<PAGE>
                                     [LOGO]

                              1300 JEFFERSON COURT
                          BLUE SPRINGS, MISSOURI 64015

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                    TO BE HELD AT 2:00 P.M. ON MAY 12, 1998
                      AT THE COUNTRY CLUB OF BLUE SPRINGS
                              1600 N. CIRCLE DRIVE
                             BLUE SPRINGS, MISSOURI

To the Holders of Common Stock of Harmon Industries, Inc.:

Notice is hereby given that the Annual Meeting of the Shareholders of Harmon
Industries, Inc. will be held for the following purposes:

    1.  To elect ten (10) members of the Board of Directors;

    2.  To approve an amendment of the Company's Articles of Incorporation to
       increase the number of shares of common stock ($.25 par value) authorized
       from 20,000,000 shares to 50,000,000 shares.

    3.  To approve an amendment to the Company's 1996 Long-Term Incentive Plan
       to extend the expiration of the Plan from May 31, 2001 to May 31, 2003
       and to increase the amount of shares available annually under the Plan
       from 1.15% to 1.25% of outstanding shares on January 1 of each year of
       the Plan, commencing January 1, 1999;

    4.  To approve the selection of KPMG Peat Marwick LLP, as Auditors for the
       forthcoming fiscal year; and

    5.  To transact such other business as may properly come before the meeting
       or any adjournments thereof.

    Only shareholders of record at the close of business on March 16, 1998, will
be entitled to notice of and to vote at the meeting and any adjournments
thereof. The transfer books of the Company will not be closed.

    Shareholders who do not expect to attend the meeting in person are asked to
date, sign and return the proxy using the enclosed envelope which needs no
postage if mailed in the United States.

                                        BY ORDER OF THE BOARD OF DIRECTORS

                                        Robert E. Harmon
                                        Chairman

1300 Jefferson Court
Blue Springs, Missouri 64015
April 1, 1998
<PAGE>
                                     [LOGO]

                              1300 JEFFERSON COURT
                          BLUE SPRINGS, MISSOURI 64015

                                PROXY STATEMENT
                     FOR THE ANNUAL MEETING OF SHAREHOLDERS
                            TO BE HELD MAY 12, 1998

                            SOLICITATION OF PROXIES

    This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders of Harmon Industries, Inc. (the "Company") commencing on April 1,
1998. The enclosed proxy is solicited by and on behalf of the Board of Directors
of the Company to be used at the Annual Meeting of Shareholders, which will be
held at the Country Club of Blue Springs, 1600 N. Circle Drive, Blue Springs,
Missouri on May 12, 1998 at 2:00 p.m. and at any adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting of Shareholders.
Any shareholder who executes and returns the enclosed proxy has the right to
revoke it, in writing, at any time before it is voted at the meeting.

    The Company will bear the cost of solicitation of proxies. In addition to
the use of the mail, proxies may be solicited personally or by telephone or
facsimile by the directors or by a few executives or employees of the Company at
a nominal cost, and the Company may reimburse brokers and other persons holding
stock in their names or in the names of their nominees for their expenses in
sending proxy material to principals.

    ON FEBRUARY 27, 1998, THE COMPANY EFFECTED A 3 FOR 2 STOCK SPLIT, PAID AS A
DIVIDEND TO SHAREHOLDERS OF RECORD FEBRUARY 13, 1998. ALL SHARE INFORMATION,
INCLUDING CURRENT AND HISTORICAL DATA, HAS BEEN ADJUSTED IN THIS PROXY STATEMENT
TO REFLECT THIS STOCK SPLIT.

    The Board of Directors of the Company has fixed the close of business on
March 16, 1998, as the record date for the determination of shareholders
entitled to notice of and to vote at the meeting. As of that date, the Company
had 10,521,189 shares of Common Stock outstanding and entitled to vote at the
meeting.

    Each share of Common Stock entitles the shareholders to one vote for each
share held. All voting, unless otherwise specifically indicated, requires
approval by a majority of the shares of stock represented in person or by proxy
at the meeting and voted on the matter in question. Abstentions and broker
non-votes will be treated as present at the meeting for purposes of determining
a quorum but are tabulated as if no vote was cast on the matter indicated.
Directors are elected by a plurality of the votes cast. Shareholders do not have
the right to accumulate votes in the election of directors. Votes withheld in
the election of directors are not tabulated as a vote for or against the person
or persons indicated. The selection of directors is determined in the order of
those nominees receiving the highest number of votes in favor of election until
the number of nominees to be elected in the election have been selected.

                                       1
<PAGE>
                    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                             OWNERS AND MANAGEMENT

    The following table sets forth the number of shares of Common Stock of the
Company owned beneficially as of March 16, 1998 by each person who, as of that
date, to the best knowledge of management, was the beneficial owner of more than
5% of the outstanding shares or who is a named executive officer. Common Stock
is the only class of voting securities.

<TABLE>
<CAPTION>
                                                                                           PERCENT
      TITLE                        NAME AND ADDRESS OF                   BENEFICIAL          OF
     OF CLASS                       BENEFICIAL OWNER                    OWNERSHIP(1)      CLASS(2)
------------------  -------------------------------------------------  ---------------  -------------
<C>                 <S>                                                <C>              <C>
   Common Stock     St. Denis J. Villere & Company                         1,139,775(3)         11%
                    210 Baronne Street, Suite 808
                    New Orleans, LA 70112-1727

   Common Stock     Wellington Management Company, LLP                       827,400(4)          8%
                    75 State Street
                    Boston, Massachusetts 02109

   Common Stock     Mercantile Bancorporation Inc.                           768,360             7%
                    #1 Mercantile Center
                    St. Louis, MO 63101

   Common Stock     Charles M. Foudree                                        64,000(5)          1%

   Common Stock     Robert E. Heggestad                                       37,185(6)         --%

   Common Stock     Lloyd T. Kaiser                                           40,822(7)         --%

   Common Stock     Bjorn E. Olsson                                           51,000(8)         --%

   Common Stock     Raymond A. Rosewall                                       35,250(9)         --%

   Common Stock     Beneficial ownership of all officers and                 920,725             9%
                    directors as a group (20 in group)
</TABLE>

(1) All amounts of shares reflect sole voting and disposition power unless
    otherwise indicated. The share amounts reflected in this column include
    outstanding shareholdings, as well as unexercised ISOP option shares and
    unexercised director option shares (see discussion under caption "Executive
    Compensation" herein). Shares allocated under the Company's ESOP are not
    included since participants have no disposition power and have only shared
    voting rights. Shares in the ESOP allocated to Messrs. Foudree, Heggestad,
    Kaiser, Olsson and Rosewall and all officers and directors as a group were
    8,070; 6,630; 2,686; 2,778; 3; and 49,615 shares, respectively.

(2) Rounded to the nearest whole percentage. Percentages are calculated on
    10,829,289 shares representing the total of 10,521,189 outstanding shares
    (including certain shares held in a Rabbi Trust) and 308,100 shares for
    unexercised director, ISOP options and LTIP options.

(3) St. Denis J. Villere & Company has shared voting power and shared
    dispositive power over 1,139,775 shares.

(4) Wellington Management Co. has shared voting power over 464,250 shares and
    shared dispositive power over 827,400 shares.

(5) 41,250 shares are beneficially owned and held of record by M. Colleen
    Foudree as trustee for the M. Colleen Foudree Trust with sole voting and
    disposition power. 9,700 shares are held by the Charles M. Foudree Trust
    with sole voting and disposition power. 300 shares are held directly by
    Charles M. Foudree. The remainder are held by Charles M. Foudree and
    represent unexercised option shares.

