Exhibit 10.60

                              EMPLOYMENT AGREEMENT


This Employment  Agreement (the "Agreement") is made as of July 1, 1996, between
MK RAIL CORPORATION,  a Delaware  corporation  ("Company"),  and MICHAEL A. WOLF
("Employee").

In consideration of the covenants and agreements herein  contained,  the parties
agree as follows:


1.       EMPLOYMENT TERM

         The Company  shall  employ  Employee as President  and Chief  Executive
         Officer of the Company and Employee hereby accepts such employment with
         the  Company,  from the date  hereof for a period of  twenty-four  (24)
         months.  After  the  first  calendar  month of  employment  under  this
         Agreement  and each  succeeding  calendar  month through June 30, 1999,
         this Agreement  will be extended by one month,  so that there remains a
         twenty-four  (24)  month  term at all  times  through  June  30,  1999.
         Thereafter,  this  Agreement  shall be for a term  expiring  on July 1,
         2001, unless sooner terminated in accordance with the terms hereof.


2.       DUTIES

         During  the term of this  Agreement,  Employee  shall  devote  his full
         business  time and  energies to the business and affairs of the Company
         and shall not accept other  employment or permit his personal  business
         interests to interfere with the  performance  of his duties  hereunder.
         Employee  agrees  to  use  his  reasonable  best  efforts,  skills  and
         abilities  to  promote  the  interests  of the  Company,  to  serve  as
         President  and Chief  Executive  Officer of the  Company and to perform
         such duties consistent with this appointment as may be assigned to him,
         and shall be  supervised  by the  Chairman  of the  Company's  Board of
         Directors  ("Chairman")  and the  Company's  Board  of  Directors  (the
         "Board").  Employee  will be  nominated  to fill the vacant seat on the
         Board formerly held by Michael J. Farrell, formerly the Company's Chief
         Executive  Officer,  for the  remaining  term  thereof  (until the 1997
         annual meeting of stockholders). During the term of this Agreement, the
         Company will use all  reasonable  best efforts to support and recommend
         the Employee for the Board,  including placing his name on management's
         list of nominees for the Board in the Company's proxy  statements,  and
         if requested by the Chairman or the Board,  the Employee shall serve as
         a member  of the board of  directors  and as an  officer  of any of the
         Company's subsidiaries.




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3.       COMPENSATION

         3.1      Salary

                  In  consideration  for  Employee's  services  hereunder,   the
                  Company will pay to Employee,  beginning  July 1, 1996, a base
                  salary at the  annual  gross rate of  $375,000,  which will be
                  paid in accordance with the Company's  normal payroll practice
                  in  arrears,  less  normal  payroll  deductions,  and less any
                  deferrals  under the terms of the Deferred  Compensation  Plan
                  for Michael A. Wolf (as described in Section 3.5 hereof).  The
                  Company's   Compensation  Committee  shall  review  Employee's
                  salary  periodically in accordance  with its customary  salary
                  review  practices  not  less  often  than it  conducts  salary
                  reviews of other executives of the Company. From time to time,
                  the Company may, but shall not be obligated to, award Employee
                  cost of living or merit increases, or other additional amounts
                  as the Compensation Committee determines, in its discretion.

         3.2      Lump Sum Signing Bonus

                  The Company  will also pay  Employee a single lump sum payment
                  of $100,000  upon  execution of this  Agreement.  However,  if
                  Employee voluntarily  terminates his employment before July 1,
                  1997,  Employee  agrees to repay to the  Company the amount of
                  $100,000 within thirty (30) days of the date of termination.

         3.3      Incentive Bonus Plan

                  The Company  intends to prepare  (with the  assistance  of the
                  Employee) a bonus plan for the  Company's  senior  management,
                  under which a bonus may be earned by Employee  with respect to
                  1997  and   subsequent   calendar   years.   The   performance
                  objectives,  criteria  and  formulae  that  will  be  used  to
                  determine  the amount of bonus  payable  for each year will be
                  determined by the Compensation  Committee of the Board as soon
                  as  administratively  practicable  after the  approval  of the
                  bonus plan.

