plan
(the "Plan") and trust (the "Trust") may be amended, modified or supplemented
from time to time.

"ESOP Loan" means the loan made by the Company to the ESOP in an aggregate
principal amount equal to $140,040,000 pursuant to the ESOP Loan Agreement,
dated as of January 31, 1995, between the Company and the Trust, as such loan
may be amended, modified, extended, renewed, replaced or refinanced from time
to time without increase in such aggregate principal amount.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Existing Notes" means the $100 million aggregate principal amount of the
Company's 9 3/8% Senior Notes due 2005 issued pursuant to the Existing Notes
Indenture.

"Existing Notes Indenture" means the Indenture dated as of June 20, 1995
between the Company and The Bank of New York, as trustee.

"Existing Notes Issue Date" means June 20, 1995.

"Fair Market Value" means, with respect to any asset, the price which could
be negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing buyer, neither of which is under compulsion to
complete the transaction. The Fair Market Value of any asset or assets shall be
determined by the Board of Directors of the Company, acting in good faith, and
shall be evidenced by a resolution of such Board of Directors delivered to the
Trustee.

"Foreign Subsidiary" means a corporation that is not incorporated under the
laws of the United States or any political subdivision thereof and whose
business is primarily conducted outside of the United States.

"Fully Traded Common Stock" means common stock issued by any corporation
whose common stock is listed on either The New York Stock Exchange or The
American Stock Exchange or included for trading privileges in the National
Market System of the National Association of Securities Dealers Automated
Quotation System; provided, however, that (a) either such common stock is
freely tradable under the Securities Act upon issuance or the holder thereof
has contractual registration rights that will permit the sale of such common
stock pursuant to an effective registration statement not later than nine
months after issuance to the Company or one of its Subsidiaries and (b) such
common stock is also so listed or included for trading privileges.

"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the date of the Indenture, including those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.

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"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness of such Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (ii) entered into for the purpose of assuring in
any other manner the obligee of such Indebtedness of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or in part);
provided, however, that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The term "Guarantor" shall mean any
Person Guaranteeing any obligation.

"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.

"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary. The term "Incurrence" when used
as a noun shall have a correlative meaning.

"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred purchase
price of property, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payable arising in the ordinary course of business); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the third Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount of
all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock (but excluding, in each case, any
accrued dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as Guarantor or otherwise; and (vii) all obligations of the type
referred to in clauses (i) through (vi) of other Persons secured by any Lien on
any property or asset of such Person (whether or not such obligation is assumed
by such Person), the amount of such obligation being deemed to be the lesser of
the value of such property and assets or the amount of the obligation so
secured.

"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement or arrangement
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates.

"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are recorded
as accounts receivable on the balance sheet of such Person) or other extension
of credit (including by way of Guarantee or similar arrangement) or capital
contribution to (by means of any transfer of cash or other property to others
or any payment for property or services for the account or use of others), or
any purchase or acquisition of Capital Stock, Indebtedness or other similar
instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and the
covenant described under "Certain Covenants--Limitation on Restricted
Payments", (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such

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Subsidiary is designated an Unrestricted Subsidiary; provided, however, that
upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company
shall be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary in an amount (if positive) equal to (x) the Company's "Investment"
in such Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Company's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an Unrestricted
Subsidiary shall be valued at its fair market value at the time of such
transfer, in each case as determined in good faith by the Board of Directors.

"Issue Date" means the date on which the Notes are originally issued.

"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
that, as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.

"Legal Holiday" means Saturday, Sunday or a day on which banking
institutions in New York, New York or at a place of payment are authorized or
obligated by law, regulation or executive order to remain closed.

"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).

"Net Available Cash" from an Asset Disposition means cash payments, Cash
Equivalents and Fully Traded Common Stock received therefrom (including any
cash payments, Cash Equivalents and Fully Traded Common Stock received by way
of deferred payment of principal pursuant to a note or installment receivable
or otherwise, but only as and when received, but excluding any other
consideration received in the form of assumption by the acquiring person of
Indebtedness or other obligations relating to such properties or assets or
received in any other noncash form) in each case net of all legal, title and
recording tax expenses, commissions and other fees and expenses incurred, and
all federal, state, provincial, foreign and local taxes required to be accrued
as a liability under GAAP, as a consequence of such Asset Disposition, and in
each case net of all payments made on any Indebtedness which is secured by any
assets subject to such Asset Disposition, in accordance with the terms of any
Lien upon or other security agreement of any kind with respect to such assets,
or which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other payments required to
be made to minority interest holders in Subsidiaries or joint ventures as a
result of such Asset Disposition.

"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"Officer" means the Chairman of the Board of Directors, the Chief Executive
Officer, the President, the Chief Financial Officer, the Treasurer, Controller,
Secretary or any Vice-President of the Company or any other obligor upon the
securities.

"Officers' Certificate" means a certificate signed by the Chairman of the
Board of Directors, the Vice Chairman, the President or any Vice President and
by the Chief Financial Officer, Treasurer or the Secretary of such Person.

"Opinion of Counsel" means an opinion in writing signed by legal counsel who
is reasonably acceptable to the Trustee. Such counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or to the Trustee.

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"Permitted Investments" means any of the following: (i) any investment in
direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and, in the case of investments in excess of $100,000 in
any one bank or trust company, which bank or trust company has capital, surplus
and undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the Securities
Act) or any money-market fund sponsored by a registered broker dealer or mutual
fund distributor, (iii) repurchase obligations with a term of not more than 30
days for underlying securities of the types described in clause (i) above
entered into with a bank meeting the qualifications described in clause (ii)
above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America or any foreign country recognized by the United States of America
with a rating at the time as of which any investment therein is made of "P-l"
(or higher) according to Moody's Investors Service, Inc. or "A-l" (or higher)
according to Standard and Poor's Corporation, and (v) investments in securities
with maturities of six months or less from the date of acquisition issued or
fully guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof, and
rated at least "A" by Standard & Poor's Corporation or "A" by Moody's Investors
Service, Inc.

"Permitted Liens" means, with respect to any Person, (a) Liens existing on
the date of the Indenture, including Liens securing borrowings up to the amount
of the commitments under the Credit Agreement on the Existing Notes Issue Date
and other obligations under or expressly permitted by the Credit Agreement; (b)
Liens subsequently created, whether under the Credit Agreement or otherwise;
provided that such Liens, together with any Liens under clause (a) that secure
Indebtedness under the Credit Agreement, do not secure Indebtedness with a
principal amount that is greater than the amount of the commitments under the
Credit Agreement on the Existing Notes Issue Date except to the extent such
Liens are permitted under any of clauses (c) through (t) of this definition of
Permitted Liens; (c) Liens securing borrowings of up to $60 million permitted
pursuant to paragraph (b)(6) of the covenant described under "Certain
Covenants--Limitation on Indebtedness"; (d) Liens on property at the time such
Person or any of its Subsidiaries acquires the property, including any
acquisition by means of a merger or consolidation with or into such Person or a
Subsidiary of such Person; provided, however, that the Liens may not extend to
any other property owned by such Person or any of its Subsidiaries; (e) Liens
securing Purchase Money Indebtedness; (f) additional Liens for any purpose of
up to fifteen percent (15%) of the Company's Consolidated Net Tangible Assets;
(g) pledges or deposits by such Person under workmen's compensation laws,
unemployment insurance laws or similar legislation, or good faith deposits in
connection with bids, tenders, contracts (other than for the payment of
Indebtedness) or leases to which such Person is a party, or deposits to secure
public or statutory obligations of such Person or deposits of cash or United
States government bonds to secure surety or appeal bonds to which such Person
is a party, or deposits as security for contested taxes or import duties or for
the payment of rent, in each case Incurred in the ordinary course of business;
(h) Liens imposed by law, such as carriers', warehousemen's and mechanics'
Liens, in each case for sums not yet due or being contested in good faith by
appropriate proceedings or other Liens arising out of judgments or awards
against such Person with respect to which such Person shall then be proceeding
with an appeal or other proceedings for review; (i) Liens for property taxes
not yet subject to penalties for non-payment or which are being contested in
good faith and by appropriate proceedings; (j) Liens in favor of issuers of
surety bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business; provided,
however, that such letters of credit (and reimbursement obligations thereunder)
do not constitute Indebtedness; (k) survey exceptions, encumbrances, easements
or reservations of, or rights of others for, licenses, rights of way, sewers,
electric lines, telegraph and telephone lines and other similar purposes, or
zoning or other restrictions as to the use of real properties or Liens
incidental to the conduct of the business of such Person or to the ownership of
its properties which were

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not Incurred in connection with Indebtedness and which do not in the aggregate
materially adversely affect the value of said properties or materially impair
their use in the operation of the business of such Person; (l) Liens securing
Indebtedness incurred to finance the construction, purchase or lease of, or
repairs, improvements or additions to, property of such Person; provided,
however, that the Lien may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries at the time the Lien is Incurred,
and the Indebtedness secured by the Lien may not be Incurred more than 180 days
after the later of the acquisition, completion of construction, repair,
improvement, addition or commencement of full operation of the property subject
to the Lien; (m) Liens on inventory and receivables and the products and
proceeds thereof; (n) Liens on property or shares of stock of another Person at
the time such other Person becomes a Subsidiary of such Person; provided,
however, that any such Lien may not extend to any other property owned by such
Person or any of its Restricted Subsidiaries; (o) Liens securing Indebtedness
or other obligations of a Subsidiary of such Person owing to such Person or a
Wholly-Owned Subsidiary of such Person (other than an Unrestricted Subsidiary);
(p) Liens Incurred by another Person on assets that are the subject of a
Capital Lease Obligation to which such Person or a Subsidiary of such Person is
a party; provided, however, that any such Lien may not secure Indebtedness of
such Person or any of its Restricted Subsidiaries (except by virtue of clause
(vii) of the definition of "Indebtedness") and may not extend to any other
property owned by such Person or any Subsidiary of such Person; (q) Liens
securing Interest Rate Protection Agreements so long as the related
Indebtedness is, and is permitted to be under the Indenture, secured by a Lien
on the same property securing the Interest Rate Protection Agreement; (r) Liens
to secure any Refinancing (or successive Refinancings) as a whole, or in part,
of any Indebtedness secured by any Lien referred to in the foregoing clauses
(a), (c), (l) and (n); provided, however, that (x) such new Lien shall be
limited to all or part of the same property that secured the original Lien
(plus improvements on such property) and (y) the Indebtedness secured by such
Lien at such time is not increased (other than by an amount necessary to pay
fees and expenses, including premiums, related to the Refinancing of such
Indebtedness); (s) Liens incurred in connection with any Sale/Leaseback
Transaction permitted pursuant to the covenant described under "Certain
Covenants--Limitation on Sale/Leaseback Transactions" securing borrowings of up
to $10 million; and (t) Liens with respect to any Indebtedness Incurred by any
Restricted Subsidiary pursuant to clause (7) of the covenant described under
"Certain Covenants--Limitation on Indebtedness and Capital Stock of Restricted
Subsidiaries;" provided that such Lien shall only be a "Permitted Lien" so long
as such Indebtedness requires a restriction on distributions referred to under
clause (7) of the covenant described under "Certain Covenants--Limitation on
Restrictions on Distributions from Restricted Subsidiaries."

"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.

"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.

"Pulse Shareholders" means Emilio A. Fernandez, Jr., Eric A. Fernandez,
Ofelia B. Fernandez, Emily A. Fernandez, Angel P. Bezos, Michelle R. Bezos,
Jennifer A. Bezos, David R. Bezos, Jose M. Llosa (interest currently held by
the estate of Mr. Llosa) and Ronald L. Woltz.

"Purchase Money Indebtedness" means Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement and other purchase money obligations,
including borrowings, in each case where the maturity of such Indebtedness does
not exceed the anticipated useful life of the asset being financed, and (ii)
Incurred to finance the acquisition or construction by any Subsidiary of such
asset, including additions and improvements; provided, however, that any Lien
arising

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in connection with any such Indebtedness shall be limited to the specified
asset being financed or, in the case of real property or fixtures, including
additions and improvements, the real property on which such asset is attached;
and provided further, however, that the principal amount of such Indebtedness
does not exceed the lesser of eighty-five percent (85%) of the cost or eighty-
five percent (85%) of the fair market value of the asset being financed (such
fair market value as determined in good faith by the Board of Directors, as
evidenced by a resolution).

"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.

"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the date
of the Existing Notes Indenture or Incurred in compliance with the Indenture;
provided, however, that (i) such Refinancing Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Indebtedness being
Refinanced, (ii) such Refinancing Indebtedness has an Average Life at the time
such Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced, (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Subsidiary that refinances
Indebtedness of the Company or (y) Indebtedness of the Company or a Restricted
Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary and (iv)
such Refinancing Indebtedness is subordinated in right of payment to the Notes
at least to the extent that the Indebtedness to be Refinanced is subordinated
in right of payment to the Notes.

"Related Business" means any business related, ancillary or complementary
to the businesses of the Company and the Restricted Subsidiaries on the date
of the Existing Notes Indenture.

"Restricted Payment" with respect to any Person means (i) the declaration
or payment of any dividends or any other distributions of any sort in respect
of its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) or rights
to acquire its Capital Stock (other than Disqualified Stock) and dividends or
distributions payable solely to the Company or a Restricted Subsidiary, and
other than pro rata dividends or other distributions made by a Subsidiary to
minority stockholders (or owners of an equivalent interest in the case of a
Subsidiary that is an entity other than a corporation)), (ii) the purchase,
redemption or other acquisition or retirement for value of any Capital Stock
of the Company or of any Restricted Subsidiary held by any Person or of any
Capital Stock of a Restricted Subsidiary held by any Affiliate of the Company
(other than a Wholly-Owned Subsidiary), including the exercise of any option
to exchange any Capital Stock (other than into Capital Stock of the Company
that is not Disqualified Stock), (iii) any principal payment on, or purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Indebtedness (other than the purchase,
repurchase or other acquisition of Indebtedness purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the
making of any Investment in any Person (other than (x) a Permitted Investment
or (y) any Investment made to acquire a Restricted Subsidiary).

"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.

"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and leases it back from such Person, other
than leases for a term of not more than 12 months or between the Company and a
Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries.

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"Securities Act" means the Securities Act of 1933, as amended.

"SEC" means the Securities and Exchange Commission.

"Senior Indebtedness" means (i) Indebtedness of the Company, whether
outstanding on the date of the Existing Notes Indenture or thereafter Incurred
and (ii) accrued and unpaid interest (including interest accruing on or after
the filing of any petition in bankruptcy or for reorganization relating to the
Company to the extent post-filing interest is allowed in such proceeding) in
respect of (A) indebtedness of the Company for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which the Company is responsible or liable unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is expressly subordinate in right of payment
to any other Indebtedness or other obligation of the Company or (5) that
portion of any Indebtedness which at the time of Incurrence is Incurred in
violation of the Indenture.

"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).

"Subordinated Indebtedness" means any Indebtedness of the Company (whether
outstanding on the Existing Notes Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Notes pursuant to a written
agreement to that effect.

"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than fifty percent (50%) of
the total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.

"Trustee" means the party named as such in this Indenture until a successor
replaces it in accordance with the applicable provisions hereof, and thereafter
means such successor serving hereunder.

"Unallocated ESOP Shares" means shares of Common Stock of the Company which
are held by the ESOP but have not yet been allocated to participants' accounts.

"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant entitled "Certain Covenants--Limitation on
Restricted Payments". The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"Certain Covenants--Limitation on Indebtedness" and (y) no

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Default shall have occurred and be continuing. Any such designation by the
Board of Directors shall be evidenced to the Trustee by promptly filing with
the Trustee a copy of the board resolution giving effect to such designation
and an officers' certificate certifying that such designation complied with the
foregoing provisions.

"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.

"Vestar" means Vestar WABCO Investors, L.P., a Delaware limited partnership.

"Vestar Capital" means Vestar Capital Partners, Inc., a Delaware
corporation.

"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.

"Voting Trust" shall mean the RAC Voting Trust, established pursuant to the
RAC Voting Trust/Disposition Agreement, dated as of January 9, 1990, as amended
as of February 28, 1990, March 9, 1990 and amended pursuant to that certain
Amended WABCO Voting Trust/Disposition Agreement dated as of January 31, 1995,
by and between the individuals named therein and the management voting trustees
(as such agreement may be further amended or modified from time to time).

"Wholly-Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares and shares held by
other Persons to the extent such shares are required by applicable law to be
held by a Person other than the Company or a Restricted Subsidiary) is owned by
the Company or one or more Wholly-Owned Subsidiaries.

Certain Covenants

The indenture contains covenants including, among others, the covenants
described below.

Limitation on Indebtedness. (a) We shall not, and shall not permit any
Restricted Subsidiary to, Incur any Indebtedness unless (i) the Consolidated
Coverage Ratio at the date of such Incurrence exceeds 2.5 to 1.0; and (ii) no
Default or Event of Default shall have occurred and be continuing at the time
or as a consequence of the Incurrence of such Indebtedness.

(b) Notwithstanding the foregoing paragraph (a), we may Incur any or all of
the following Indebtedness: (1) Indebtedness Incurred pursuant to the Credit
Agreement so long as the aggregate principal amount of such Indebtedness
outstanding at any time shall not exceed $250 million; (2) Subordinated
Indebtedness owed to and held by a Wholly-Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-
Owned Subsidiary or any subsequent transfer of such Subordinated Indebtedness
(other than to another Wholly-Owned Subsidiary) shall be deemed, in each case,
to constitute the Incurrence of such Subordinated Indebtedness by our company;
(3) the Notes and the Old Notes; (4) Indebtedness outstanding on the date of
the Old Notes Indenture (other than Indebtedness described in clause (1), (2)
or (3) of this covenant); (5) Refinancing Indebtedness in respect of
Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause (3) or
(4) or this clause (5) of this covenant; (6) additional Indebtedness in an
aggregate principal amount outstanding at any time not exceeding $60 million
Incurred pursuant to the Credit Agreement or any replacement thereof; (7)
Indebtedness in an aggregate principal amount which, together with all other
Indebtedness of our company then outstanding (other than Indebtedness permitted
by clauses (1) through (5) above of this covenant) does not exceed $80 million
(less the aggregate amount of any Indebtedness Incurred pursuant to clause (6)
of this covenant); and (8) Indebtedness arising out of Capital Lease
Obligations, Purchase

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Money Indebtedness and Sale/Leaseback Transactions permitted pursuant to the
covenant described under "Limitation on Sale/Leaseback Transactions" in an
aggregate principal amount outstanding at any one time not exceeding $20
million.

(c) Notwithstanding the foregoing, we shall not Incur any Indebtedness
pursuant to the foregoing paragraph (b) if the proceeds thereof are used,
directly or indirectly, to Refinance any Subordinated Indebtedness unless such
Indebtedness shall be subordinated to the Notes to at least the same extent as
such Subordinated Indebtedness.

Limitation on Indebtedness and Capital Stock of Restricted Subsidiaries. We
shall not permit any Restricted Subsidiary to Incur, directly or indirectly,
any Indebtedness or Capital Stock except: (1) Indebtedness or Capital Stock
issued to and held by us or a Wholly-Owned Subsidiary; provided, however, that
any subsequent issuance or transfer of any Capital Stock or any other event
which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned
Subsidiary or any subsequent transfer of such Indebtedness or Capital Stock
(other than to our company or a Wholly-Owned Subsidiary) shall be deemed, in
each case, to constitute the issuance of such Indebtedness or Capital Stock by
the issuer thereof; (2) Indebtedness or Capital Stock of a Subsidiary Incurred
and outstanding on or prior to the date on which such Subsidiary was acquired
by us (other than Indebtedness or Capital Stock Incurred in connection with, or
to provide all or any portion of the funds or credit support utilized to
consummate, the transaction or series of related transactions pursuant to which
such Subsidiary became a Subsidiary or was acquired by us) and Refinancing
Indebtedness Incurred in respect thereof; provided, however, that such
Refinancing Indebtedness shall only be permitted under this clause (2) to the
extent Incurred by the Subsidiary that originally Incurred such Indebtedness;
(3) Indebtedness or Capital Stock issued and outstanding on or prior to the
date of the Old Notes Indenture (other than Indebtedness described in clauses
(1) or (2) of this covenant); (4) Purchase Money Indebtedness; provided,
however, that the aggregate amount of Purchase Money Indebtedness outstanding
after giving pro forma effect to any Incurrence of Purchase Money Indebtedness
may not exceed $30 million unless, after giving effect to the Incurrence of
such Purchase Money Indebtedness, we would be able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under
"Limitation on Indebtedness"; (5) Indebtedness Incurred by any Restricted
Subsidiary that is a Foreign Subsidiary; provided, however, that any such
Indebtedness Incurred by such Restricted Subsidiary shall not exceed 20% of the
Consolidated Net Tangible Assets of such Restricted Subsidiary; (6) Refinancing
Indebtedness Incurred in respect of Indebtedness or Capital Stock referred to
in clauses (3) or (4) or this clause (6); and (7) Indebtedness Incurred by any
Restricted Subsidiary that is a Foreign Subsidiary for the purpose of acquiring
a Restricted Subsidiary that is a Foreign Subsidiary; provided, the principal
amount of such Indebtedness may not exceed the purchase price for such
Subsidiary; provided further, that after giving effect to the Incurrence of
such Indebtedness, we would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under
"Limitation on Indebtedness."

Limitation on Restricted Payments. (a) We shall not, and shall not permit
any Restricted Subsidiary, directly or indirectly, to make a Restricted Payment
if at the time we make or such Restricted Subsidiary makes such Restricted
Payment: (1) a Default or Event of Default shall have occurred and be
continuing (or would result therefrom); or (2) we are not able to Incur an
additional $1.00 of Indebtedness pursuant to paragraph (a) of the covenant
described under "Limitation on Indebtedness"; or (3) the aggregate amount of
such Restricted Payment and all other Restricted Payments since the Old Notes
Issue Date would exceed the sum of (A) 50% of the Consolidated Net Income
accrued during the period (treated as one accounting period) from April 1, 1995
to the end of the most recent fiscal quarter ending prior to the date of such
Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); and (B) the aggregate Net Cash Proceeds
received by us from the issuance or sale of its Capital Stock (excluding
Disqualified Stock and including Capital Stock issued upon conversions of
convertible debt or upon exercise of options or warrants) subsequent to the Old
Notes Issue Date (excluding an issuance or sale to our Subsidiary and excluding
an issuance or sale to the ESOP). As of September 30, 1998, we would have been
able to make a Restricted Payment of $15.1 million.

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(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
dividends paid within 60 days after the date of declaration thereof if at such
date of declaration such dividend would have complied with this covenant;
provided, however, that at the time of payment of such dividend, no other
Default shall have occurred and be continuing (or result therefrom); provided
further, however, that such dividend shall be included in the calculation of
the amount of Restricted Payments; (ii) our company and its Restricted
Subsidiaries from making loans or advancements to, or investments in, any Joint
Venture in an aggregate amount not exceeding $15 million plus the lesser of (i)
any amounts received as repayment of any such loan, advancement or investment
and (ii) the initial amount thereof; (iii) the declaration or payment of
dividends on our common stock following a public offering of its common stock
of up to 6% per annum of the Net Cash Proceeds received by us in such public
offering; (iv) our company and its Restricted Subsidiaries from making any
contribution to the ESOP or refinancing the ESOP Loan; (v) any purchase or
redemption of our Capital Stock or Subordinated Indebtedness made by exchange
for, or out of the proceeds of the substantially concurrent sale of, our
Capital Stock (other than Disqualified Stock and other than Capital Stock
issued or sold to our Subsidiary or the ESOP); provided, however, that (A) such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments and (B) the Net Cash Proceeds from such sale shall be
excluded from the calculation of amounts under clause (3)(B) of paragraph (a)
above; (vi) any purchase or redemption of Subordinated Indebtedness made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
our Indebtedness which is permitted to be Incurred pursuant to the covenant
described under "Limitation on Indebtedness"; provided, however, that such
purchase or redemption shall be excluded in the calculation of the amount of
Restricted Payments; (vii) loans and advances to our employees or any of our
Restricted Subsidiaries for travel, entertainment and relocation expenses in
the ordinary course of business in an aggregate amount outstanding at any one
time not to exceed $5 million; (viii) the redemption of up to 4,000,000 shares
of common stock from Scandinavian Incentive Holdings, B.V. on or prior to April
30, 1997 at an aggregate price that, together with Restricted Payments
otherwise permitted under clause (a) above, would not exceed $44,000,000;
provided, however, that Restricted Payments made pursuant to this clause (viii)
shall be included in the calculation of Restricted Payments for all purposes
under clause (3) of paragraph (a) above (this redemption occurred in March
1997); and (ix) up to an aggregate amount of $2,000,000 of additional
Restricted Payments from and after March 21, 1997 until such time as we have
the authority under paragraph (a) above to make such Restricted Payments;
provided, however, that Restricted Payments made pursuant to this clause (ix)
shall be included in the calculation of Restricted Payments for all purposes
under clause 3 of paragraph (a) above. For purposes of performing the
calculation specified in clause (a)(3) above, amounts paid in respect of
clauses (i) and (iii) of this paragraph (b) shall be counted as Restricted
Payments and amounts paid in respect of clauses (ii), (iv) and (v) of this
paragraph (b) shall not be counted as a Restricted Payments. Any sale or
transfer of property by an Unrestricted Subsidiary to our company or a
Restricted Subsidiary with the intention of taking back a lease of that
property will be considered a loan to that Unrestricted Subsidiary for this
purpose.

Limitation on Restrictions on Distributions from Restricted Subsidiaries. We
shall not, and shall not permit any Restricted Subsidiary to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary (i) to
pay dividends or make any other distributions on its Capital Stock or pay any
Indebtedness owed to our company or any Restricted Subsidiary, (ii) to make any
loans or advances to our company or any Restricted Subsidiary, (iii) to
transfer any of its property or assets to our company or any Restricted
Subsidiary or (iv) to make payments in respect of any Indebtedness owed to us
or any Restricted Subsidiary, except: (1) any such encumbrance or restriction
pursuant to an agreement in effect at or entered into on the Old Notes Issue
Date; (2) any such encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary on or prior to the date on which such Restricted
Subsidiary was acquired by us (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by us) and outstanding on such date; (3) any such
encumbrance or restriction pursuant to an agreement effecting a Refinancing of
Indebtedness Incurred pursuant to an agreement referred to in clause (1) or (2)
of this covenant or contained in any amendment to an agreement referred to in
clause (1) or (2) of this covenant; provided, however, that the

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encumbrances and restrictions with respect to such Restricted Subsidiary
contained in any such refinancing agreement or amendment are no less favorable
to the Noteholders than any such encumbrances and restrictions with respect to
such Restricted Subsidiary contained in such agreements; (4) any such
encumbrance or restriction consisting of customary nonassignment provisions in
leases governing leasehold interests to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (5) in the case of
clause (iii) above, encumbrances and restrictions contained in security
agreements or mortgages securing Indebtedness of a Restricted Subsidiary to the
extent such restrictions restrict the transfer of the property subject to such
security agreements or mortgages; (6) any such encumbrance or restriction with
respect to a Restricted Subsidiary imposed pursuant to an agreement entered
into for the sale or disposition of all or substantially all the Capital Stock
or assets of such Restricted Subsidiary pending the closing of such sale or
disposition; (7) any such encumbrance or restriction with respect to any
Restricted Subsidiary that is a Foreign Subsidiary pursuant to an agreement
relating to Indebtedness permitted to be Incurred pursuant to clause (7) of the
covenant described under "Limitation on Indebtedness and Capital Stock of
Restricted Subsidiaries;" and (8) restrictions imposed by applicable law.

Limitation on Sales of Assets. (a) We shall not, and shall not permit any
Restricted Subsidiary to, make any Asset Disposition unless: (i) our company or
such Restricted Subsidiary, as the case may be, receive consideration at the
time of such sale or other disposition at least equal to the Fair Market Value
thereof; (ii) at least 75% of the consideration received by us or such
Restricted Subsidiary, as the case may be, consists of cash or Cash Equivalents
or Fully Traded Common Stock; provided, however, that the amount of any Senior
Indebtedness of us or such Restricted Subsidiary that is assumed by the
transferee in any such transaction shall be deemed to be cash for purposes of
this provision (a) and (iii) the Net Available Cash received by us or such
Restricted Subsidiary, as the case may be, from such Asset Disposition is
applied in accordance with the following paragraphs.

In the event and to the extent that we make one or more Asset Dispositions
on or after the Old Notes Issue Date in any period of 12 consecutive months
with respect to assets the Fair Market Value of which exceeds $20 million as of
the beginning of such 12-month period, then we shall (i) within 365 days after
the date the Net Available Cash so received from such Asset Dispositions
exceeds $20 million (such excess being referred to as "Excess Net Available
Cash") and to the extent we elect (or are required by the terms of any
Indebtedness) (A) apply an amount equal to such Excess Net Available Cash to
repay Senior Indebtedness or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in Additional Assets and (ii) apply such Excess
Net Available Cash (to the extent not applied pursuant to clause (i)) as
provided in the following paragraphs of this covenant. The amount of such
Excess Net Available Cash required to be applied during the applicable period
and not applied as so required by the end of such period shall constitute
"Excess Proceeds."

If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $5 million, we must, not later than the fifteenth
Business Day of such month, make an offer (an "Excess Proceeds Offer") to
purchase from the Holders on a pro rata basis an aggregate principal amount of
Notes equal to the Excess Proceeds (rounded down to the nearest multiple of
$1,000) on such date, at a purchase price equal to 100% of the principal amount
of such Notes, plus, in each case, accrued interest (if any) to the date of
purchase (the "Excess Proceeds Payment").

If any Excess Net Available Cash is used to repay either Notes or Old Notes,
we will make an offer to repurchase Old Notes or Notes, as the case may be, on
a pro rata basis.

We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other applicable laws or regulations
thereunder in the event that such Excess Proceeds are received by us under this
covenant and we are required to repurchase Notes as described above. To the
extent that the provisions of any applicable laws or regulations conflict with
the provisions of this covenant, we shall comply with the applicable laws and
regulations and shall not be deemed to have breached its obligations under this
covenant by virtue thereof.

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(b) In the event of the transfer of substantially all (but not all) of our
property and assets as an entirety to a Person in a transaction permitted under
"Merger and Consolidation," the Successor Company (as defined therein) shall be
deemed to have sold the properties and assets of our company not so transferred
for purposes of this covenant, and shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Disposition
and the Successor Company shall be deemed to have received Net Available Cash
in an amount equal to the fair market value (as determined in good faith by the
Board of Directors) of the properties and assets not so transferred or sold.

Limitation on Affiliate Transactions. (a) We shall not, and shall not permit
any Restricted Subsidiary to, enter into or permit to exist any transaction or
series of transactions (including the purchase, sale, lease or exchange of any
property, employee compensation arrangements or the rendering of any service)
with any Affiliate of us (an "Affiliate Transaction") unless the terms thereof
are no less favorable to us or such Restricted Subsidiary than those which
could be obtained at the time of such transaction in arm's-length dealings with
a Person who is not such an Affiliate.

In addition, we shall not, and shall not permit any Restricted Subsidiary
to, enter into any Affiliate Transaction unless: (i) with respect to such
Affiliate Transaction involving the aggregate value, remuneration or other
consideration of more than $1 million but less than or equal to $5 million, we
have obtained approval of a majority of our Board of Directors (including a
majority of the disinterested directors); and (ii) with respect to such
Affiliate Transaction involving the aggregate value, remuneration or other
consideration of more than $5 million, we have delivered to the Trustee an
opinion of a nationally recognized investment banking firm to the effect that
such Affiliate Transaction is fair to us or such Restricted Subsidiary, as the
case may be, from a financial point of view.

(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any Restricted Payment permitted to be paid pursuant to the covenant described
under "Limitation on Restricted Payments;" (ii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of, employment arrangements, stock options and stock ownership
plans approved by the Board of Directors; (iii) the grant of stock options or
similar rights to employees and directors of our company pursuant to plans
approved by the Board of Directors; (iv) any Affiliate Transaction between us
and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries; and (v) any
transaction entered into by us or any Restricted Subsidiary with the Plan.