                                       2
<PAGE>
(6) 26,685 shares are owned by Robert E. Heggestad with sole voting and
    dispositive power. The remainder represent unexercised option shares.

(7) 30,322 shares are held by Lloyd T. Kaiser with sole voting and dispositive
    power. The remainder represent unexercised option shares.

(8) 38,250 shares are held by Bj(3)rn E. Olsson with sole voting and dispositive
    power, not including 24,150 shares held by a Rabbi Trust for deferred
    compensation, 8,740 shares of which are currently vested. The remainder
    represent unexercised option shares.

(9) Raymond A. Rosewall holds no shares directly with sole voting and
    dispositive power. 35,250 shares represent unexercised option shares.

    SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING

    Based on a review of reports on Forms 3, 4 and 5 and amendments to such
forms filed with the Company, the Company is aware of only one late filing of
such forms by any person required to file such forms in connection with Section
16(a) of the Securities Exchange Act of 1934, as amended. A Form 4 was filed
approximately one month late by a director relating to beneficial ownership
changes of his children. The Company is unaware of any transactions in which
there was a failure to file by a reporting person under such Act.

                             ELECTION OF DIRECTORS

    Ten directors are to be elected at the Annual Meeting of Shareholders for
one year or until their successors are elected and qualified. It is the
intention of the persons named in the accompanying form of proxy to vote for the
election of the nominees listed below. If, for any reason, any of the nominees
is unable or declines to serve, the proxies will be voted for the other persons
listed or for substitute nominees nominated by management. During fiscal 1997,
the Board of Directors held five meetings. All of the directors nominated for
re-election herein attended greater than 75% of the meetings of both the Board
and the respective committees for which they were eligible to serve.

    The Director Nomination and Compensation Committee proposes nominees for
Board positions and evaluates director compensation. The Committee consists of
Herbert M. Kohn (Chair), Douglass Wm. List, Bruce M. Flohr and Judith C.
Whittaker. Mr. List joined the Committee in May 1997. The Committee met two
times during 1997. The Committee will consider proposed director candidates
submitted by shareholders. Proposals for the 1999 election must be received in
writing on or prior to November 13, 1998.

    The Audit Committee of the Board of Directors was composed of Judith C.
Whittaker (Chair), Herbert M. Kohn and Gerald E. Myers during 1997.
Additionally, Thomas F. Eagleton was a member of the Committee until his
retirement as a director in May 1997. The Audit Committee reviews and monitors
financial controls throughout the Company, supervises the internal audit
function and monitors the Company's relationship with the external auditors. The
committee met two times in 1997.

    The Compensation Committee was composed of Rodney L. Gray (Chair), Bruce M.
Flohr and Douglass Wm. List during 1997. Additionally, Donald V. Rentz was a
member of the Committee until his retirement as a director in May 1997. The
Compensation Committee is a standing committee of the Board of Directors and
establishes executive salary and bonus levels for the executive officers and the
Presidents of the Company's subsidiaries. During 1997, the Compensation
Committee met six times.

                                       3
<PAGE>
                               DIRECTOR NOMINEES

<TABLE>
<CAPTION>
                                                                                   SERVED
                                                     PRINCIPAL                  CONTINUOUSLY                     STOCK
                                                   OCCUPATION FOR              AS A DIRECTOR   PERCENT OF        OWNED
    NAME OF NOMINEE           AGE                 LAST FIVE YEARS                  SINCE        CLASS(2)    BENEFICIALLY(1)
------------------------  -----------  --------------------------------------  --------------  -----------  ----------------
<S>                       <C>          <C>                                     <C>             <C>          <C>
Bruce M. Flohr                    59   Since 1977, Chairman and Chief               05/11/93          --%          6,000(3)
                                       Executive Officer of RailTex, Inc.

Charles M. Foudree                53   Executive Vice President-Finance of          07/27/72           1%         64,000(4)
                                       the Company since Sept. 1986.
                                       Treasurer of the Company since 1974.
                                       Secretary of the Company since 1982.

Rodney L. Gray                    45   Since November 1997, Executive Vice          05/11/93          --%         12,000(5)
                                       President, Finance of Enron
                                       International, Inc.; from 1994 to
                                       November 1997, Chairman and Chief
                                       Executive Officer of Enron Global
                                       Power & Pipelines, LLC; prior to that,
                                       Senior Vice-President-Finance and
                                       Treasurer of Enron Corp. from October
                                       1992 to 1994.

Robert E. Harmon                  59   Chairman of the Board of the Company         10/02/61           4%        386,938(6)
                                       since February 1975. Chief Executive
                                       Officer of the Company from November
                                       1969 to December 1994. President of
                                       the Company from November 1969 to July
                                       1990.

Herbert M. Kohn                   59   Since June 1991, a partner in the law        09/01/85          --%         40,650(7)
                                       firm of Bryan Cave.

Douglass Wm. List                 42   Since January 1988, President, List &        05/08/90          --%          6,300(8)
                                       Company, Inc., a management consulting
                                       firm based in Baltimore, Maryland.
                                       Since December 1992, also President of
                                       Railway Engineering Associates, Inc.,
                                       having been Vice-President and General
                                       Manager of that company since May
                                       1988. Since January 1997, President of
                                       Moorgate, Inc., an investment advisory
                                       company.

Gerald E. Myers                   56   Self-employed management consultant          05/03/88          --%         46,376(9)
                                       through GEM Financial Services, Inc.
                                       since July 1989.
</TABLE>

                                       4
<PAGE>
<TABLE>
<CAPTION>
                                                                                   SERVED
                                                     PRINCIPAL                  CONTINUOUSLY                     STOCK
                                                   OCCUPATION FOR              AS A DIRECTOR   PERCENT OF        OWNED
    NAME OF NOMINEE           AGE                 LAST FIVE YEARS                  SINCE        CLASS(2)    BENEFICIALLY(1)
------------------------  -----------  --------------------------------------  --------------  -----------  ----------------
<S>                       <C>          <C>                                     <C>             <C>          <C>
Bjorn E. Olsson                   52   President and Chief Executive Officer        05/06/86          --%         51,000(10)
                                       of the Company since January 1995;
                                       President and Chief Operating Officer
                                       of the Company from August 1990 to
                                       December 1994.

John A. Sprague                   44   Managing General Partner of a private    New nominee           --%               (0)
                                       equity investment firm, Jupiter
                                       Partners, LP since 1994; from June
                                       1993 to February 1994, a private
                                       investor.

Judith C. Whittaker               59   Since January 1997, Vice President,          05/11/93          --%          6,000(11)
                                       General Counsel/Secretary of Hallmark
                                       Cards, Incorporated; prior to that
                                       Vice- President-Legal of Hallmark
                                       Cards, Incorporated.
</TABLE>

(1) All amounts of shares reflect sole voting and disposition power unless
    otherwise indicated. The share amounts reflected in this column include
    outstanding shareholdings, as well as unexercised ISOP option shares and
    unexercised director option shares (see discussion under caption "Executive
    Compensation" herein). Shares allocated under the Company's ESOP are not
    included since participants have no disposition power and shared voting
    rights. Shares in the ESOP allocated to Messrs. Foudree and Olsson were
    8,070 and 2,778 shares, respectively.

(2) Percentages shown are rounded to the nearest whole percentage. Percentages
    are calculated on 10,829,289 shares representing the total of 10,521,189
    outstanding shares (including certain shares held in a Rabbi Trust) and
    308,100 shares for unexercised director ISOP and LTIP options.

(3) 6,000 shares are beneficially owned and held of record by Bruce M. Flohr.