         3.4      Restricted Stock and Stock Options

                  As  an  additional  material  inducement  for  the  Employee's
                  entering into this  Agreement and his  undertaking  to perform
                  the services  referred to herein,  the  Employee  will receive
                  upon his commencement of employment hereunder:

                  (a)   100,000  shares of common stock  restricted  as to their
                        ability  to  be  sold  (the  "Restricted   Stock"),  the
                        restrictions  to lapse at the close of  business on June
                        30, 2001, so long as the Employee is still in the employ
                        of the Company on that date, unless otherwise  expressly
                        provided  in this  Agreement.  On the date on which  the
                        restrictions   lapse  or  as  soon  as   thereafter   as
                        reasonably

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                        practicable,  all  legends  will be  removed  and  fully
                        registered and freely  transferrable  stock certificates
                        for the shares for which the  restrictions  have  lapsed
                        shall  be  issued  to the  Employee.  The  grant  of the
                        Restricted Stock shall be made under the Company's Stock
                        Incentive Plan ("Stock Incentive Plan"), a copy of which
                        has been provided to the Employee.

                  (b)   Stock   appreciation   rights  ("SARs")   entitling  the
                        Employee  to the  appreciation  in the value of  400,000
                        shares of common  stock of the Company  from the May 13,
                        1996  to the  date  of  exercise.  Due  to  the  current
                        insufficiency   of  stock   available  under  the  Stock
                        Incentive  Plan,  SARs in respect of all 400,000  shares
                        shall be issued pursuant to a Stock  Appreciation  Right
                        Agreement  (the  "SAR  Agreement"),  a copy of  which is
                        attached  hereto  as  Exhibit  A. The  terms of the SARs
                        shall be governed  solely by the SAR Agreement  attached
                        hereto as  Exhibit A. The SAR  Agreement  is not part of
                        the Stock Incentive Plan, but provides,  in effect, that
                        an option  granted under the Stock  Incentive  Plan (the
                        "Plan  Option")  may be  partially  substituted  for the
                        SARs,  all  as  set  forth  in the  SAR  Agreement.  The
                        exercise price of the Plan Option,  if issued,  shall be
                        as set forth in paragraph 2(d) of the SAR Agreement, and
                        the terms thereof shall otherwise be as set forth in the
                        form of Stock  Option  Agreement  under Stock  Incentive
                        Plan  attached  as Exhibit 1 to the SAR  Agreement  (the
                        "Option Agreement").

                  (c)   The  Company  will  accurately,   correctly  and  timely
                        prepare and file or caused to be prepared  and filed all
                        reports required to be filed by the Employee pursuant to
                        Section 16 of the  Securities  Exchange  Act of 1934 and
                        amendments  thereto or similar  provisions  of any state
                        statutory or common law,  including  without  limitation
                        Forms  3,  4  and  5  required  to  be  filed  with  the
                        Securities  and Exchange  Commission.  The Employee will
                        cooperate  with the Company in assisting it in preparing
                        and filing the reports.

         3.5      Deferred Compensation Plan

                  Employee   is  entitled  to   participate   in  the   Deferred
                  Compensation  Plan for Michael A. Wolf and the Trust Agreement
                  related  thereto,  copies of which are  attached  as Exhibit B
                  hereto.

         3.6      Fringe Benefits

                  (a)   Employee shall,  during the term of this  Agreement,  be
                        entitled to  participate in all  perquisites  and health
                        and  welfare  benefits  consistent  with  the  Company's
                        policies for other executive personnel.