Change of Control. (a) Upon the occurrence of a Change of Control, each
Holder shall have the right to require that we repurchase such Holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of purchase (subject to the
right of holders of record on the relevant record date to receive interest on
the relevant interest payment date), in accordance with the terms contemplated
in paragraph (b) below.

(b) Within 30 days following any Change of Control, we shall mail a notice
to each Holder with a copy to the Trustee stating: (1) that a Change of Control
has occurred and that such Holder has the right to require us to purchase such
Holder's Notes at a purchase price in cash equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase (subject to the right of holders of record on the relevant record date
to receive interest on the relevant interest payment date); (2) the
circumstances and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control); (3) the
repurchase date (which shall be no earlier than 30 days nor later than 60 days
from the date such notice is mailed); and (4) the instructions determined by
us, consistent with this covenant, that a Holder must follow in order to have
its Notes purchased.

(c) We shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other applicable laws or regulations
in connection with the purchase of Notes pursuant to this covenant. To the
extent that the provisions of any applicable laws or regulations conflict with
the provisions of

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this covenant, we shall comply with the applicable laws and regulations and
shall not be deemed to have breached its obligations under this covenant by
virtue thereof.

The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of our company and,
thus, the removal of incumbent management. In addition, we may be prohibited
under the terms of its other financing instruments from repurchasing the Notes
upon a Change of Control. Finally, we can not assure that we will have the
financial ability to purchase the Notes upon a Change of Control.

Limitation on Liens. We shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur or permit to exist any Lien of any
nature whatsoever on any of its properties (including Capital Stock of a
Restricted Subsidiary), whether owned at the Old Notes Issue Date or thereafter
acquired, other than Permitted Liens, without effectively providing that the
Notes shall be secured equally and ratably with (or prior to) the obligations
so secured for so long as such obligations are so secured.

Limitation on Sale/Leaseback Transactions. We shall not, and shall not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless (i) we or such Restricted Subsidiary would
be entitled to create a Lien on such property without equally and ratably
securing the Notes pursuant to the covenant described under "Limitation on
Liens" or (ii) the net proceeds of such sale are at least equal to the fair
value (as determined by the Board of Directors) of such property and we or such
Restricted Subsidiary shall apply or cause to be applied an amount in cash
equal to the net proceeds of such sale to the retirement, within 30 days of the
effective date of such Sale/Leaseback Transaction, of our Senior Indebtedness
(including the Notes) or Indebtedness or Preferred Stock of a Restricted
Subsidiary.

Merger and Consolidation. We shall not consolidate with or merge with or
into, or convey, transfer or lease all or substantially all our assets to, any
Person, unless: (i) the resulting, surviving or transferee Person (the
"Successor Company") shall be a Person organized and existing under the laws of
the United States of America, any state thereof or the District of Columbia and
the Successor Company (if not us) shall expressly assume, by an indenture
supplemental to the Indenture, executed and delivered to the Trustee, in form
reasonably satisfactory to the Trustee, all the obligations of our company
under the Notes and the Indenture; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Event of Default shall have occurred and be continuing; (iii)
immediately after giving effect to such transaction, the Consolidated Coverage
Ratio of the Successor Company is at least 1:1; provided, however, that, if our
Consolidated Coverage Ratio before giving effect to such transaction is within
a range set forth in column (A) below, then the Consolidated Coverage Ratio of
the Successor Company shall be at least equal to the lesser of (1) the ratio
determined by multiplying the relevant percentage set forth in column (B) below
by the Consolidated Coverage Ratio prior to such transaction and (2) the
relevant ratio set forth in column (C) below:

<TABLE>
<CAPTION>
(A) (B) (C)
----------------- --- -----------
<S> <C> <C>
1.11:1 to 1.99:1 90% 1.50:1
2.00:1 to 2.99:1 80% 2.10:1
3.00:1 to 3.99:1 70% 2.40:1
4.00:1 or greater 60% 2.50:1; and
</TABLE>

(iv) immediately after giving effect to such transaction, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
our Consolidated Net Worth prior to such transaction.

We shall deliver to the Trustee prior to the consummation of the proposed
transaction an Officer's Certificate to the foregoing effect and an Opinion of
Counsel stating that the proposed transaction and such supplemental indenture
comply with the Indenture.

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The Successor Company shall be our successor and shall succeed to, and be
substituted for, and may exercise every right and power of, us under the
Indenture, but the predecessor Company in the case of a conveyance, transfer or
lease shall not be released from the obligation to pay the principal of and
interest on the Notes.

SEC Reports. Notwithstanding that we may not be required to remain subject
to the reporting requirements of Section 13 or 15 (d) of the Exchange Act, we
shall file with the SEC and provide the Trustee and Noteholders with such
annual reports and such information, documents and other reports specified in
Sections 13 and 15(d) of the Exchange Act.

Defaults

An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by our company to comply for 30 days after
notice with its obligations under "Certain Covenants" and its other agreements
contained in the Indenture (except in the case of a default with respect to the
covenants described under "Certain Covenants--Change of Control" and "Certain
Covenants--Merger and Consolidation," which will constitute Events of Default
with notice but without passage of time), (iv) our Indebtedness is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness accelerated exceeds $5 million (or its foreign currency
equivalent) with respect to any individual Indebtedness or, together with all
Indebtedness unpaid or accelerated, aggregates $10 million (or its foreign
currency equivalent) (the "cross acceleration provision"); (v) certain events
of bankruptcy, insolvency or reorganization of our company (the "bankruptcy
provisions") or (vi) any judgment or decree for the payment of money in excess
of $5 million (or its foreign currency equivalent) (to the extent not covered
by insurance) with respect to any individual judgment or decree or aggregating
$10 million (or its foreign currency equivalent) is rendered against us or any
Restricted Subsidiary and is not discharged within a period of 60 days
following such judgment (the "judgment default provision").

If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of our company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any holders of the Notes. Under certain
circumstances, the holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.

Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the holders of the Notes unless
such holders have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no holder of a
Note may pursue any remedy with respect to the Indenture or the Notes unless
(i) such holder has previously given the Trustee notice that an Event of
Default is continuing, (ii) holders of at least 25% in principal amount of the
outstanding Notes have requested the Trustee to pursue the remedy, (iii) such
holders have offered the Trustee reasonable security or indemnity against any
loss, liability or expense, (iv) the Trustee has not complied with such request
within 60 days after the receipt thereof and the offer of security or indemnity
and (v) the holders of a majority in principal amount of the outstanding Notes
have not given the Trustee a direction inconsistent with such request within
such 60-day period. Subject to certain restrictions, the holders of a majority
in principal amount of the outstanding Notes are given the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or of exercising any trust or power conferred on the Trustee. The
Trustee, however, may refuse to follow any direction that conflicts with law or
the Indenture or that the Trustee

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determines is unduly prejudicial to the rights of any other holder of a Note or
that would involve the Trustee in personal liability.

The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each holder of the Notes notice
of the Default within 90 days after it occurs. Except in the case of a Default
in the payment of principal of, premium (if any) or interest on any Note, the
Trustee may withhold notice if and so long as a committee of its trust officers
in good faith determines that withholding notice is not opposed to the interest
of the holders of the Notes. In addition, we are required to deliver to the
Trustee, within 120 days after the end of each fiscal year, a certificate
indicating whether the signers thereof know of any Default that occurred during
the previous year. We are also required to deliver to the Trustee, within 30
days after the occurrence thereof, written notice of any event which would
constitute certain Defaults, their status and what action we are taking or
propose to take in respect thereof.

Amendments and Waivers

Subject to certain exceptions, the Indenture may be amended with the consent
of the holders of at least a majority in aggregate principal amount of the
Notes then outstanding and any past default or compliance with any provisions
may be waived with the consent of the holders of a majority in principal amount
of the Notes then outstanding, subject to certain exceptions. However, without
the consent of each affected holder of an outstanding Note, no amendment may,
among other things, (i) reduce the principal amount of Notes whose holders must
consent to an amendment, (ii) reduce the rate of or change the time for payment
of interest on any Note, (iii) reduce the principal of, any installment of
interest on or any premium with respect to any Note, change the Stated Maturity
of any Note or change the periods during which any Note may be redeemed as
described under "Optional Redemption" above, (iv) make any Note payable in
currency other than that stated in the Note, (v) impair the right of any holder
of the Notes to receive payment of principal of and interest on Notes on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such holder's Notes or (vi) reduce the percentage
in principal amount of outstanding Notes the consent of the holders of which is
necessary to amend the Indenture, to waive compliance with certain provisions
of the Indenture or to waive certain defaults.

Without the consent of any holder of the Notes, we and the Trustee may amend
the Indenture to cure any ambiguity, defect or inconsistency, to provide for
the assumption by a successor corporation of the obligations of our company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes, to secure the Notes, to provide for a replacement
trustee, to add to our covenants and agreements for the benefit of the holders
of the Notes or to surrender any right or power conferred upon, or to make any
change that does not adversely affect the legal rights of any holder of the
Notes.

After an amendment, supplemental indenture or waiver under the Indenture
becomes effective, we are required to mail to holders of the Notes affected
thereby a copy of such amendment, supplemental indenture or waiver and a notice
briefly describing such amendment, supplemental indenture or waiver. However,
the failure to give such notice, or any defect therein, will not impair or
affect the validity of the amendment, supplemental indenture or waiver.

Transfer

The Old Notes were issued in registered form and are transferable only upon
the surrender of the Old Notes being transferred for registration of transfer.
We may require payment of a sum sufficient to cover any tax, assessment or
other governmental charge payable in connection with certain transfers and
exchanges.

Defeasance

The Indenture will cease to be of further effect as to all outstanding Notes
(except as to (i) rights of registration of transfer and exchange and our right
of optional redemption; (ii) substitution of apparently mutilated, defaced,
destroyed, lost or stolen Notes; (iii) rights of holders of the Notes to
receive payments of

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principal and interest on the Notes; (iv) rights, obligations and immunities of
the Trustee under the Indenture; and (v) rights of the holders of the Notes as
beneficiaries of the Indenture with respect to the property so deposited with
the Trustee payable to all or any of them), if (a) we will have paid or caused
to be paid the principal of and interest on the Notes as and when the same will
have become due and payable or (b) all outstanding Notes (except lost, stolen
or destroyed Notes which have been replaced or paid) have been delivered to the
Trustee for cancellation or (c)(1) the Notes not previously delivered to the
Trustee for cancellation will have become due and payable or are by their terms
to become due and payable within one year or are to be called for redemption
under arrangements satisfactory to the Trustee upon delivery of notice and (2)
we will have irrevocably deposited with the Trustee, as trust funds, cash, in
an amount sufficient to pay principal of and interest on the outstanding Notes,
to maturity or redemption, as the case may be. Such trust may only be
established if such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument pursuant to which we
are party or by which it is bound and we have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions related to such defeasance have been complied with.

The Indenture will also cease to be in effect (except as described in (i)-
(v) in the immediately preceding paragraph) and the Indebtedness on all
outstanding Notes will be discharged on the 123rd day after the irrevocable
deposit by us with the Trustee, in trust, specifically pledged as security for,
and dedicated solely to, the benefit of the holders of the Notes, of cash, U.S.
Government Obligations, or a combination thereof, in an amount sufficient, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, to pay
the principal of and interest on the Notes then outstanding in accordance with
the terms of the Indenture and the Notes. Such a trust may only be established
if (i) such deposit will not result in a breach or violation of, or constitute
a default under, any agreement or instrument to which we are a party or by
which it is bound; (ii) we have delivered to the Trustee an Opinion of Counsel
stating that (a) we have received from, or there has been published by, the
Internal Revenue Service a ruling, or (b) since the date of the Indenture there
has been a change in the applicable federal income tax law, in either case to
the effect that, based thereon such opinion shall confirm that, the holders of
the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to federal income tax on the same amount and in the same manner and at
the same times as would have been the case if such deposit, defeasance and
discharge had not occurred; (iii) we have delivered to the Trustee an Opinion
of Counsel to the effect that after the 123rd day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (iv) we have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions related to the
defeasance have been complied with.

Our company may also be released from its obligations under "Certain
Covenants" and shall cease to be subject to clauses (iii), (iv) and (vi) of the
first paragraph under "Defaults," with respect to the Notes outstanding on the
123rd day after the irrevocable deposit by our company with the Trustee, in
trust, specifically pledged as security for, and dedicated solely to, the
benefit of the holders of the Notes, cash, U.S. Government Obligations, or a
combination thereof, in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay the principal of and
interest on the Notes then outstanding in accordance with the terms of the
Indenture and the Notes ("covenant defeasance"). Such covenant defeasance may
only be effected if (i) such deposit will not result in a breach or violation
of, or constitute a default under, any agreement or instrument to which we are
a party or by which it is bound; (ii) we deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel to the effect that the holders of the
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and covenant defeasance and will be subject to
federal income tax on the same amount, in the same manner and at the same times
as would have been the case if such deposit and covenant defeasance had not
occurred; (iii) we have delivered to the Trustee an Opinion of Counsel to the
effect that after the 123rd day following the deposit, the trust funds will not
be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and

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(iv) we have delivered to the Trustee an Officers' Certificate and an Opinion
of Counsel, each stating that all conditions related to the covenant defeasance
have been complied with. Following such covenant defeasance, we may omit to
comply with and will have no liability in respect of any term, condition or
limitation set forth in such sections of the Indenture, whether directly or
indirectly by reason of any reference elsewhere in the Indenture to such
sections or by reason of any reference in such sections to any other provisions
in the Indenture or in any other document, and such omission will not
constitute an Event of Default.

Transfer and Exchange

A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
We are not required to transfer or exchange any Note selected for redemption.
We are also not required to transfer or exchange any Note for a period of 15
days before a selection of Notes to be redeemed.

The registered Holder will be treated as the owner of it for all purposes.

Governing Law

The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.

BOOK-ENTRY; DELIVERY AND FORM

The Old Notes offered and sold in connection with the Initial Offering were
sold solely to QIBs, as defined in Rule 144A under the Securities Act, pursuant
to Rule 144A and in offshore transactions to persons other than "U.S. persons,"
as defined in Regulation S under the Securities Act ("Non-U.S. Persons"), in
reliance on Regulation S. Following the offering of the Old Notes, the Old
Notes may have been sold to QIBs pursuant to Rule 144A, Non-U.S. Persons in
reliance on Regulation S and pursuant to other exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act, as described under "Transfer Restrictions," including sales to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3)
and (7) under the Securities Act ("Institutional Accredited Investors"), that
are not QIBs.

The Global Notes

Rule 144A Global Note. The Old Notes offered and sold to QIBs pursuant to
Rule 144A were issued in the form of one or more registered notes in global
form, without interest coupons. The Rule 144A global note was deposited on the
date of the closing of the sale of the Old Notes with, or on behalf of, DTC and
registered in the name of Cede & Co., as nominee of DTC, but remain in the
custody of the Trustee pursuant to the FAST Balance Certificate Agreement
between DTC and the Trustee.

Regulation S Global Notes. The Old Notes offered and sold in the initial
offering in offshore transactions to Non-U.S. Persons in reliance on Regulation
S were issued in the form of one or more registered notes in global form,
without interest coupons. The Regulation S global note was deposited upon
issuance with, or on behalf of, a custodian for DTC in the manner described in
the preceding paragraph for credit to the respective accounts of the purchasers
(or to such other accounts as they may have directed) at Morgan Guaranty Trust
Company of New York, Brussels Office, as operator of the Euroclear System, or
Cedel Bank, societe anonyme.

Investors may hold their interests in the Regulation S Global Note directly
through Euroclear or Cedel, if they are participants in such systems, or
indirectly through organizations which are participants in such systems.
Investors may also hold such interests through organizations other than
Euroclear or Cedel that are

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participants in the DTC system. Euroclear and Cedel hold such interests in the
Regulation S global note on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositories. Such depositories, in turn, hold such interests in the Regulation
S global note in customers' securities accounts in the depositories' names on
the books of DTC.

Institutional Accredited Investor Global Note. In connection with the sale
of the Old Notes to an Institutional Accredited Investor in the initial
offering, beneficial interests in any of the Global Notes (as defined below)
may have been exchanged for interests in a separate note in registered form,
without interest coupons, which were deposited on the Closing Date with, or on
behalf of, a custodian for DTC in the manner described in the preceding
paragraphs.

Except as set forth below, the Rule 144A global note, the Regulation S
global note and the Institutional Accredited Investor global note
(collectively, the "Global Notes") may be transferred, in whole and not in
part, solely to another nominee of DTC or to a successor of DTC or its nominee.
Beneficial interests in the Global Notes may not be exchanged for Notes in
physical, certificated form ("Certificated Notes") except in the limited
circumstances described below.

The Old Notes are subject to certain restrictions on transfer and bear a
restrictive legend as set forth under "Transfer Restrictions."

All interests in the Global Notes, including those held through Euroclear or
Cedel, may be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Cedel may also be subject to the procedures
and requirements of such systems.

Form of New Notes

The New Notes will be available initially only in book-entry form. We expect
that the New Notes will be represented by a global note which will be deposited
with, or on behalf of, DTC (with links to Euroclear and Cedel) and registered
in its name or in the name of its nominee. Beneficial interests in the global
note representing the New Notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants. After the
initial issuance of the global note, notes in certificated form will be issued
in exchange for the global note only under limited circumstances described
below.

Certain Book-Entry Procedures for the Global Notes

The descriptions of the operations and procedures of DTC, Euroclear and
Cedel set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. Neither
WABCO nor Chase Securities take any responsibility for these operations or
procedures, and investors are urged to contact the relevant system or its
participants directly to discuss these matters.

DTC has advised us that it is (i) a limited purpose trust company organized
under the laws of the State of New York, (ii) a "banking organization" within
the meaning of the New York Banking Law, (iii) a member of the Federal Reserve
System, (iv) a "clearing corporation" within the meaning of the Uniform
Commercial Code, as amended, and (v) a "clearing agency" registered pursuant to
Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitates the clearance and settlement of securities
transactions between its participants through electronic book-entry changes to
the accounts of its participants, thereby eliminating the need for physical
transfer and delivery of certificates. DTC's participants include securities
brokers and dealers (including Chase Securities), banks and trust companies,
clearing corporations and certain other organizations. Indirect access to DTC's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly. Investors who are not participants
may beneficially own securities held by or on behalf of DTC only through
participants or entities with indirect access to DTC's system.

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We expect that pursuant to procedures established by DTC (i) upon deposit of
each Global Note, DTC will credit the accounts of its participants designated
by Chase Securities with an interest in the Global Note and (ii) ownership of
the Notes will be shown on, and the transfer of ownership thereof will be
effected only through, records maintained by DTC (with respect to the interests
of its participants) and the records of its participants and the entities with
indirect access to its system, (with respect to the interests of persons other
than its participants).

The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form.
Accordingly, the ability to transfer interests in the Notes represented by a
Global Note to such persons may be limited. In addition, because DTC can act
only on behalf of its participants, who in turn act on behalf of persons who
hold interests through such participants, the ability of a person having an
interest in Notes represented by a Global Note to pledge or transfer such
interest to persons or entities that do not participate in DTC's system, or to
otherwise take actions in respect of such interest, may be affected by the lack
of a physical definitive security in respect of such interest.

So long as DTC or its nominee is the registered owner of a Global Note, DTC
or such nominee, as the case may be, will be considered the sole owner or
holder of the Notes represented by the Global Note for all purposes under the
indenture. Except as provided below, owners of beneficial interests in a Global
Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Certificated Notes, and will not be considered the owners or
holders thereof under the indenture for any purpose, including with respect to
the giving of any direction, instruction or approval to the Trustee thereunder.
Accordingly, each holder owning a beneficial interest in a Global Note must
rely on the procedures of DTC and, if such holder is not a participant or an
entity with indirect access to DTC's system, on the procedures of the
participant through which such holder owns its interest, to exercise any rights
of a holder of Notes under the indenture or such Global Note. We understand
that under existing industry practice, in the event that we request any action
of holders of Notes, or a holder that is an owner of a beneficial interest in a
Global Note desires to take any action that DTC, as the holder of such Global
Note, is entitled to take, DTC would authorize its participants to take such
action and the participants would authorize holders owning through such
participants to take such action or would otherwise act upon the instruction of
such holders. Neither our company nor the Trustee will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of Notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such Notes.

Payments with respect to the principal of, and premium, if any, liquidated
damages, if any, and interest on, any Notes represented by a Global Note
registered in the name of DTC or its nominee on the applicable record date will
be payable by the Trustee to or at the direction of DTC or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, we and the Trustee may
treat the persons in whose names the Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving payment thereon
and for any and all other purposes whatsoever. Accordingly, neither we nor the
Trustee have or will have any responsibility or liability for the payment of
such amounts to owners of beneficial interests in a Global Note (including
principal, premium, if any, liquidated damages, if any, and interest). Payments
by DTC's participants and the entities with indirect access to its system to
the owners of beneficial interests in a Global Note will be governed by
standing instructions and customary industry practice and will be the
responsibility of those persons and DTC.

Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the
Notes, cross-market transfers between the participants in DTC, on the one hand,
and Euroclear or Cedel participants, on the other hand, will be effected
through DTC in accordance with DTC's rules on behalf of Euroclear or Cedel, as
the case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to

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Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will,
if the transaction meets its settlement requirements, deliver instructions to
its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Notes in
DTC, and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositories for
Euroclear or Cedel.

Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. Cash received in Euroclear or Cedel as a result of
sales of interest in a Global Note by or through a Euroclear or Cedel
participant to a participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or Cedel
cash account only as of the business day for Euroclear or Cedel following DTC's
settlement date.

Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. Neither WABCO nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.

Certificated Notes

If (i) we notify the Trustee in writing that DTC is no longer willing or
able to act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within 90
days of such notice or cessation, (ii) we, at our option, notify the Trustee in
writing that we elect to cause the issuance of Notes in definitive form under
the indenture or (iii) upon the occurrence of certain other events as provided
in the indenture, then, upon surrender by DTC of the Global Notes, Certificated
Notes will be issued to each person that DTC identifies as the beneficial owner
of the Notes represented by the Global Notes. Upon any such issuance, the
Trustee is required to register such Certificated Notes in the name of such
person or persons (or the nominee of any thereof) and cause the same to be
delivered thereto.

Neither WABCO nor the Trustee shall be liable for any delay by DTC or any
participant or indirect participant in identifying the beneficial owners of the
related Notes and each such person may conclusively rely on, and shall be
protected in relying on, instructions from DTC for all purposes (including with
respect to the registration and delivery, and the respective principal amounts,
of the Notes to be issued).

EXCHANGE AND REGISTRATION RIGHTS

In connection with the issuance of the Old Notes, we entered into the
exchange and registration rights agreement with Chase Securities, the initial
purchaser of the Old Notes.

The following description of the exchange and registration rights agreement
is qualified in its entirety by reference to all provisions of the exchange and
registration rights agreement. We will provide a copy of the exchange and
registration rights agreement to prospective purchasers of Notes identified to
us by Chase Securities upon request.

We entered into the exchange and registration rights agreement with Chase
Securities concurrently with the issuance of the Old Notes. Pursuant to the
exchange and registration rights agreement, we agreed to (i) file

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with the Commission on or prior to 105 days after the date of issuance of the
Old Notes a registration statement on Form S-1 or Form S-4, if the use of such
form is then available relating to this registered exchange offer for the Old
Notes under the Securities Act and (ii) use our reasonable best efforts to
cause the exchange offer registration statement to be declared effective under
the Securities Act within 150 days after the issue date. As soon as practicable
after the effectiveness of the exchange offer registration statement, we will
offer to the holders of Transfer Restricted Securities (as defined below) who
are not prohibited by any law or policy of the Commission from participating in
the exchange offer the opportunity to exchange their Transfer Restricted
Securities for an issue of a second series of notes (i.e., the New Notes) that
are identical in all material respects to the Old Notes (except that the New
Notes do not contain terms with respect to transfer restrictions) and that
would be registered under the Securities Act. We will keep the exchange offer
open for not less than 30 days (or longer, if required by applicable law) after
the date on which notice of the exchange offer is mailed to the holders of the
Old Notes.

If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, we are not permitted to effect the exchange offer
as contemplated hereby, (ii) any Old Notes validly tendered pursuant to the
exchange offer are not exchanged for New Notes within 180 days after the issue
date, (iii) Chase Securities so requests with respect to Old Notes not eligible
to be exchanged for New Notes in the exchange offer, (iv) any applicable law or
interpretations do not permit any holder of Old Notes to participate in the
exchange offer, (v) any holder of Old Notes that participates in the exchange
offer does not receive freely transferable New Notes in exchange for tendered
Old Notes, or (vi) we so elect, then we will file with the Commission a shelf
registration statement to cover resales of Transfer Restricted Securities by
such holders who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement. For purposes
of the foregoing, "Transfer Restricted Securities" means each Note until (i)
the date on which such Note has been exchanged for a freely transferable New
Note in the exchange offer; (ii) the date on which such Note has been
effectively registered under the Securities Act and disposed of in accordance
with the shelf registration statement or (iii) the date on which such Note is
distributed to the public pursuant to Rule 144 under the Securities Act or is
saleable pursuant to Rule 144(k) under the Securities Act.

We agreed to use our reasonable best efforts to have the exchange offer,
registration statement or, if applicable, the shelf registration statement
(each, a "registration statement") declared effective by the Commission as
promptly as practicable after the filing thereof. Unless the exchange offer
would not be permitted by a policy of the Commission, we will commence the
exchange offer and will use our reasonable best efforts to consummate the
exchange offer as promptly as practicable, but in any event prior to 180 days
after the issue date. If applicable, we will use our reasonable best efforts to
keep the shelf registration statement effective for a period ending on the
earliest of (i) two years from the issue date or such shorter period that will
terminate when all the transfer restricted securities covered by the
registration statement have been sold pursuant thereto and (ii) the date on
which the securities become eligible for resale without volume restrictions
pursuant to Rule 144.

If (i) the registration statement has not been filed with the Commission on
or prior to 90 days after the issue date; (ii) the exchange offer registration
statement or the shelf registration statement, as the case may be, has not been
declared effective within 150 days after the issue date (or in the case of a
shelf registration statement required to be filed in response to a change in
law or the applicable interpretations of the Commission's staff, if later,
within 45 days after publication of the change in law or interpretation); (iii)
the exchange offer is not consummated on or prior to 180 days after the issue
date or (iv) the shelf registration statement is filed and declared effective
within 150 days after the issue date (or in the case of a Shelf Registration
Statement required to be filed in response to a change in law or the applicable
interpretations of the Commission's staff, if later, within 45 days after
publication of the change in law or interpretation) but shall thereafter cease
to be effective (at any time that we are obligated to maintain the
effectiveness thereof) without being succeeded within 30 days by an additional
registration statement filed and declared effective (each such event referred
to in clauses (i) through (iv), a "registration default"), we would have been,
or will be, obligated to pay liquidated damages to each holder of Transfer
Restricted Securities, during the period of one or more such registration
defaults, in an amount equal to $0.192 per week per $1,000 principal amount of
the

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Notes constituting Transfer Restricted Securities held by such holder until the
applicable registration statement has been filed, the exchange offer
registration statement is declared effective and the exchange offer is
consummated or the shelf registration statement is declared effective or again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to holders in the same manner as interest payments on the Notes on semi-
annual payment dates which correspond to interest payment dates for the Notes.
Following the cure of all registration defaults, the accrual of liquidated
damages will cease.

Holders of Transfer Restricted Securities will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the exchange and registration rights agreement in order to have
their Transfer Restricted Securities included in the shelf registration
statement and benefit from the provisions regarding liquidated damages set
forth above.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a discussion of the material United States federal income
tax consequences of the purchase, ownership and disposition of the Notes. This
discussion is based on provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as in effect on the
date hereof and all of which are subject to change, possibly with retroactive
effect. This discussion applies only to those persons who acquire the Notes for
cash and is limited to investors who hold the Notes as capital assets.
Furthermore, this discussion does not address all aspects of United States
federal income taxation that may be applicable to investors in light of their
particular circumstances, or to investors subject to special treatment under
United States federal income tax law (including, without limitation, certain
financial institutions, insurance companies, tax-exempt entities, dealers in
securities, persons who have acquired Notes as part of a straddle, hedge,
conversion transaction or other integrated investment, persons whose functional
currency is not the United States dollar, persons owning Notes through
partnerships or other pass-through entities, or former citizens or residents of
the United States).

Except as the context otherwise requires, reference in this Section to the
Notes shall apply to both the Old Notes and the New Notes received therefor.
See "Exchange and Registration Rights".

Each prospective investor should consult its tax advisor as to the
particular tax consequences to such purchaser of the purchase, ownership and
disposition of the notes, including the applicability of any federal estate or
gift tax laws or any state, local or foreign tax laws, any changes in
applicable tax laws and any pending or proposed legislation or regulations.

United States Taxation of United States Holders

As used herein, (A) the term "United States Holder" means a beneficial owner
of a Note that is, for United States federal income tax purposes, (i) a citizen
or resident of the United States, (ii) a corporation created or organized in or
under the laws of the United States or of any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source and (iv) a trust if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States Fiduciaries have the authority to control all
substantial decisions of such trust and (B) the term "Non-U.S. Holder" means a
beneficial owner of a Note that is not a United States Holder.

Payments of Interest

Stated interest payable on the Notes generally will be included in the gross
income of a United States Holder as ordinary interest income at the time
accrued or received, in accordance with such United States Holder's method of
accounting for United States federal income tax purposes.

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Market Discount

If a United States Holder purchases a Note for an amount that is less than
its "stated redemption price at maturity" (which, in the case of the Notes,
will be their principal amount), the amount of the difference will be treated
as "market discount" for the federal income tax purposes, unless such
difference is less than a specified de minimus amount. Under the market
discount rules, a United States Holder is required to treat any principal
payment on, or any gain on the sale, exchange, retirement or other disposition
of, a Note as ordinary income to the extent of the accrued market discount
which has not previously been included in income at the time of such payment or
disposition. In addition, such a United States Holder may be required to defer
until maturity of the Notes or its earlier disposition in a taxable transaction
the deduction of all or a portion of the interest expense of any indebtedness
incurred or continued to purchase or carry such Note.

Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the
United States Holder elects to accrue the market discount on a constant
interest method. A United States Holder of a Note may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market discount in
income currently, once made, applies to all market discount obligations
acquired during or after the first taxable year to which the election applies
and may not be revoked without the consent of the Internal Revenue Service.

Bond Premium

If a United States Holder purchases a Note (in the Offering or at any time
thereafter) for an amount that exceeds the sum of all amounts payable on the
instrument after the purchase date (other than qualified stated interest), the
Note has "bond premium." A United States Holder may elect to amortize such bond
premium over the remaining term of such Note (or if it results in a smaller
amount of amortizable bond premium, until an earlier call date) using a
constant yield method.

If bond premium is amortized, the amount of interest that must be included
in the United States Holder's income for each period ending on an interest
payment date or at the stated maturity, as the case may be, will be reduced by
the portion of premium allocable to such period based on the Note's yield to
maturity. If such an election to amortize bond premium is not made, a United
States Holder must include the full amount of each interest payment in income
in accordance with its regular method of accounting and will receive a tax
benefit from the premium only in computing such United States Holder's gain or
loss upon the sale or other disposition or payment of the principal amount of
the Note.

An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includable in the United
States Holder's gross income, held at the beginning of the United States
Holder's first taxable year to which the election applies or which election
applies or that there are thereafter acquired and may be revoked only with the
consent of the IRS.