(4) 41,250 shares are beneficially owned and held of record by M. Colleen
    Foudree as trustee for the M. Colleen Foudree Trust with sole voting and
    disposition power. 9,700 shares are held by the Charles M. Foudree Trust
    with sole voting and disposition power. 300 shares are held directly by
    Charles M. Foudree. The remainder are held by Charles M. Foudree and
    represent unexercised option shares.

(5) 9,000 shares are held of record by Rodney L. Gray. The remainder represent
    unexercised LTIP director options.

(6) 12,030 shares are held by Robert E. Harmon directly. 368,908 shares are held
    of record by Robert E. Harmon, as Trustee for the Robert E. Harmon Trust,
    with sole voting and dispositive powers. Does not include 11,430 shares
    owned by his wife for which Robert E. Harmon disclaims beneficial ownership.
    The remainder are held by Robert E. Harmon and represent unexercised
    director options.

(7) 18,000 shares are held directly by Herbert M. Kohn. 19,650 shares are held
    through an IRA and the remainder represent unexercised LTIP director
    options.

(8) 3,000 shares are held through an IRA. 300 shares in the aggregate are held
    on behalf of the daughters of Douglass William List. The remainder represent
    unexercised LTIP director options.

                                       5
<PAGE>
    Does not include 300 shares held by Moorgate Foundation Fund, L.L.C., for
    which Mr. List disclaims beneficial ownership. Mr. List owns approximately
    9% of Moorgate Foundation Fund, L.L.C. Moorgate, Inc., an investment
    advisory company, provides investment advisory services to Moorgate
    Foundation Fund, L.L.C., and Mr. List is President of Moorgate, Inc.

(9) Includes 43,114 shares which are held in a living trust, 262 shares are held
    in an IRA and the remainder represent unexercised LTIP director options.

(10) 38,250 shares are held by Bj(3)rn E. Olsson with sole voting and
    dispositive power, not including 24,150 shares held by a Rabbi Trust for
    deferred compensation, 8,740 shares of which are currently vested. The
    remainder represent unexercised option shares.

(11) 3,000 shares are held directly by Judith C. Whittaker. The remainder
    represent unexercised LTIP director options.

    Ms. Whittaker serves as a director of MCI Communications Corporation, a
publicly-held company. Mr. Flohr serves as an officer and director of RailTex,
Inc., a publicly-held company. Mr. List is a director of Mark VII, Inc., a
publicly-held company. Mr. Gray is a director of Battlemountain Gold Company, a
publicly-held company. Mr. Foudree is a director of OTR Express, Inc., a
publicly-held company. Mr. Kohn is a director of American Pad & Paper Company, a
publicly-held company. Mr. Sprague is a director of Heartland Communications,
Inc., a publicly-held company. None of the other director nominees serves as a
director of any other company with a class of stock registered pursuant to
Section 12 of the Securities Exchange Act of 1934 or subject to the requirements
of Section 15(d) of that Act or any company registered under the Investment
Company Act of 1940.

CERTAIN TRANSACTIONS.

    Mr. Kohn is currently a partner of the Bryan Cave law firm, which the
Company retains as legal counsel for certain matters.

                                       6
<PAGE>
                  EXECUTIVE COMPENSATION AND OTHER INFORMATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION.

    The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries (determined as
of the end of the last fiscal year), to or on behalf of the Company's Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company or its subsidiaries (together hereafter referred to as
the "named executive officers") for the fiscal years ended December 31, 1997,
1996 and 1995:

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                             ANNUAL COMPENSATION(1)
                                     ---------------------------------------
                                                                OTHER ANNUAL
                                     FISCAL   SALARY    BONUS   COMPENSATION
    NAME AND PRINCIPAL POSITION       YEAR    ($)(2)   ($)(3)       ($)
-----------------------------------  ------   -------  -------  ------------
<S>                                  <C>      <C>      <C>      <C>
Bjorn E. Olsson                       1997    305,848  192,309    --
 President & CEO                      1996    298,274  218,791    --
                                      1995    264,747    --       --

Charles M. Foudree  Executive         1997    180,445  110,498    --
V.P.-Finance,                         1996    176,568  109,895    --
 Secretary and Treasurer              1995    163,281    --       --

Robert E. Heggestad                   1997    131,061   82,505    --
 Vice President-Technology            1996    130,738   77,455    --
                                      1995    129,352    --       --

Lloyd T. Kaiser                       1997    151,131   98,842    --
 Executive Vice President-            1996    156,717  103,441    --
 Domestic Sales & Service             1995    151,821    --       --

Raymond A. Rosewall                   1997    137,163   85,186    --
 V.P. Manufacturing                   1996    172,651   81,145    --
                                      1995      --       --       --

<CAPTION>
                                           LONG TERM COMPENSATION
                                     ----------------------------------

                                              AWARDS
                                     ------------------------   PAYOUTS
                                     RESTRICTED                 -------
                                       STOCK      OPTIONS (#     LTIP      ALL OTHER
                                      AWARD(S)     OF SHS.)     PAYOUTS   COMPENSATION
    NAME AND PRINCIPAL POSITION         ($)           (4)         ($)        ($)(5)
-----------------------------------  ----------   -----------   -------   ------------
<S>                                  <C>          <C>           <C>       <C>
Bjorn E. Olsson                        --            5,250       --         162,418
 President & CEO                       --            5,250       --          47,028
                                       --            --          --          44,339
Charles M. Foudree  Executive          --            5,250       --          51,307
V.P.-Finance,                          --            5,250       --          75,304
 Secretary and Treasurer               --            --          --          70,470
Robert E. Heggestad                    --            5,250       --          10,909
 Vice President-Technology             --            5,250       --          72,515
                                       --            --          --          85,652
Lloyd T. Kaiser                        --            5,250       --          10,909
 Executive Vice President-             --            5,250       --          20,693
 Domestic Sales & Service              --            --          --          22,317
Raymond A. Rosewall                    --            5,250       --           5,454
 V.P. Manufacturing                    --           30,000       --          36,049
                                       --            --          --          --
</TABLE>

(1) Includes no perquisites (i.e. auto allowance, club dues or aircraft use)
    because in all instances these total less than $50,000 or 10% of the total
    of annual salary and bonus reported for each named executive officer.

(2) Salary includes amounts deferred under the Company's 401(k) and the SERP at
    the election of the named executive officer.

(3) Bonus consists of cash. (See discussion under the heading "Employment
    Contracts" below.)

(4) Includes grants of options in the amount of 5,250 shares in 1997 under the
    Company's 1996 Long-Term Incentive Plan and in 1996 under the Company's 1990
    Incentive Stock Option Plan.

(5) Includes allocation of contributions to the Company's Deferred Compensation
    Plan, SERP and to the Company's non-discriminatory Employee Stock Ownership
    Plan (ESOP). The amounts included in this column representing allocation of
    the contribution made in 1997 to the Company's ESOP for Messrs. Olsson,
    Foudree, Heggestad, Kaiser and Rosewall were $10,909; $10,909; $10,909;
    $10,909; and $5,454, respectively. The remainder shown for each in the
    column represents allocation of contributions for such named executive
    officers under the Company's Deferred Compensation Plan. During 1997, a
    total of 24,150 shares were deposited in a Rabbi Trust for deferred
    compensation through the SERP allocated to Mr. Olsson, 8,740 shares of which
    were vested. $124,011 of the amount in 1997 included in this column for Mr.
    Olsson represents the value of the vested shares. (See discussion under the
    heading "Pension Plan" below.)

                                       7
<PAGE>
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.