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                  (b)   In addition to any policies of life  insurance  obtained
                        on the life of Employee in accordance with the Company's
                        customary   policies  and   practices,   to  the  extent
                        commercially  available at standard  rates,  the Company
                        shall purchase a policy of one-year  renewable term life
                        insurance on the life of Employee, naming as beneficiary
                        or  beneficiaries  such  person  or  persons  as  may be
                        designated  by  Employee,  with a  death  benefit  of $1
                        million;  provided,  however,  that if the  cost of such
                        insurance  now or at any  time  during  the term of this
                        Agreement  exceeds  the cost of insuring a person of the
                        same age as  Employee  who is in  generally  good health
                        (the cost of  insuring  such a person is  referred to as
                        the "Standard Policy Cost"), the Company shall so advise
                        Employee,  who shall  have the  option of (i) paying the
                        premiums in excess of the Standard Policy Cost, in which
                        case the Company  shall  purchase a one- year  renewable
                        term life insurance  policy on the life of Employee with
                        a $1 million death benefit, or (ii) declining to pay the
                        premiums in excess of the Standard Policy Cost, in which
                        case the  Company  shall  purchase a one-year  renewable
                        term life insurance  policy on the life of Employee with
                        a death  benefit of such amount as can be purchased  for
                        the Standard  Policy Cost.  Any policy  purchased by the
                        Company  shall  provide  that  Employee  will be able to
                        continue the  coverage,  at  Employee's  sole option and
                        expense,  on termination  of his  employment  under this
                        Agreement with no additional physical  examination after
                        issuance  of such  policy  for a  period  of at least 12
                        years.

         3.7      Expenses

                  Employee shall, during the term of this Agreement, be entitled
                  to receive prompt  reimbursement  for all reasonable  expenses
                  incurred  by the  Employee  in the  performance  of his duties
                  hereunder in  accordance  with the policies and  procedures of
                  the Company in effect as of the date thereof.

                  In addition,  Employee's cost of relocating to the Pittsburgh,
                  Pennsylvania area will be reimbursed to him in accordance with
                  the Company's  relocation benefit policy, any exceptions to be
                  agreed upon in advance  with the  Chairman.  The Company  will
                  reimburse  the  Employee  for  reasonable   temporary   living
                  expenses incurred in the greater Pittsburgh, Pennsylvania area
                  for 30  days  following  the  commencement  of his  employment
                  hereunder.

4.       DISCHARGE FOR CAUSE

         4.1      The Company shall have the right to terminate  this  Agreement
                  and to discharge  Employee for cause at any time without prior
                  notice (except as provided below). Any termination notice sent
                  to Employee shall be accompanied by a written statement of the
                  reasons.

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4.2   As used in this  Agreement,  the term "cause" shall mean and be limited to
      the following events:

                  (a)   Employee's  conviction  with  respect  to any  crime  or
                        offense   involving  money  or  other  property  of  the
                        Company, or of any other crime (whether or not involving
                        the   Company)   that   constitutes   a  felony  in  the
                        jurisdiction involved; or

                  (b)   A determination by a licensed physician that Employee is
                        a chronic alcoholic or a narcotics addict; or

                  (c)   Employee's (1) material and repeated  failure to perform
                        his  duties  in  accordance   with  Section  2  of  this
                        Agreement, (2) material and repeated breach of any other
                        provision of this Agreement,  or (3) material  violation
                        of specific  written  directions  of the Chairman or the
                        Board,  which directions are reasonably  consistent with
                        the provision of this Agreement; provided, however, that
                        no  discharge  shall be  deemed  for  cause  under  this
                        Section 4.2(c) unless Employee shall have first received
                        written  notice from the Chairman or the Board  advising
                        Employee of the specific  acts or  omissions  alleged to
                        constitute a failure to perform his duties, and Employee
                        has  thereafter  failed to correct the acts or omissions
                        so complained of within a reasonable time, not to exceed
                        30 days, thereafter.

         4.3      If  terminated  for cause as defined at  Sections  4.2(a)-(c),
                  Employee will not be entitled to receive any  compensation  or
                  benefits with respect to any period after the  effective  date
                  of such termination.


5.       OTHER TERMINATION

         5.1      In addition to a termination for cause as set forth in Section
                  4 of this Agreement,  this Agreement and Employee's employment
                  may be terminated as follows:

                  (a)   This  Agreement  and  the  Company's  obligation  to pay
                        salary   and   benefits    hereunder   shall   terminate
                        immediately  upon Employee's  death. In such event,  net
                        salary owed to Employee for work  performed  through the
                        date  of his  death  shall  be paid  by the  Company  to
                        Employee's  surviving  wife;  if Employee dies without a
                        wife surviving, said payment will be made by the Company
                        to Employee's  legal heirs in  accordance  with relevant
                        law. If Employee dies with a wife surviving,  any health
                        and dental insurance which was being provided to her per
                        Section  3.6 at the time of  Employee's  death  shall be
                        continued at the Company's cost for a period of one year
                        following the Employee's death.