Solely for purpose of applying the foregoing rules on bond premium, if an
issuer of a note has an option to redeem the note prior to maturity, it will be
assumed that the issuer will exercise the option in a manner that maximizes the
yield to maturity on the note (the "Deemed Exercise Rule"). If the Deemed
Exercise Rule applies, the amount of amortizable bond premium with respect to
the Notes will be determined as if the Notes matured on the deemed exercise
date (as opposed to the stated maturity date). If the Deemed Exercise Rule
applies and the optional redemption does not occur by the date that it was
deemed to occur, the Notes will be treated (solely for purposes of computing
amortizable bond premium) as if the Notes were retired on the deemed exercise
date and immediately reissued for their adjusted acquisition price on such
date. The adjusted acquisition price is the amount the Holder paid for the
Notes less any previously amortized bond premium.

Disposition of the Notes

A United States Holder's adjusted tax basis in a Note generally will equal
the purchase price paid therefor, increased by market discount previously
included in income by such U.S. Holder and reduced by any amortized

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premium on the Note. Upon the sale, exchange, retirement at maturity or other
disposition of a Note (collectively, a "disposition"), a United States Holder
generally will recognize gain or loss equal to the difference between the
amount realized by such holder (except to the extent such amount is
attributable to accrued interest, which will be treated as ordinary interest
income) and such holder's adjusted tax basis in the Note. Such gain or loss
generally will be capital gain or loss, except to the extent that the market
discount rules otherwise provide. Under current law, net capital gain of
individuals for property held for more than one year is generally subject to a
maximum Federal tax rate of twenty percent (20%). The deductibility of capital
losses is subject to limitation.

The exchange of an old Note for an New Note pursuant to the exchange offer
will not constitute a "significant modification" of the old Note for United
States federal income tax purposes and, accordingly, the New Note received will
be treated as a continuation of the old Note in the hands of such holder. As a
result, (i) a Holder will not recognize taxable gain or loss as a result of
exchanging old Notes for Exchange Notes pursuant to the exchange offer, (ii)
the holding period of the New Notes will include the holding period of the old
Notes exchanged therefor and (iii) the adjusted tax basis of the New Notes
immediately after the exchange will be the same as the adjusted tax basis
immediately prior to the exchange of the old Notes exchanged therefor.

United States Taxation of Non-U.S. Holders

Payments of Interest

In general, under the "portfolio interest" exception payments of interest
received or accrued by a Non-U.S. Holder will not be subject to United States
federal withholding tax, provided that, (i)(a) the Non-U.S., Holder does not
actually or constructively own ten percent (10%) or more of the total combined
voting power of all classes of stock of WABCO entitled to vote, (b) the Non-
U.S. Holder is not a controlled foreign corporation that is related to WABCO
actually or constructively through stock ownership, and (c) the beneficial
owner of the Note, under penalties of perjury, provides WABCO or its agent with
the beneficial owner's name and address and certifies, under penalties of
perjury, that it is not a United States Holder, or otherwise satisfies
applicable certification requirements; (ii) the interest received on the Note
is effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and the Non-U.S. Holder complies with certain
reporting requirements (effectively connected interest income will, however, be
subject to regular United States federal income tax unless exempt under an
applicable income tax treaty); or (iii) the Non-U.S. Holder is entitled to the
benefits of an income tax treaty under which the interest is exempt from United
States withholding tax and the Non-U.S. Holder complies with certain reporting
requirements. Payments of interest not exempt from United States federal
withholding tax as described above will be subject to such withholding tax at
the rate of thirty percent (30%) (subject to reduction under an applicable
income tax treaty).

Disposition of the Notes

A Non-U.S. Holder generally will not be subject to United States federal
income tax (and generally no tax will be withheld) with respect to gain
realized on the disposition of a Note, unless (i) the gain is effectively
connected with a United States trade or business conducted by the Non-U.S.
Holder or (ii) the Non-U.S. Holder is an individual who is present in the
United States for 183 or more days during the taxable year of the disposition
and certain other requirements are satisfied. In addition, an exchange of a
Note for an Exchange Note pursuant to the exchange offer will not constitute a
taxable exchange of the Note for Non-U.S. Holders. See "United States Taxation
of United States Holders--Disposition of the Notes."

Effectively Connected Income

If interest and other payments received by a Non-U.S. Holder with respect to
the Notes (including proceeds from the disposition of the Notes) are
effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States (or the Non-U.S. Holder is otherwise subject
to United States federal income taxation on a net basis with respect to such
holder's ownership of the Notes), such Non-U.S.

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Holder will generally be subject to the rules described above under "United
States Taxation of United States Holders" (subject to any modification provided
under an applicable income tax treaty). Such Non-U.S. Holder may also be
subject to the "branch profits tax" if such holder is a non-U.S. corporation.
The branch profits tax is a United States income tax imposed upon the "dividend
equivalent amount" and the interest expense allocable to a United States trade
or business operated by the unincorporated branch or division of a foreign
corporation with the result that the United States federal income tax treatment
of such an unincorporated branch or division is comparable to the treatment of
a foreign corporation that owns its United States trade or business operations
through a subsidiary incorporated within the United States.

Backup Withholding and Information Reporting

Certain non-corporate United States Holders may be subject to backup
withholding at a rate of thirty-one percent (31%) on payments of principal,
premium and interest on, and the proceeds of the disposition of, the Notes. In
general, backup withholding will be imposed only if the United States Holder
(i) fails to furnish its taxpayer identification number, which, for an
individual, would be his or her Social Security number, (ii) furnishes an
incorrect tax identification number, (iii) is notified by the IRS that it has
failed to report payments of interest or dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that it has
furnished a correct tax identification number and has been notified by the IRS
that it is subject to backup withholding tax for failure to report interest or
dividend payments. In addition, such payments of principal and interest to
United States Holders will generally be subject to information reporting.
United States Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable.

WABCO must report annually to the IRS and to each Non-U.S. Holder any
interest that is subject to U.S. withholding tax or that is exempt from
withholding pursuant to a tax treaty or the portfolio interest exception.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement to the tax authorities of the
country in which the Non-U.S. Holder resides.

Backup withholding and other information reporting generally will not apply
to payments made to a Non-U.S. Holder of a Note who provides the requisite
certification or otherwise establishes an exemption from backup withholding.
Payments by a United Stares office of a broker of the proceeds of a disposition
of the Notes generally will be subject to backup withholding at a rate of
thirty-one percent (31%) unless the Non-U.S. Holder certifies it is a Non-U.S.
Holder under penalties of perjury or otherwise establishes an exemption.

The amount of any backup withholding imposed on a payment to a holder of a
Note will be allowed as a credit against such holder's United States federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.

Recently Issued Treasury Regulations

The U.S. Treasury Department recently issued final Treasury regulations
governing information reporting and the certification procedures regarding
withholding and backup withholding on certain amounts paid to Non-U.S. Holders
after December 31, 1999. The new Treasury regulations generally would not alter
the treatment of Non-U.S. Holders described above. The new Treasury regulations
would alter the procedures for claiming the benefits of an income tax treaty
and may change the certification procedures relating to the receipt by
intermediaries of payments on behalf of a beneficial owner of a Note.
Prospective investors should consult their tax advisors concerning the effect,
if any, of such new Treasury regulations on an investment in the Notes.

WABCO believes that the exchange of Old Notes for New Notes pursuant to the
exchange offer will not be treated as an "exchange" for federal income tax
purposes because the New Notes will not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Notes received by a holder
will be treated as a continuation of the Old Notes in the hands of such holder.
As a result, there will be no federal income tax consequences to holders
exchanging Old Notes for New Notes pursuant to the exchange offer.

99
<PAGE>

PLAN OF DISTRIBUTION

Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. A broker-dealer may not participate in the exchange offer
with respect to Old Notes acquired other than as a result of market-making
activities or other trading activities. To the extent any such broker-dealer
participates in the exchange offer and so notifies us, or causes us to be so
notified in writing, we have agreed for a period of 90 days after the date of
this prospectus, will make this prospectus, as amended or supplemented,
available to such broker-dealer for use in connection with any such resale, and
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. In addition, until [ ], 1999 (90 days after
the date of this prospectus), all dealers effecting transactions in the New
Notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of New Notes by broker-
dealers. New Notes received by broker-dealers for their own account pursuant to
the exchange offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at
prevailing market prices at the time of resale, at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such broker-
dealer or the purchasers or any such New Notes. Any broker-dealer that resells
New Notes that were received by it for its own account pursuant to the exchange
offer and any broker or dealer that participates in a distribution of such New
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act, and any profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that,
by acknowledging that it will deliver and by delivering a prospectus, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.

We have agreed to pay all expenses incident to the exchange offer (other
than commissions and concessions of any broker-dealers), subject to certain
prescribed limitations, and will indemnify the holders of the Old Notes against
certain liabilities, including certain liabilities that may arise under the
Securities Act.

By its acceptance of the exchange offer, any broker-dealer that receives New
Notes pursuant to the exchange offer hereby agrees to notify us prior to using
the prospectus in connection with the sale or transfer of New Notes, and
acknowledges and agrees that, upon receipt of notice from us of the happening
of any event which makes any statement in the prospectus untrue in any material
respect or which requires the making of any changes in the prospectus in order
to make the statements therein not misleading or which may impose upon us
disclosure obligations that may have a material adverse effect on us (which
notice we agree to deliver promptly to such broker-dealer), such broker-dealer
will suspend use of the prospectus until we have notified such broker-dealer
that delivery of the prospectus may resume and has furnished copies of any
amendment or supplement to the prospectus to such broker-dealer.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any reports, statements
or other information we file at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our Commission filings are also available to the public from commercial
document retrieval services and at the web site maintained by the Commission at
http://www.sec.gov.

100
<PAGE>

We have filed a registration statement on Form S-4 to register the New Notes
with the Commission. This prospectus is a part of that registration statement.
As allowed by Commission rules, this prospectus does not contain all the
information you can find in the registration statement or the exhibits to the
registration statement.

The Commission allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this prospectus,
except for any information superseded by information in, or incorporated by
reference in, this prospectus. This prospectus incorporates by reference the
documents set forth below that we have previously filed with the Commission.
These documents contain important information about our company and its
finances.

<TABLE>
<CAPTION>
WABCO SEC Filings (File No. 001-
13782) Period
-------------------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended December 31, 1998
Proxy Statement Filed on March 31, 1999
Quarterly Report on Form 10-Q Filed on May 5, 1999
Current Report on Form 8-K Filed on June 3, 1999
</TABLE>

We are also incorporating by reference additional documents that we file
with the Commission between the date of this prospectus and the date of the
exchange offer.

If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you call obtain any of them through the
Commission or us. Documents incorporated by reference are available from us
without charge, excluding all exhibits unless we have specifically incorporated
by reference an exhibit in this prospectus. You may obtain documents
incorporated by reference in this prospectus by requesting them in writing or
by telephone at the following address:

Westinghouse Air Brake Company
1001 Air Brake Avenue
Wilmerding, PA 15148
Tel: (412) 825-1000
Attention: Alvaro Garcia-Tunon

If you would like to request documents from us, please do so by , 1999
(five business days prior to the expiration date) to receive them before the
exchange offer.

You can also get more information by visiting our web site at www.wabco-
rail.com. Web site materials are not part of this prospectus.

In addition to the foregoing, you can find more information about our
pending merger with MotivePower in a registration statement that MotivePower
has filed with the Commission. That document is available from the Commission
as described in the first paragraph of this section.

You should rely only on the information contained or incorporated by
reference in this prospectus to determine whether to complete the exchange
offer. We have not authorized anyone to provide you with information that is
different from what is contained in this prospectus. This prospectus is dated
, 1999. You should not assume that the information contained in the
prospectus is accurate as of any date other than such date.

LEGAL MATTERS

The validity of the New Notes offered hereby will be passed upon for us by
Reed Smith Shaw & McClay LLP, Pittsburgh, Pennsylvania.

101
<PAGE>

EXPERTS

The Westinghouse Air Brake Company consolidated financial statements and
schedules as of December 31, 1998 and 1997 and for the years ended December 31,
1998, 1997 and 1996 incorporated in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and
have been so incorporated in reliance upon the authority of said firm as
experts in giving said reports.

The MotivePower financial statements as of December 31, 1998 and 1997, and
for each of the years in the period ended December 31, 1998 included in this
prospectus which is part of this registration statement have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
appearing herein, and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

102
<PAGE>

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

The financial statements, financial statement schedule and exhibits listed
below are filed as part of this prospectus:

WESTINGHOUSE AIR BRAKE COMPANY

<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements of WABCO

Condensed Consolidated Balance Sheet as of March 31, 1999 and December
31, 1998................................................................ F-2

Condensed Consolidated Statement of Operations for the three months ended
March 31, 1999 and 1998................................................. F-3

Condensed Consolidated Statement of Cash Flows for the three months ended
March 31, 1999 and 1998................................................. F-4

Notes to Condensed Consolidated Financial Statements..................... F-5

Report of Independent Public Accountants................................. F-9

Consolidated Balance Sheet as of December 31, 1998 and 1997.............. F-10

Consolidated Statement of Operations for the three years ended December
31, 1998, 1997 and 1996................................................. F-11

Consolidated Statement of Cash Flows for the three years ended December
31, 1998, 1997 and 1996................................................. F-12

Consolidated Statement of Shareholders' Equity for the three years ended
December 31, 1998, 1997 and 1996........................................ F-13

Notes to Consolidated Financial Statements............................... F-14

Financial Statement Schedule

Report of Independent Public Accountants................................. F-34

Schedule II--Valuation and Qualifying Accounts........................... F-35
</TABLE>

MOTIVEPOWER INDUSTRIES, INC.

<TABLE>
<S> <C>
Financial Statements of MotivePower

Condensed Consolidated Statements of Income for the three months ended
March 31, 1999 and 1998 (Unaudited)..................................... F-36

Condensed Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
and December 31, 1998................................................... F-37

Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 (Unaudited)............................... F-38

Notes to Condensed Consolidated Financial Statements (Unaudited)......... F-39

Independent Auditors' Report............................................. F-43

Consolidated Statements of Income for the three years ended December 31,
1998, 1997 and 1996..................................................... F-44

Consolidated Balance Sheets as of December 31, 1998 and 1997............. F-45

Consolidated Statements of Cash Flows for the three years ended December
31, 1998, 1997 and 1996................................................. F-46

Consolidated Statements of Changes in Stockholders' Equity for the three
years ended December 31, 1998, 1997 and 1996............................ F-48

Notes to Consolidated Financial Statements............................... F-49

</TABLE>

F-1
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
March 31 December 31
1999 1998
----------- -----------
(Unaudited)
Dollars in thousands,
except par value
<S> <C> <C>
Assets
Current Assets
Cash $ 4,627 $ 3,323
Accounts receivable.................................. 137,921 132,901
Inventories.......................................... 107,703 103,560
Other................................................ 21,573 23,177
--------- ---------
Total current assets............................... 271,824 262,961
Property, plant and equipment.......................... 223,849 214,461
Accumulated depreciation............................... (95,783) (89,480)
--------- ---------
Property, plant and equipment, net................. 128,066 124,981
Other Assets
Prepaid pension costs................................ 6,526 5,724
Goodwill............................................. 151,797 151,658
Other intangibles.................................... 44,738 46,021
Other noncurrent assets.............................. 6,509 4,839
--------- ---------
Total other assets................................. 209,570 208,242
--------- ---------
Total Assets..................................... $ 609,460 $ 596,184
========= =========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt.................... $ 20,264 $ 30,579
Accounts payable..................................... 51,347 62,974
Accrued income taxes................................. 10,039 8,352
Accrued interest..................................... 5,240 1,616
Customer deposits.................................... 17,310 20,426
Other accrued liabilities............................ 46,562 43,603
--------- ---------
Total current liabilities.......................... 150,762 167,550
Long-term debt......................................... 450,226 437,238
Reserve for postretirement benefits.................... 16,543 16,238
Accrued pension costs.................................. 3,911 3,631
Other long-term liabilities............................ 7,380 5,380
--------- ---------
Total liabilities.................................. 628,822 630,037
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, no
shares issued....................................... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized:
47,426,600 shares issued............................ 474 474
Additional paid-in capital........................... 108,066 107,720
Treasury stock, at cost, 13,482,148 and 13,532,092
shares.............................................. (187,014) (187,654)
Unearned ESOP shares, at cost, 8,493,131 and
8,564,811 shares.................................... (127,397) (128,472)
Retained earnings.................................... 193,965 182,291
Unamortized restricted stock award................... (103) (162)
Accumulated other comprehensive income (loss)........ (7,353) (8,050)
--------- ---------
Total shareholders' equity......................... (19,362) (33,853)
--------- ---------
Liabilities and Shareholders' Equity............. $ 609,460 $ 596,184
========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-2
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
1999 1998
---------- ----------
(Unaudited)
In thousands, except
per share data
<S> <C> <C>
Net sales............................................... $ 191,204 $ 158,136
Cost of sales........................................... 129,659 106,340
---------- ----------
Gross profit........................................ 61,545 51,796
Selling and marketing expenses.......................... 8,503 6,914
General and administrative expenses..................... 12,828 11,584
Engineering expenses.................................... 8,907 6,438
Amortization expense.................................... 2,410 2,105
---------- ----------
Total operating expenses............................ 32,648 27,041
Income from operations.............................. 28,897 24,755
Other income and expenses
Interest expense...................................... 9,096 7,373
Other expense (income), net........................... 66 (131)
---------- ----------
Income before income taxes and extraordinary item... 19,735 17,513
Income taxes............................................ 7,346 6,655
---------- ----------
Income before extraordinary item.................... 12,389 10,858
Loss on early extinguishment of debt, net of tax........ 469 --
---------- ----------
Net income.......................................... $ 11,920 $ 10,858
========== ==========
Earnings Per Common Share
Basic
Income before extraordinary item.................... $ .49 $ .43
Extraordinary item.................................. (.02) --
========== ==========
Net income.......................................... $ .47 $ .43
========== ==========
Diluted
Income before extraordinary item.................... $ .48 $ .42
Extraordinary item.................................. (.02) --
---------- ----------
Net income.......................................... $ .46 $ .42
========== ==========
Weighted Average Shares Outstanding
Basic............................................... 25,371 24,962
Diluted............................................. 25,776 25,669
========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-3
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
1999 1998
--------- ---------
(Unaudited)
In thousands
<S> <C> <C>
Operating Activities
Net income.............................................. $ 11,920 $ 10,858
Adjustments to reconcile net income to cash provided by
operations
Extraordinary loss on extinguishment of debt........... 469
Depreciation and amortization.......................... 6,785 6,384
Provision for ESOP contribution........................ 1,380 1,188
Changes in operating assets and liabilities, net of
acquisitions
Accounts receivable................................... (5,427) (11,327)
Inventories........................................... (4,020) (3,941)
Accounts payable...................................... (11,542) 5,407
Accrued income taxes.................................. 1,882 5,038
Accrued liabilities and customer deposits............. 2,899 (443)
Other assets and liabilities.......................... 1,569 (697)
--------- ---------
Net cash provided by operating activities............ 5,915 12,467
Investing Activities
Purchase of property, plant and equipment, net.......... (6,533) (5,329)
Acquisitions of businesses, net of cash acquired........ (960) (3,900)
--------- ---------
Net cash used for investing activities............... (7,493) (9,229)
Financing Activities
Proceeds from Senior Note offering...................... 76,875
Debt issuance costs..................................... (1,926)
Net (repayments of) proceeds from revolving credit
facility............................................... (31,955) 120
Repayments of other borrowings.......................... (40,372) (135)
Cash dividends.......................................... (246) (244)
Proceeds from exercise of stock options and employee
stock purchases........................................ 577 544
--------- ---------
Net cash provided by financing activities............ 2,953 285
Effect of changes in currency exchange rates............. (71) 33
--------- ---------
Increase in cash........................................ 1,304 3,556
Cash, beginning of year................................ 3,323 836
--------- ---------
Cash, end of year...................................... $ 4,627 $ 4,392
========= =========
</TABLE>

The accompanying notes are an integral part of this statement.

F-4
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
(Unaudited)

1. Business

Westinghouse Air Brake Company (the "Company") is North America's largest
manufacturer of value-added equipment for locomotives, railway freight cars and
passenger transit vehicles. The Company's products, which are sold to both the
original equipment manufacturer market ("OEM") and the aftermarket, are
intended to enhance safety, improve productivity and reduce maintenance costs
for its customers. The Company's products include electronic controls and
monitors, air brakes, couplers, door controls, draft gears and brake shoes. The
Company's primary manufacturing operations are in the United States and Canada,
and the Company's revenues have been primarily from North America. The
Company's customer base consists of freight transportation (railroad)
companies, locomotive and freight car original equipment manufacturers, transit
car builders and public transit systems.

2. Accounting Policies

Basis of Presentation. The unaudited condensed consolidated interim
financial statements have been prepared in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission and include the accounts of Westinghouse Air Brake Company
and its majority owned subsidiaries ("WABCO"). These condensed interim
financial statements do not include all of the information and footnotes
required for complete financial statements. In management's opinion, these
financial statements reflect all adjustments, which are of a normal recurring
nature, necessary for a fair presentation of the results for the interim
periods presented. Results for these interim periods are not necessarily
indicative of results to be expected for the full year. Certain prior period
amounts have been reclassified, where necessary, to conform to the current
period presentation.

The notes included herein should be read in conjunction with the audited
consolidated financial statements included in WABCO's Annual Report on Form 10-
K for the year ended December 31, 1998.

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

Other Comprehensive Income. Comprehensive income is defined as net income
and all nonowner changes in shareholders' equity. The Company's accumulated
other comprehensive income (loss) consists entirely of foreign currency
translation adjustments. Total comprehensive income for the first quarter
ending March 31, 1999 and 1998 was $12.6 million and $10.9 million
respectively.

3. Acquisitions

On October 5, 1998, the Company purchased the railway electronics business
of Rockwell Collins, Inc. ("RRE"), a wholly owned subsidiary of Rockwell
International Corporation, for approximately $80 million in cash. The purchase
was initially financed by obtaining additional term debt of $40 million through
an amendment to the Company's existing credit facility, an unsecured bank loan
of $30 million and additional borrowings under the Company's revolving credit
agreement. RRE is a leading manufacturer and supplier of mobile electronics
(display and positioning systems), data communications, and electronic braking
systems for the railroad industry and its operations are in the United States.
Revenues of the acquired business for its fiscal year ended September 30, 1998
were approximately $46 million.

F-5
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 (Unaudited)--(Continued)

The Company also completed the following:

i) The October 1998 acquisition of the United States railway service
center business of Comet Industries, Inc. ("Comet"), for $13.2 million,
financed through the issuance of $12.2 million of promissory notes. Annual
revenue for its most recent fiscal year was approximately $20 million.

ii) In July 1998, the purchase of assets and assumption of certain
liabilities of U.S.-based Lokring Corporation ("Lokring"), for $5.1 million
in cash. Lokring develops, manufactures and markets patented non-welded
connectors and sealing, products for railroad and other industries. Annual
sales in 1997 were approximately $10 million.

iii) The acquisition in April 1998, of 100% of the stock of RFS (E)
Limited ("RFS") of England, for approximately $10.0 million including the
assumption of certain debt. RFS is a leading provider of vehicle overhaul,
conversion and maintenance services to Britain's railway industry. Annual
revenue for its most recent fiscal year was approximately $27.5 million.

iv) The acquisition in April 1998, of the transit coupler product line
of Hadady Corporation ("Hadady") located in the United States for $4.6
million in cash.

v) In February 1999, the acquisition of the mass transit electrical
inverter and converter product line of AGC System & Technologies, Inc. of
Canada for approximately $960 thousand.

All of the above acquisitions were accounted for under the purchase method.
Accordingly, the results of operations of the applicable acquisition are
included in the Company's financial statements prospectively from the
acquisition date.

4. Inventories

Inventories are stated at the lower of cost or market. Cost is determined
under the first-in, first-out (FIFO) method. Inventory costs include material,
labor and overhead. The components of inventory, net of reserves, were:

<TABLE>
<CAPTION>
March 31 December 31
1999 1998
-------- -----------
Dollars in thousands
<S> <C> <C>
Raw materials........................................... $ 48,455 $ 47,853
Work-in-process......................................... 40,741 29,965
Finished goods.......................................... 18,507 25,742
-------- --------
Total inventory....................................... $107,703 $103,560
======== ========
</TABLE>

5. Debt Offering and Extraordinary Item

In January 1999, WABCO completed the private placement of $75 million of 9
3/8% Senior Notes which mature in June 2005. The Senior Notes were issued at a
premium resulting in an effective rate of 8.5%. The premium is being amortized
over the life of the instruments.

The issuance improved WABCO's financial liquidity by i) using a portion of
the proceeds to repay $30 million of debt associated with the RRE acquisition
that bore interest at 9.56%, and; ii) using a portion of the proceeds to repay
variable-rate revolving credit borrowings thereby increasing amounts available
under the revolving credit facility. As a result of the issuance and retirement
of certain term debt, the Company wrote-off previously capitalized debt
issuance costs of approximately $469 thousand, ($.02 per diluted share), net of
tax, in the first quarter of 1999.

F-6
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 (Unaudited)--(Continued)

6. Earnings Per Share

The computation of earnings per share is as follows:

<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------
1999 1998
-------- --------
In thousands,
except per share
<S> <C> <C>
Basic earnings per share
Income before extraordinary item applicable to common
shareholders............................................ $ 12,389 $ 10,858
Divided by
Weighted average shares outstanding.................... 25,371 24,962
Basic earnings per share before extraordinary item....... $ .49 $ .43
-------- --------
Diluted earnings per share
Income before extraordinary item applicable to common
shareholders............................................ $ 12,389 $ 10,858
Divided by sum of
Weighted average shares outstanding.................... 25,371 24,962
Conversion of dilutive stock options................... 405 707
-------- --------
Diluted shares outstanding............................. 25,776 25,669
Diluted earnings per share before extraordinary item..... $ .48 $ .42
======== ========
</TABLE>

7. Legal Proceedings

On February 12, 1999, GE Harris Railway Electronics, LLC and GE Harris
Railway Electronic Services, LLC (collectively, "GE Harris") brought suit
against the Company for alleged patent infringement and unfair competition
related to a communications system installed in one of the Company's products.
GE Harris is seeking to prohibit the Company from future infringement and is
seeking an unspecified amount of money damages to recover, in part, royalties.
While this lawsuit is in the earliest stages, the Company believes the
technology developed by the Company does not infringe on the GE Harris patents.
The Company plans to contest the infringement claims vigorously, in order to
present alternative product lines to customers in the rail industry.

8. Segment Information

The Company evaluates its business segments' operating results based on
income from operations. Corporate activities include general corporate
expenses, elimination of intersegment transactions, interest income and expense
and other unallocated charges. Since certain administrative and other operating
expenses and other items have not been allocated to business segments, the
results in the below tables are not necessarily a measure computed in
accordance with generally accepted accounting principles and may not be
comparable to other companies.

WABCO has three reportable segments--Railroad Group, Transit Group and
Molded Products Group. The key factors used to identify these reportable
segments are the organization and alignment of the Company's internal
operations, the nature of the products and services and customer type. The
business segments are:

Railroad Group consists of products geared to the production of freight cars
and locomotives, including braking control equipment and train couplers as well
as operating freight railroads. Revenues are derived from OEM and aftermarket
sales and from repairs and services.

F-7
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 (Unaudited)--(Continued)

Transit Group consists of products for passenger transit vehicles (typically
subways, rail and buses) that include braking, coupling, electrification and
monitoring equipment, climate control and door equipment that are engineered to
meet individual customer specifications. Revenues are derived from OEM and
aftermarket sales as well as from repairs and services.

Molded Products Group include manufacturing and distribution of brake shoes
and discs and other rubberized products. Revenues are generally derived from
the aftermarket.

Segment financial information for the three months ended March 31, 1999 is
as follows:

<TABLE>
<CAPTION>
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- ------- -------- ---------- --------
In thousands
<S> <C> <C> <C> <C> <C>
Sales to external customers...... $118,316 $54,862 $18,026 $191,204
Intersegment sales............... 2,255 41 2,591 $ (4,887) --
-------- ------- ------- -------- --------
Total sales.................... $120,571 $54,903 $20,617 $ (4,887) $191,204
======== ======= ======= ======== ========
Income from operations........... $ 22,423 $ 4,370 $ 5,446 $ (3,342) $ 28,897
Interest expense and other....... 9,162 9,162
-------- ------- ------- -------- --------
Income before income taxes and
extraordinary item............ $ 22,423 $ 4,370 $ 5,446 $(12,504) $ 19,735
======== ======= ======= ======== ========
</TABLE>

Segment financial information for the three months ended March 31, 1998 is
as follows:

<TABLE>
<CAPTION>
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- ------- -------- ---------- --------
In thousands
<S> <C> <C> <C> <C> <C>
Sales to external customers...... $87,686 $51,531 $18,919 $158,136
Intersegment sales............... 2,061 119 2,504 $(4,684) --
------- ------- ------- ------- --------
Total sales.................... $89,747 $51,650 $21,423 $(4,684) $158,136
======= ======= ======= ======= ========
Income from operations........... $17,494 $ 4,382 $ 5,500 $(2,621) $ 24,755
Interest expense and other....... -- -- -- 7,242 7,242
------- ------- ------- ------- --------
Income before income taxes and
extraordinary item............ $17,494 $ 4,382 $ 5,500 $(9,863) $ 17,513
======= ======= ======= ======= ========
</TABLE>

9. Subsequent Event

On June 2, 1999 WABCO agreed to merge with MotivePower Industries, Inc.
MotivePower will be the surviving corporation. Each share of our common stock
will be converted into 1.3 shares of MotivePower's common stock. Immediately
upon completion of the merger, WABCO stockholders will own approximately 55% of
MotivePower's common stock. The merger is intended to be a tax-free
reorganization for federal income tax purposes. For accounting purposes, it
will be accounted for as a pooling of interests. Completion of the merger is
subject to various conditions, including approval by WABCO stockholders and the
stockholders of MotivePower.

F-8
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Westinghouse Air Brake Company:

We have audited the accompanying consolidated balance sheet of Westinghouse
Air Brake Company (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Westinghouse Air Brake
Company and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

Arthur Andersen LLP

Pittsburgh, Pennsylvania,
February 17, 1999

F-9
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- ----------
Dollars in thousands,
except par value
<S> <C> <C>
Assets
Current Assets
Cash................................................. $ 3,323 $ 836
Accounts receivable.................................. 132,901 91,438
Inventories.......................................... 103,560 69,297
Deferred taxes....................................... 13,006 11,169
Other................................................ 10,171 7,759
---------- ----------
Total current assets............................... 262,961 180,499
Property, plant and equipment.......................... 214,461 186,534
Accumulated depreciation............................... (89,480) (78,167)
---------- ----------
Property, plant and equipment, net................. 124,981 108,367
Other Assets
Prepaid pension costs................................ 5,724 5,061
Goodwill............................................. 151,658 66,599
Other intangibles.................................... 46,021 42,466
Other noncurrent assets.............................. 4,839 7,887
---------- ----------
Total other assets................................. 208,242 122,013
---------- ----------
Total Assets..................................... $ 596,184 $ 410,879
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt.................... $ 30,579 $ 32,600
Accounts payable..................................... 62,974 37,582
Accrued income taxes................................. 8,352 488
Customer deposits.................................... 20,426 21,210
Accrued compensation................................. 12,769 13,080
Accrued warranty..................................... 12,657 12,851
Accrued interest..................................... 1,616 3,038
Other accrued liabilities............................ 18,177 10,931
---------- ----------
Total current liabilities.......................... 167,550 131,780
Long-term debt......................................... 437,238 332,334
Reserve for postretirement benefits.................... 16,238 14,860
Accrued pension costs.................................. 3,631 4,700
Deferred income taxes.................................. 3,463 5,561
Other long-term liabilities............................ 1,917 907
---------- ----------
Total liabilities.................................. 630,037 490,142
Shareholders' Equity
Preferred stock, 1,000,000 shares authorized, no
shares issued....................................... -- --
Common stock, $.01 par value; 100,000,000 shares
authorized: 47,426,600 shares issued................ 474 474
Additional paid-in capital........................... 107,720 105,522
Treasury stock, at cost, 13,532,092 and 13,743,924
shares.............................................. (187,654) (190,657)
Unearned ESOP shares, at cost, 8,564,811 and
8,751,531 shares.................................... (128,472) (131,273)
Retained earnings...................................... 182,291 141,617
Unamortized restricted stock award..................... (162) --
Accumulated other comprehensive income (loss).......... (8,050) (4,946)
---------- ----------
Total shareholders' equity......................... (33,853) (79,263)
---------- ----------
Liabilities and Shareholders' Equity............. $ 596,184 $ 410,879
========== ==========
</TABLE>

The accompanying notes are an integral part of this statement.