    During 1997, all of the named executive officers received a grant of stock
options under the Company's 1996 Long-Term Incentive Plan. The Company has no
outstanding Stock Appreciation Rights (SARs). The following table contains
information concerning the grant of stock options under the Company's 1996
Long-Term Incentive Plan to the named executive officers (see discussion below
under "Compensation Committee Report--1996 Long-Term Incentive Plan"):

                       OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                                                              POTENTIAL REALIZABLE
                                     INDIVIDUAL GRANTS                                          VALUE AT ASSUMED
--------------------------------------------------------------------------------------------    ANNUAL RATES OF
                                                      % OF TOTAL                                  STOCK PRICE
                                                       OPTIONS                                  APPRECIATION FOR
                                        OPTIONS       GRANTED TO    EXERCISE OR                  OPTION TERM(3)
                                      GRANTED (1)    EMPLOYEES IN   BASE PRICE    EXPIRATION  --------------------
               NAME                  (# OF SHARES)   FISCAL YEAR    ($/SH) (2)     DATE(1)     5% ($)     10% ($)
-----------------------------------  -------------   ------------   -----------   ----------  ---------  ---------
<S>                                  <C>             <C>            <C>           <C>         <C>        <C>
Bjorn E. Olsson                          5,250            4.3          12.17       2/14/02       26,225     61,750
                                                                                   through
                                                                                   2/14/06
Charles M. Foudree                       5,250            4.3          12.17       2/14/02       26,225     61,750
                                                                                   through
                                                                                   2/14/06
Robert E. Heggestad                      5,250            4.3          12.17       2/14/02       26,225     61,750
                                                                                   through
                                                                                   2/14/06
Lloyd T. Kaiser                          5,250            4.3          12.17       2/14/02       26,225     61,750
                                                                                   through
                                                                                   2/14/06
Raymond A. Rosewall                      5,250            4.3          12.17       2/14/02       26,225     61,750
                                                                                   through
                                                                                   2/14/06
</TABLE>

(1) Each of Messrs. Olsson, Foudree, Heggestad, Kaiser and Rosewall received
    5,250 shares pursuant to a non-qualified stock option grant from the
    Company's 1996 Long-Term Incentive Plan (LTIP) in 1997. For a description of
    the terms of the options see "Compensation Committee Report-Incentive Stock
    Option Plan" below.

(2) The exercise price for non-qualified LTIP equals the fair market value of
    the underlying shares on the date of grant. The grants are 20% vested at the
    date of grant and an additional 20% vests on each anniversary of the date of
    grant until fully vested. Non-qualified LTIP options expire on the later of
    five years from the date of grant or the date the options first become
    exercisable. The following tables illustrate the effect of vesting,
    expiration dates and assumed appreciation calculated at specified rates for
    5,250 share options granted on February 14, 1997, with vesting as shown:

<TABLE>
<CAPTION>
                                                                                         IMPLIED PER SHARE          POTENTIAL
                                                                        FUTURE                                  REALIZABLE VALUE @
                                                                    STOCK PRICE @          APPRECIATION @
  GRANT      DATE        DATE        SHARES     TERM OF OPTION   --------------------  ----------------------  --------------------
  PRICE     VESTED      EXPIRES      VESTED        IN YEARS         5%         10%         5%          10%        5%         10%
---------  ---------  -----------  -----------  ---------------  ---------  ---------  -----------  ---------  ---------  ---------
<S>        <C>        <C>          <C>          <C>              <C>        <C>        <C>          <C>        <C>        <C>
 $12.17      2/14/97     2/14/02        1,050              5     $   15.53  $   19.60   $    3.36   $    7.43  $   3,531  $   7,802
             2/14/98     2/14/03        1,050              6     $   16.31  $   21.56   $    4.14   $    9.39  $   4,346  $   9,859
             2/14/99     2/14/04        1,050              7     $   17.12  $   23.72   $    4.95   $   11.55  $   5,202  $  12,123
             2/14/00     2/14/05        1,050              8     $   17.98  $   26.09   $    5.81   $   13.92  $   6,101  $  14,613
             2/14/01     2/14/06        1,050              9     $   18.88  $   28.70   $    6.71   $   16.53  $   7,045  $  17,353
                                                                                                               ---------  ---------
                                                                                                               $  26,225  $  61,750
</TABLE>

                                       8
<PAGE>
(3) These amounts represent only the fully vested amounts over the full vesting
    period (see footnote 2 above) and certain assumed rates of appreciation
    only. The assumed rates may have no correlation to current or future actual
    market conditions. Option Exercises and Holdings. The following table
    provides, for the named executive officers, information concerning the
    exercise of stock options during the last fiscal year and unexercised
    options held as of the end of the last fiscal year for both the Company's
    1988 Director Option Plan ("Director"), 1990 Incentive Stock Option Plan
    ("ISOP") and 1996 Long-Term Incentive Plan ("LTIP"):

    AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

<TABLE>
<CAPTION>
                                                                                                   VALUE (IN $) OF
                                                                                    NUMBER OF        UNEXERCISED
                                             NUMBER OF SHARES                      UNEXERCISED      IN-THE-MONEY
                                 TYPES OF       ACQUIRED ON      VALUE (IN $)   OPTIONS/SHARES AT    OPTIONS AT
             NAME                 OPTION         EXERCISE         REALIZED(1)       12/31/96       12/31/96(2)(3)
------------------------------  ----------  -------------------  -------------  -----------------  ---------------
<S>                             <C>         <C>                  <C>            <C>                <C>
Bjorn E. Olsson                 Director             3,000             2,000           --                --
                                ISOP                 1,500             3,875            7,500             60,383
                                LTIP                --                --                5,250             33,233

Charles M. Foudree              Director             3,000             2,000           --                --
                                ISOP                --                --                7,500             67,883
                                LTIP                --                --                5,250             33,233

Lloyd T. Kaiser                 ISOP                 8,250            65,312            5,250             47,250
                                LTIP                --                --                5,250             33,233

Robert E. Heggestad             ISOP                --                --                5,250             47,250
                                LTIP                --                --                5,250             33,233

Raymond A. Rosewall             ISOP                --                --               30,000            285,000
                                LTIP                --                --                5,250             33,233
</TABLE>

(1) Market price at exercise less exercise price times the number of options
    exercised.

(2) There are no SARs.

(3) Market price at 12/31/97 ($18.50) less exercise price.

LONG-TERM INCENTIVE PLANS.

    Under the 1996 Long-Term Incentive Plan (the "1996 Plan"), the Compensation
Committee may establish vesting criteria for the grant of options or other
permitted awards under the 1996 Plan. The Compensation Committee currently
anticipates that the primary awards vehicle under the plan will consist of
non-qualified options, with vesting over a four-year period from the date of
grant so that 20% of the grant vests at grant and the remaining amount will vest
on the anniversary of the grant for the next four years. There are no
performance-based criteria relating to the award or vesting under the
contemplated plan in connection with the non-qualified options. The exercise
prices of such non-qualified options equal the Closing price for the Company's
stock on the date of grant. Under the 1996 Plan, the Compensation Committee
currently anticipates that grants to executive officers will be in the amount of
5,250 option shares per year so that 1,050 option shares will be vested as of
the date of grant and an additional 1,050 option shares will vest over each of
the following four years from the date of grant. In addition, the Compensation
Committee anticipates granting non-qualified options to certain key employees of
the Company, which grants will be in the amount of 750 option shares, with 150
option shares vested upon grant and 150 option shares vesting in each of the
following four years following the date of grant. Finally, grants of LTIP option
shares are anticipated to five Assistant Vice Presidents at 1,500 non-qualified
option shares to each with similar vesting percentage provisions to those
options granted to officers.