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                  (b)   If,   during  the  period  of   employment   under  this
                        Agreement,  Employee,  in  the  opinion  of a  certified
                        physician   acceptable  to  the  Company  and  Employee,
                        becomes mentally or physically disabled so that Employee
                        is  unable  to  perform  the   regular   duties  of  his
                        employment on a full-time basis,  Employee's salary will
                        thereupon cease, and he shall be entitled to participate
                        in  the  Company's  salary  continuation  and  long-term
                        disability  plans,  in  accordance  with their terms and
                        subject to their eligibility requirements.

                  (c)   By the Company, without cause, upon prior written notice
                        to Employee.

                  (d)   By Employee,  without cause,  upon written notice to the
                        Company.

        5.2             (a) If  terminated  by the Company  other than for cause
                        pursuant to Section 5.1(c) hereof,  Employee as his sole
                        remedy (in lieu of all other rights and remedies)  shall
                        receive,  at the  option  of  the  Company,  either  (i)
                        continuation of his salary for the period, if any, that,
                        absent such  termination,  would  otherwise be remaining
                        under the term of this Agreement,  at the rate in effect
                        immediately prior to such termination, or (ii) an amount
                        equal to the present  value of such salary  continuation
                        payments, payable within thirty (30) days following such
                        termination,  in each case subject to all normal payroll
                        deductions.  The present value shall be determined based
                        on the  prime  or  base  rate  of  BankAmerica  Business
                        Credit,  Inc. most recently announced as of the date the
                        computation is made, or if BankAmerica  Business Credit,
                        Inc.  ceases to  announce  such rate,  as most  recently
                        reported in The Wall  Street  Journal as of the date the
                        computation  is made.  If Employee  dies before all such
                        payments  are  made,  they will be made  instead  to his
                        surviving  wife, or if his wife does not survive him, to
                        his legal heirs in accordance with relevant law.

                  (b)   If Employee  dies, is terminated by disability  pursuant
                        to Section 5.1(b) hereof or is terminated by the Company
                        other than for cause  pursuant to Section 5.1(c) hereof,
                        Employee will retain any rights with respect to the SARs
                        and, if provided,  Plan Options, which have been awarded
                        to him  pursuant to this  Agreement,  and all shares not
                        previously  exercised will be exercisable as of the date
                        of  termination  to  the  extent  provided  in  the  SAR
                        Agreement and, if provided, in the Option Agreement.

                  (c)   If Employee  dies, is terminated by disability  pursuant
                        to Section 5.1(b) hereof or is terminated by the Company
                        other than for cause  pursuant to Section 5.1(c) hereof,
                        Employee  will be  immediately  vested  in the  grant of
                        100,000  shares of the Company's  common stock  provided
                        for in this Agreement.


                                       -6-

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                  (d)   If Employee is  terminated by the Company other than for
                        cause pursuant to Section  5.1(c)  hereof,  all employee
                        benefits plans provided to Employee under Section 3.6(b)
                        and  (c)  will  continue  for  twelve  months  or  until
                        Employee finds new employment (whichever is sooner).

                  .     (e)  If  Employee  dies,  is  terminated  by  disability
                        pursuant to Section  5.1(b)  hereof or is  terminated by
                        the  Company  other than for cause  pursuant  to Section
                        5.1(c)  hereof or if this  Agreement  expires by its own
                        terms on July 1, 2001,  Employee  and his spouse (or, in
                        the event of Employee's death,  either while employed or
                        after  termination,  his  surviving  spouse  alone)  may
                        continue to receive benefits under any group health care
                        insurance   plan,  at   Employee's   (or  his  surviving
                        spouse's)  expense,  to  the  extent  permitted  by  the
                        Consolidated  Omnibus Budget  Reconciliation Act of 1985
                        and,  thereafter,  for  so  long  as  Employee  (or  his
                        surviving  spouse) may desire and as may be permitted by
                        the Company's  health  insurance  provider.  The Company
                        will take reasonable  measures to cause such coverage to
                        be continued  for so long as Employee (or his  surviving
                        spouse) may desire,  provided that the Company shall not
                        be obligated to incur any costs  whatsoever  to continue
                        such coverage.