F-10
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1998 1997 1996
----------- ----------- -----------
In thousands, except per share data
<S> <C> <C> <C>
Net sales............................... $ 670,909 $ 564,441 $ 453,512
Cost of sales........................... 451,730 378,323 300,163
----------- ----------- -----------
Gross profit........................ 219,179 186,118 153,349
Selling and marketing expenses.......... 30,711 25,364 18,643
General and administrative expenses..... 45,337 38,153 28,890
Engineering expenses.................... 30,436 24,386 18,244
Amortization expense.................... 8,029 8,240 7,854
----------- ----------- -----------
Total operating expenses............ 114,513 96,143 73,631
Income from operations.............. 104,666 89,975 79,718
Other income and expenses
Interest expense...................... 31,217 29,729 26,152
Other expense (income), net........... 919 (344) (82)
----------- ----------- -----------
Income before income taxes and
extraordinary item................. 72,530 60,590 53,648
Income taxes............................ 27,561 23,327 20,923
----------- ----------- -----------
Income before extraordinary item.... 44,969 37,263 32,725
Loss on early extinguishment of debt,
net of tax............................. 3,315 -- --
----------- ----------- -----------
Net income.......................... $ 41,654 $ 37,263 $ 32,725
=========== =========== ===========
Earnings Per Common Share
Basic
Income before extraordinary item.... $ 1.79 $ 1.45 $ 1.15
Extraordinary item.................. (.13) -- --
----------- ----------- -----------
Net income.......................... $ 1.66 $ 1.45 $ 1.15
=========== =========== ===========
Diluted
Income before extraordinary item.... $ 1.75 $ 1.42 $ 1.15
Extraordinary item.................. (.13) -- --
----------- ----------- -----------
Net income.......................... $ 1.62 $ 1.42 $ 1.15
=========== =========== ===========
Weighted Average Shares Outstanding
Basic............................... 25,081 25,693 28,473
Diluted............................. 25,708 26,173 28,473
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of this statement.

F-11
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31
--------------------------
1998 1997 1996
-------- ------- -------
Dollars in thousands
<S> <C> <C> <C>
Operating Activities
Net income........................................ $ 41,654 $37,263 $32,725
Adjustments to reconcile net income to cash
provided by operations
Extraordinary loss on extinguishment of debt..... 3,315
Depreciation and amortization.................... 25,208 24,624 22,249
Provision for ESOP contribution.................. 4,472 3,229 2,870
Deferred income taxes............................ (3,935) (3,506) 2,456
Changes in operating assets and liabilities, net
of acquisitions
Accounts receivable............................. (26,161) (6,623) (9,868)
Inventories..................................... (16,957) 1,817 8,100
Accounts payable................................ 20,385 5,900 (6,574)
Accrued income taxes............................ 12,025 (1,349) (411)
Accrued liabilities and customer deposits....... (11,856) 5,522 9,740
Other assets and liabilities.................... (6,083) 97 (2,376)
-------- ------- -------
Net cash provided by operating activities...... 42,067 66,974 58,911
Investing Activities
Purchase of property, plant and equipment, net.... (28,957) (29,196) (12,855)
Acquisitions of businesses, net of cash acquired.. (112,514) (13,492) (78,890)
-------- ------- -------
Net cash used for investing activities......... (141,471) (42,688) (91,745)
Financing Activities
Proceeds from term debt obligations............... 64,500 65,000
Repayments of term debt........................... (7,500) (18,200) (26,300)
Net proceeds from (repayments of) revolving credit
arrangements..................................... 4,675 39,880 (2,935)
Proceeds from other borrowings.................... 43,208
Repayments of other borrowings.................... (2,000) (555) (10)
Debt issuance fees................................ (2,251) (2,068) (492)
Purchase of treasury stock........................ (44,000) (1,629)
Cash dividends.................................... (980) (1,009) (1,127)
Proceeds from exercise of stock options and
employee stock purchases......................... 2,546 3,513
-------- ------- -------
Net cash provided by (used for) financing
activities.................................... 102,198 (22,439) 32,507
Effect of changes in currency exchange rates....... (307) (1,629) 735
-------- ------- -------
Increase in cash................................. 2,487 218 408
Cash, beginning of year........................ 836 618 210
-------- ------- -------
Cash, end of year.............................. $ 3,323 $ 836 $ 618
======== ======= =======
Supplemental Cash Flow Disclosures
Interest paid during the year..................... $ 32,639 $30,223 $25,624
Income taxes paid during the year................. 19,471 28,182 20,452
======== ======= =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-12
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
Accumulated
Additional Unallocated Unamortized Other
Comprehensive Common Paid-in Treasury ESOP Retained Restricted Comprehensive
Income Stock Capital Stock Shares Earnings Stock Award Income (Loss)
------------- ------ ---------- --------- ----------- -------- ----------- -------------
In thousands, except share data
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995................... $474 $104,776 $(147,702) $(137,239) $ 73,765 $ -- $(2,772)
Cash dividends ($.04 per
share)................. (1,127)
Purchase of treasury
stock.................. (1,629)
Allocation of ESOP
shares................. (455) 3,325
Net income.............. $32,725 32,725
Translation adjustment.. (336) (336)
------- -------- --------- --------- -------- ----- -------
$32,389
=======
Balance, December 31,
1996................... 474 104,321 (149,331) (133,914) 105,363 -- (3,108)
Cash dividends ($.04 per
share)................. (1,009)
Purchase of treasury
stock.................. (44,000)
Stock issued under
option, benefit and
other plans............ 839 2,674
Allocation of ESOP
shares................. 362 2,641
Net income.............. $37,263 37,263
Translation adjustment.. (1,838) (1,838)
------- -------- --------- --------- -------- ----- -------
$35,425
=======
Balance, December 31,
1997................... 474 105,522 (190,657) (131,273) 141,617 -- (4,946)
Cash dividends ($.04 per
share)................. (980)
Stock issued under
option, benefit and
other plans............ 1,162 3,003 (162)
Allocation of ESOP
shares................. 1,036 2,801
Net income.............. $41,654 41,654
Translation adjustment.. (3,104) (3,104)
------- -------- --------- --------- -------- ----- -------
$38,550
=======
Balance, December 31,
1998................... $474 $107,720 $(187,654) $(128,472) $182,291 $(162) (8,050)
==== ======== ========= ========= ======== ===== =======
</TABLE>

The accompanying notes are an integral part of this statement.

F-13
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Westinghouse Air Brake Company (the Company) is North America's largest
manufacturer of value-added equipment for locomotives, railway freight cars and
passenger transit vehicles. The Company's products, which are sold to both the
original equipment manufacturer market and the after-market, are intended to
enhance safety, improve productivity and reduce maintenance costs for its
customers. The Company's products include electronic controls and monitors, air
brakes, couplers, door controls, draft gears and brake shoes. The Company's
primary manufacturing operations are in the United States and Canada, and the
Company's revenues have been primarily from North America. The Company's
customer base consists of railroad transportation companies, locomotive and
freight car original equipment manufacturers, railroads and transit car
builders and public transit systems.

A portion of the Company's Railroad Group's operations and revenue base is
generally dependent on the capital replacement cycles for locomotives and
freight cars of the large North American-based railroad companies. The
Company's passenger transit operations are dependent on the budgeting and
expenditure appropriation process of federal, state and local governmental
units for mass transit needs established by public policy.

2. Summary of Significant Accounting Policies

Principles of Consolidation The consolidated financial statements include
the accounts of the Company and its majority owned subsidiaries. Such
statements have been prepared in accordance with generally accepted accounting
principles. All intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified, where
necessary, to conform to the current year presentation.

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

Inventories Inventories are stated at the lower of cost or market. Cost is
determined under the first-in, first-out (FIFO) method. Inventory costs include
material, labor and overhead. The components of inventory, net of reserves,
were:

<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
<S> <C> <C>
Raw materials........................................... $ 47,853 $ 27,395
Work-in-process......................................... 29,965 26,640
Finished goods.......................................... 25,742 15,262
---------- ---------
Total inventory....................................... $ 103,560 $ 69,297
========== =========
</TABLE>

Property, Plant and Equipment Property, plant and equipment additions are
stated at cost. Expenditures for renewals and betterments are capitalized.
Expenditures for ordinary maintenance and repairs are expensed as incurred. The
Company provides for book depreciation principally on the straight-line method
over the following estimated useful lives of plant and equipment.

<TABLE>
<CAPTION>
Years
--------
<S> <C>
Land improvements................................................... 10 to 20
Buildings........................................................... 20 to 40
Machinery and equipment............................................. 4 to 15
</TABLE>

F-14
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Accelerated depreciation methods are utilized for income tax purposes.

Intangible Assets Goodwill is amortized on a straight-line basis over 40
years. Other intangibles are amortized on a straight-line basis over their
estimated economic lives. Goodwill and other intangible assets, including
patents and tradenames, are periodically reviewed for impairment based on an
assessment of future operations (see Note 4).

Revenue Recognition Revenue is recognized when products have been shipped to
the respective customers and the price for the product has been determined. The
percentage of completion method of accounting for revenues on long-term sales
contracts is applied on a relatively small amount of contracts when
appropriate. Sales returns are infrequent and not material in relation to the
Company's net sales.

Stock-Based Compensation The Company accounts for stock-based compensation,
including stock options and employee stock purchases, under APB Opinion No. 25,
"Accounting for Stock Issued to Employees." See Note 11 for related pro forma
disclosures.

Research and Development Research and development costs are charged to
expense as incurred. Such costs totaled $30.4 million, $24.4 million and $18.2
million in 1998, 1997 and 1996, respectively.

Warranty Costs Warranty costs are accrued based on management's estimates of
repair or upgrade costs per unit and historical experience. In recent years,
the Company has introduced several new products. The Company does not have the
same level of historical warranty experience for these new products as it does
for its continuing products. Therefore, warranty reserves have been established
for these new products based upon management's estimates. Actual future results
may vary from such estimates. Warranty expense was $6.2 million, $9.9 million
and $5.5 million for 1998, 1997 and 1996, respectively. Warranty reserves were
$12.7 million and $12.9 million at December 31, 1998 and 1997, respectively.

Financial Derivatives The Company periodically enters into interest rate
swap agreements to reduce the impact of interest rate changes on its variable
rate borrowings. Interest rate swaps are agreements with a counterparty to
exchange periodic interest payments (such as pay fixed, receive variable)
calculated on a notional principal amount. The interest rate differential to be
paid or received is accrued to interest expense (see Note 5). In addition, the
Company periodically enters into foreign currency exchange forward and options
contracts to mitigate the effects of fluctuations in foreign exchange rates in
countries where it has significant operations.

Income Taxes Income taxes are accounted for under the liability method.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The provision for income taxes includes
federal, state and foreign income taxes (see Note 8).

Foreign Currency Translation The financial statements of the Company's
foreign subsidiaries are translated into U.S. currency under the guidelines set
forth in SFAS No. 52, "Foreign Currency Translation." The effects of currency
exchange rate changes on intercompany transactions of a long-term investment
nature are accumulated and carried as a component of shareholders' equity. The
effects of currency exchange rate changes on intercompany transactions that are
non U.S. dollar amounts are charged or credited to earnings.

Earnings Per Share Basic earnings per common share are computed by dividing
net income applicable to common shareholders by the weighted-average number of
shares of common stock outstanding during the

F-15
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

year. Diluted earnings per common share are computed by dividing net income
applicable to common shareholders by the weighted average number of shares of
common stock outstanding adjusted for the assumed conversion of all dilutive
securities (such as employee stock options) (See Note 11).

Other Comprehensive Income In 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" which established standards for reporting and displaying comprehensive
income and its components in financial statements. Comprehensive income is
defined as net income and all other nonowner changes in shareholders' equity.
The Company's accumulated other comprehensive income (loss) consists entirely
of foreign currency translation adjustments.

Significant Customers and Concentrations of Credit Risk The Company's trade
receivables are primarily from rail and transit industry original equipment
manufacturers, railroad carriers and commercial companies that utilize rail
cars in their operations, such as utility and chemical companies. No one
customer accounted for more than 10% of the Company's sales in 1998, 1997 or
1996. The allowance for doubtful accounts was $2.9 million and $2.0 million as
of December 31, 1998 and 1997, respectively.

Employees As of December 31, 1998, approximately 28% of the Company's
workforce is covered by collective bargaining agreements. These agreements are
generally effective through 2001 and 2002.

Recent Accounting Pronouncements In June 1998, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities". The Statement establishes
accounting and reporting standards requiring that every derivative instrument
be measured at its fair value and the changes in fair value be recorded
currently in earnings unless specific hedge accounting criteria are met.
Statement No. 133 is effective for fiscal years beginning after June 15, 1999,
and accordingly, the Company anticipates adopting this standard January 1,
2000. Management continues to evaluate the impact this standard will have on
results of operations and financial condition.

3. Acquisitions

On October 5, 1998, the Company purchased the railway electronics business
(Rockwell Railroad Electronics) (RRE) of Rockwell Collins, Inc., a wholly-owned
subsidiary of Rockwell International Corporation, for approximately $80 million
in cash. The purchase was initially financed by obtaining additional term debt
of $40 million through an amendment to the Company's existing credit facility,
an unsecured bank loan of $30 million and additional borrowings under the
Company's revolving credit agreement. RRE is a leading manufacturer and
supplier of mobile electronics (display and positioning systems), data
communications, and electronic braking systems for the railroad industry and
its operations are in the United States. Revenues of the acquired business for
its fiscal year ended September 30, 1998 were approximately $46 million. The
acquisition was accounted for under the purchase accounting method and,
accordingly, its results are included in WABCO's consolidated financial
statements since the date of acquisition.

The excess of the purchase price over the fair value of the net assets
acquired was approximately $63 million and was allocated to goodwill. This
amount is based upon an independent appraisal and may decrease as a result of
adjustments to purchase price.

F-16
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following unaudited pro forma results of operations, including the
effects of pro forma adjustments related to the acquisition of RRE have been
prepared as if this transaction had occurred at the beginning of 1997:

<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997
----------- -----------
Dollars in thousands,
except per share
(Unaudited)
<S> <C> <C>
Net sales........................................... $ 707,840 $ 597,948
Income before extraordinary income.................. 41,414 32,575
Net income.......................................... 38,099 32,575
Diluted earnings per share
As reported....................................... 1.62 1.42
Pro forma......................................... 1.48 1.24
=========== ===========
</TABLE>

The pro forma financial information above does not purport to present what
the Company's results of operations would have been if the acquisition of RRE
had actually occurred on January 1, 1997, or to project the Company's results
of operations for any future period, and does not reflect anticipated cost
savings through the combination of these operations.

In the past three years, the Company also completed the following
acquisitions:

i) The October 1998 acquisition of the United States railway service
center business of Comet Industries, Inc., for $13.2 million, financed
through the issuance of $12.2 million of promissory notes. Annual revenue
for its most recent fiscal year was approximately $20 million.

ii) On July 30, 1998, purchased assets and assumed certain liabilities
of U.S.-based Lokring Corporation, for $5.1 million in cash. Lokring
develops, manufactures and markets patented non-welded connectors and
sealing products for railroad and other industries. Annual sales in 1997
were approximately $10 million.

iii) Acquired in April 1998, 100% of the stock of RFS (E) Limited
("RFS(E)") of England, for approximately $10.0 million including the
assumption of certain debt. RFS(E) is a leading provider of vehicle
overhaul, conversion and maintenance services to Britain's railway
industry. Annual revenue for its most recent fiscal year was approximately
$27.5 million.

iv) Acquired in April 1998, the transit coupler product line of Hadady
Corporation located in the United States for $4.6 million in cash.

v) In October 1997, the Company purchased the rail products business
and related assets of Sloan Valve Company for $2.5 million.

vi) Effective July 31, 1997 the Company acquired 100% of the stock of
HP s.r.l. ("HP"), an Italian transit company, for a total purchase price of
$5.8 million, which included the assumption of $2.3 million in debt. HP is
located in Sassuolo, Italy and is a leading supplier of door controls for
transit rail cars and buses in the Italian market. Annual revenues
approximated $9 million.

vii) Acquired in May 1997 Stone Safety Service Corporation, New
Jersey, and Stone U.K. Limited ("Stone"), a supplier of transit air
conditioning equipment and in June 1997, the Company acquired the heavy
rail air conditioning business of Thermo King Corporation ("Thermo King")
from Westinghouse Electric. The aggregate purchase price for the Stone and
Thermo King acquisitions was approximately $7.7 million. Annual revenues of
the these acquisitions prior to purchase were approximately $30 million.

F-17
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

viii) On September 19, 1996, the Company purchased the Vapor Group
("Vapor") for approximately $63.9 million in cash. Vapor is the leading
manufacturer of door controls for transit rail cars and metropolitan buses
in the United States. Annual revenues for its most recent fiscal year prior
to the acquisition totaled $65 million.

ix) In January 1996, the Company acquired Futuris Industrial Products
Pty. Ltd., an Australian molded products manufacturer, for approximately
$15 million. Annual revenues prior to acquisition were approximately $10.5
million.

All of these other acquisitions were accounted for under the purchase
method. Accordingly, the results of operations of the applicable acquisition
are included in the Company's financial statements prospectively from the
acquisition date. The excess of the purchase price over the fair value of net
assets was allocated to goodwill. Such recorded amounts totaled approximately
$24 million, $7 million and $17 million, in 1998, 1997 and 1996, respectively.

4. Intangibles

Intangible assets of the Company, other than goodwill, consist of the
following:

<TABLE>
<CAPTION>
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
<S> <C> <C>
Patents, tradenames and trademarks, net of accumulated
amortization of $22,874 and $19,768 (4-40 years)..... $ 35,251 $ 35,942
Covenants not to compete, net of accumulated
amortization of $10,144 and $9,333 (5 years)......... 6,092 1,133
Other intangibles, net of accumulated amortization of
$7,356 and $7,052 (3-7 years)........................ 4,678 5,391
---------- ----------
$ 46,021 $ 42,466
========== ==========
</TABLE>

At December 31, 1998 and 1997, goodwill, net of accumulated amortization of
$7.7 million and $5.4 million, respectively, totaled $151.7 million and $66.6
million, respectively. The Company evaluates the recoverability of intangible
assets, including goodwill, at each balance sheet date based on forecasted
future operations, undiscounted cash flows and other subjective criteria. Based
upon historical information, management believes that the carrying amount of
these intangible assets will be realizable over the respective amortization
periods.

F-18
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5. Long-Term debt

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
Year Ended
December 31
---------------------
1998 1997
---------- ----------
Dollars in thousands
<S> <C> <C>
Credit Agreement
Revolving credit....................................... $ 105,555 $ 100,880
Term loan.............................................. 202,500 145,500
9 3/8% Senior notes due June 5, 2005..................... 100,000 100,000
Unsecured credit facility................................ 30,000 --
Pulse.................................................... 16,990 16,990
Comet.................................................... 10,200 --
Other.................................................... 2,572 1,564
---------- ----------
Total.................................................. 467,817 364,934
Less--current portion.................................. 30,579 32,600
---------- ----------
Long-term portion...................................... $ 437,238 $ 332,334
========== ==========
</TABLE>

Credit Agreement

In June 1998, the Company refinanced its credit facility with a consortium
of commercial banks and amended it in October 1998 in connection with the RRE
acquisition. The credit agreement provides for an aggregate credit facility of
$350 million, consisting of up to $170 million of June 1998 term loans, up to
$40 million of September 1998 term loans, and up to $140 million of revolving
loans. In addition, the credit agreement provides for swingline loans of up to
an aggregate amount of $5 million, and for the issuance of letters of credit in
an aggregate face amount of up to $50 million. Swingline loans and the issuance
of letters of credit will reduce the amount of revolving loans which may be
incurred under the revolving credit facility.

At December 31, 1998, the Company had available borrowing capacity, net of
letters of credit, of approximately $12 million. The Company repaid a portion
of its borrowings under the credit agreement in January 1999 with proceeds of
the offering of $75 million of 9 3/8% Senior Notes, as further described below,
resulting in increased borrowing capacity of $47 million. (See Note 19).

The credit agreement limits the Company with respect to declaring or making
cash dividend payments and prohibits the Company from declaring or making other
distributions whether in cash, property, securities or a combination thereof,
with respect to any shares of the Company's capital stock subject to certain
exceptions, including an exception pursuant to which the Company will be
permitted to pay cash dividends on its Common Stock in any fiscal year in an
aggregate amount up to $15 million minus the aggregate amount of prepayments of
the Pulse note during such fiscal year so long as no default in the payment of
interest or fees has occurred thereunder. The credit agreement contains various
other covenants and restrictions including, without limitation, the following:
a limitation on the incurrence of additional indebtedness; a limitation on
mergers, consolidations and sales of assets and acquisitions (other than
mergers and consolidations with certain subsidiaries, sales of assets in the
ordinary course of business, and acquisitions for which the consideration paid
by the Company does not exceed $50 million individually or $150 million in the
aggregate); a limitation on liens; a limitation on sale and leasebacks; a
limitation on investments, loans and advances; a limitation on certain debt
payments; a limitation on capital expenditures; a minimum interest expense
coverage ratio; and a maximum leverage ratio. All debt incurred under the
credit agreement is secured by substantially all of the assets of the Company
and its domestic subsidiaries and is guaranteed by the Company's domestic
subsidiaries.

F-19
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Credit agreement borrowings bear variable interest rates indexed to common
indexes such as LIBOR. The weighted-average contractual interest rate on credit
agreement borrowings was 6.71% on December 31, 1998. To reduce the impact of
interest rate changes on a portion of this variable-rate debt, the Company
entered into interest rate swaps which effectively convert a portion of the
debt from variable to fixed-rate borrowings during the term of the swap
contracts. On December 31 1998, the notional value of interest rate swaps
outstanding totaled $50 million and effectively changed the Company's interest
rate from a variable rate to a fixed rate of 7.09%. The interest rate swap
agreements mature in 2000 and 2001. The Company is exposed to credit risk in
the event of nonperformance by the counterparties. However, since only the cash
interest payments are exchanged, exposure is significantly less than the
notional amount. The counterparties are large financial institutions and the
Company does not anticipate nonperformance.

Scheduled term loan principal repayments required under the credit agreement
as of December 31, 1998 are as follows:

<TABLE>
<CAPTION>
Dollars in millions
-------------------
<S> <C>
1999..................................................... $ 20.0
2000..................................................... 32.5
2001..................................................... 40.0
2002..................................................... 50.0
2003..................................................... 60.0
------
$202.5
======
</TABLE>

9 3/8% Senior Notes Due June 2005

In June 1995 the Company issued $100 million of 9 3/8% Senior Notes due 2005
(the "Existing Notes"). In January 1999, the Company issued an additional $75
million of 9 3/8% Senior Notes due 2005 (the "Additional Notes"; the Existing
Notes and the Additional Notes are collectively, the "Notes"). See "Subsequent
Event" Note 19.

The terms of the Existing Notes and the Additional Notes are substantially
the same, and the Existing Notes and the Additional Notes were issued pursuant
to indentures that are substantially the same. The Notes bear interest at the
rate of 9 3/8% and mature in June 2005. The net proceeds of the Existing Notes
were used to prepay term loans outstanding under the then existing credit
agreement. The net proceeds of the Additional Notes were used to repay the
unsecured credit facility and to reduce revolving credit borrowings.

The Notes are senior unsecured obligations of the Company and rank pari
passu in right of payment with all existing and future indebtedness under (i)
capitalized lease obligations, (ii) the credit agreement, (iii) indebtedness of
the Company for money borrowed and (iv) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable unless, in the case of clause (iii) or (iv),
in the instrument creating or evidencing the same or pursuant to which the same
is outstanding, it is provided that such obligations are subordinate in right
of payment to the notes.

Unsecured Credit Facility

In October 1998, the Company obtained a $30 million unsecured credit
facility from a group of commercial banks for the purpose of financing the RRE
acquisition. At December 31, 1998, the interest rate on

F-20
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the note was 9.75% per annum. In January 1999, this facility was repaid with
proceeds of the Additional Note offering. See "Subsequent Event" Note 19.

Pulse Note

As partial payment for the Pulse acquisition, the Company issued a $17.0
million note due January 31, 2004. Interest is payable semiannually and accrues
at 9.5% until February 1, 2001; and from February 1, 2001 until January 31,
2004, interest will accrue at the prime rate charged by Chase Manhattan Bank on
December 31, 2000 plus 1%.

Comet Notes

In connection with the Comet acquisition, the Company issued notes totaling
$12.2 million, of which unsecured notes totaling $6.2 million were delivered by
the Company and a note in the amount of $6 million was delivered by a
subsidiary of the Company and secured by the acquired assets. The notes bore
interest at the rate of 10% per annum and were scheduled to mature on October
8, 1999. These notes were repaid in January 1999 (See Note 19).

Capitalized debt issuance costs of $4.8 million, net of accumulated
amortization, are being amortized over the terms of the borrowings.

F-21
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. Employee Benefit Plans

<TABLE>
<CAPTION>
Pension Plans Postretirement Plan
------------------ --------------------
As of or for the year ended December 31 1998 1997 1998 1997
- --------------------------------------- -------- -------- --------- ---------
Dollars in thousands
<S> <C> <C> <C> <C>
Change in benefit obligation
Benefit (obligation) at beginning of
year.................................. $(39,424) $(34,126) $ (17,750) $ (14,980)
Service cost........................... (1,363) (1,176) (300) (289)
Interest cost.......................... (2,904) (2,720) (1,273) (1,226)
Participant contributions.............. (32) (35)
Actuarial gain (loss).................. (4,796) (3,964) (1,348) (1,526)
Plan amendments........................ (1,480) (1,025)
Benefits paid.......................... 2,725 2,797 392 271
Effect of currency rate changes........ 1,748 825
-------- -------- --------- ---------
Benefit (obligation) at end of year.. $(45,526) $(39,424) $ (20,279) $ (17,750)
======== ======== ========= =========
Change in plan assets
Fair value of plan assets at beginning
of year............................... $ 37,884 $ 33,702 $ -- $ --
Actual return on plan assets........... 5,335 5,519
Employer contribution.................. 3,688 2,550
Participant contribution............... 32 35
Administrative expenses................ (116) (213)
Benefits paid.......................... (2,725) (2,797)
Effect of currency rate changes........ (1,741) (912)
-------- -------- --------- ---------
Fair value of plan assets at end of
year................................ $ 42,357 $ 37,884 $ -- $ --
======== ======== ========= =========
Funded status
Funded status at year end.............. $ (3,169) $ (1,540) $ (20,279) $ (17,750)
Unrecognized net actuarial (gain)
loss.................................. 2,111 (261) 3,960 2,856
Unrecognized prior service cost........ 3,151 2,162 (221) (290)
Unrecognized transition obligation..... 302 324
-------- -------- --------- ---------
Prepaid (accrued) benefit cost....... $ 2,093 $ 361 $ (16,238) $ (14,860)
======== ======== ========= =========
</TABLE>

<TABLE>
<CAPTION>
Pension Plans Postretirement Plan
---------------------- ----------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net periodic benefit cost
Service cost.................. $1,505 $1,305 $1,054 $ 340 $ 289 $ 267
Interest cost................. 2,904 2,675 2,394 1,351 1,226 935
Expected return on plan
assets....................... (3,717) (4,463) (2,482)
Net amortization/deferrals.... 755 1,865 302 195 155 13
Special event................. 696
------ ------ ------ ------ ------ ------
Net periodic benefit cost... $1,447 $1,382 $1,964 $1,886 $1,670 $1,215
====== ====== ====== ====== ====== ======
Assumptions
Discount rate................. 6.75% 7.25% 8.50% 6.75% 7.25% 7.50%
Expected long-term rate of
return....................... 10.00 9.25 9.25 -- -- --
</TABLE>

The Company sponsors defined benefit pension plans which cover substantially
all union employees and certain non-union Canadian employees and provide
pension benefits of stated amounts for each year of service

F-22
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of the employee. In connection with the establishment of the ESOP (see Note 7)
in January 1995, the pension plan for U.S. salaried employees was modified to
eliminate any credit (or accrual) for current service costs for any future
periods, effective March 31, 1995. The Company's 401(k) savings plan was also
amended to provide for the Company's future matching contributions to be made
to the ESOP in the form of the Company's Common Stock. The Company's funding
methods, which are primarily based on the ERISA requirements, differ from those
used to recognize pension expense, which is primarily based on the projected
unit credit method, in the accompanying financial statements.

Within the analysis above, the pension plan for U.S. salaried employees has
a benefit obligation of $22,338 and plan assets of $20,708 as of December 31,
1998. In 1996, as the result of an early retirement package offered to certain
union employees, the Company incurred a charge of $696,000 reflected as a
special event.

In addition to providing pension benefits, the Company had provided certain
unfunded postretirement health care and life insurance benefits for
substantially all U.S. employees. In conjunction with the establishment of the
ESOP in January 1995 (see Note 7), the postretirement health care and life
insurance benefits for salaried employees were modified to discontinue benefits
for employees who had not attained the age of 50 by March 31, 1995. The Company
is not obligated to pay health care and life insurance benefits to individuals
who had retired prior to 1990.

A one percentage point increase in the assumed health care cost trend rates
for each future year increases annual postretirement benefit expense by
$290,832 and the accumulated postretirement benefit obligation by $3.3 million.
A one percentage point decrease in the assumed health care cost trends for each
future year decreases annual postretirment benefit expense by $230,163 and the
accumulated postretirement benefit obligation by $2.6 million.

7. Employee Stock Ownership Plan and Trust (ESOP)

Effective January 31, 1995, the Company established the ESOP to enable
participating employees to obtain ownership interests in the Company. Employees
eligible to participate in the ESOP primarily include the salaried U.S.
employees and, as described in Note 6, the ESOP contributions are intended to
supplement or replace other salaried employee benefit plans.

In connection with the establishment of the ESOP, the Company made a $140
million loan to the ESOP, which was used to purchase 9,336,000 shares of the
Company's outstanding common stock. The ESOP loan initially had a term of 50
years with interest at 8.5% and was collateralized by the shares purchased by
the ESOP. Company contributions to the ESOP will be used to repay the ESOP
loan's annual debt service requirements of approximately $12 million. The
Company is obligated to contribute amounts sufficient to repay the ESOP loan.
The ESOP uses such Company contributions to repay the ESOP loan. Approximately
187,000 shares were to be allocated annually to participants over a 50-year
period. These transactions occur simultaneously and, for accounting purposes,
offset each other. Unearned ESOP shares of $128.5 million at December 31, 1998,
is reflected as a reduction in shareholders' equity in the accompanying
financial statements and will be amortized to compensation expense coterminous
with the ESOP loan. Total compensation expense recognized for allocated ESOP
shares was $4.5 million, $3.2 million and $2.9 million in 1998, 1997 and 1996,
respectively.

F-23
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

8. Income Taxes

The provision for income taxes consisted of the following:

<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
Dollars in thousands
<S> <C> <C> <C>
Current taxes
Federal......................................... $19,629 $18,490 $17,498
State........................................... 1,330 1,849 2,138
Foreign......................................... 10,537 6,494 2,372
------- ------- -------
31,496 26,833 22,008
Deferred taxes
Federal......................................... (1,964) (1,375) (2,432)
State........................................... (282) (137) (278)
Foreign......................................... (1,689) (1,994) 1,625
------- ------- -------
(3,935) (3,506) (1,085)
------- ------- -------
Total provision............................... $27,561 $23,327 $20,923
======= ======= =======

The 1998 provision excludes a $2.0 million income tax effect on the
extraordinary loss (see Note 9) related to the early extinguishment of certain
debt obligations.