                                       9
<PAGE>
    Under the 1996 Plan, on the last business day of May, commencing May 31,
1996 (or if later, on the date on which the person is first elected or begins to
serve as a non-employee director, other than by reason of termination of
employment) and, thereafter on the date of each annual meeting of shareholders
of the Company, each person who is a non-employee director after such meeting of
stockholders shall be granted a non-qualified option for 1,500 option shares of
the Common Stock of the Company. The option amount shall be prorated if such
non-employee director is first elected or begins to serve as a non-employee
director on a date other than the date of an annual meeting of stockholders. The
exercise prices of such non-qualified options equal the Closing price for the
Company's stock on the date of grant. Options granted to non-employee directors
pursuant to the 1996 Plan will immediately vest and will have a term of seven
years for exercise.

    On May 13, 1997, each of the non-employee directors received a grant of
1,500 non-qualified options, with an exercise price of $13.00 per share. On
February 14, 1997, non-qualified options for 68,250 option shares (5,250 to each
officer) were issued to 13 key employees under the 1996 Plan. Additionally, on
February 14, 1997, non-qualified options for 40,500 option shares (750 to each
key employee) were granted to 54 key employees of the Company. The exercise
price of the officer and key employee options was $12.17 per share, and the
other terms of such options were as set forth above.

PENSION PLANS.

    The Company has no defined benefit pension plans. The Company has a
non-qualified, unfunded deferred compensation plan and trust for certain
officers and key employees, providing for payments upon retirement, death or
disability. Under the plan, the employees receive retirement payments equal to a
portion of the average of the three highest consecutive years' compensation.
Upon retirement, these payments are to be made for the remainder of the
employee's life with a minimum payment of ten years' benefits to either the
employee or his beneficiary. The plan provides for reduced benefits upon early
retirement, disability or termination of employment. The amount of the deferred
compensation expense for all covered employees for 1997 was approximately
$573,000 and amounts allocated to the named executive officers are included in
the "All Other Compensation" column of the Summary Compensation Table.
Participation in the Deferred Compensation Plan and Trust has been frozen and no
additional participants are permitted.

    On October 7, 1997, the Compensation Committee of the Board of Directors
approved the establishment of one or more defined contribution plans for
executive management of the Company who were not covered under the prior
deferred compensation plan of the Company. The defined contribution plans have a
variable contribution level up to 12% of base salary for new members of senior
management. Contribution levels above 12% require Compensation Committee
approval. Contributions are made in cash and stock to a rabbi trust with vesting
over a rolling period based on 20% at the time of contribution and 20% on each
of the anniversary dates of the contribution until fully vested. Finally, the
defined contribution plan includes life insurance coverage at eight times
current salary up to a cap of $1,400,000. Currently, the only member of senior
management participating in a defined contribution plan is William L. Bush.

    The Company also has an Employee Stock Ownership Plan and Trust ("ESOP").
Employees, including officers of the Company who satisfy the ESOP's eligibility
criteria with respect to hours and years of service are eligible to participate.
Allocations are based on the ratio that an eligible individual's salary (subject
to current regulatory caps) represents to the total salaries of all eligible
persons. Standards for vesting are based upon years of service with the Company
in accordance with current regulatory guidelines. Under the ESOP, the Company is
not required to make any contributions, other than matching employee 401K
contributions up to 4% of eligible compensation. However, the Company's current
intention is to contribute approximately 15% of the Company's pre-tax earnings
to the ESOP. The 15% contribution would include the funds required to fulfill a
portion of the Company's obligation to match a portion of the employee's 401K
contribution. The contribution to the ESOP for

                                       10
<PAGE>
the years ended December 31, 1995, 1996 and 1997 totaled $2,785,000, $3,815,000
and $3,874,000, respectively, which amounts were paid in cash. The amount of
compensation included in the "All Other Compensation" column of the Summary
Compensation Table includes the amounts of respective annual contributions
allocated for the named executive officers as of March 31 of the preceding year.

CANCELLATION AND REGRANT OF OPTIONS.

    During 1997, the Company did not cancel, regrant or reprice any outstanding
stock options.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.

    Mr. Rodney L. Gray (Chairman), Mr. Douglass Wm. List, Mr. Bruce M. Flohr and
Mr. Donald V. Rentz (until his retirement) served on the Compensation Committee
of the Company during the past fiscal year. None of the members of the
Compensation Committee are officers or employees of the Company. The
Compensation Committee of the Company establishes executive salary and bonus
levels for the executive officers of the Company.

    The Company does not believe that any interlocks exist between members of
the Compensation Committee and any third party represented on the Board of
Directors or providing significant services to the Company.

EMPLOYMENT CONTRACTS.

    Messrs. Olsson, Foudree, Heggestad, Kaiser and Rosewall had employment
contracts with the Company as of December 31, 1997 which provides for the
payment to such officers of annual base salaries of $325,000, $182,481,
$135,570, $156,933 and $140,933, respectively. The employment contracts have a
rolling 12-month term, except that Mr. Olsson's contract has a rolling 24-month
term. For the year ended December 31, 1997, these officers' contracts included
an annual cash bonus. Cash bonuses paid to the named executive officers for
calendar year 1997 under the cash bonus plan were $192,309, $110,498, $82,505,
$98,842 and $85,186, respectively. (See description below under "Compensation
Committee Report on Bonuses".)

    During 1997, non-qualified LTIP options for 5,250 shares were granted to
each of thirteen executive officers effective February 14, 1997 at an exercise
price of $12.17 per share. (See discussion in the Compensation Committee Report
under "Bonuses" below.)

         REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

RESPONSIBILITIES AND COMPOSITION OF THE COMMITTEE.

    The Compensation Committee is responsible for (i) establishing compensation
programs for executive officers of the Company and its subsidiaries designed to
attract, motivate and retain key executives responsible for the success of
Company as a whole; (ii) administering and maintaining such programs in a manner
that will benefit the long-term interests of the Company and its shareholders;
and (iii) determining the compensation of the Company's executive officers and
certain key employees. The Committee serves pursuant to a charter adopted by the
Board of Directors. The Committee is composed entirely of directors who have not
served as officers or employees of the Company within the past ten years.

                                       11
<PAGE>
COMPENSATION PHILOSOPHY AND OBJECTIVES.

    The Committee believes that the Company's executive officer compensation
should be determined according to a competitive framework and based on overall
financial results, individual contributions and teamwork that together help
build value for the Company's shareholders. Within this overall philosophy the
Committee addresses a number of specific objectives, including (i) a total
compensation program that takes into account compensation practices and
financial performance as compared to similar companies, (ii) annual bonus
programs that take into account the Company's overall performance relative to
corporate objectives established in advance by the Committee which help create
value for the Company's shareholders, and (iii) alignment of the financial
interests of executive officers to those of shareholders by providing equity
based compensation through option grants and through mandatory minimum
shareholding requirements.

    The Committee believes that the top management of the Company must operate
as a team and that the cause and effect relationship between the efforts of any
one individual and corporate performance is difficult to discern. Hence, in
general, the compensation of the executive team tends to track as a group with
the performance of the Company. The Committee does, however, make exceptional
decisions where exceptional circumstances exist. Furthermore, the Committee does
establish individual performance objectives and measures individual performance
against these objectives in an effort to ensure that all members of the top
management team are fulfilling the expectations set for them.

COMPENSATION COMPONENTS AND PROCESS.

    There are three major components of the Company's executive officer
compensation: (i) base salary; (ii) annual bonuses and (iii) equity incentives
through ISOP and LTIP option grants and minimum shareholding requirements.
During 1997, the Committee utilized option grants under the Company's 1996
Long-Term Incentive Plan ("LTIP"). Upon approval by the shareholders, the
Committee replaced the ISOP plan and the 1988 Director Option Plan with the
Company's new 1996 Long Term Incentive Plan (the "1996 Plan"). The Committee
began use of this plan during 1996. The 1996 Plan operates to cover both the
executive officer group, as well as a fairly extensive key employee group.
Non-employee directors also receive an automatic annual option grant of 1,500
shares each year. (See discussion above under Executive Compensation--Long-Term
Incentive Plan).