                  (f)   If Employee is  terminated by the Company other than for
                        cause  pursuant to Section  5.1(c)  hereof,  the Company
                        will pay  expenses  up to an  amount  equal  to  fifteen
                        percent (15%) of Employee's annual salary at the time of
                        such  termination,  reasonably  incurred by Employee for
                        legitimate  commercial  out placement  service  mutually
                        acceptable  to the parties.  Promptly upon being advised
                        of the name and address of any such  service as has been
                        selected by Employee, the Company will send that service
                        written    confirmation   of   the   foregoing   maximum
                        commitment.

                  (g)   If Employee is  terminated by the Company other than for
                        cause  pursuant  to  Section  5.1(c)  hereof,  he  shall
                        receive a lump sum payment as compensation for his costs
                        of  relocating  from  Pittsburgh  in an amount  equal to
                        $50,000  less  $10,000 for each full year of  employment
                        with the Company.

         5.3      Change of Control

      (a)   For purposes of this  Agreement,  the term "Change of Control" shall
            mean the occurrence of any of the following events:

                  (1)   The Company is merged,  consolidated or reorganized into
                        or with another  corporation  or other entity,  and as a
                        result of the merger,  consolidation  or  reorganization
                        less than a majority of the combined voting power of the
                        then-outstanding securities of the corporation

                                       -7-

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                        or entity  immediately  after the transaction is held in
                        the aggregate by the holders of Voting Stock immediately
                        prior to the transaction;


                  (2)   The  Company   sells  or  otherwise   transfers  all  or
                        substantially  all of its assets to another  corporation
                        or  other  entity  and,  as a  result  of  the  sale  or
                        transfer,  less than a majority of the  combined  voting
                        power of the  then-outstanding  securities  of the other
                        corporation  or  entity  immediately  after  the sale or
                        transfer  is held in the  aggregate  by the  holders  of
                        Voting Stock immediately prior to the sale or transfer;

                  (3)   There is a  report  filed on  Schedule  13D or  Schedule
                        14D-1 (or any successor schedule, form or report or item
                        therein),  each as promulgated  pursuant to the Exchange
                        Act, disclosing that any Person,  other than an Existing
                        Stockholder  or an MK Creditor  Stockholder,  has become
                        the beneficial owner (as the term "beneficial  owner" is
                        defined  under  Rule  13d-3  or any  successor  rule  or
                        regulation   promulgated  under  the  Exchange  Act)  of
                        securities  representing  25% or  more  of the  combined
                        voting power of the Voting Stock;

                  (4)   If,   during  any  period  of  two   consecutive   years
                        commencing  on the date of this  Agreement,  individuals
                        who at the beginning of that period constitute the Board
                        of  Directors  of the  Company  cease for any  reason to
                        constitute  at  least   two-thirds   (2/3rds)   thereof;
                        provided,  however, that for purposes of this clause (4)
                        each  Director of the Company who is first  elected,  or
                        first   nominated   for   election   by  the   Company's
                        stockholders,  by a vote of at least a  majority  of the
                        Directors  of the Company (or a committee  of the Board)
                        then still in office who were  Directors  of the Company
                        at the  beginning of that period shall be deemed to have
                        been a Director of the Company at the  beginning of that
                        period; or

                  (5)   If Morrison  Knudsen  Corporation  becomes the direct or
                        indirect   beneficial   owner  of  Voting   Stock  which
                        constitutes  at least 75% of the voting  power of all of
                        the Voting Stock outstanding by reason of a tender offer
                        made  pursuant to Rule 13e-3 or 14d-1 of the rules under
                        the  Exchange  Act as to which the Board of Directors of
                        the  Company   has   recommended   that  the   Company's
                        stockholders accept.


                                       -8-

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                  (b)   For purposes of Section 5.3(a) the following terms shall
                        have the following meanings:

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

                        (2)   "Existing  Stockholder"  shall mean any Person who
                              is the beneficial  owner (as the term  "beneficial
                              owner"  is   defined   under  Rule  13d-3  or  any
                              successor rule or regulation promulgated under the
                              Exchange  Act) of securities  representing  25% or
                              more of the  combined  voting  power of the Voting
                              Stock as of the date hereof.