The components of income before taxes on income for U.S. and foreign
operations, primarily Canada, were $49.9 million and $22.6 million,
respectively, for 1998, $47.9 million and $12.7 million, respectively, for
1997, and $42.4 million and $11.3 million, respectively, for 1996.

A reconciliation of the United States federal statutory income tax rate to
the effective income tax rate is provided below:

<CAPTION>
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
U.S. federal statutory rate....................... 35.0% 35.0% 35.0%
State taxes....................................... 2.1 2.7 3.5
Foreign........................................... .9 .8 .5
------- ------- -------
Effective rate.................................... 38.0% 38.5% 39.0%
======= ======= =======
</TABLE>

The sources of deferred income taxes were as follows:

<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
Dollars in thousands
<S> <C> <C> <C>
Deferred debt costs.............................. $(1,673) -- --
ESOP............................................. (1,513) $(1,150) $ (919)
Depreciation..................................... (964) 176 782
Postretirement benefits.......................... (593) (851) (171)
Inventory........................................ (350) 451 (1,450)
Accrued warranty................................. 1,157 (1,697) (497)
Pension.......................................... 31 958 (319)
Other liabilities and reserves................... (30) (1,393) 1,489
------- ------- -------
Deferred tax benefits............................ $(3,935) $(3,506) $(1,085)
======= ======= =======
</TABLE>

F-24
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Components deferred tax assets and liabilities were as follows:

<TABLE>
<CAPTION>
December 31
----------------------
1998 1997
---------- ----------
Dollars in thousands
<S> <C> <C>
ESOP................................................ $ 4,539 $ 3,026
Postretirement benefits............................. 3,508 2,915
Inventory........................................... 3,461 3,111
Accrued warranty.................................... 3,021 4,178
Deferred debt costs................................. 1,673 --
Pension............................................. 749 780
Depreciation........................................ (7,458) (8,422)
Other............................................... 50 20
---------- ----------
Net deferred tax asset............................ $ 9,543 $ 5,608
========== ==========
</TABLE>

9. Extraordinary Item

In June 1998, the Company refinanced its credit agreement and subsequently
amended the agreement in October 1998. This resulted in a write off of
previously deferred financing costs of approximately $3.3 million, net of tax
($.13 per diluted share), which has been reported as an extraordinary item.

10. Earnings Per Share

The computation of earnings per share is as follows:

<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997 1996
------- ------- -------
Dollars in thousands,
except per share
<S> <C> <C> <C>
Basic
Income before extraordinary item applicable to
common shareholders............................. $44,969 $37,263 $32,725
Divided by
Weighted average shares outstanding.............. 25,081 25,693 28,473
Basic earnings per share, before extraordinary
item............................................ $ 1.79 $ 1.45 $ 1.15
------- ------- -------
Diluted
Income before extraordinary item applicable to
common shareholders............................. $44,969 $37,263 $32,725
Divided by sum of
Weighted average shares outstanding.............. 25,081 25,693 28,473
Conversion of dilutive stock options............. 627 480
------- -------
Diluted shares outstanding....................... 25,708 26,173 28,473
Diluted earnings per share, before extraordinary
item............................................ $ 1.75 $ 1.42 $ 1.15
======= ======= =======
</TABLE>

Options to purchase .2 million, .5 million and 2.2 million shares of common
stock were outstanding in 1998, 1997, and 1996, respectively, but were not
included in the computation of diluted earnings per share because the options'
exercise price exceeded the average market price of the common shares.

F-25
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11. Stock-Based Compensation Plans

Stock Options Under the 1995 Stock Incentive Plan, as amended in 1998, the
Company may grant options to employees of Westinghouse Air Brake Company and
Subsidiaries for up to 4.7 million shares of Westinghouse Air Brake Company
Common Stock. The 1998 amendment increased the number of stock options
available for grant, from 3.1 million to 4.7 million. Options to purchase
approximately 3.8 million shares of Westinghouse Air Brake Company Common Stock
under the plan have been granted to employees of Westinghouse Air Brake Company
at, or in excess of, fair market value at the date of grant. Generally, the
options become exercisable over three and five-year vesting periods and expire
ten years from the date of grant.

As part of a long-term incentive program, in 1998 and 1996 the Company
granted options to purchase up to 500,020 and 684,206 shares, respectively, to
certain executives under the 1995 Stock Incentive Plan. The option price per
share is the greater of the market value of the stock on the date of grant or
$20 and $14, respectively. The options vest 100% after eight years and are
subject to accelerated vesting after three years if the Company achieves
certain earnings targets as established by the compensation committee of the
board of directors.

The Company also has a nonemployee directors stock option plan under which
100,000 shares of common stock are reserved for issuance at a price not less
than $14. Through year-end 1998, the Company granted nonstatutory stock options
to nonemployee directors to purchase a total of 35,000 shares.

Employee Stock Purchase Plan In 1998, the Company adopted an employee stock
purchase plan (ESPP). The ESPP has 500,000 shares available for issuance.
Participants purchase the Corporation's Common Stock at 85% of the lesser of
fair market value on the first or last day of each offering period. Shares
issued pursuant to the ESPP in 1998 were 6,998 shares and the average purchase
price per share was $16.575.

The Company applies APB 25 and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized under these plans. Had compensation expense for these plans been
determined based on the fair value at the grant dates for awards the method set
forth under SFAS No. 123, the Company's net income and earnings per share would
be as set forth in the following table. For purposes of pro forma disclosures,
the estimated fair value is amortized to expense over the options' vesting
period.

<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1998 1997 1996
------- ------- -------
Dollars in thousands,
except per share
<S> <C> <C> <C>
Net income
As reported....................................... $41,654 $37,263 $32,725
Pro forma......................................... 38,324 34,007 31,117
Diluted earnings per share
As reported....................................... $ 1.62 $ 1.42 $ 1.15
Pro forma......................................... 1.49 1.30 1.09
</TABLE>

Since compensation expense associated with option grants would be recognized
over the vesting period, the initial impact of applying SFAS No. 123 on pro
forma net income is not representative of the potential impact on pro forma net
income in future years. In each subsequent year, pro forma compensation expense
would include the effect of recognizing a portion of compensation expense from
multiple awards.

F-26
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

For purposes of presenting pro forma results, the fair value of each option
grant is estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:

<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Dividend yield.................................... .20% .23% .32%
Risk-free interest rate........................... 4.56 5.80 6.25
Stock price volatility............................ 29.10 29.22 30.43
Expected life (years)............................. 5.0 5.3 7.3
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating
fair value of traded options, which are significantly different than employee
stock options. Although this valuation model is an acceptable method for use in
presenting pro forma information, because of the differences in traded options
and employee stock options, the Black-Scholes model does not necessarily
provide a single measure of the fair value of employee stock options.

A summary of the Company's stock option activity and related information for
the years ended December 31 follows:

<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year....... 2,778,443 $14.64 2,222,456 $13.63 1,279,500 $14.00
Granted............... 813,520 20.99 748,126 17.84 958,956 13.14
Exercised............. (169,025) 14.39 (135,139) 13.75
Canceled.............. (134,951) 15.86 (57,000) 14.00 (16,000) 14.00
--------- --------- ---------
End of year........... 3,287,987 16.29 2,778,443 14.64 2,222,456 13.63
========= ========= =========
Exercisable at end of
year................... 1,148,134 671,971 332,992
Available for future
grant.................. 1,107,849 186,418 877,544
Weighted average fair
value of options
granted during the
year................... $ 8.98 $ 8.07 $ 4.05
</TABLE>

Exercise prices for options outstanding as of December 31, 1998 ranged from
$11.00 to $27.66. The weighted-average remaining contractual life of those
options is 8 years.

Restricted Stock Award In 1998, the Company granted 15,000 shares of
restricted Common Stock to an officer. The shares vest according to a vesting
schedule over a three-year period. The grant date market value totaled $372
thousand and is being amortized to expense over the vesting period. Unamortized
compensation is recorded as a component of shareholders' equity.

Executive Retirement Plan Under the 1997 Executive Retirement Plan, the
Company may award its Common Stock to certain employees including certain
executives who do not participate in the ESOP. Through December 31, 1998,
19,555 shares have been awarded with a fair market value of approximately $400
thousand.

With respect to the Restricted Stock Award and the Executive Retirement
Plan, compensation expense is recognized in the consolidated statement of
operations.

F-27
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12. Operating Leases

Minimum annual rentals payable under noncancelable leases in each of the
next five years and beyond are as follows:

<TABLE>
<CAPTION>
Dollars in millions
-------------------
<S> <C>
1999..................................................... $ 3.2
2000..................................................... 2.6
2001..................................................... 2.2
2002..................................................... 1.2
2003..................................................... .7
Thereafter............................................... 2.1
-----
$12.0
=====
</TABLE>

Rental expense under all leases was approximately $3.8 million, $3.3 million
and $2.8 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Operating leases relate principally to facilities, transportation
equipment and communication systems.

13. Stock Repurchase

In March 1997, the Company repurchased from Scandinavian Incentive Holdings,
B.V., ("SIH"), 4 million shares of the Company's Common Stock for an aggregate
purchase price of $44 million plus fees and expenses of approximately $2
million (the "Redemption"). The Redemption was effected pursuant to a
Redemption Agreement (the "Redemption Agreement") dated as of March 5, 1997
among the Company, SIH and Incentive AB, the sole shareholder of SIH.
Concurrently therewith, SIH sold its remaining 6 million shares of WABCO Common
Stock to investors consisting of Vestar Equity Partners, L.P., Charlesbank
Capital Partners, LLC, f/k/a Harvard Private Capital Holdings, Inc., American
Industrial Partners Capital Fund II, L.P. and certain members of management of
the Company (the "Management Purchasers") for a purchase price of $11 per share
in cash, pursuant to a Stock Purchase Agreement dated as of March 5, 1997,
which sale was effective as of March 31, 1997 (the "SIH Purchase").

To finance the Redemption, the Company amended its credit agreement to
increase the revolving credit availability by $15 million (from $125 million to
$140 million) and to obtain a waiver of the requirement to make a prepayment in
an aggregate principal amount equal to 50% of excess cash flow for 1996, or
approximately $11.5 million. The Company obtained consents from record owners
as of March 3, 1997 of the Existing Notes to certain amendments to a covenant
contained in the Indenture dated as of June 20, 1995 among the Company, as
issuer, and The Bank of New York, as trustee, pursuant to which the Notes were
issued (the "Indenture"). The Company borrowed $46 million to fund the
Redemption and related expenses.

The following presents the Company's results for the year ended December 31,
1997 on a pro forma basis as if the stock repurchase had occurred on January 1,
1997:

<TABLE>
<CAPTION>
Reported Pro Forma
-------- ---------
In thousands,
except per share
<S> <C> <C>
Net income................................................ $37,263 $36,774
Basic earnings per share.................................. 1.45 1.49
Diluted earnings per share................................ 1.42 1.46
Average shares used for
Basic................................................... 25,693 24,718
Diluted................................................. 26,173 25,198
</TABLE>

F-28
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

14. Stockholders' and Voting Trust Agreements

As of December 31, 1998, the approximate ownership interests in the
Company's common stock are held by management and the ESOP (58%), the investors
referred to in Note 13 (17%), and all others including public shareholders
(25%). The investors referred to in Note 13 and certain members of senior
management purchased 6 million shares of WABCO common stock from SIH. The
seller is a successor in interest to Incentive AB (a Swedish corporation) which
acquired Investment AB Cardo, an original equity owner at the time of the 1990
acquisition of the Railway Products Group of American Standard, Inc. ("1990
Acquisition"). A Stockholders Agreement exists between management and the
investors referred to in Note 13 that provides for, among other things, the
composition of the Board of Directors as long as certain minimum stock
ownership percentages are maintained, restrictions on the disposition of shares
and rights to request the registration of the shares.

The active original management owners have entered into an Amended Voting
Trust/Disposition Agreement effective December 13, 1995, as amended. The
agreement provides for, among other matters, the stock to be voted as one block
and restrictions on the sale or transfer of such stock. The agreement expires
on January 1, 2000 and can be terminated by an affirmative vote of two-thirds
of the stock shares held by the trust. In connection with this Voting Trust,
the Company has entered into an Indemnification Agreement with the trustees,
which is covered by the Company's directors and officers liability insurance.

The shares held by the ESOP (established January 31, 1995) are subject to
the terms of the related ESOP Loan Agreement, Employee Stock Ownership Trust
Agreement, Employee Stock Ownership Plan and the Pledge Agreement. The ESOP is
further described in Note 7.

15. Preferred Stock

The Company's authorized capital stock includes 1,000,000 shares of
preferred stock. The Board of Directors has the authority to issue the
preferred stock and to fix the designations, powers, preferences and rights of
the shares of each such class or series, including dividend rates, conversion
rights, voting rights, terms of redemption and liquidation preferences, without
any further vote or action by the Company's shareholders. The rights and
preferences of the preferred stock would be superior to those of the common
stock. At December 31, 1998 and 1997 there was no preferred stock issued or
outstanding.

16. Commitments and Contingencies

Under the terms of the purchase agreement and related documents for the 1990
Acquisition, American Standard, Inc. ("ASI"), has indemnified the Company for
certain items including, among others, environmental claims. The
indemnification provisions of the agreement expire at various dates through
2000. If ASI was unable to honor or meet these indemnifications, the Company
would be responsible for such items. In the opinion of management, ASI
currently has the ability to meet its indemnification obligations. ASI has not
disputed any coverage or reimbursement under these provisions.

The Company, through one of its operating subsidiaries, has been named,
along with other parties, as a Potentially Responsible Party (PRP) under the
North Carolina Inactive Sites Response Act because of an alleged release or
threat of release of hazardous substances at the "Old James Landfill" site in
North Carolina. The Company believes that any costs associated with the cleanup
activities at this site which it may be held responsible for, if any, are
covered by (a) the ASI indemnification referred to above, as ASI previously
owned 50% of the subsidiary and (b) a related insurance policy which expires
January 2002 for environmental claims provided by the other former 50% owner of
the involved operating subsidiary. The Company has submitted a claim under the
policy for any costs of clean up imposed on or incurred by the Company in
connection with

F-29
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the "Old James Landfill" and Rocky Mountain International Insurance, Ltd. has
acknowledged coverage under the policy, subject to the stated policy
exclusions. In addition, management believes that such costs, if any,
attributable to the Company will not be material and, therefore, has not
established a reserve for such costs.

The Company's operations do not use and its products do not contain any
asbestos. The operations acquired by the Company from ASI discontinued the use
of asbestos in 1980. The Company is named as a codefendant in asbestos claims
filed by third parties against ASI relating to events occurring prior to 1981
(which is significantly prior to the 1990 acquisition). These claims are
covered by the indemnification agreement and the insurance policy referred to
above. ASI has taken complete responsibility in administering, defending and
settling the claims. The Company is not involved with, nor has it incurred any
costs related to, these claims. ASI has not claimed that the Company has any
responsibility for these cases. Management believes that these claims are not
related to the Company and that such costs, if any, attributable to the Company
and will not be material; therefore, the financial statements accordingly do
not reflect any costs or reserves for such claims.

In the opinion of management, based on available information, environmental
matters and asbestos claims do not presently represent any material
contingencies to the Company.

From time to time the Company is involved in litigation relating to claims
arising out of its operations in the ordinary course of business. As of the
date hereof, the Company is involved in no litigation that the Company believes
will have a material adverse effect on its financial condition, results of
operations or liquidity. The Company historically has not been required to pay
any material liability claims.

17. Segment Information

Railroad Group consists of products geared to the production of freight cars
and locomotives, including braking control equipment and train coupler systems
and operating freight railroads. Revenues are derived from OEM and after-market
sales and from repairs and services.

Transit Group consists of products for passenger transit vehicles (typically
subways, rail and busses) that include braking and monitoring systems, climate
control and door equipment, that are engineered to meet individual customer
specifications. Revenues are derived from OEM and after-market sales as well as
from repairs and services.

Molded Products Group include manufacturing and distribution of brake shoes
and other rubberized products. Revenues are generally derived from the after-
market.

F-30
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

income and expense and other unallocated charges. Since certain administrative
and other operating expenses and other items have not been allocated to
business segments, the results in the below tables are not necessarily a
measure computed in accordance with generally accepted accounting principles
and may not be comparable to other companies.

Segment financial information for 1998 is as follows:

<TABLE>
<CAPTION>
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
<S> <C> <C> <C> <C> <C>
Sales to external
customers.................. $388,797 $211,801 $70,311 $670,909
Intersegment sales.......... 14,137 1,276 8,805 $(24,218)
-------- -------- ------- --------
Total sales............... $402,934 $213,077 $79,116 $(24,218) $670,909
======== ======== ======= ======== ========
Income from operations...... $ 78,987 $ 16,047 $20,713 $(11,081) $104,666
Interest expense and other.. 32,136 32,136
-------- --------
Income before income taxes
and extraordinary item... $ 78,987 $ 16,047 $20,713 $(43,217) $ 72,530
======== ======== ======= ======== ========
Depreciation and
amortization............... $ 7,401 $ 4,742 $ 1,952 $ 11,113 $ 25,208
Capital expenditures........ 12,111 8,470 5,393 2,983 28,957
Working capital............. 75,516 41,856 9,762 (31,723) 95,411
Segment assets.............. 325,585 182,398 48,550 39,651 596,184
</TABLE>

Segment financial information for 1997 is as follows:

<TABLE>
<CAPTION>
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
<S> <C> <C> <C> <C> <C>
Sales to external
customers.................. $310,295 $189,541 $64,605 $564,441
Intersegment sales.......... 8,977 1,247 7,323 $(17,547)
-------- -------- ------- --------
Total sales............... $319,272 $190,788 $71,928 $(17,547) $564,441
======== ======== ======= ======== ========
Income from operations...... $ 63,840 $ 19,907 $18,364 $(12,136) $ 89,975
Interest expense and other.. 29,385 29,385
-------- --------
Income before income taxes
and extraordinary item... $ 63,840 $ 19,907 $18,364 $(41,521) $ 60,590
======== ======== ======= ======== ========
Depreciation and
amortization............... $ 6,284 $ 4,168 $ 2,029 $ 12,143 $ 24,624
Capital expenditures........ 19,236 5,341 3,254 1,365 29,196
Working capital............. 42,485 29,553 8,401 (31,720) 48,719
Segment assets.............. 175,586 149,669 42,865 42,759 410,879
</TABLE>

F-31
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Segment financial information for 1996 is as follows:

<TABLE>
<CAPTION>
Molded
Railroad Transit Products Corporate
Group Group Group Activities Total
-------- -------- -------- ---------- --------
In thousands
<S> <C> <C> <C> <C> <C>
Sales to external
customers.................. $294,021 $100,902 $58,589 $453,512
Intersegment sales.......... 12,707 863 6,089 $(19,659)
-------- -------- ------- --------
Total sales............... $306,728 $101,765 $64,678 $(19,659) $453,512
======== ======== ======= ======== ========
Income from operations...... $ 62,839 $ 12,865 $15,057 $(11,043) $ 79,718
Interest expense and other.. 26,070 26,070
-------- --------
Income before income taxes
and extraordinary item... $ 62,839 $ 12,865 $15,057 $(37,113) $ 53,648
======== ======== ======= ======== ========
Depreciation and
amortization............... $ 5,893 $ 2,785 $ 1,563 $ 12,008 $ 22,249
Capital expenditures........ 8,759 2,306 1,663 127 12,855
Working capital............. 46,705 21,862 7,922 (28,313) 48,176
Segment assets.............. 157,768 117,274 40,890 47,304 363,236
</TABLE>

The following geographic area data include trade revenues based on product
shipment destination and long-lived assets consists of plant, property and
equipment, net of depreciation, that are resident in their respective
countries.

<TABLE>
<CAPTION>
Sales Long-Lived Assets
-------------------------- -------------------------
Year ended December 31 1998 1997 1996 1998 1997 1996
- ---------------------- -------- -------- -------- -------- -------- -------
In thousands
<S> <C> <C> <C> <C> <C> <C>
United States.............. $486,010 $421,057 $333,405 $ 78,720 $ 71,030 $63,348
Canada..................... 74,066 72,618 76,301 38,775 34,529 30,178
Other international........ 110,833 70,766 43,806 7,486 2,808 2,318
-------- -------- -------- -------- -------- -------
Total.................... $670,909 $564,441 $453,512 $124,981 $108,367 $95,844
======== ======== ======== ======== ======== =======
</TABLE>

18. Fair Value of Financial Instruments

The estimated fair values of the Company's financial instruments approximate
their related carrying values, except for the following:

<TABLE>
<CAPTION>
1998 1997
------------ ------------
Carry Fair Carry Fair
Value Value Value Value
----- ----- ----- -----
Dollars in millions
<S> <C> <C> <C> <C>
9 3/8% Senior Notes............................. $(100) $(106) $(100) $(106)
Unsecured credit facility....................... (30) (30) -- --
Note Payable Pulse 9 1/2%....................... (17) (18) (17) (18)
Comet Notes..................................... (10) (10) -- --
Interest rate swaps............................. -- (1) -- (1)
</TABLE>

Fair values of the fixed rate obligations were estimated using discounted
cash flow analyses. The fair value of the Company's interest rate swaps (see
Note 5) were based on dealer quotes and represent the estimated amount the
Company would pay to the counterparty to terminate the swap agreements.

F-32
<PAGE>

WESTINGHOUSE AIR BRAKE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

19. Subsequent Event

In January 1999, WABCO completed the private placement of $75 million of 9
3/8% Senior Notes which mature in 2005. The Senior Notes were issued at a
premium resulting in an effective rate of 8.5%. The issuance improved WABCO's
financial liquidity by i) using a portion of the proceeds to repay $30 million
of debt associated with the RRE acquisition that bore interest at 9.56%; ii)
using a portion of the proceeds to repay variable-rate revolving credit
borrowings thereby increasing amounts available under the revolving credit
facility; and iii) repay the remaining unpaid principal of $10.2 million from
the Comet acquisition. As result of the issuance, the Company will write-off
previously capitalized debt issuance costs of approximately $.02 per diluted
share, in the first quarter of 1999.

20. Selected Quarterly Financial Data

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
(Unaudited)
Dollars in thousands, except per share data
<S> <C> <C> <C> <C>
1998
Net sales........................ $ 158,136 $ 172,052 $ 160,476 $ 180,245
Operating income................. 24,755 26,084 25,181 28,646
Income before taxes.............. 17,513 18,871 17,493 18,653
Income before extraordinary
item............................ 10,858 11,700 10,846 11,565
Net income....................... 10,858 8,970 10,846 10,980
Diluted earnings per common share
before extraordinary item....... 0.42 0.45 0.42 0.45
Diluted earnings per common
share........................... 0.42 0.34 0.42 0.43
1997
Net sales........................ $ 136,508 $ 138,066 $ 142,761 $ 147,106
Operating income................. 22,542 22,784 22,036 22,613
Income before taxes.............. 15,719 15,279 14,486 15,106
Net income....................... 9,589 9,320 8,836 9,518
Diluted earnings per common
share........................... 0.34 0.37 0.35 0.37
</TABLE>

In the second quarter of 1998, the Company refinanced its credit agreement
and wrote-off deferred financing costs of approximately $2.7 million, net of
tax, or $.11 per diluted share. In the fourth quarter of 1998, the Company
amended its credit agreement and wrote-off deferred financing costs of
approximately $.6 million, net of tax, or $.02 per diluted share. Such charges
were recorded as extraordinary items.

F-33
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Westinghouse Air Brake Company:

We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Westinghouse Air Brake Company, and
have issued our report thereon dated February 17, 1999. Our audits were made
for the purpose of forming an opinion on those statements taken as a whole. The
schedule listed in the index to the financial statements and schedules is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

Arthur Andersen LLP

Pittsburgh, Pennsylvania,
February 17, 1999

F-34
<PAGE>

SCHEDULE II

WESTINGHOUSE AIR BRAKE COMPANY

VALUATION AND QUALIFYING ACCOUNTS
For each of the three years ended December 31

<TABLE>
<CAPTION>
Balance at Charged/ Deductions Balance
beginning of (credited) to Charged to other from at end of
period expense accounts (1) reserves (2) period
------------ ------------- ---------------- ------------ ---------
Dollars in thousands
<S> <C> <C> <C> <C> <C>
1998
Accrued warranty...... $12,851 $6,238 $4,936 $11,368 $12,657
Allowance for doubtful
accounts............. 2,045 528 712 428 2,857
1997
Accrued warranty...... $ 8,172 $9,893 $2,281 $ 7,495 $12,851
Allowance for doubtful
accounts............. 1,347 812 36 150 2,045
1996
Accrued warranty...... $ 3,655 $5,459 $3,802 $ 4,744 $ 8,172
Allowance for doubtful
accounts............. 831 406 210 100 1,347
</TABLE>
- --------
(1) Reserves of acquired companies.
(2) Actual disbursements and/or charges

F-35
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(In thousands except per share data)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Net sales............................................... $107,274 $ 82,853
Cost of sales........................................... (79,751) (61,497)
--------- ---------
Gross profit............................................ 27,523 21,356
Selling, general and administrative expenses............ (12,718) (10,353)
--------- ---------
Operating income........................................ 14,805 11,003
Investment income....................................... 246 279
Interest expense........................................ (2,194) (1,213)
Other income............................................ 91 90
Foreign exchange (loss) gain............................ (538) 588
--------- ---------
Income before income taxes and extraordinary item....... 12,410 10,747
Income tax expense...................................... (4,532) (3,627)
--------- ---------
Income before extraordinary item........................ 7,878 7,120
Extraordinary loss on extinguishment of debt, net of
income tax benefit of $265 in 1998..................... -- (472)
--------- ---------
Net income.............................................. $ 7,878 $ 6,648
========= =========
EARNINGS PER COMMON SHARE--BASIC:
(Adjusted to reflect the 3-for-2 stock split effective
April 2, 1999)
Income before extraordinary item........................ $ .29 $ .27
Extraordinary item...................................... -- (.02)
--------- ---------
Net income.............................................. $ .29 $ .25
========= =========
Adjusted weighted average common shares outstanding..... 26,986 26,709
EARNINGS PER COMMON SHARE--ASSUMING DILUTION:
(Adjusted to reflect the 3-for-2 stock split effective
April 2, 1999)
Income before extraordinary item........................ $ .28 $ .26
Extraordinary item...................................... -- (.02)
--------- ---------
Net income.............................................. $ .28 $ .24
========= =========
Adjusted weighted average common shares outstanding..... 28,146 27,824
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-36
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 1999 AND DECEMBER 31, 1998 (UNAUDITED)
(In thousands except share and per share data)

<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 11,170 $ 5,660
Receivables from customers:
Billed, net of allowance for doubtful accounts of $717
and $673, respectively............................... 56,518 54,428
Unbilled.............................................. 97 2,831
Inventories............................................. 99,539 92,993
Deferred income taxes................................... 7,639 6,765
Income tax receivable................................... 2,220 5,216
Other................................................... 5,441 4,230
-------- --------
Total current assets................................ 182,624 172,123
-------- --------
Locomotive lease fleet, net............................. 1,168 1,189
-------- --------
Property, plant and equipment:
Land.................................................. 2,512 2,420
Buildings and improvements............................ 53,144 50,997
Machinery and equipment............................... 97,902 94,143
-------- --------
Property, plant and equipment, cost................... 153,558 147,560
Less accumulated depreciation......................... 58,249 54,492
-------- --------
Property, plant and equipment, net...................... 95,309 93,068
Underbillings--MPI de Mexico............................ 26,868 26,775
Goodwill and other intangibles, net..................... 87,571 63,593
Other................................................... 14,272 14,450
-------- --------
Total assets........................................ $407,812 $371,198
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt....................... $ 557 $ 549
Accounts payable--trade................................. 32,780 34,293
Accrued expenses and other current liabilities.......... 33,453 30,919
Revolving credit agreement borrowings................... -- 10,000
Advances from customers................................. 282 1,174
-------- --------
Total current liabilities........................... 67,072 76,935
Long-term debt.......................................... 133,607 95,249
Commitments and contingencies........................... 17,692 19,205
Deferred income taxes................................... 1,419 559
Other................................................... 1,385 1,321
-------- --------
Total liabilities................................... 221,175 193,269
-------- --------
Stockholders' Equity:
Common Stock, par value $.01 per share................ 260 179
Additional paid-in capital............................ 207,418 206,434
Deficit............................................... (15,368) (23,156)
Accumulated other comprehensive income................ (5,321) (5,105)
Deferred compensation................................. 5,634 4,113
-------- --------
192,623 182,465
Less--Treasury stock, at cost........................... 5,986 4,536
-------- --------
Total stockholders' equity.............................. 186,637 177,929
-------- --------
Total liabilities and stockholders' equity.............. $407,812 $371,198
======== ========
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-37
<PAGE>

MOTIVEPOWER INDUSTRIES, INC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED)
(In thousands)

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Operating Activities
Net income............................................... $ 7,878 $ 6,648
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation........................................... 2,843 1,653
Amortization........................................... 971 826
Extraordinary loss on extinguishment of debt, net of
tax................................................... -- 472
Changes in operating assets and liabilities exclusive
of effects of 1999 purchase of G&G Locotronics and Q-
Tron:
Receivables from customers........................... 6,721 (8,202)
Inventories.......................................... (978) (8,408)
Underbillings--MPI de Mexico......................... (93) 4,576
Accounts payable and accrued expenses................ (3,831) (7,358)
Advances from customers.............................. (892) 438
Other, net........................................... 550 4,090
--------- ---------
Net cash provided by (used in) operating activities...... 13,169 (5,265)
--------- ---------
Investing Activities
Payment for purchase of G&G Locotronics.................. (17,770) --
Payment for purchase of Q-Tron........................... (14,854) --
Additions to property, plant and equipment............... (3,769) (6,177)
Other, net............................................... 243 38
--------- ---------
Net cash used in investing activities.................... (36,150) (6,139)
--------- ---------
Financing Activities
Increase in intangibles.................................. (704) --
Net borrowings under credit facilities................... 28,366 326
Proceeds from exercise of stock options including tax-
related benefit......................................... 985 164
Other, net............................................... (156) --
--------- ---------
Net cash provided by financing activities................ 28,491 490
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 5,510 (10,914)
Cash and cash equivalents at beginning of period......... 5,660 16,897
--------- ---------
Cash and cash equivalents at end of period............... $ 11,170 $ 5,983
========= =========
Supplemental Disclosures of Cash Flow Information
Interest paid............................................ $ 1,936 $ 376
Income taxes paid (refunded), net........................ 44 (659)
</TABLE>

The accompanying notes are an integral part of the condensed consolidated
financial statements.

F-38
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Financial Statements

The condensed consolidated financial statements included herein are
unaudited. In the opinion of management, these statements include all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of the financial position of MotivePower Industries, Inc. and
subsidiaries (the "Company") at March 31, 1999 and the results of its
operations and its cash flows for the three months ended March 31, 1999 and
1998. These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the year ended December 31, 1998 included in the Company's 1998
Form 10-K. The results of operations for the three months ended March 31, 1999
are not necessarily indicative of the results to be expected for the full year.

The Company is a leader in the manufacturing and distribution of products
for rail and other power-related industries. Through its subsidiaries, the
Company manufactures and distributes engineered locomotive components and
parts; provides locomotive and freight car fleet maintenance; overhauls and
remanufactures locomotives and diesel engines; manufactures environmentally
friendly, switcher, commuter and mid-range DC and AC traction, diesel-electric
and liquefied natural gas locomotives up to 4,000 horsepower; and manufactures
components and software for power, marine and industrial markets. The Company's
primary customers are freight and passenger railroads, including every Class I
railroad in North America.