    The process utilized by the Committee in determining executive officer
compensation levels for all of these components is based on the Committee's
objective judgment and takes into account both qualitative and quantitative
factors. No predetermined weights are assigned to such factors with respect to
any compensation component. Recommendations for base salaries and awards for
each individual executive officer are established after evaluation of individual
performance factors (equally weighted) including the following: knowledge of job
responsibilities, relationship with others, working capacity, initiative,
character, leadership, adaptability, teamwork, administrative ability and
individual goal attainment. The evaluation by the Committee includes the degree
to which each individual has met individual performance objectives. These
performance objectives are believed to relate directly to the Company's
performance and are therefore related to shareholder value. Among the factors
considered by the Committee are the recommendation of the Chief Executive
Officer with respect to compensation of the Company's other key executive
officers. However, the Committee makes the final compensation decisions
concerning such officers.

    Comparative information is utilized by the Company relating to its peer
group (as set forth below under the section herein dealing with the "Performance
Graph"). In addition, the Committee reviews at least two other surveys of
industry trade groups with similarities to the Company's operations. The trade
group survey data sources are standard general indices constructed and provided
by outside vendors. The surveys consist of many more data points than the
limited number of companies in the peer performance stock group. In making
compensation decisions, the Committee also from time to

                                       12
<PAGE>
time receives assessments and advice regarding the compensation practices of the
Company and others from independent compensation consultants. During 1997, the
Compensation Committee analyzed the base salary and the total compensation (base
salary plus annual incentives) of the Company's executives as compared to median
survey data and to comparative companies in the rail supply industry, the
electronic equipment manufacturing industry and the greater Kansas City area.

    In order to meet the objectives set out above, the Committee has designed
the executive compensation program to be consistent with the Company's overall
pay philosophy. Base salaries, the fixed regular periodic component of pay, are
conservatively established at levels comparable to base salaries for similar
positions at companies with similar levels of sales and overall financial
performance. Annual cash bonus and equity awards, which are directly linked to
the short-term and long-term financial performance of the Company as a whole,
are designed to provide better than competitive pay only for better than
competitive financial performance.

BASE SALARY.

    On August 20, 1997, the Committee conducted a review of the performance and
compensation of the Company's executive officer group, including Bjorn E. Olsson
and the other named executive officers. This review included an analysis of key
accomplishments of each officer, an evaluation of achievement of individual
goals and objectives, and an assessment of their contributions to the Company's
performance. Based on this review and its assessment of competitive compensation
practices, the Committee recommended a general increase in base salaries of 4%
for certain executive officers and key employees (including some of the named
executive officers) effective September 1, 1997.

BONUSES.

    The Company's cash bonus or Incentive Bonus Plan for its Executive Officer
Group includes not only the traditional ROCE (Return on Capital Employed)
measurement standard, but also earnings growth as a critical indicator of
financial health of the Company. The objective of this Incentive Bonus Plan is
to provide an additional incentive to each officer of the Company so as to
advance the interests of the Company and its stockholders and create a more
direct tie between annual performance and increased shareholder values. The
Committee believes that the cash bonus plan encourages the creation of
shareholder wealth by creating incentives both to maximize operating profit for
the Company and minimize capital employed. Additionally, the cash bonus plan
rewards efficiencies in production and innovation in quality-based productivity
techniques. The executive cash bonus plan was based on 70% weighting for ROCE
and 30% weighting for earnings growth for 1997. For 1998, the executive cash
bonus plan will be based on 50% weighting for ROCE and 50% weighting for
earnings growth. The formula for ROCE is the sum of pretax earnings plus
interest expense divided by the sum of average total assets minus non-interest
bearing liabilities. The new proposal establishes target base bonus levels as a
percentage of current base salary. Percentages are 35%, with the exception of
Mr. Olsson, whose target base bonus is established at 45% of his base salary.
For 1997, the base bonus levels for Messrs. Olsson, Foudree, Heggestad, Kaiser
and Rosewall were $131,332, $61,412, $38,369, $51,817 and $40,576, respectively.
For 1998, the base bonus levels of Messrs. Olsson, Foudree, Heggestad, Kaiser
and Rosewall will be $146,250, $63,868, $40,671, $54,927; and $42,199,
respectively. The actual bonus is calculated based on actual performance numbers
for ROCE as compared to budget and earnings growth based on primary earnings per
share as compared to an Earnings Growth Rate Target established by the Board of
Directors at 10% for fiscal 1997 and 1998. The ROCE portion of the formula is
adjusted as follows based on the ratio of actual versus budget ROCE: under 75%
of budgeted ROCE--no bonus award; from 75% to 99% of budgeted ROCE--pro-rated
bonus award; at 100% of budgeted ROCE--100% of potential ROCE bonus award and
for each 1% above budgeted ROCE a $7,000 incremental increase for each officer.

                                       13
<PAGE>
    For 1997, budgeted ROCE was 18.7% and actual ROCE was 23.8%. Targeted
earnings per share growth was 10% and actual primary earnings per share growth
was 16.5%. Amounts payable under the cash bonus plan for 1997 to all
participants totaled $1,123,900 and the named executive officers, Messrs.
Olsson, Foudree, Heggestad, Kaiser and Rosewall received the following amounts:
$192,309, $110,498, $82,505, $98,842 and $85,186, respectively.

INCENTIVE STOCK OPTION PLAN.

    The Committee historically considered outstanding option holdings in
determining whether to grant additional options under the Company's 1990
Incentive Stock Option Plan to any individual. Each of the named executive
officers received no grant of options pursuant to the ISOP during 1996 except
for 5,250 option shares granted in lieu of their annual stock bonus. The
exercise price for option shares granted under the ISOP is equal to the closing
price for the Company's stock on the date of grant. Options are exercisable
immediately upon grant unless delays are necessary to avoid the statutory
limitations on grants established under the Internal Revenue Code. The options
are exercisable anytime during a five-year period from date of grant or the date
on which the option was first exercisable. Upon approval of the 1996 Long-Term
Incentive Plan by the Shareholders of the Company on May 14, 1996, the 1990
Incentive Stock Option Plan was replaced. No additional grants are permitted
under the 1990 ISOP, although outstanding options remain exercisable in
accordance with their terms.

LONG-TERM INCENTIVE PLANS.

    On May 14, 1996, the shareholders of the Company approved the Company's 1996
Long-Term Incentive Plan ("1996 Plan"), which plan became effective May 31,
1996. The purposes of the 1996 Plan are (i) to align the interests of the
Company's shareholders and recipients of awards under the 1996 Plan by
increasing the proprietary interests of such recipients in the Company's growth
and success, and (ii) to advance the interests of the Company by attracting and
retaining officers, other employees and non-employee directors. Upon adoption of
the 1996 Plan, it replaced both the Company's 1988 Non-Qualified Director Option
Plan and the Company's 1990 Qualified Incentive Stock Option Plan. Outstanding
options under both the 1988 Non-Qualified Director Option Plan and the 1990
Incentive Stock Option Plan remain valid although no new grants were permitted
under either plan after May 31, 1996.