On February 16, 1999, the Company's Board of Directors approved a three-for-
two common stock split in the form of a 50 percent stock dividend effective
April 2, 1999. Shareholders of record as of March 17, 1999 received one
additional share of stock for each two shares they own. All share and per-share
amounts in the accompanying condensed consolidated statement of income have
been restated to give effect to the stock split.

The Company operates on a four- four- five-week accounting quarter. The
Company's quarters end on or about March 31, June 30, and September 30. The
Company's fiscal year ends December 31.

Certain reclassifications have been made to the 1998 condensed consolidated
financial statements to conform to the 1999 presentation.

Derivative Instruments and Hedging Activities: In June 1998, Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activity," was issued. SFAS No. 133 is effective for
financial statements for fiscal quarters of fiscal years beginning after June
15, 1999. The Company has not yet determined the effect of this standard on its
financial statements.

Changes In Line-of-Credit or Revolving-Debt Arrangements: In January 1999,
the Emerging Issues Task Force ("EITF") reached a tentative conclusion
regarding EITF Issue No. 98-14, "Debtor's Accounting for Changes in Line-of-
Credit or Revolving-Debt Arrangements" ("EITF 98-14"). The Company has
reflected the adoption of EITF 98-14 in its March 31, 1999 financial
statements. Under EITF 98-14, the Company has capitalized the costs related to
the first quarter 1999 amendment of its revolving credit agreement and will
amortize these costs along with previously capitalized costs over the life of
the amended agreement.

2. Comprehensive Income

The components of comprehensive income, net of related tax effects, are as
follows:

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Net income.............................................. $7,878 $6,648
Foreign currency translation adjustment................. (216) --
--------- ---------
Comprehensive income.................................... $7,662 $6,648
========= =========
</TABLE>

F-39
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

SFAS No. 130, "Reporting Comprehensive Income," was effective for fiscal
years beginning after December 15, 1997. With the Company's acquisition of Q-
Tron in January 1999, the Company is required to report the translation
adjustment relating to Q-Tron (whose functional currency is the Canadian
dollar) as a component of comprehensive income, as defined per SFAS 130. Prior
to the acquisition of Q-Tron, the Company's comprehensive income equaled net
income.

3. Inventories

Inventories consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(In thousands)
<S> <C> <C>
Cores................................................. $13,238 $11,854
Raw materials......................................... 49,616 46,646
Work in progress...................................... 15,921 14,411
Finished goods........................................ 20,764 20,082
------- -------
$99,539 $92,993
======= =======
</TABLE>

Approximately $36.8 million and $38.3 million of total inventories at March
31, 1999 and December 31, 1998, respectively, were valued on the last-in first-
out ("LIFO") cost method. The excess of current replacement cost of these
inventories over the stated LIFO value was $2 million and $1.9 million at March
31, 1999 and December 31, 1998, respectively. Costs for other inventories have
been determined principally by the first-in first-out method. The Company
defines cores as inventory designated for unit exchange programs.

4. Indebtedness

The Company's maximum borrowings under the facilities are limited to the
lesser of $350 million or 3.5 times trailing 12-month EBITDA. At March 31,
1999, the Company's gross availability under its domestic credit facilities was
approximately $270 million. After deducting outstanding debt and other
reserves, the Company has calculated its net available domestic borrowing
capacity on March 31, 1999 as $130 million.

On July 15, 1998, a domestic subsidiary of the Company entered into a 10-
year $7.5 million debt obligation. This obligation consists of an Industrial
Revenue Bond ("IRB") and bears interest at a rate of 5.5%.

Maturities under long-term obligations at March 31, 1999 were as follows:
1999--$368,000; 2000--$577,000; 2001--$610,000; 2002--$644,000; 2003--$680,000;
thereafter--$131.3 million.

F-40
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

5. Commitments and Contingencies

The Company has commitments and performance guarantees arising from
locomotive remanufacturing contracts and maintenance agreements, and warranties
from the sale of new locomotives, remanufactured locomotives and components for
locomotives and engines.

Environmental: The Company is subject to a RCRA Part B Closure Permit (the
"Permit") issued by the Environmental Protection Agency and the Idaho
Department of Health and Welfare, Division of Environmental Quality relating to
the monitoring and treatment of groundwater contamination on, and adjacent to,
the Company's Boise Locomotive facility. In compliance with the Permit, the
Company has drilled wells onsite to retrieve and treat contaminated
groundwater, and onsite and offsite to monitor the amount of hazardous
constituents. The Company has estimated the expected aggregate undiscounted
costs to be incurred over the next 23 years, adjusted for inflation at 3% per
annum, to be $4 million, based on the Permit's Corrective Action Plan, and $3.7
million for contingent additional Permit compliance requirements related to
offsite groundwater contamination. The discounted liability at March 31, 1999,
using a discount rate of 5.25%, was $2.2 million based on the Permit's
Corrective Action Plan, and $2 million for contingent additional Permit
compliance requirements related to offsite groundwater contamination. The
estimated outlays for each of the five succeeding years from 1999 to 2003 are:
$245,000, $290,000, $260,000, $268,000, and $276,000. The Company was in
compliance with the Permit at March 31, 1999.

Legal Proceedings: The Company is involved in legal proceedings incident to
the normal conduct of its business, including contract claims and employee
matters. Although the outcome of any pending legal proceeding cannot be
predicted with certainty, management believes that such legal proceedings are
adequately provided for in the condensed consolidated financial statements and
that the proceedings, individually and in the aggregate, will not have a
material adverse effect on the consolidated operations or financial condition
of the Company.

6. Reportable Segments

The Company has two reportable segments: Locomotive and Components Groups of
subsidiaries. The reportable segments are comprised of strategic business units
which offer different products and services. The Locomotive Group provides
locomotive and freight car fleet maintenance; overhauls locomotives, freight
cars and diesel engines; and manufactures environmentally friendly switcher,
commuter and mid-range DC and AC traction, diesel-electric and liquefied
natural gas locomotives up to 4,000 horsepower. The Components Group
manufactures and distributes primarily aftermarket, or replacement, new and
remanufactured components and parts, for freight and passenger railroads,
including every Class I Railroad in North America, metropolitan transit and
commuter rail authorities, original equipment manufacturers, industrial power-
related markets and other customers internationally.

The Company evaluates segment performance based primarily on operating
income, excluding unusual items. The Company accounts for intercompany sales
and transfers as if the sales or transfers were to third parties at current
market prices.

Following is unaudited condensed segment financial information for the three
months ended March 31, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Locomotive Components Total Locomotive Components Total
---------- ---------- -------- ---------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Gross sales............. $33,864 $79,460 $113,324 $38,994 $52,009 $91,003
Intercompany sales...... 288 5,762 6,050 1,774 6,376 8,150
Operating income........ 4,999 12,624 17,623 6,622 7,618 14,240
Segment assets.......... 116,351 270,552 386,903 139,582 139,226 278,808
</TABLE>

F-41
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)--(Continued)

The following reconciles segment information presented above to the
unaudited condensed consolidated financial statements:

<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- ---------
(In thousands)
<S> <C> <C>
Net Sales:
Gross sales from segments............................... $113,324 $ 91,003
Intercompany sales elimination.......................... (6,050) (8,150)
--------- ---------
Net sales............................................. $107,274 $ 82,853
========= =========
Operating Income:
Segment operating income................................ $ 17,623 $ 14,240
Unallocated corporate expenses.......................... (2,818) (3,237)
--------- ---------
Operating income...................................... $ 14,805 $ 11,003
========= =========
Assets:
Segment assets.......................................... $386,903 $278,808
Corporate assets, including domestic deferred income
taxes.................................................. 20,909 6,799
--------- ---------
Total assets........................................ $407,812 $285,607
========= =========
</TABLE>

7. Subsequent Events

On June 2, 1999, the Company agreed to merge with Westinghouse Air Brake
Company ("WABCO"). The Company will be the surviving corporation. Each share of
WABCO common stock will be converted into 1.3 shares of the Company's common
stock. At December 31, 1998, WABCO had outstanding 33,894,508 shares of common
stock (including 8,564,811 unearned ESOP shares). The merger is intended to be
a tax-free reorganization for federal income tax purposes. The Company will
account for the merger using the pooling of interests accounting method.
Completion of the merger is subject to various conditions, including approval
of the merger by the stockholders of each of the Company and WABCO.

F-42
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of MotivePower Industries, Inc.:

We have audited the accompanying consolidated balance sheets of MotivePower
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of income, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1998. 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 audits 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 MotivePower Industries, Inc.
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP

Pittsburgh, Pennsylvania
February 11, 1999 (June 2, 1999 as to Note 18)

F-43
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
(In thousands except per share data)
<S> <C> <C> <C>
Net sales........................... $ 365,218 $ 305,930 $ 291,407
Cost of sales....................... (283,896) (233,588) (234,560)
------------ ------------ ------------
Gross profit........................ 81,322 72,342 56,847
Selling, general and administrative
expenses........................... (40,959) (37,724) (32,615)
------------ ------------ ------------
Operating income.................... 40,363 34,618 24,232
Investment income................... 1,781 761 1,981
Interest expense.................... (5,894) (5,163) (9,143)
Other income--Argentina............. 10,362 2,003 1,565
Gain on sale of assets.............. -- -- 1,483
Foreign exchange gain (loss)........ 2,169 (230) 169
------------ ------------ ------------
Income before income taxes and
extraordinary item................. 48,781 31,989 20,287
Income tax expense.................. (14,554) (11,713) (7,714)
------------ ------------ ------------
Income before extraordinary item.... 34,227 20,276 12,573
Extraordinary loss on extinguishment
of debt, net of income tax benefit
of $1,104 and $687 in 1998 and
1996, respectively................. (2,030) -- (1,064)
------------ ------------ ------------
Net income and comprehensive
income............................. $ 32,197 $ 20,276 $ 11,509
============ ============ ============
EARNINGS PER COMMON SHARE--BASIC:
(Adjusted to reflect the 3-for-2
stock split effective April 2,
1999)
Income before extraordinary item... $ 1.28 $ .76 $ .48
Extraordinary item................. (.08) -- (.04)
------------ ------------ ------------
Net income......................... $ 1.20 $ .76 $ .44
============ ============ ============
Adjusted weighted average common
shares outstanding................ 26,771 26,541 26,345
EARNINGS PER COMMON SHARE--ASSUMING
DILUTION:
(Adjusted to reflect the 3-for-2
stock split effective April 2,
1999)
Income before extraordinary item... $ 1.23 $ .74 $ .48
Extraordinary item................. (.08) -- (.04)
------------ ------------ ------------
Net income......................... $ 1.15 $ .74 $ .44
============ ============ ============
Adjusted weighted average common
shares outstanding................ 27,929 27,314 26,349
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-44
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
----------------------------
1998 1997
------------- -------------
(In thousands except share
and per share data)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 5,660 $ 16,897
Receivables from customers:
Billed, net of allowance for doubtful accounts
of $673 and $394, respectively................ 54,428 34,588
Unbilled....................................... 2,831 450
Inventories...................................... 92,993 81,448
Deferred income taxes............................ 6,765 7,596
Income tax receivable............................ 5,216 953
Other............................................ 4,230 3,358
------------- -------------
Total current assets......................... 172,123 145,290
Locomotive lease fleet, net...................... 1,189 1,468
Property, plant and equipment:
Land........................................... 2,420 1,408
Buildings and improvements..................... 50,997 36,095
Machinery and equipment........................ 94,143 64,862
------------- -------------
Property, plant and equipment, cost............ 147,560 102,365
Less accumulated depreciation.................. (54,492) (49,942)
------------- -------------
Property, plant and equipment, net............... 93,068 52,423
Underbillings--MPI de Mexico..................... 26,775 32,298
Deferred income taxes............................ -- 7,724
Goodwill and other intangibles, net.............. 63,593 27,362
Other............................................ 14,450 16,537
------------- -------------
Total assets................................. $371,198 $283,102
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt................ $ 549 $ 10,725
Accounts payable--trade.......................... 34,293 30,340
Accrued expenses and other current liabilities... 30,919 36,065
Revolving credit agreement borrowings............ 10,000 5,000
Advances from customers.......................... 1,174 426
------------- -------------
Total current liabilities.................... 76,935 82,556
Long-term debt................................... 95,249 34,782
Commitments and contingencies.................... 19,205 15,552
Deferred income taxes............................ 559 --
Other............................................ 1,321 5,664
------------- -------------
Total liabilities............................ 193,269 138,554
------------- -------------
Stockholders' Equity:
Common Stock, par value $.01 per share,
authorized 55,000,000 shares; 26,911,677
shares issued and 26,550,416 shares
outstanding at December 31, 1998, and
26,661,140 shares issued and outstanding at
December 31, 1997............................. 179 178
Additional paid-in capital..................... 206,434 205,609
Deficit........................................ (23,156) (55,353)
Accumulated other comprehensive income......... (5,105) (5,105)
Deferred compensation.......................... 4,113 (781)
------------- -------------
182,465 144,548
Less--Treasury stock, at cost (361,262 shares at
December 31, 1998).............................. 4,536 --
------------- -------------
Total stockholders' equity....................... 177,929 144,548
------------- -------------
Total liabilities and stockholders' equity....... $371,198 $283,102
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.

F-45
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
--------- -------- -------
(In thousands)
<S> <C> <C> <C>
Operating Activities
Net income....................................... $ 32,197 $ 20,276 $11,509
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 7,981 6,634 6,950
Amortization................................... 3,426 3,333 3,407
Extraordinary loss on extinguishment of debt
(net of tax).................................. 2,030 -- 1,064
Gain on sale of assets......................... -- -- (1,483)
Deferred income taxes.......................... 10,218 6,486 5,402
Other, net..................................... -- 261 83
Changes in operating assets and liabilities net
of effects from 1998 purchase of Young, 1997
purchases of Jomar and Microphor, and 1996
sale of Alert and Sign:
Receivables from customers................... (16,258) (6,048) 5,787
Inventories.................................. (3,469) (85) 19,088
Other current assets......................... (872) (578) (2,919)
Underbillings--MPI de Mexico................. 5,523 (12,737) (9,233)
Accounts payable--trade...................... 1,931 16,219 (4,162)
Accrued expenses and other current
liabilities................................. (11,501) 7,081 (2,928)
Income taxes receivable...................... (4,263) (2,974) 1,708
Advances from customers...................... 748 426 --
Commitments and contingencies................ 3,653 (2,842) 9,095
--------- -------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES........ 31,344 35,452 43,368
--------- -------- -------
Investing Activities
Payment for purchase of Young, net of cash
acquired........................................ (67,685) -- --
Additions to property, plant and equipment....... (28,881) (15,001) (4,063)
Proceeds from locomotive lease fleet............. -- -- 10,071
Proceeds from sale of assets..................... -- 1,815 4,838
Payment for purchase of Jomar.................... -- (8,158) --
Payment for purchase of Microphor, net of cash
acquired........................................ -- (3,120) --
Other, net....................................... (5,758) 1,992 1,561
--------- -------- -------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES...................................... (102,324) (22,472) 12,407
--------- -------- -------
Financing Activities
Net borrowings (repayments) under credit
agreements...................................... 55,291 9,568 (16,970)
Decrease (increase) in restricted cash........... 5,194 (2,550) (2,043)
Proceeds from exercise of stock options including
tax-related benefit............................. 826 2,409 --
Increase in intangibles.......................... (1,568) (2,093) (1,228)
Repayment of long-term debt...................... -- (8,653) (2,461)
Redemption of preferred stock.................... -- -- (1,056)
Change in payable to Morrison Knudsen............ -- -- (32,477)
--------- -------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES...................................... 59,743 (1,319) (56,235)
--------- -------- -------
Net (decrease) increase in cash and cash
equivalents..................................... (11,237) 11,661 (460)
Cash and cash equivalents at beginning of year... 16,897 5,236 5,696
--------- -------- -------
Cash and cash equivalents at end of year......... $ 5,660 $ 16,897 $ 5,236
========= ======== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-46
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Supplemental Disclosures of
Cash Flow Information:
Interest paid............... $ 4,752 $ 3,311 $ 1,126
Income taxes paid
(refunded)................. 7,963 7,811 (169)
Young acquisition:
Fair value of assets
acquired................. 89,594 -- --
Liabilities assumed....... (10,188) -- --
-------- ------- --------
Cash paid............... 79,406 -- --
Less cash acquired........ 11,721 -- --
-------- ------- --------
Net cash paid........... 67,685 -- --
-------- ------- --------
Jomar acquisition:
Fair value of assets
acquired................. -- 9,351 --
Liabilities assumed....... -- (1,193) --
-------- ------- --------
Cash paid............... -- 8,158 --
-------- ------- --------
Microphor acquisition:
Fair value of assets
acquired................. -- 4,935 --
Liabilities assumed....... -- (1,115) --
-------- ------- --------
Cash paid............... -- 3,820 --
Less cash acquired........ -- (700) --
-------- ------- --------
Net cash paid........... -- 3,120 --
======== ======= ========
Noncash Investing and
Financing Activities:
Deferred compensation....... $ 4,536 $ 1,541 $ 78
Treasury stock.............. (4,536) -- --
Reduction of payable to
Morrison Knudsen:
Payable to Morrison
Knudsen.................. -- -- 18,816
Additional paid-in
capital.................. -- -- (14,902)
Deferred income taxes..... -- -- (3,914)
======== ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-47
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Accumulated
Additional Retained Other
Common Paid-In Earnings Comprehensive Deferred Treasury
Stock Capital (Deficit) Income Compensation Stock
------ ---------- --------- ------------- ------------ --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance December 31,
1995................... $176 $186,681 $(87,107) $(5,105) $ (118) $ --
---- -------- -------- ------- ------ -------
Net income.............. -- -- 11,509 -- -- --
Capital contribution,
reduction of payable to
Morrison Knudsen, net
of deferred taxes of
$3,914................. -- 14,902 -- -- -- --
Accretion of preferred
stock.................. -- -- (31) -- -- --
Compensatory stock
options granted........ -- 78 -- -- (78) --
Compensation expense.... -- -- -- -- 73 --
---- -------- -------- ------- ------ -------
Balance December 31,
1996................... $176 $201,661 $(75,629) $(5,105) $ (123) $ --
---- -------- -------- ------- ------ -------
Net income.............. -- -- 20,276 -- -- --
Compensatory stock
options granted........ -- 1,541 -- -- (1,541) --
Compensation expense.... -- -- -- -- 883 --
Stock options exercised,
including tax-related
benefit of $215........ 2 2,407 -- -- -- --
---- -------- -------- ------- ------ -------
Balance December 31,
1997................... $178 $205,609 $(55,353) $(5,105) $ (781) $ --
---- -------- -------- ------- ------ -------
Net income.............. -- -- 32,197 -- -- --
Compensation expense.... -- -- -- -- 358 --
Treasury stock, at
cost................... -- -- -- -- 4,536 (4,536)
Stock options exercised,
including tax-related
benefit of $149........ 1 825 -- -- -- --
---- -------- -------- ------- ------ -------
Balance December 31,
1998................... $179 $206,434 $(23,156) $(5,105) $4,113 $(4,536)
==== ======== ======== ======= ====== =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-48
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization, Operations and Basis of Accounting

The consolidated financial statements include the accounts of MotivePower
Industries, Inc. and its subsidiaries (collectively, the "Company").

The Company is a leader in the manufacturing of products for rail and other
power-related industries. Through its subsidiaries, the Company manufactures
and distributes engineered locomotive components and parts; provides locomotive
fleet maintenance; overhauls and remanufactures locomotives and diesel engines;
manufactures environmentally friendly switcher, commuter and mid-range DC and
AC traction, diesel-electric and liquefied natural gas locomotives up to 4,000
horsepower; and manufactures components for power, marine and industrial
markets. The Company's primary customers are freight and passenger railroads,
including every Class I railroad in North America.

Subsidiaries (Wholly Owned):

Locomotive Group: Boise Locomotive Company ("Boise Locomotive"), formed in
1972, performs locomotive remanufacturing, overhauling and manufacturing, and
locomotive fleet maintenance as its principal business.

MPI Noreste S.A. de C.V. ("MPI de Mexico"), a Mexican variable stock
corporation formed in 1994, performs locomotive fleet maintenance and
overhauls.

MotivePower Foreign Sales Corporation ("MPFSC"), formed in 1997, is a
Barbados corporation whose purpose is to take advantage of allowable U.S. tax
benefits regarding export sales and expenses.

Components Group: Motor Coils Manufacturing Company ("Motor Coils"),
acquired in 1991, is a remanufacturer of locomotive traction motors, and a
manufacturer of rotating electrical components and gearing.

Power Parts Company ("Power Parts"), acquired in 1992, is a supplier of new
and replacement engine and nonengine parts for locomotives, and inventory
management services.

Engine Systems Company, Inc. ("Engine Systems"), acquired in 1992,
remanufactures turbochargers for locomotive, industrial and marine engines.

Touchstone Company ("Touchstone"), acquired in 1994, manufactures,
remanufactures and distributes locomotive radiators, oil coolers, brake
adjusters and other industrial heat exchangers.

Microphor Inc. ("Microphor"), acquired in 1997, is a manufacturer of self-
contained sanitation and waste retention systems, primarily for the rail and
marine industries.

MotivePower Investments Limited ("MPIL"), formed in 1997, is a Delaware
holding company which holds the investment in Touchstone, Motor Coils,
Microphor and Young.

Young Radiator Company ("Young"), acquired in 1998, manufactures radiators,
air coolers, and heat exchange systems for rail and industrial power-related
markets.

January 1999 Acquisitions: G&G Locotronics ("G&G") designs and assembles
high-voltage electrical cabinets and control stands for locomotives.

Q-Tron Limited ("Q-Tron") designs and manufactures a complete line of
locomotive electronic equipment, including event recorders, speed controls,
excitation control computers, speedometers and related software products.

F-49
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Affiliates: On December 18, 1998, MotivePower completed the sale of its 19%
investment in Trenes de Buenos Aires S.A. ("TBA"), a company based in Buenos
Aires, Argentina, which, under a concession contract, operates the Mitre and
Sarmiento passenger railway lines in Buenos Aires.

On July 6, 1995, the Company sold its interest in Morrison Knudsen of
Australia, Ltd. ("MKA") to Morrison Knudsen, a former majority shareholder of
the Company. In consideration, the Company received a nominal cash payment and
MKA's redeemable preferred stock bearing a 9% cumulative dividend. The Company
sold the preferred stock to Morrison Knudsen in December 1997 for a nominal
cash payment.

On October 25, 1996, the Company sold substantially all of the assets of the
Company's Power Parts Sign Co. ("Sign") for $1.3 million plus the assumption of
certain trade payables. In addition, on July 26, 1996, the Company sold
substantially all of the assets of the Company's Alert Manufacturing and Supply
Co. ("Alert") for $3.9 million plus the assumption of trade payables of
$750,000. The Company recorded gains of $783,000 and $700,000 on the sale of
the assets of Sign and Alert, respectively.

2. Significant Accounting Policies Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its subsidiaries. Sales between the Company and its subsidiaries are billed
at prices consistent with sales to third parties and are eliminated in
consolidation. Investments in affiliates in which the Company's ownership is
less than 20% are accounted for using the cost method.

Revenue Recognition

The Company recognizes revenues on locomotive remanufacturing and
manufacturing contracts on the percentage of completion-units delivered method,
and on component part sales when product is shipped to the customer. Contract
revenues and cost estimates are reviewed and revised quarterly and adjustments
are reflected in the accounting period when known. Provisions are made
currently for estimated losses on uncompleted contracts. Unbilled accounts
receivable represent shipments for which invoices have not been processed.

Revenue recognized on the MPI de Mexico long-term maintenance contract is
based upon a percentage of the expected gross margin. Under the terms of the
maintenance contract, significant costs are incurred in the early years
(locomotive overhauls and fleet normalization), while payments from the
customers remain relatively constant throughout the life of the contract. By
using a percentage of the expected gross margin to recognize revenue under the
maintenance contract appropriate consideration is given to the risks associated
with the contract. Costs and estimated earnings in excess of billings
("Underbillings") and billings in excess of costs and estimated earnings
("Overbillings") on the contract in progress are recorded on the balance sheet
and are classified as current or non-current based upon the expected timing of
their realization or liquidation.

Remanufactured and overhauled locomotives are warranted for a period from
one to three years, and component parts are warranted for a period from one to
four years. Additionally, the Company provides an overhaul reserve on owned
locomotives. Estimated costs for product warranty are recognized at the time
the products are sold. Overhaul reserves are recorded on a straight-line basis
over the period of time from acquisition of the locomotive to the estimated
date of the related overhaul. Warranty and overhaul reserves are included in
accrued expenses and other current liabilities in the consolidated balance
sheet.

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

F-50
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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. On an ongoing basis, management reviews its estimates
based on currently available information. Changes in facts and circumstances
may result in revised estimates.

Cash Equivalents

Cash equivalents consist of investments in highly liquid debt securities
having an original maturity of three months or less. Such securities are
considered to be held to maturity.

Inventories

Inventories are stated at the lower of cost or market. Locomotive
inventories under long-term contracts consist of actual direct material, labor
and manufacturing overhead and are allocated to individual units based on the
estimated average production costs of units to be produced under a contract.
Locomotive inventories under contract were $3.6 million and $8.7 million at
December 31, 1998 and 1997, respectively. Component part inventories are valued
at production cost using either the last-in first-out ("LIFO") method or the
first-in, first-out ("FIFO") method.

Market, Concentrations and Credit Risks

Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash equivalents and accounts
receivable. The Company, by its policy, limits the amount of credit exposure to
any one financial institution and places its investments with financial
institutions that the Company believes are financially sound.

The Company provides its products and services to the Class I railroads in
North America, metropolitan transit and commuter rail authorities, Amtrak,
original equipment manufacturers, short lines and other customers
internationally. Collectively, the Company's top five customers accounted for
51%, 66% and 63% of net sales in the years ended December 1998, 1997 and 1996,
respectively. Net sales to three customers exceeded 10% of total net sales for
each of the years ended December 31, 1998, 1997 and 1996, respectively
(Burlington Northern Santa Fe--18%, 19%, 19%; Union Pacific--10%, 13%, 16%;
Transportacion Ferroviaria Mexicana ("TFM")--10%, 20%, 14%). The Company
performs ongoing credit evaluations of its customers' accounts and historically
has not incurred any significant credit-related losses.

The Company's Boise Locomotive, Motor Coils and MPI de Mexico subsidiaries
have union labor contracts expiring at various times through June 2002. The
Company considers the renegotiation of these contracts under terms and
conditions consistent with market conditions for similar U.S. based labor
forces to be an important factor in the maintenance of operations.

Foreign Exchange Forward Contracts

Foreign exchange forward contracts are legal agreements between two parties
to purchase and sell a foreign currency for a price specified at the contract
date, with delivery and settlement in the future. The Company uses such
contracts to hedge the risk of changes in foreign currency exchange rates
associated with certain assets and obligations denominated primarily in the
Mexican peso ("MXP"). Changes in the market value of the forward contracts are
recognized in income when the effects of related changes in the price of the
hedged item are recognized.

Locomotive Lease Fleet

Equipment on operating leases includes the Company's locomotive lease fleet.
The locomotives are depreciated on a straight-line basis over their estimated
useful lives of five to 15 years. Cost and accumulated

F-51
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

depreciation at December 31, 1998 were $2.4 million and $1.3 million,
respectively. Cost and accumulated depreciation at December 31, 1997 were $2.9
million and $1.4 million, respectively.

Property, Plant and Equipment

Buildings and improvements and machinery and equipment are recorded at cost
and depreciated on the straight-line method over periods from three to 30
years. The cost and accumulated depreciation associated with property and
equipment that is disposed of are removed from the accounts, and gains or
losses from such disposals are included in income. Leasehold improvements are
capitalized and amortized on the straight-line method over the terms of the
related leases. Included in buildings and improvements is the Company's
Mountaintop facility, which is an asset held for sale. The book value of this
Locomotive Group asset was $1.9 million at December 31, 1998 and 1997.
Expenditures for repairs and maintenance are charged to expense as incurred.

Goodwill and Other Intangibles

Significant components of goodwill and other intangibles are the following:

Goodwill--Cost in excess of tangible assets of businesses acquired in
purchase transactions is amortized on the straight-line method over 15 to 40
years from the date of acquisition. The unamortized cost of goodwill was $59.7
million at December 31, 1998 and $20.2 million at December 31, 1997.

Covenants Not To Compete--These agreements are recorded at cost and
amortized on the straight-line method over the terms of the agreements. Terms
of the agreements range from three to 10 years. The unamortized cost was $3.3
million at December 31, 1998 and $4.2 million at December 31, 1997.

Loan Origination Fees--These fees are associated with the origination of the
Company's debt. The fees are recorded at cost and amortized on the straight-
line method over the terms of the respective loan agreements. The unamortized
cost was $575,000 at December 31, 1998 and $2.9 million at December 31, 1997.

Accumulated amortization at December 31, 1998 and 1997 was $14.5 million and
$12 million, respectively. The Company evaluates the realization of intangible
assets on a quarterly basis and adjusts, if necessary, the carrying value or
useful life accordingly.

Foreign Currency Translation

Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect on the balance sheet date while income and expenses are
translated at the average rates of exchange prevailing during the year. Foreign
currency gains and losses resulting from transactions, and the translation of
financial statements are recorded in the Company's consolidated financial
statements based upon the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation." The accumulated
other comprehensive income included in the consolidated balance sheets consists
of cumulative translation adjustments net of tax.

MPI de Mexico has contracts that provide for escalation adjustments based
upon, among other things, changes in the exchange rate. Such escalation
adjustments are included in revenues when realized.

Income Taxes

The provision for income taxes includes Federal, state and local, and
foreign income taxes currently payable and those deferred or prepaid because of
temporary differences between the financial statement and tax bases of assets
and liabilities. The carrying amounts of deferred tax assets and liabilities
are determined based

F-52
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

on differences between the financial statement amounts and the tax bases of
assets and liabilities using the enacted tax rates in effect in the years in
which the differences are expected to reverse.

Deferred Compensation Arrangements

In May 1998, a consensus on Emerging Issues Task Force Issue No. 97-14,
"Accounting for Deferred Compensation Arrangements Where Amounts Earned Are
Held in a Rabbi Trust and Invested" ("EITF 97-14"), was issued. The Company has
reflected the adoption of EITF 97-14 in the December 31, 1998 financial
statements. The adoption of EITF 97-14 required the Company to record as
treasury stock the historical value of the Company's stock maintained in its
deferred compensation plans.

Derivative Instruments and Hedging Activities

In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activity", was issued. SFAS 133 is effective for financial statements
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company has not yet determined the effect of this standard on its financial
statements.

Reclassifications

Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the current year presentation.

3. Inventories

Inventories consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Cores........................................................ $11,854 $ 7,477
Raw materials................................................ 46,646 35,421
Work in process.............................................. 14,411 21,396
Finished goods............................................... 20,082 17,154
------- -------
Total inventories.......................................... $92,993 $81,448
======= =======
</TABLE>

Approximately $38.3 million and $30.7 million of total inventories at
December 31, 1998 and 1997, respectively, were valued on the LIFO cost method,
and the excess of current replacement cost of these inventories over the stated
LIFO value was $1.9 million and $1.2 million at December 31, 1998 and December
31, 1997, respectively. Costs for other inventories have been determined
principally by the FIFO method. The Company defines cores as inventory units
designated for unit exchange programs.

F-53
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Accrued payroll and benefits................................. $10,906 $13,125
Warranty and overhaul accruals............................... 10,328 8,622
Reserve for future losses.................................... 954 1,760
Other accrued liabilities.................................... 8,731 12,558
------- -------
Total accrued expenses and other current liabilities....... $30,919 $36,065
======= =======
</TABLE>

5. Underbillings--MPI De Mexico

MPI de Mexico has a long-term contract to provide maintenance and other
locomotive services. Details relative to cumulative costs incurred and revenues
recognized are as follows:

<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Costs incurred........................................... $198,921 $148,433
Estimated earnings....................................... 39,686 17,633
-------- --------
238,607 166,066
Less billings to date.................................... (211,832) (133,768)
-------- --------
Total underbillings...................................... $ 26,775 $ 32,298
======== ========
</TABLE>

6. Indebtedness

Revolving Credit Borrowings

<TABLE>
<CAPTION>
December 31,
--------------
1998 1997
------- ------
(In thousands)
<S> <C> <C>
Variable rate $100,000 revolving 364-day credit facility,
effective interest rate 6.95% as of December 31, 1998....... $10,000 $ --
Domestic revolver under Second Amended and Restated Credit
Agreement, effective interest rate 6.47% as of December 31,
1997........................................................ -- 5,000
------- ------
Total revolving credit borrowings............................ $10,000 $5,000
======= ======
</TABLE>

F-54
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Term Debt

<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Variable rate $100,000 revolving credit facility, expires
2002, effective interest rate 6.19% as of December 31,
1998..................................................... $88,500 $ --
5.5% Industrial revenue bonds due 2008.................... 7,298 --
MPI de Mexico credit facility, due 2000, effective
interest rate 8.8% as of December 31, 1997............... -- 27,508
Domestic term loan under Second Amended and Restated
Credit Agreement, effective interest rate 6.47% as of
December 31, 1997........................................ -- 17,999
------- -------
95,798 45,507
Less current portion of long-term debt.................... (549) (10,725)
------- -------
Total long-term debt...................................... $95,249 $34,782
======= =======
</TABLE>

Scheduled Maturities of Long-Term Debt

<TABLE>
<CAPTION>
Year of Maturity
---------------------------
1999 2000 2001 2002 2003
---- ---- ---- ------- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Long-term debt................................... $549 $580 $613 $89,147 $683
==== ==== ==== ======= ====
</TABLE>

In August 1995, the Company and its subsidiaries entered into a $75 million
loan agreement with BankAmerica Business Credit ("BABC"). In 1996, the Company
repaid amounts owed certain participating lenders who were no longer lenders
under the loan agreement, as modified, and paid early termination fees to those
lenders. The early termination fees and the unamortized portion of previously
incurred deferred debt issuance costs were expensed as an extraordinary item of
$1.1 million, net of tax.

In February 1997, the Company and a syndicate of lenders led by Bank of
America NT and SA entered into a Second Amended and Restated Credit Agreement
to replace the Company's loan agreement with BABC. In May 1997, the Company
entered into Amendment No. 1 to the Second Amended and Restated Credit
Agreement. The amendment increased the limit on the issuance of performance
bonds from $10 million to $30 million, increased the limit on the issuance of
letters of credit in support of performance bonds from $2.5 million to $10
million and increased the limit on the aggregate amount of letters of credit
from $15 million to $20 million.

In January 1998, the Company closed two new revolving credit facilities
("the facilities") with ABN AMRO Bank, N.V. and Mellon Bank N.A. totaling $200
million. ABN AMRO and Mellon Bank subsequently sold participations in these
facilities to a syndicate of 10 additional banks. The facilities consist of a
$100 million five-year revolving loan and a 364-day $100 million revolving loan
which the Company may renew annually with the approval of the lenders. Under
the new facilities, the Company may issue up to $35 million in letters of
credit. The Company has issued $5.7 million in letters of credit as of December
31, 1998. In connection with the establishment of the two new revolving credit
facilities, the Company incurred a one-time, non-cash charge of approximately
$472,000, net of tax in the first quarter of 1998 to write off the unamortized
portion of previously incurred deferred debt issuance costs under the Company's
Second Amended and Restated Credit Agreement.

F-55
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The facilities provide for revolving borrowings at a variable margin over
the London Interbank Offered Rate ("LIBOR"), or at Prime Rate, at the Company's
option. The margin over LIBOR at which the Company may borrow is adjusted each
fiscal quarter based on the ratio obtained when the Company's debt at the end
of the quarter is divided by the Company's cash flow over the past four
quarters, as measured by earnings before interest and tax, plus depreciation
and amortization ("EBITDA"). The Company's maximum borrowings under the
facilities are limited to the lesser of $200 million or 3.5 times trailing 12-
month EBITDA. At December 31, 1998, the Company's gross availability under its
revolving credit facilities was $200 million. After deducting outstanding debt
and other reserves, the Company calculates its net available borrowing capacity
on December 31, 1998 to be $88.5 million.

The Company had a U.S. dollar-denominated credit facility with a Mexican
bank, Bancomer S.A., to support its operations in Mexico. The facility was a
$30 million, five-year term loan with support from the Export-Import Bank of
the United States. The facility required certain cash balances to be held in
trust. Amounts held in trust at the balance sheet date are classified as
restricted cash and have been included in other non-current assets in the
accompanying consolidated balance sheets at December 31, 1998 and 1997. In
December 1998, the Company repaid amounts owed on the term loan. The early
termination fees and the unamortized portion of previously incurred deferred
debt issuance costs were expensed as an extraordinary item of $1,558,000, net
of tax in the 1998 fourth quarter.

7. Redeemable Preferred Stock

In September 1995, the Company deposited 10,000 shares of Preferred Stock
into a joint settlement account in connection with the settlement of certain
class action suits. On December 6, 1996, the Company exercised its option to
redeem all of the outstanding shares of Preferred Stock at a price of $1.1
million including accrued dividends.

8. Stock Option Plans

The Company has established two stock option plans, which are described
below. The Company applies Accounting Principles Board Opinion Number 25 and
related Interpretations in accounting for its plans.

The compensation cost that has been charged against income was $495,000,
$2.7 million and $775,000 for 1998, 1997 and 1996, respectively. Had
compensation cost for the Company's plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of SFAS No. 123 "Accounting for Stock-Based Compensation," the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997 1996
-------- -------- --------
(In thousands except
earnings per share data)
<S> <C> <C> <C>
Net income ...................................... $ 32,197 $ 20,276 $ 11,509
As reported Pro forma............................ $ 30,926 $ 19,444 $ 11,104
-------- -------- --------
Earnings per diluted share....................... $ 1.15 $ .74 $ .44
As reported Pro forma............................ $ 1.11 $ .71 $ .42
======== ======== ========
</TABLE>

The following weighted-average assumptions were used to estimate the fair
value of each option grant on the grant date using the Black-Scholes option-
pricing model in 1998, 1997 and 1996, respectively: dividend yield of zero
percent for all years; expected volatility of 63%, 65% and 72%; risk free
interest rates of 5.3%, 6.26% and 6.5%; and expected lives of six years, 10
years and 10 years.

F-56
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In the MotivePower Industries, Inc. Stock Incentive Plan (the "Incentive
Plan"), a maximum of 3.75 million shares may be issued upon the exercise of
stock options granted or through limited stock appreciation rights. Officers
and other key employees of the Company or its subsidiaries are eligible to
receive awards. The exercise price, term and other conditions applicable to
each award are determined by the Compensation Committee of the Board of
Directors at the time of the grant of each award and may vary with each award
granted. Awards are generally made at not less than current market prices at
date of grant, and have been granted to executives and directors under the
Incentive Plan in the form of stock options. Options granted generally vest
either over a five-year period, 20% on each anniversary date following the
grant, or a four-year period, 25% on each anniversary date following the grant.
All unexercised options expire 10 years from the date of grant, subject to
acceleration in certain cases.

Restricted stock awards for a total of 187,500 shares of the Company's
Common Stock have been granted to certain key management employees. The
weighted average grant date fair value of restricted stock was $3.57 per share.
Sale restrictions on the restricted stock lapse between January 1, 1997 and
January 1, 2007. The Company recorded expense of $156,000, $193,000 and
$155,000 for 1998, 1997 and 1996, respectively, related to the restricted
stock.

In the MotivePower Industries, Inc. Stock Option Plan for Non-Employee
Directors (the "Non-Employee Directors Plan"), a maximum of 225,000 shares may
be granted. Under the Non-Employee Directors Plan, each non-employee director
was entitled to receive options to purchase shares of the Company's common
stock upon their election to the Board at an exercise price equal to 50% of the
market price of the common stock based on the date awarded. In 1998, the Board
resolved that it would cease the practice of discounting the initial options by
50%. In addition to the initial grant date, each director is awarded an annual
stock option award on January 2, at an exercise price equal to the fair market
value of such common stock as of the date of the grant. All options granted
vest over a three-year period, one-third on each anniversary date.

A summary of the status of the Company's two stock option plans as of
December 31, 1998, 1997 and 1996, and the changes during the years ending on
those dates, is presented below:

<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 2,978,925 $ 5.29 2,610,750 $ 4.72 1,906,500 $3.51
Granted................. 421,800 16.41 822,000 8.58 1,892,250 3.31
Exercised............... (163,838) 5.49 (316,950) 6.62 -- --
Surrendered/Canceled.... (127,500) 9.97 (136,875) 5.71 (1,188,000) 7.06
--------- ------ --------- ------ ---------- -----
Outstanding at end of
year................... 3,109,387 6.65 2,978,925 5.29 2,610,750 4.72
========= ====== ========= ====== ========== =====
Options exercisable at
year end............... 1,467,707 -- 1,160,738 -- 686,094 --
Weighted average fair
value of options
granted during the
year................... $12.64 $ 6.79 $2.65
</TABLE>

F-57
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
-------------- ------------ ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$ 3.17 to $10.67.. 357,000 5.5 $ 9.57 357,000 $ 9.57
$ 2.54 to $ 7.15.. 560,625 6.7 6.45 540,000 6.49
$ 1.89 to $ 5.17.. 1,159,463 7.3 3.65 433,088 3.61
$ 5.29 to $16.77.. 641,250 8.1 8.66 137,619 8.73
$14.98 to $19.55.. 391,050 9.2 16.53 -- --
--------- --- ------ --------- ------
3,109,388 1,467,707
========= =========
</TABLE>

9. Taxes on Income

The Company and its domestic subsidiaries file a consolidated Federal income
tax return and certain combined or separate state income tax returns. MPI de
Mexico and certain other subsidiaries file an income tax return in Mexico.

The components of income tax (expense) benefit are as follows:

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
U.S. Federal:
Current....................................... $ (3,242) $ (3,862) $(1,687)
Deferred...................................... (7,275) (1,166) (4,235)
-------- -------- -------
(10,517) (5,028) (5,922)
-------- -------- -------
State and local:
Current....................................... (532) (1,365) (625)
Deferred...................................... 105 (384) 345
-------- -------- -------
(427) (1,749) (280)
-------- -------- -------
Foreign:
Current....................................... (562) -- --
Deferred...................................... (3,048) (4,936) (1,512)
-------- -------- -------
Income tax expense.............................. $(14,554) $(11,713) $(7,714)
======== ======== =======
</TABLE>

Income before income taxes and extraordinary item for the Company's foreign
and domestic operations were as follows:

<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Domestic............................................. $31,284 $21,084 $14,116
Foreign.............................................. 17,497 10,905 6,171
------- ------- -------
Total.............................................. $48,781 $31,989 $20,287
======= ======= =======
</TABLE>

F-58
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The provision for income taxes differs from tax calculated by applying the
U.S. Federal statutory income tax rate to income before income taxes due to the
following:

<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory tax rate.......................... 35.0% 35.0% 35.0%
State income tax effect, net of Federal benefit.......... 0.6 3.6 4.2
Differences between U.S. Federal statutory and foreign
tax rates............................................... (5.9) 5.7 --
Valuation allowance...................................... -- (6.4) (8.7)
Other, net............................................... 0.1 (1.3) 7.5
---- ---- ----
Total.................................................. 29.8% 36.6% 38.0%
==== ==== ====
</TABLE>

Deferred income taxes result from temporary differences in the financial
bases and tax bases of assets and liabilities. The types of differences that
give rise to significant portions of deferred income tax assets and liabilities
at December 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves............................. $ 9,690 $11,078
Inventory reserves, capitalized costs..................... 53 1,046
Plant and equipment, intangibles.......................... 3,318 3,912
Employee benefit/compensation accruals.................... 2,427 2,952
Allowance for doubtful accounts........................... 157 164
Net operating loss carryforwards.......................... 15,258 22,395
Other..................................................... 137 --
------- -------
Deferred tax assets........................................ 31,040 41,547
Valuation allowance....................................... (17,204) (17,204)
------- -------
Net deferred tax asset.................................... 13,836 24,343
Deferred tax liabilities:
Underbillings............................................. (6,802) (7,978)
Prepaid insurance......................................... (828) (1,045)
------- -------
Total deferred tax liabilities........................... (7,630) (9,023)
------- -------
Deferred income taxes, net................................. $ 6,206 $15,320
======= =======
</TABLE>

The Company's effective tax rate for the year was reduced to 29.8%,
primarily due to the Company changing the legal structure of its Mexican
operations.

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance for certain net operating loss carryforwards
and for losses anticipated to produce no tax benefit. Although realization of
the net deferred tax asset is not assured, management believes that it is more
likely than not that the net deferred tax asset will be realized.

F-59
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's net operating loss carryforward for the year ended December
31, 1998 is $39.5 million. The net operating losses expire in various amounts,
as follows:

<TABLE>
<CAPTION>
U.S. Mexico Total
------- ------- -------
(In thousands)
<S> <C> <C> <C>
2004................................................. $ -- $ 9,807 $ 9,807
2005................................................. -- 4,515 4,515
2010................................................. 25,222 -- 25,222
------- ------- -------
Total.............................................. $25,222 $14,322 $39,544
======= ======= =======
</TABLE>

10. Benefit Plans Retirement

In May 1994, the Company established a defined contribution, 401(k) savings
plan. In January 1996, the Company suspended Company contributions to the
401(k) savings plan. On July 1, 1997 the Company reinstated those contributions
equal to 2% of an eligible employee's gross wages in the form of Company stock.
In addition, beginning January 1, 1998 the Company matches 50% of an eligible
employee's contributions into the 401(k) savings plan to a maximum total of 3%
per an eligible employee's gross wages. The Company match is in the form of
Company stock. The Company's contributions were $1.3 million, $357,000 and
$71,000 for 1998, 1997 and 1996, respectively.

The Company participates in multiemployer pension, and health and welfare
plans. The plans are defined contribution plans and provide benefits for craft
employees covered under collective bargaining agreements at Boise Locomotive
and Motor Coils. Costs under the plans amounted to $3.8 million, $3.1 million
and $2.1 million for 1998, 1997 and 1996, respectively. The Company adopted two
long-term incentive plans for selected employees in 1994. The plans provide
deferred compensation based upon total shareholder return or return on total
capital. No compensation expense was recognized in connection with these plans
in 1998, 1997 or 1996.

Young Retirement Benefits

In connection with the acquisition of Young, the Company assumed liability
for Young's defined benefit pension plan (the "Young Plan"), covering
substantially all of the employees of Young. The benefits under the Young Plan
are based on years of service. The Company intends to suspend future benefits
accruing under the Young Plan as of April 1, 1999, and to terminate the Young
Plan in accordance with the provisions of the Internal Revenue Code as of June
1, 1999. This treatment of the Young Plan was contemplated when accounting for
the acquisition of Young under Accounting Principles Board Opinion No. 16,
"Business Combinations."

The Company recognized net periodic pension (income) cost for 1998 as
follows:

<TABLE>
<CAPTION>
1998
----
(In thousands)
<S> <C>
Service cost for 1998......................................... $ 47
Interest cost on projected benefit obligation................. 128
Expected return on Young Plan assets.......................... (251)
-----
Net periodic pension income................................. $ (76)
=====
</TABLE>

F-60
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The following table sets forth the Young Plan's funded status and amounts
recognized at November 18, 1998 (date of acquisition), which approximates the
funded status at December 31, 1998, based upon actuarial data and the market
value of Young Plan assets (primarily fixed income mutual funds):

<TABLE>
<CAPTION>
1998
----
(In thousands)
<S> <C>
Projected benefit
obligation for service
rendered to date....... $(22,769)
Plan assets at fair
value.................. 25,393
--------
Young Plan assets in
excess of projected
benefit obligation..... $ 2,624
========
</TABLE>

The actuarial assumptions used to determine net periodic pension income and
the projected benefit obligation at December 31, 1998 were:

<TABLE>
<CAPTION>
1998
----
<S> <C>
Discount rate.......................................................... 4.75%
Expected long-term rate of return...................................... 8.50%
</TABLE>

The discount rate reflects the rate expected to be received in connection
with annuities to be purchased at the termination of the Young Plan.

Postretirement Healthcare Benefits for Former Employees

Effective December 31, 1998, the Company transferred its current and future
liabilities associated with its employee postretirement health care plan to
Morrison Knudsen for cash consideration of $1.5 million. The resulting
settlement gain was immaterial to the 1998 statement of income. At December 31,
1997 the Company had a postretirement healthcare obligation of $1.4 million.

11. Related Party Transactions

The Company leases certain facilities from entities controlled by former
directors and officers of the Company. Lease payments, including utilities, to
these entities totaled $836,000, $999,000 and $1.1 million for the years ended
December 31, 1998, 1997 and 1996, respectively.

The Company incurred $505,000, $829,000 and $1.9 million of legal fees and
expenses from a firm in which a former officer of the Company is a shareholder,
for the years ended December 31, 1998, 1997 and 1996, respectively.

In September 1996, the Company repurchased for $34.6 million all of the debt
of the Company owed to Morrison Knudsen. The amount of the debt outstanding as
of the date of repurchase, including accrued interest, was $56.6 million. The
effect of this transaction was an increase to additional paid-in capital of
$14.9 million, a decrease in the net deferred tax asset of $3.9 million and a
reduction in amounts due to Morrison Knudsen of $56.6 million.

12. Commitments and Contingencies

F-61
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Environmental

The Company is subject to Federal, state, local and foreign environmental
laws and regulations concerning the discharge, storage, handling and disposal
of hazardous or toxic substances and petroleum products. Examples of regulated
activities are the disposal of lubricating oil, the discharge of water used to
clean parts and to cool machines, the maintenance of underground storage tanks
and the release of particulate emissions produced by Company operations. The
Company has a Chief Compliance Officer who audits the Company policies and
reports directly to the Audit Committee of the Board of Directors.

Boise, Idaho

The Company is subject to a RCRA Part B Closure Permit ("the Permit") issued
by the Environmental Protection Agency and the Idaho Department of Health and
Welfare, Division of Environmental Quality relating to the monitoring and
treatment of groundwater contamination on, and adjacent to, the Company's Boise
Locomotive facility. In compliance with the Permit, the Company has drilled
wells onsite to retrieve and treat contaminated groundwater, and onsite and
offsite to monitor the amount of hazardous constituents. The Company has
estimated the expected aggregate undiscounted costs to be incurred over the
next 23 years, adjusted for inflation at 3% per annum, to be $4 million, based
on the Permit's Corrective Action Plan, and $3.7 million for contingent
additional Permit compliance requirements related to offsite groundwater
contamination. The discounted liability at December 31, 1998, using a discount
rate of 5.25%, was $2.2 million based on the Permit's Corrective Action Plan,
and $2 million for contingent additional Permit compliance requirements related
to offsite groundwater contamination. The estimated outlays for each of the
five succeeding years from 1999 to 2003 are: $245,000, $290,000, $260,000,
$268,000 and $276,000. The Company was in compliance with the Permit at
December 31, 1998.

Mexico

Through its MPI de Mexico subsidiary, the Company has operational
responsibility for facilities in Acambaro and San Luis Potosi, Mexico, pursuant
to a contract with TFM. Under the contract, MPI de Mexico is responsible for
performing certain work related to environmental protection at the facilities,
such as waste water treatment, storm water control, tank repair, and spill
prevention and control. The costs of this work are either to be directly
reimbursed to MPI de Mexico by TFM or recoverable through fees payable under
the contract, which has been structured to account for such cost. No assurance
can be given, however, that TFM will not dispute any submissions for
reimbursement or that the fee structure under the contract will, in fact, cover
MPI de Mexico's costs.

Mountaintop, Pennsylvania

The Comprehensive Environmental Response, Compensation and Liability Act
(also known as "CERCLA" or "Superfund") is a federal law regarding abandoned
hazardous waste sites which imposes joint and several liability, without regard
to fault or the legality of the original act, on certain classes of persons,
including those who contribute to the release of a "hazardous substance" into
the environment. Foster Wheeler Energy Corporation ("FWEC") is named as a
potentially responsible party with respect to the Company's Mountaintop,
Pennsylvania plant, which has been listed by the EPA in its database of
potential hazardous waste sites. FWEC, the seller of the Mountaintop property
to the Company's predecessor in 1989, agreed to indemnify the Company's
predecessor against any liabilities associated with this Superfund site.
Management believes that this indemnification arrangement is enforceable for
the benefit of the Company and, although such obligation is unsecured and
therefore structurally subordinate to secured indebtedness of FWEC, that FWEC
has the financial resources to honor its obligations under this indemnification
arrangement. This indemnification does not alter the Company's potential
liability to third parties (other than FWEC) or governmental agencies under
CERCLA but creates contractual obligations on the part of FWEC for such
liabilities.

F-62
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Mattoon, Illinois

Young had received a notice from the current owners of a plant previously
owned and operated by Young indicating that Young is the responsible party for
contamination at the plant site. The current owner seeks to recover the
estimated costs of cleaning up the alleged contamination. To resolve this
matter, the Company has entered into a formal agreement with the current owners
to assume full responsibility for environmental restoration of this property.
Although management has not fully completed its investigation of this matter,
it believes this matter could ultimately have an unfavorable impact on the
Company's financial position. The Company has accrued $1 million for this
matter as management's best estimate of the ultimate financial restoration
costs. This accrual was based on management's expectation that the property
will be included in the state of Illinois Site Remediation Program as a
commercial/industrial property. While the estimated accrued costs are
considered adequate by management, actual results could differ materially from
this estimate.

Leases

The Company leases office and manufacturing facilities under operating
leases with terms ranging from one to 14 years, excluding renewal options.

The Company has also financed its locomotive lease fleet with operating
leases arising from sale and leaseback transactions. The Company has sold
remanufactured locomotives to various financial institutions and leased them
back under operating leases with terms from five to 20 years.

Total net rental expense (income) charged (or credited) to operations in
1998, 1997 and 1996 was $2.4 million, $2.8 million and $(799,000),
respectively. Certain of the Company's equipment rental obligations under
operating leases pertain to locomotives, which are subleased to customers under
both short-term and long-term agreements. The above amounts are shown net of
sublease rentals of $7.6 million, $7.2 million and $8.7 million for the years
1998, 1997 and 1996, respectively. Future minimum rental payments under
operating leases with remaining noncancelable terms in excess of one year are
as follows:

<TABLE>
<CAPTION>
Real Sublease
Year Estate Equipment Rentals Total
---- ------ --------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
1999....................................... $1,703 $ 6,862 $(2,901) $ 5,664
2000....................................... 1,636 5,756 (2,901) 4,491
2001....................................... 1,561 4,849 (2,599) 3,811
2002....................................... 1,570 4,807 (2,190) 4,187
2003....................................... 1,452 4,791 (2,190) 4,053
2004 and after............................. 3,704 26,522 (9,399) 20,827
</TABLE>

Legal Proceedings

The Company is engaged in a commercial dispute with a former supplier,
Samyoung Machinery Industrial Co. and Samyoung (America), Inc. (collectively,
"Samyoung"). The Company filed suit on April 16, 1996 alleging delivery of
defective product and seeking damages in excess of $1 million. Samyoung denies
that the product was defective and countersued to recover $300,000 under the
contract, and $10 million for trade libel and interference with prospective
economic relationships as a result of the Company allegedly making false
disparaging statements concerning the diesel engine cylinder liners to
potential Samyoung customers. The Company believes that Samyoung's claims are
without merit, and, to date, no evidence supporting Samyoung's counterclaims
has come to light through the discovery being conducted by the parties. The
Company intends to vigorously prosecute its own claims and defend against
Samyoung's counterclaims. The Company has tendered the counterclaims to its
liability insurers, which have been provided a partial defense subject to a
reservation of rights.

F-63
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company is involved in legal proceedings incident to the normal conduct
of its business, including contract claims and employee matters. Although the
outcome of any pending legal proceeding cannot be predicted with certainty,
management believes that such legal proceedings are adequately provided for in
the consolidated financial statements and that the proceedings, individually
and in the aggregate, will not have a material adverse effect on the
consolidated operations or financial condition of the Company.

13. Segment Information

The Company has two reportable segments: Locomotive and Components. The
reportable segments are comprised of strategic business units which offer
different products and services. The Locomotive Group provides fleet
maintenance, overhauling and remanufacturing, and manufacturing of
environmentally friendly switcher, commuter and mid-range, DC and AC traction,
diesel-electric and liquefied natural gas locomotives up to 4,000 horsepower.
The Components Group manufactures and distributes primarily aftermarket, or
replacement, new and remanufactured components and parts for freight and
passenger railroads, including every Class I railroad in North America,
metropolitan transit and commuter rail authorities, original equipment
manufacturers, industrial power-related markets and other customers
internationally.

The Company evaluates segment performance based primarily on operating
income, excluding unusual items. The Company accounts for intersegment sales
and transfers as if the sales or transfers were to third parties at current
market prices. The accounting policies of the segments are the same as those
described in the summary of significant policies.

Following is condensed segment financial information for the years ending
December 31.

<TABLE>
<CAPTION>
1998
------------------------------
Locomotive Components Total
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Gross sales..................................... $186,859 $213,763 $400,622
Intercompany sales.............................. 9,065 26,339 35,404
Interest expense................................ 2,643 188 2,831
Depreciation and amortization................... 3,885 7,056 10,941
Operating income................................ 28,362 22,912 51,274
Segment assets.................................. 134,369 229,726 364,095
Capital expenditures............................ 9,045 19,498 28,543
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1997
------------------------------
Locomotive Components Total
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Gross sales..................................... $153,572 $179,338 $332,910
Intercompany sales.............................. 8,602 18,378 26,980
Interest expense................................ 3,298 37 3,335
Depreciation and amortization................... 3,117 6,259 9,376
Operating income................................ 23,530 25,258 48,788
Segment assets.................................. 131,925 131,892 263,817
Capital expenditures............................ 7,107 7,828 14,935
======== ======== ========
</TABLE>

F-64
<PAGE>

MOTIVEPOWER INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
1996
------------------------------
Locomotive Components Total
---------- ---------- --------
(In thousands)
<S> <C> <C> <C>
Gross sales..................................... $156,320 $162,544 $318,864
Intercompany sales.............................. 9,562 17,895 27,457
Interest expense................................ 1,779 141 1,920
Depreciation and amortization................... 3,141 6,449 9,590
Operating income................................ 16,728 17,812 34,540
Segment assets.................................. 95,882 116,145 212,027
Capital expenditures............................ 2,748 1,425 4,173
</TABLE>

The following reconciles segment information presented above to the
consolidated financial statements for the years ending December 31.

<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Net sales:
Gross sales from segments....................... $400,622 $332,910 $318,864
Intercompany sales elimination.................. (35,404) (26,980) (27,457)
-------- -------- --------
Net sales....................................... $365,218 $305,930 $291,407
======== ======== ========
Income before income taxes and extraordinary
item:
Operating income from segments.................. $ 51,274 $ 48,788 $ 34,540
Unallocated corporate expenses and elimination
of intercompany profit......................... (8,911) (14,170) (10,308)
Allocated corporate expenses.................... (2,000) -- --
Investment income............................... 1,781 761 1,981
Interest expense................................ (5,894) (5,163) (9,143)
Other income--Argentina......................... 10,362 2,003 1,565
Gain on sale of assets.......................... -- -- 1,483
Foreign exchange gain (loss).................... 2,169 (230) 169
-------- -------- --------
Income before income taxes and extraordinary
item........................................... $ 48,781 $ 31,989 $ 20,287
======== ======== ========
Assets:
Assets from segments............................ $364,095 $263,817 $212,027
Corporate assets................................ 7,103 19,285 22,017
-------- -------- --------
Total assets................................... $371,198 $283,102 $234,044
======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
1998
-------------------------------
Consolidated
Segments Corporate Totals
-------- --------- ------------
(In thousands)
<S> <C> <C> <C>
Other significant items:
Interest expense............................... $ 2,831 $3,063 $ 5,894
Depreciation and amortization.................. 10,941 466 11,407
Capital expenditures........................... 28,543 338 28,881
</TABLE>

F-65
<PAGE>

MOTIVEPOWER INDUSTIRES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
1997
-------------------------------
Consolidated
Segments Corporate Totals
-------- --------- ------------
(In thousands)
<S> <C> <C> <C>
Other significant items:
Interest expense............................... $ 3,335 $1,828 $ 5,163
Depreciation and amortization.................. 9,376 591 9,967
Capital expenditures........................... 14,935 66 15,001
</TABLE>

<TABLE>
<CAPTION>
1996
-------------------------------
Consolidated
Segments Corporate Totals
-------- --------- ------------
(In thousands)
<S> <C> <C> <C>
Other significant items:
Interest expense............................... $1,920 $7,223 $ 9,143
Depreciation and amortization.................. 9,590 767 10,357
Capital expenditures........................... 4,173 (110) 4,063
</TABLE>

Geographic Information
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ ------------------
Long- Long- Long-
Lived Lived Lived
Net Sales Assets Net Sales Assets Net Sales Assets
--------- -------- --------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
United States......... $245,787 $145,296 $195,173 $ 81,258 $225,908 $ 80,264
Mexico................ 85,579 53,779 80,773 56,554 50,877 36,611
Other................. 33,852 -- 29,984 -- 14,622 --
-------- -------- -------- -------- -------- --------
Total............... $365,218 $199,075 $305,930 $137,812 $291,407 $116,875
======== ======== ======== ======== ======== ========
</TABLE>

14. Financial Instruments

The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The fair value of the financial
instruments disclosed herein is not necessarily representative of the amount
that could be realized or settled, nor does the fair value amount consider the
tax consequences of realization or settlement.

The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments:

Cash and cash equivalents, trade receivables, certain other current assets,
current portion of long-term debt, and certain other current liabilities The
carrying amounts approximate fair value because of the short maturity of these
instruments.

Long-term debt The carrying amount of the Company's bank borrowings under
its revolving credit agreement approximate fair value because the interest
rates are based on floating rates identified by reference to market rates.

Foreign currency contracts At December 31, 1998 and 1997 the Company had 30
million MXP and 20 million MXP of notional value foreign currency forward
contracts. Notional amounts do not quantify risk or

F-66
<PAGE>

MOTIVEPOWER INDUSTIRES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

represent assets or liabilities of the Company, but are used in the calculation
of cash settlements under the contracts. The estimated fair value of the
foreign currency forward contracts in excess of the contract value was $240,000
in 1998 and $8,000 in 1997.

15. Acquisitions

On November 18, 1998, the Company acquired 100% of the common stock of
Young, a manufacturer of radiators, air coolers and heat exchange systems for
rail and industrial power-related markets, through MPIL, a subsidiary of the
Company, for $67.7 million, net of cash and marketable securities acquired. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the results of operations of Young have been included in the
Company's consolidated financial statements from the date of acquisition. The
$41 million excess of the purchase price over the fair value of the net
identifiable assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 40 years.

Pro-forma results assuming Young was included in the Company's Statements of
Income for the 12 months ended December 31, 1998 and 1997, respectively are
included below by significant line items:

<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
---------- ----------
(Unaudited)
(In thousands except
per share data)
<S> <C> <C>
Net sales............................................. $ 409,006 $ 354,099
Income before income taxes and extraordinary items.... 37,919 32,368
Net income............................................ 32,884 20,518
Earnings per share--assuming dilution................. $ 1.18 $ .75
========== ==========
</TABLE>

16. Earnings Per Share

The following table reflects the earnings per share calculations for the
years ended December 31, 1998, 1997 and 1996. Antidilutive securities for the
years ended December 31, 1998, 1997 and 1996 were 123,000, 75,000 and 2,448,000
shares, respectively.