    Under the 1996 Plan, the Compensation Committee may establish vesting
criteria for the grant of options or other permitted awards under the 1996 Plan.
The Compensation Committee currently anticipates that the primary awards vehicle
under the plan will consist of non-qualified options, with vesting over a
four-year period from the date of grant so that 20% of the grant amount will
vest each year. The exercise prices of such non-qualified options are equal to
the Closing price for the Company's stock on the date of grant. Under the 1996
Plan, the Compensation Committee currently anticipates that grants to executive
officers will be in the amount of 5,250 option shares per year so that 1,050
option shares will be vested as of the date of grant and an additional 1,050
option shares will vest over each of the following four years from the date of
grant. In addition, the Compensation Committee anticipates granting
non-qualified options to certain key employees of the Company, which grants will
be in the amount of 750 option shares, with 150 option shares vested upon grant
and 150 option shares vesting in each of the following four years following the
date of grant. Finally, the Committee anticipates grants of 1,500 non-qualified
option shares each to certain Assistant Vice Presidents with similar percentage
vesting schedules to the officer grants.

    Under the 1996 Plan, on the last business day of May, commencing May 31,
1996 (or if later, on the date on which the person is first elected or begins to
serve as a non-employee director, other than by reason of termination of
employment) and, thereafter on the date of each annual meeting of shareholders
of the Company, each person who is a non-employee director after such meeting of
stockholders shall be granted a non-qualified option for 1,500 option shares of
the Common Stock of the

                                       14
<PAGE>
Company. The option amount shall be prorated if such non-employee director is
first elected or begins to serve as a non-employee director on a date other than
the date of an annual meeting of stockholders. Options granted to non-employee
directors pursuant to the 1996 Plan will immediately vest and will have a term
of seven years for exercise.

    During 1996, no awards of non-qualified option grants were made to the
executive officers of the Company under the 1996 Plan and, therefore, none of
the named executive officers received grants of non-qualified options or other
awards under the 1996 plan during 1996. On February 14, 1997, each executive
officer (13 in all) received grants of non-qualified options under the 1996 Plan
for 5,250 option shares, vesting over 4 years at an exercise price of $12.17 per
option share. On May 13, 1997, each of the non-employee directors received a
grant of 1,500 non-qualified options, with an exercise price of $13.00 per
share. In February 1997, non-qualified options for 40,500 option shares (750 to
each key employee) were issued to 54 key employees under the 1996 Plan. The
option exercise price of the non-qualified options granted to key employees was
$12.17 per option share with vesting over 4 years.

MINIMUM STOCKHOLDING REQUIREMENT.

    During 1996, the Compensation Committee, with the Board of Director's
approval, established a minimum stockholding requirement for Company stock
(exclusive of ESOP and unexercised option shares) in amounts equal to two times
base salary for the CEO, one-time base salary for the Executive Vice Presidents
and one-half of base salary for all other members of the Executive Officer
Group. For any person subject to the minimum stockholding requirements who holds
less than the minimum stockholding requirement (measured at each year-end), the
delinquency will result in up to one-third of that person's annual cash bonus
being utilized to purchase shares of the Company's stock in the name of such
individual. New officers will be given five years in which to satisfy their
minimum stockholding requirement before application of the bonus withholding
procedure. At December 31, 1997, each member of the Company's Executive Group,
including each of the Named Executive Officers, satisfied their respective
minimum stockholding requirements.

Rodney L. Gray (Chair)          Douglass Wm. List
Bruce M. Flohr

                          TOTAL RETURN TO SHAREHOLDERS

PERFORMANCE GRAPH.

    The Company has included in this proxy statement, a graph of five-year
shareholder returns on an indexed basis comparing the Company's common stock
performance to other broad market indices or an index of selected peer group
companies. The Board of Directors has constructed a peer group consisting of the
Company and nine other manufacturing and service companies in the railroad
supply industry. Revenues (on a 12-month trailing basis) for this group of
companies range from $213.5 Million to $2,617.6 Million, as compared to $213.5
Million for the Company. Total Assets for these companies range from $124.4
Million to $2,224.2 Million, as compared to $135.7 Million for the Company. The
peer group consists of the following companies: Harsco Corporation; Trinity
Industries, Inc.; The Timken Companies; Morrison Knudsen Corporation; Varlen
Corporation; L.B. Foster Company; Ansaldo Signal NV (acquired on December 11,
1996, by merger); ABC Rail Products, Inc.; Wabash National Corporation and the
Company. Last year's peer group also included Brenco, Incorporated, which was
acquired by Varlen Corporation and is, therefore, not included as a separate
company. The performance graph shows comparisons between the Company, the peer
group and the S&P Composite 500 Stock Index. Data points for the performance
graph comparisons are included in the legend below. All indices have been
weighted for market capitalization. The following performance graph also sets
forth the percentage of cumulative total return for the last fiscal year and
cumulative return since January 1, 1993.

                                       15
<PAGE>
    Comparison of Five-Year Cumulative Total Return* Among the Company, Peer
Performance Group and S&P Composite 500 Index.

                  Comparison of 5 Year Cumulative Total Return

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
               HARMON INDUSTRIES     PEER GROUP     S&P 500
<S>          <C>                    <C>            <C>
Dec. 1992                  $100.00        $100.00     $100.00
Dec. 1993                  $191.70        $136.20     $109.80
Dec. 1994                  $163.80        $134.70     $111.30
Dec. 1995                  $133.60        $144.60     $153.10
Dec. 1996                  $159.40        $169.10     $188.80
Dec. 1997                  $239.10        $229.60     $252.00
</TABLE>

    The reference points on the foregoing graph are as follows:

<TABLE>
<CAPTION>
                                        DEC. 1992    DEC. 1993    DEC. 1994    DEC. 1995    DEC. 1996    DEC. 1997
                                       -----------  -----------  -----------  -----------  -----------  -----------
<S>                                    <C>          <C>          <C>          <C>          <C>          <C>
Harmon Industries....................      100.00       191.70       163.80       133.60       159.40       239.10
Peer Group...........................      100.00       136.20       134.70       144.60       169.10       229.60
S&P 500..............................      100.00       109.80       111.30       153.10       188.80       252.00
</TABLE>

*   Assumes that the value of the Company's common stock, Performance Peer Group
    and S&P 500 Index were each $100 on December 31, 1992 and that all dividends
    were reinvested.

                             DIRECTOR COMPENSATION

    From May 14, 1996 to May 12, 1998, the Board of Directors' compensation
consists of annual fees of $8,000 plus travel expenses to and from the meetings
for each director. Effective May 14, 1996, only non-employee directors were
entitled to receive annual directors fees. In addition, the directors who are
not employees of the Company receive $500 for each Board or separate committee
meeting in which the director participates by attending or through telephonic
conference. In addition, each chairperson of the respective committees of the
Board of Directors receives an annual payment of $500 for acting as chairperson
of a committee.

    Effective May 12, 1998, each non-employee director will receive an annual
cash director's fee of $6,000 and 360 shares of Common Stock of the Company per
year. In addition, non-employee directors receive $1,500 per Board meeting, $750
per committee meeting and $500 for special telephonic board meetings on specific
subjects. Board and committee meeting fees are payable for attendance in person

                                       16
<PAGE>
or for telephonic participation. Each chair of a committee receives $250 per
quarter. Finally, each non-employee director may receive $500 for a three-hour
block of such director's time (capped at $1,500 total per day) for special or ad
hoc projects assigned to such non-employee director by the Board.