<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
(In thousands, except
per share data)
<S> <C> <C> <C>
Earnings per common share--basic:
Net income............................................ $32,197 $20,276 $11,509
Weighted average common shares outstanding............ 26,733 26,504 26,345
Contingently issuable shares.......................... 38 38 --
------- ------- -------
Adjusted weighted average common shares outstanding.... 26,771 26,541 26,345
======= ======= =======
Earnings per common share--basic....................... $ 1.20 $ 0.76 $ 0.44
======= ======= =======
Earnings per common share--assuming dilution:
Net income............................................ $32,197 $20,276 $11,509
Adjusted weighted average common shares outstanding... 26,771 26,541 26,345
Effect of dilutive securities Stock options and
restricted stock..................................... 1,158 773 5
------- ------- -------
Adjusted weighted average common shares outstanding... 27,929 27,314 26,349
======= ======= =======
Earnings per common share--assuming dilution........... $ 1.15 $ 0.74 $ 0.44
======= ======= =======
</TABLE>

F-67
<PAGE>

MOTIVEPOWER INDUSTIRES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

17. Quarterly Financial Information (unaudited)

The following information summarizes the Company's quarterly financial
results.

<TABLE>
<CAPTION>
Quarter
-----------------------------------------
1998 First Second Third Fourth Total
- ---- ------- ------- ------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net sales........................... $82,853 $88,461 $87,406 $106,498 $365,218
Gross profit........................ 21,356 21,336 19,082 19,548 81,322
Income before extraordinary item.... 7,120 7,870 7,712 11,525 34,227
Net income.......................... 6,648 7,870 7,712 9,967 32,197
Earnings per common share before
extraordinary item--basic.......... .27 .29 .29 .43 1.28
Earnings per common share before
extraordinary item--assuming
dilution........................... .25 .28 .27 .41 1.23
Earnings per common share--basic.... .25 .29 .29 .38 1.20
Earnings per common share--assuming
dilution........................... .24 .28 .28 .38 1.15
</TABLE>

<TABLE>
<CAPTION>
1997 First Second Third Fourth Total
- ---- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................ $69,658 $73,813 $73,849 $88,610 $305,930
Gross profit......................... 15,825 19,315 17,499 19,703 72,342
Net income........................... 3,477 5,409 5,377 6,013 20,276
Earnings per common share--basic..... .13 .21 .20 .23 .76
Earnings per common share--assuming
dilution............................ .13 .20 .19 .22 .74
</TABLE>

18. Subsequent Events

On January 11, 1999, the Company acquired certain assets of G&G Locotronics,
Inc. (Itasca, Illinois), a privately held designer and manufacturer of high-
voltage electrical cabinets and control stands for locomotives, for total
consideration of $17.8 million. G&G Locotronics, Inc. had sales of
approximately $22 million for its fiscal year ended December 31, 1998.

On January 14, 1999, the Company acquired 100% of the common shares of Q-
Tron Ltd., (Calgary, Canada), a privately held designer and manufacturer of
locomotive electronics equipment, for total consideration of $14.9 million. Q-
Tron Ltd., had sales of approximately $10 million for its fiscal year ended
December 31, 1998.

Pro forma results of operations have not been presented for 1998 as the
effects of these acquisitions are not significant to the Company's consolidated
financial statements.

On March 2, 1999, MotivePower amended and restated the terms of its
revolving credit facilities with a syndicate of 12 lenders led by ABN AMRO Bank
as agent. The amendment increases the amount of the credit line from $200
million to $350 million, available as a five-year $175 million revolving credit
facility, and a 364-day $175 million revolving credit facility, which the
Company may renew annually with the approval of the lenders. Under the amended
facilities, interest rates paid on borrowed money and the total amount of
credit available to the Company are determined as they were under the
facilities prior to amendment. The Company continues to have the option to
borrow at a spread over LIBOR rates, or to borrow at prime rate.

On April 2, 1999 a stock split in the form of a 50% stock dividend was
effective. All per share information in the accompanying financial statements
has been restated to reflect the stock split.

F-68
<PAGE>

MOTIVEPOWER INDUSTIRES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

F-69
<PAGE>

[LOGO]

Westinghouse Air Brake Company

Offer To Exchange Its
9 3/8% Senior Subordinated Notes
Due 2005, Series B2
For Any and All Outstanding
9 3/8% Senior Subordinated Notes
Due 2005, Series B

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

PROSPECTUS

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

We have not authorized any dealer, salesperson or other person to give any
information or to make any representations other than those contained in this
prospectus. You must not rely on any unauthorized information. This prospectus
does not constitute an offer to sell or the solicitation of an offer to buy any
Notes in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this prospectus nor any offer or sale made with this
prospectus shall, under any circumstances, create any implication that there
has been no change in the affairs of WABCO since the date of this prospectus or
that the information contained herein is correct as of any time subsequent to
its date.

The information in this prospectus is current as of , 1999
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors and Officers.

The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware ("Section 145")
provides that a Delaware corporation may indemnify any persons who are, or are
threatened to be made, parties 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 such corporation), by reason of the
fact that such person is or 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 attorneys' 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 person acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the corporation's best interests and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was illegal. A
Delaware corporation may indemnify any persons who are, or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, 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) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests 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 which such officer or
director has actually and reasonably incurred. The certificate of
incorporation, as amended, of the Company provides that no director of the
corporation shall be liable to such corporation or its stockholders for
monetary damages arising from a breach of fiduciary duty owed to the
corporation or its stockholders.

The by-laws of the Company provide that the Company shall indemnify any
person who was or is a party or is threatened to be made a party to or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative by reason of the fact
that he is or was a director or officer of such corporation or other entity, or
is or was serving at the request of such corporation as a director, officer or
member of another corporation, 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 and that
such indemnification shall continue as to an indemnitee who has ceased to a be
a director or officer and shall inure to the benefit of the indemnitee's heirs,
executors and administrators. The by-laws of the Company further provide that
the Company may, to the extent authorized from time to time by the directors,
indemnify any employee or agent of such corporation in the same manner as a
director or officer of such entity.

Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.

The by-laws of the Company provide that WABCO may purchase and maintain
insurance on behalf of any person who is or was a director or officer of WABCO
or was serving at the request of WABCO as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him in any such, or arising out of his status as
such, whether or not WABCO would have the right or obligation to indemnify him
against such liability under its by-laws.

II-1
<PAGE>

Item 21. Exhibits and Financial Statement Schedules.

(a) Exhibits

<TABLE>
<CAPTION>
Filing
Exhibits Method
-------- ------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company dated
January 30, 1995, as amended March 30, 1995 2
3.2 Amended and Restated By-Laws of the Company, effective March
31, 1997 (Originally filed as Exhibit 4.2) 5
4.1 Form of Indenture between the Company and The Bank of New York
with respect to the public offering of $100,000,000 of 9 3/8%
Senior Notes due 2005 2
4.2 Form of Note (included in Exhibit 4.1) 2
4.3 First Supplemental Indenture dated as of March 21, 1997 between
the Company and The Bank of New York 6
4.4 Indenture dated as of January 12, 1999 by and between the
Company and The Bank of New York with respect to the private
offering of $75,000,000 of 9 3/8% Senior Notes due 2005, Series
B 8
4.5 Form of Note (included in Exhibit 4.4) 8
5.1 Opinion of Reed Smith Shaw & McClay LLP as to the Legality of
the Notes 1
9 Second Amended WABCO Voting Trust/Disposition Agreement dated
as of December 13, 1995 among the Management Investors
(Schedules and Exhibits omitted) 3
10.1 Westinghouse Air Brake Company Employee Stock Ownership Plan
and Trust, effective January 31, 1995 2
10.2 ESOP Loan Agreement dated January 31, 1995 between Westinghouse
Air Brake Company Employee Stock Ownership Trust ("ESOT") and
the Company (Exhibits omitted) 2
10.3 Employee Stock Ownership Trust Agreement dated January 31, 1995
between the Company and U.S. Trust Company of California, N.A. 2
10.4 Pledge Agreement dated January 31, 1995 between ESOT and the
Company 2
10.5 Credit Agreement dated as of June 30, 1998, and Amended and
Restated as of October 2, 1998 among the Company, various
financial institutions, The Chase Manhattan Bank, Chase
Manhattan Bank Delaware, and The Bank of New York (Schedules
and Exhibits omitted) 8
10.6 Amended and Restated Stockholders Agreement dated as of March
5, 1997 among the RAC Voting Trust ("Voting Trust"), Vestar
Equity Partners, L.P. ("Vestar Equity"), Charlesbank Capital
Partners f/k/a Harvard Private Capital Holdings, Inc.
("Charlesbank"), American Industrial Partners Capital Fund II,
L.P. ("AIP") and the Company 6
10.7 Common Stock Registration Rights Agreement dated as of January
31, 1995 among the Company, Scandinavian Incentive Holding B.V.
("SIH"), Voting Trust, Vestar Capital, Pulse Electronics, Inc.,
Pulse Embedded Computer Systems, Inc., the Pulse Shareholders
and ESOT (Schedules and Exhibits omitted) 2
10.8 Indemnification Agreement dated January 31, 1995 between the
Company and the Voting Trust trustees 2
10.9 Agreement of Sale and Purchase of the North American Operations
of the Railway Products Group, an operating division of
American Standard Inc., dated as of 1990 between Rail
Acquisition Corp. and American Standard Inc. (only provisions
on indemnification are reproduced) 2
10.10 Letter Agreement (undated) between the Company and American
Standard Inc. on environmental costs and sharing 2
10.11 Purchase Agreement dated as of June 17, 1992 among the Company,
Schuller International, Inc., Manville Corporation and European
Overseas Corporation (only provisions on indemnification are
reproduced) 2
10.12 Asset Purchase Agreement dated as of January 23, 1995 among the
Company, Pulse Acquisition Corporation, Pulse Electronics,
Inc., Pulse Embedded Computer Systems, Inc. and the Pulse
Shareholders (Schedules and Exhibits omitted) 2
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
Filing
Exhibits Method
-------- ------
<C> <S> <C>
10.13 License Agreement dated as of December 31, 1993 between SAB
WABCO Holdings B.V. and the Company 2
10.14 Letter Agreement dated as of January 19, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.15 Westinghouse Air Brake Company 1995 Stock Incentive Plan, as
amended 8
10.16 Westinghouse Air Brake Company 1995 Non-Employee Directors' Fee
and Stock Option Plan 8
10.17 Form of Employment Agreement between William E. Kassling and
the Company 2
10.18 Letter Agreement dated as of January 1, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.19 Form of Indemnification Agreement between the Company and
Authorized Representatives 2
10.20 Share Purchase Agreement between Futuris Corporation Limited
and the Company (Exhibits omitted) 2
10.21 Purchase Agreement dated as of September 19, 1996 by and among
Mark IV Industries, Inc., Mark IV PLC, and W&P Holding Corp.
(Exhibits and Schedules omitted) (Originally filed as Exhibit
2.01) 4
10.22 Purchase Agreement dated as of September 19, 1996 by and among
Mark IV Industries Limited and Westinghouse Railway Holdings
(Canada) Inc. (Exhibits and Schedules omitted) (Originally
filed as Exhibit 2.02) 4
10.23 Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of March 5, 1997 among the Voting Trust, Vestar
Equity, Charlesbank, AIP and the Company 6
10.24 Common Stock Registration Rights Agreement dated as of March 5,
1997 among the Company, Charlesbank, AIP and the Voting Trust 6
10.25 1998 Employee Stock Purchase Plan 8
10.26 Sale Agreement dated as of August 7, 1998 by and between
Rockwell Collins, Inc. and the Company (Schedules and Exhibits
omitted) (Originally filed as Exhibit 2.1) 7
10.27 Amendment No. 1 dated as of October 5, 1998 to Sale Agreement
dated as of August 7, 1998 by and between Rockwell Collins,
Inc. and the Company (Originally filed as Exhibit 2.2) 7
10.28 Agreement and Plan of Merger between MotivePower Industries,
Inc. and the Company dated as of June 2, 1999 (Originally filed
as Exhibit 2.1) 9
10.29 WABCO Stock Option Agreement between the Company and
MotivePower Industries, Inc. dated as of June 2, 1999
(Originally filed as Exhibit 2.2) 9
10.30 MotivePower Industries, Inc. Stock Option Agreement between the
Company and MotivePower Industries, Inc. dated as of June 2,
1999 (Originally filed as Exhibit 2.3) 9
12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges 1
21 List of subsidiaries of the Company 8
23.1 Consent of Arthur Andersen LLP 1
23.2 Consent of Reed Smith Shaw & McClay LLP (included in the
opinion filed as Exhibit 5.1) 1
23.3 Consent of Deloitte & Touche LLP 1
24 Powers of Attorney (filed herewith as part of signature pages) 9
25 Statement of Eligibility of Trustee 1
27 Financial Data Schedule 8
99 Annual Report on Form 11-K for the year ended December 31, 1998
of the Westinghouse Air Brake Company Employee Stock Ownership
Plan and Trust 8
99.1 Form of Letter of Transmittal 10
99.2 Form of Notice of Guaranteed Delivery 10
99.3 Form of Exchange Agreement between the Company and the Exchange
Agent 10
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
Filing Method
-------------
<C> <S>
1 Filed herewith
2 Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-90866),
and incorporated herein by reference.
3 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1995, and incorporated herein by reference.
4 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 3, 1996, and incorporated herein by reference.
5 Filed as an exhibit to the Company's Registration Statement on Form S-8
(No. 333-39159),
and incorporated herein by reference.
6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1997, and incorporated herein by reference.
7 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 5, 1998, and incorporated herein by reference.
8 Filed as an exhibit to the Company's Current Report on Form 10-K for the
period ended December 31, 1998, and incorporated herein by reference.
9 Filed as an Exhibit to the Company's Current Report on Form 8-K, dated
June 2, 1999 and incorporated herein by reference.
10 Previously filed.
</TABLE>

(b) Financial Statement Schedules.

Schedule II--Valuation Accounts and Reserves

Item 22. Undertakings.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a twenty percent
(20%) change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof;

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the

II-4
<PAGE>

Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.

(c) 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 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 Securities Act of
1933 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.

(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-5
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Westinghouse Air
Brake Company has duly caused this registration statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, on June 18,
1999.

Westinghouse Air Brake Company

/s/ William E. Kassling
By: _________________________________
William E. Kassling,
Director, Chairman of the
Board and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
registration statement on Form S-4 has been signed by the following persons in
the capacities indicated as of June 18, 1999.

*
By: _________________________________
William E. Kassling,
Director, Chairman of the
Board and
Chief Executive Officer

By: _________________________________
Emilio A. Fernandez,
Director and Vice Chairman

*
By: _________________________________
Gregory T.H. Davies
President, Chief Operating
Officer and Director

*
By: _________________________________
Robert J. Brooks
Director, Chief Financial Officer
and Chief Accounting Officer

*
By: _________________________________
Kim G. Davis
Director

By: _________________________________
James C. Huntington, Jr.
Director

II-6
<PAGE>

*
By: _________________________________
James P. Kelley
Director

By: _________________________________
James V. Napier
Director

*/s/ William E. Kassling
_____________________________________
William E. Kassling for himself
and as attorney-in-fact for the
indicated directors

II-7
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Filing
Exhibits Method
-------- ------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of the Company dated
January 30, 1995, as amended March 30, 1995 2
3.2 Amended and Restated By-Laws of the Company, effective March
31, 1997 (Originally filed as Exhibit 4.2) 5
4.1 Form of Indenture between the Company and The Bank of New York
with respect to the public offering of $100,000,000 of 9 3/8%
Senior Notes due 2005 2
4.2 Form of Note (included in Exhibit 4.1) 2
4.3 First Supplemental Indenture dated as of March 21, 1997 between
the Company and The Bank of New York 6
4.4 Indenture dated as of January 12, 1999 by and between the
Company and The Bank of New York with respect to the private
offering of $75,000,000 of 9 3/8% Senior Notes due 2005, Series
B 8
4.5 Form of Note (included in Exhibit 4.4) 8
5.1 Opinion of Reed Smith Shaw & McClay LLP as to the Legality of
the Notes 1
9 Second Amended WABCO Voting Trust/Disposition Agreement dated
as of December 13, 1995 among the Management Investors
(Schedules and Exhibits omitted) 3
10.1 Westinghouse Air Brake Company Employee Stock Ownership Plan
and Trust, effective January 31, 1995 2
10.2 ESOP Loan Agreement dated January 31, 1995 between Westinghouse
Air Brake Company Employee Stock Ownership Trust ("ESOT") and
the Company 2
10.3 Employee Stock Ownership Trust Agreement dated January 31, 1995
between the Company and U.S. Trust Company of California, N.A. 2
10.4 Pledge Agreement dated January 31, 1995 between ESOT and the
Company 2
10.5 Credit Agreement dated as of June 30, 1998, and Amended and
Restated as of October 2, 1998 among the Company, various
financial institutions, The Chase Manhattan Bank, Chase
Manhattan Bank Delaware, and The Bank of New York (Schedules
and Exhibits omitted) 8
10.6 Amended and Restated Stockholders Agreement dated as of March
5, 1997 among the RAC Voting Trust ("Voting Trust"), Vestar
Equity Partners, L.P. ("Vestar Equity"), Charlesbank Capital
Partners f/k/a Harvard Private Capital Holdings, Inc.
("Charlesbank"), American Industrial Partners Capital Fund II,
L.P. ("AIP") and the Company 6
10.7 Common Stock Registration Rights Agreement dated as of January
31, 1995 among the Company, Scandinavian Incentive Holding B.V.
("SIH"), Voting Trust, Vestar Capital, Pulse Electronics, Inc.,
Pulse Embedded Computer Systems, Inc., the Pulse Shareholders
and ESOT (Schedules and Exhibits omitted) 2
10.8 Indemnification Agreement dated January 31, 1995 between the
Company and the Voting Trust trustees 2
10.9 Agreement of Sale and Purchase of the North American Operations
of the Railway Products Group, an operating division of
American Standard Inc., dated as of 1990 between Rail
Acquisition Corp. and American Standard Inc. (only provisions
on indemnification are reproduced) 2
10.10 Letter Agreement (undated) between the Company and American
Standard Inc. on environmental costs and sharing 2
10.11 Purchase Agreement dated as of June 17, 1992 among the Company,
Schuller International, Inc., Manville Corporation and European
Overseas Corporation (only provisions on indemnification are
reproduced) 2
10.12 Asset Purchase Agreement dated as of January 23, 1995 among the
Company, Pulse Acquisition Corporation, Pulse Electronics,
Inc., Pulse Embedded Computer Systems, Inc. and the Pulse
Shareholders (Schedules and Exhibits omitted) 2
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Filing
Exhibits Method
-------- ------
<C> <S> <C>
10.13 License Agreement dated as of December 31, 1993 between SAB
WABCO Holdings B.V. and the Company 2
10.14 Letter Agreement dated as of January 19, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.15 Westinghouse Air Brake Company 1995 Stock Incentive Plan, as
amended 8
10.16 Westinghouse Air Brake Company 1995 Non-Employee Directors' Fee
and Stock Option Plan 8
10.17 Form of Employment Agreement between William E. Kassling and
the Company 2
10.18 Letter Agreement dated as of January 1, 1995 between the
Company and Vestar Capital Partners, Inc. 2
10.19 Form of Indemnification Agreement between the Company and
Authorized Representatives 2
10.20 Share Purchase Agreement between Futuris Corporation Limited
and the Company (Exhibits omitted) 2
10.21 Purchase Agreement dated as of September 19, 1996 by and among
Mark IV Industries, Inc., Mark IV PLC, and W&P Holding Corp.
(Exhibits and Schedules omitted) (Originally filed as Exhibit
2.01) 4
10.22 Purchase Agreement dated as of September 19,1996 by and among
Mark IV Industries Limited and Westinghouse Railway Holdings
(Canada) Inc. (Exhibits and Schedules omitted)
(Originally filed as Exhibit 2.02) 4
10.23 Amendment No. 1 to Amended and Restated Stockholders Agreement
dated as of March 5, 1997 among the Voting Trust, Vestar
Equity, Charlesbank, AIP and the Company 6
10.24 Common Stock Registration Rights Agreement dated as of March 5,
1997 among the Company, Charlesbank, AIP and the Voting Trust 6
10.25 1998 Employee Stock Purchase Plan 8
10.26 Sale Agreement dated as of August 7, 1998 by and between
Rockwell Collins, Inc. and the Company (Schedules and Exhibits
omitted) (Originally filed as Exhibit 2.1) 7
10.27 Amendment No. 1 dated as of October 5, 1998 to Sale Agreement
dated as of August 7, 1998 by and between Rockwell Collins,
Inc. and the Company (Originally filed as Exhibit 2.2) 7
10.28 Agreement and Plan of Merger between MotivePower Industries,
Inc. and the Company dated as of June 2, 1999 (Originally filed
as Exhibit 2.1) 9
10.29 WABCO Stock Option Agreement between the Company and
MotivePower Industries, Inc. dated as of June 2, 1999
(Originally filed as Exhibit 2.2) 9
10.30 MotivePower Industries, Inc. Stock Option Agreement between the
Company and MotivePower Industries, Inc. dated as of June 2,
1999 (Originally filed as Exhibit 2.3) 9
12 Statement Regarding Computation of Ratio of Earnings to Fixed
Charges 1
21 List of subsidiaries of the Company 8
23.1 Consent of Arthur Andersen LLP 1
23.2 Consent of Reed Smith Shaw & McClay LLP (included in the
opinion filed as Exhibit 5.1) 1
23.3 Consent of Deloitte & Touche LLP 1
24 Powers of Attorney (filed herewith as part of signature pages) 9
25 Statement of Eligibility of Trustee 1
27 Financial Data Schedule 8
99 Annual Report on Form 11-K for the year ended December 31, 1998
of the Westinghouse Air Brake Company Employee Stock Ownership
Plan and Trust 10
99.1 Form of Letter of Transmittal 10
99.2 Form of Notice of Guaranteed Delivery 10
99.3 Form of Exchange Agreement between the Company and the Exchange
Agent 9
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Filing Method
-------------
<C> <S>
1 Filed herewith
2 Filed as an exhibit to the Company's Registration Statement on Form S-1
(No. 33-90866), and incorporated herein by reference
3 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1995, and incorporated herein by reference
4 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 3, 1996, and incorporated herein by reference
5 Filed as an exhibit to the Company's Registration Statement on Form S-8
(No. 333-39159), and incorporated herein by reference
6 Filed as an exhibit to the Company's Annual Report on Form 10-K for the
period ended December 31, 1997, and incorporated herein by reference
7 Filed as an exhibit to the Company's Current Report on Form 8-K, dated
October 5, 1998, and incorporated herein by reference
8 Filed as an exhibit to the Company's Current Report on Form 10-K for the
period ended December 31, 1998, and incorporated herein by reference
9 Filed as an Exhibit to the Company's Current Report on Form 8-K, dated
June 2, 1999, and incorporated herein by reference.
10 Previously filed.
</TABLE>

<PAGE>

EXHIBIT 5.1

[Letterhead of

REED SMITH SHAW & McCLAY LLP]

435 Sixth Avenue
Pittsburgh, Pennsylvania 15219-1886
Phone: 412-288-3131
Fax: 412-288-3063

June 18, 1999

Westinghouse Air Brake Company
1001 Air Brake Company
Wilmerding, PA 15148

Ladies and Gentlemen:

We are counsel for Westinghouse Air Brake Company, a Delaware corporation,
(the "Company") in connection with the Registration Statement on Form S-4 (the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), relating to the issuance by the Company of $75,000,000
aggregate principal amount of its 9 3/8% Series B2 Senior Subordinated Notes due
2005 (the "Exchange Notes"). The Exchange Notes are to be offered by the Company
in exchange (the "Exchange") for $75,000,000 aggregate principal amount of its
outstanding 9 3/8% Series B Senior Subordinated Notes due 2005 (the "Notes").
The Notes have been, and the Exchange Notes will be, issued under an Indenture
dated as of January 12, 1999 (the "Indenture") between the Company and the Bank
of New York, as trustee.

We have examined the Registration Statement and the Indenture which has
been filed by reference with the Commission as an Exhibit to the Registration
Statement. In addition, we have examined, and have relied as to matters of fact
upon, the originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such other and
further investigations, as we have deemed relevant and necessary as a basis for
the opinion hereinafter set forth.

In such examination, we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies, and the authenticity of the
originals of such latter documents.

Based upon the foregoing, and subject to the qualifications and limitations
stated herein, assuming the Indenture has been duly authorized and validly
executed and delivered by the Trustee, when (i) the Indenture has been duly
qualified under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act") and (ii) the Exchange Notes have been duly executed,
authenticated, issued and delivered in accordance with the provisions of the
Indenture upon the Exchange, we are of the opinion that the Exchange Notes will
constitute valid and legally

<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Harrisburg, PA McLean, VA Newark, NJ New York, NY Philadelphia, PA Princeton, NJ Washington, DC

</TABLE>
<PAGE>

REED SMITH SHAW & McCLAY LLP

Westinghouse Air Brake Company -2- June 18, 1999

binding obligations of the Company, enforceable against the Company in
accordance with their terms.

Our opinion set forth in the preceding sentence is subject to the effects
of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.

In rendering the foregoing opinion, we have not examined any laws of any
jurisdiction other than the laws of the State of New York, the Delaware General
Corporation Law and the federal laws of the United States of America, and the
foregoing opinion is limited to such laws.

We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus included therein.

Very truly yours,

REED SMITH SHAW & McCLAY LLP

<PAGE>

EXHIBIT 12

Westinghouse Air Brake Company
Statement Regarding Computation of Ratio of Earnings to Fixed Charges

COMPUTATION OF EARNINGS TO FIXED CHARGES
- ----------------------------------------

<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended
March 31 Year Ended December 31,
------------------ -------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
------------------ -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Earnings:

Income before income taxes $28,897 $24,755 $ 72,530 $80,590 $53,648 $58,509 $62,454
Interest expense 9,096 7,373 31,217 29,729 26,152 30,998 10,898
Debt fee amortization 236 542 1,375 1,993 1,844 1,638 0
33.33% of lease expense 281 321 1,254 1,089 924 924 627

Total Earnings $38,510 $32,991 $106,376 $93,401 $82,568 $92,069 $73,979

Consolidated Fixed Charges:

Interest expense $ 9,096 $ 7,373 31,217 $29,729 $26,152 $30,998 $10,898
Debt fee amortization 236 542 1,375 1,993 1,844 1,638 0
33.33% of lease expense 281 321 1,254 1,089 924 924 627

Total Fixed Charges $ 9,613 $ 8,236 $ 33,846 $32,811 $28,920 $33,560 $11,525

Earnings/Fixed Charges 4.0 4.0 3.1 2.8 2.9 2.7 6.4
</TABLE>

<PAGE>

[LETTERHEAD OF ARTHUR ANDERSEN LLP]

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 17, 1999
included in Westinghouse Air Brake Company's Form 10-K for the year ended
December 31, 1998 and to all references to our Firm in this registration
statement.

/s/ Arthur Andersen LLP

Pittsburgh, Pennsylvania
June 18, 1999

<PAGE>

Exhibit 23.3

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 1 to Registration Statement No.
333-77017 of Westinghouse Air Brake Company on Form S-4 of our report dated
February 11, 1999 (June 2, 1999 as to Note 18) relating to the consolidated
financial statements of MotivePower Industries, Inc. as of December 31, 1998 and
1997 and for each of the years in the three year period ended December 31, 1998,
appearing in the Prospectus, which is a part of this Registration Statement.

We also consent to the reference to us under the heading "Experts" in such
Prospectus.

/s/ Deloitte and Touche LLP

Pittsburgh, PA
June 18, 1999

<PAGE>

EXHIBIT 25

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

FORM T-1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE

CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) [_]

________

THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)

New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)

One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)

________

Westinghouse Air Brake Company
(Exact name of obligor as specified in its charter)

Delaware 25-1615902
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)

1001 Air Brake Avenue
Wilmerding, Pennsylvania 15148
(Address of principal executive offices) (Zip code)

________

9-3/8% Senior Notes due 2005, Series B2
(Title of the indenture securities)

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

<PAGE>

1. General information. Furnish the following information as to the Trustee:

(a) Name and address of each examining or supervising authority to which
it is subject.

- ------------------------------------
Name Address
- ------------------------------------

Superintendent of Banks of 2 Rector Street, New York
the State of New York N.Y. 10006, and Albany, N.Y. 12203

Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045

Federal Deposit Insurance Washington, D.C. 20429
Corporation

New York Clearing House New York, New York 10005
Association

(b) Whether it is authorized to exercise corporate trust powers.

Yes.

2. Affiliations with Obligor.

If the obligor is an affiliate of the trustee, describe each such
affiliation.

None.

16. List of Exhibits.

Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the"Act") and 17
C.F.R. 229.10(d).

1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibit 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit 1
to Form T-1 filed with Registration Statement No. 33-29637.)

4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form T-1
filed with Registration Statement No. 33-31019.)

6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement
No.33-44051.)

7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.

-2-

<PAGE>

SIGNATURE

Pursuant to the requirements of the Act, the Trustee, The Bank of New York,
a corporation organized and existing under the laws of the State of New York,
had duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 10th day of June, 1999.

THE BANK OF NEW YORK

By: /s/ Iliana A. Arciprete
------------------------
Name: Iliana A. Arciprete
Title: Assistant Treasurer

<PAGE>

_______________________________________________________________________________

Consolidated Report of Condition of

THE BANK OF NEW YORK EXHIBIT 7
---------
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries.
a member of the Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.

<TABLE>
<CAPTION>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... $ 4,508,742
Interest-bearing balances.................................... 4,425,071
Securities:
Held-to-maturity securities.................................. 836,304
Available-for-sale securities................................ 4,047,851
Federal funds sold and Securities purchased under
agreements to resell......................................... 1,743,269
Loans and lease financing receivables:
Loans and leases net of unearned income...................... 39,349,679
LESS. Allowance for loan and lease losses.................... 603,025
LESS. Allocated transfer risk reserve........................ 15,906
Loans and leases net of unearned income, allowance,
and reserve................................................. 39,730,748
Trading Assets................................................ 1,571,372
Premises and fixed assets (including capitalized leases)...... 635,674
Other real estate owned....................................... 10,331
Investments in unconsolidated subsidiaries and
associated companies......................................... 122,449
Customers liability to this bank on acceptances outstanding... 1,184,822
Intangible assets............................................. 1,129,535
Other assets.................................................. 2,632,309
--------------
Total assets.................................................. $ 61,533,578
==============

LIABILITIES
Deposits:
In domestic offices.......................................... $ 25,731,036
Noninterest-bearing.......................................... 10,252,589
Interest-bearing............................................. 15,478,447
In foreign offices. Edge and Agreement subsidiaries and IBF's 18,756,302
Noninterest-bearing.......................................... 111,356
Interest-bearing............................................. 18,644,916
Federal funds purchased and Securities $0.0 under agreement
to repurchase................................................ 3,276,362
Demand notes issued to the U.S. Treasury...................... 230,671
Trading liabilities........................................... 1,554,493
Other borrowed money
With remaining maturity of one year or less.................. 1,154,502
With remaining maturity of more than one year through
three years................................................. 465
With remaining maturity of more than three years............. 31,080
Bank's liability on acceptances executed and outstanding...... 1,185,364
Subordinated notes and debentures............................. 1,308,000
Other liabilities............................................. 2,743,590
--------------
Total liabilities............................................. 55,971,865
==============

EQUITY CAPITAL
Common Stock.................................................. 1,135,284
Surplus....................................................... 764,443
Undivided profits and capital reserves........................ 3,807,697
Net unrealized holding gains (losses) on
available-for-sale securities................................ 44,106
Cumulative foreign currency translation adjustments........... ( 34,817)
--------------
Total equity capital.......................................... 5,716,713
--------------
Total liabilities and equity capital.......................... $ 61,688,578
==============
</TABLE>

I, Thomas J. Mastro, Senior Vice President and Comptroller of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.

Thomas J. Mastro

We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.

Thomas A. Renyi }
Alan R. Griffith } Directors
Gerald L. Hassell }

_______________________________________________________________________________