    The package also grants each director an annual non-qualified option to
purchase 1,500 shares of the Company's Common Stock at a price equal to the
closing market price on the date of grant. The non-qualified options are granted
under and are governed by the Company's 1996 Long-Term Incentive Plan. These
options are exercisable at any time during a seven year period following the
date of grant. On May 31, 1995, options for 3,000 shares were granted to each of
the directors pursuant to the 1988 Director Option Plan, which options expired
May 31, 1997 and had an exercise price of $11.83 per share. During 1997, Messrs.
Foudree, Gray, Kohn, Olsson, Rentz and List exercised those outstanding director
options for 3,000, 3,000, 1,500, 3,000, 3,000 and 3,000 shares, respectively. On
May 31, 1996, options for 1,500 shares were granted to each of the Non-Employee
Directors pursuant to the 1996 Long-Term Incentive Plan. Such options have an
exercise price of $11.33 per share, are fully vested and are exercisable over a
term of seven years. On May 13, 1997, options for 1,500 shares were granted to
each of the non-employee directors pursuant to the 1996 Long-Term Incentive
Plan. These options have an exercise price of $13.00 per share, are fully vested
and have a term of seven years. As of March 16, 1998, none of such options
granted in 1996 have been exercised other than the exercise in March 1998 by
Bruce M. Flohr of both the 1996 and 1997 grants for 1,500 shares each. See
discussion above under "Executive Compensation--Long-Term Incentive Plan" for a
description of the non-qualified LTIP options granted annually to the
Non-Employee Directors.

    On December 8, 1994, the Board of Directors approved a compensation package
for Mr. Robert E. Harmon, in his capacity as Chairman of the Board effective
January 1, 1995. The Chairman of the Board is treated as a Non-Employee Director
for annual and director meeting fees. The defined duties of the Chairman include
the following: representing the Company at national trade association meetings;
assisting in lobbying efforts; assisting in overseas representation of the
Company; assisting the CEO in acquisitions; assisting in the development of
relationships with securities analysts and investors; assisting with sales and
promotional calls; providing advisory services to the CEO; and conducting all
Board meetings. The Chairman's annual fee, subject to review each year, was
approximately $79,000 for fiscal 1997 and will be approximately $79,000 for
fiscal 1998.

           APPROVAL OF AN AMENDMENT TO THE ARTICLES OF INCORPORATION
        REGARDING AN INCREASE IN THE NUMBER OF AUTHORIZED CAPITAL SHARES

    On December 11, 1997, the Board of Directors of the Company recommended that
shareholder approval be sought for a proposed amendment to the Articles of
Incorporation of the Company to increase the number of authorized shares of
capital stock of the Company from 20,000,000 shares to 50,000,000 shares. The
Company had as of March 16, 1998, 10,521,189 shares of its common stock
outstanding and had 308,100 shares reserved to cover obligations to issue shares
in connection with outstanding options. The Company is proposing to increase its
authorized capital to provide additional shares for future acquisitions,
employee benefit plan needs and possible future stock splits or stock dividends.
In recent years, the Company has frequently used stock as part or all of the
consideration in its acquisitions. Although the Company has no major pending
acquisitions, Management and the Board of Directors wish to have sufficient
share capital authorized to be able to consider one or more significant
acquisitions using stock as consideration. The Board of Directors has not
previously adopted a rights plan and is not currently considering such a plan.
On February 27, 1998, the Company increased its number of outstanding shares of
Common Stock through a 3 for 2 stock split paid as a stock dividend. MANAGEMENT
AND THE BOARD OF DIRECTORS RECOMMEND VOTING TO APPROVE THE PROPOSED AMENDMENT.

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    The affirmative vote of the holders of a majority of the Company's
outstanding common stock present and entitled to vote at the meeting is required
to approve the proposed amendment of the Articles of Incorporation to increase
the number of authorized capital shares.

            APPROVAL OF AN AMENDMENT TO THE COMPANY'S 1996 LONG-TERM
          INCENTIVE PLAN REGARDING AN INCREASE IN THE NUMBER OF SHARES
       AVAILABLE UNDER THE PLAN AND AN EXTENSION OF THE TERM OF THE PLAN

GENERAL

    On May 14, 1996, the Shareholders approved the adoption of the Harmon
Industries, Inc. 1996 Long-Term Incentive Plan (the "1996 Plan"). The purposes
of the 1996 Plan are (i) to align the interests of the Company's Shareholders
with those of the recipients of awards under the 1996 Plan by increasing the
proprietary interests of such recipients in the Company's growth and success and
(ii) to advance the interests of the Company by attracting and retaining
officers, employees and non-employee directors. The Board of Directors has
approved an Amendment to the 1996 Plan to increase the number of shares
available under the Plan and to extend the term of the Plan. The 1996 Plan, as
originally adopted, provided that the number of shares of common stock available
for grants of awards to officers, other employees and non-employee directors in
any calendar year will be 1.15% of the outstanding common stock as of January 1
of such year, beginning January 1, 1996, plus the number of shares which shall
become available for grants of awards under the 1996 Plan in subsequent years
but which shall not have become subject to such an award. After the January 1,
1998 increase (and as adjusted for the February 1998 3-for-2 stock split), the
Company had available for grant a total of 179,883 shares under the 1996 Plan.
As a result of recruitment plus plan participation for non-employee Board
members, executive officers and key employees, the anticipated need for 1998 is
for approximately 200,000 shares. Consequently, the Compensation Committee of
the Board of Directors has approved a proposed amendment to increase the
applicable percentage from 1.15% of outstanding stock on January 1 to 1.25% of
outstanding common stock on January 1, commencing January 1, 1999. The shortfall
for the remainder of 1998, if any, will be covered by the purchase of additional
shares on the open market, which is permitted under the terms of the 1996 Plan
up to a maximum of 120,000 shares.

    Additionally, as originally adopted, the 1996 Plan became effective on May
31, 1996 and expires on May 31, 2001. The Compensation Committee of the Board of
Directors has proposed an amendment for Shareholder approval to extend the life
of the Plan from the current expiration date of May 31, 2001 to a new expiration
date of May 31, 2003.

    Other than the amendments described above, no other changes will be made in
the 1996 Plan.

STOCKHOLDER VOTE REQUIRED AND BOARD OF DIRECTORS RECOMMENDATIONS

    Unless otherwise instructed, the proxy holders will vote the proxies
received by them for approval of the amendments to the 1996 Plan as outlined
above. Approval of the amendments of the 1996 Plan requires the affirmative vote
of the majority of the shares of common stock present or represented by proxy at
the annual meeting. Abstentions and broker non-votes will not be counted as
votes cast. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF AN
AMENDMENT OF THE COMPANY'S 1996 LONG-TERM INCENTIVE PLAN TO INCREASE THE NUMBER
OF SHARES AVAILABLE AND TO EXTEND THE TERM OF THE PLAN AS DESCRIBED ABOVE.

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                       APPROVAL OF SELECTION OF AUDITORS

    Management recommends voting to approve the selection of KPMG Peat Marwick
LLP, as Auditors for the Company for the 1998 fiscal year. This firm has served
continuously as Auditors for the Company since 1969.

    A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting of Shareholders and will be available to make a statement, if he or she
desires to do so, and to answer appropriate questions asked by the shareholders.

                       SHAREHOLDER PROPOSALS-1999 MEETING

    In the event any shareholder intends to present a proposal at the Annual
Meeting of Shareholders to be held in 1999, such proposal must be received by
the Company, in writing, on or before November 13, 1998, to be considered for
inclusion in the Company's next Proxy Statement. Shareholder proposals for
suggested nominees for director should be submitted to the Company's Director
Nomination and Compensation Committee on or before November 13, 1998.

                                 OTHER MATTERS

    Management is not aware of any other matters which may come before the
meeting. However, if any other matters properly come before the meeting, it is
the intention of the persons named in the accompanying form of proxy to vote the
proxy in accordance with their best judgment on such matters.

                                          BY ORDER OF THE BOARD OF DIRECTORS
                                          Robert E. Harmon
                                          Chairman

April 1, 1998

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