                        (3)   "MK  Creditor  Stockholder"  shall mean any Person
                              who  has  acquired   Voting   Stock   directly  or
                              indirectly  from Morrison  Knudsen  Corporation in
                              full or partial  satisfaction of any  indebtedness
                              or obligation of Morrison Knudsen Corporation owed
                              to such Person.


                        (4)   "Person"  means any  "person"  as used in  Section
                              13(d)(3) or Section 14(d)(2) of the Exchange Act.

                        (5)   "Voting  Stock"  means stock of the Company of any
                              class or series  entitled to vote generally in the
                              election of Directors.

                  (c)   If such  Change of  Control  occurs and  Employee  fully
                        cooperates  and  assists  with such Change of Control as
                        reasonably requested by the Company, and:

                        (1)   If   after   such    Change   of    Control    the
                              purchaser/conveyee  does  not  hire  Employee  and
                              assume all obligations of this Agreement; or

                        (2)   Employee  is  terminated  other  than for cause as
                              defined at Sections 4.2(a)-(c), of this Agreement,
                              either  after such Change in Control  occurs or in
                              contemplation  of or within  ninety (90)  calendar
                              days  prior to the  occurrence  of such  Change in
                              Control,

                  then the  Company  shall  provide to  Employee  salary,  stock
                  options,   stock   grant,   deferred   compensation,   benefit
                  continuations, and benefits provided in Section 5.2.


6.       CONFIDENTIAL INFORMATION

      6.1   Beginning  on the date hereof and at all times  hereafter,  Employee
            shall treat as confidential any proprietary,  confidential or secret
            information. relating to the

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                  business or interests of the  Company,  including  information
                  relating to its organizational structure, operations, business
                  plans, research data or results, inventions, customer lists or
                  other work  product,  whether  developed by or for the Company
                  and  whether  developed  on the  premises  of the  Company  or
                  elsewhere ("Confidential Information").  Beginning on the date
                  hereof and at any time hereafter,  Employee shall not, without
                  the prior written consent of the Company, disclose or make use
                  of in any  manner  or in any  form  Confidential  Information,
                  except  to  the  extent  necessary  to  perform  the  services
                  required of him under this Agreement.

                  Within,  a  reasonable  time  after  the  termination  of this
                  Agreement,  all Company  records,  information  documents  and
                  other  property of the Company in the  possession of Employee,
                  shall be returned by Employee to the Company.

         6.2      The  provisions  of  this  section  shall  not  apply  to  any
                  proprietary,  confidential or secret  information which is, at
                  the  commencement  of this  Agreement  or at some later  date,
                  known to the general public under  circumstances  involving no
                  breach of this  Agreement,  or is  lawfully  and in good faith
                  made   available  to  Employee   without   restriction  as  to
                  disclosure by a third party entitled to such information.

         6.3      In consideration  of the Company's  payments to Employee under
                  Section 5.1 or 5.2,  and his  employment  hereunder,  Employee
                  agrees that, for a period of two (2) years from termination of
                  employment, Employee will not:

                  (a)   Contact,  with a view  towards  selling  any  product or
                        service  competitive with any product or service sold by
                        the Company at the time of the termination of Employee's
                        employment  with the  Company  (or within the  preceding
                        three  years),  or sell any such  product or service to,
                        any person, firm, association or corporation

                        (1)   to which the  Company  sold any product or service
                              during  the 24 months  immediately  preceding  the
                              termination  of  Employee's  employment  with  the
                              Company; or

                        (2)   which Employee  solicited,  contacted or otherwise
                              dealt with on behalf of the Company  during the 24
                              months  immediately  preceding the  termination of
                              Employee's employment with the Company;

                  (b)   Make any such  contact or sale either for the benefit of
                        himself  or  for  the  benefit  of  any  person,   firm,
                        association or corporation;

                  (c)   In  any  manner,  directly  or  indirectly,  assist  any
                        person,  firm,  association  or  corporation to make any
                        such contact or sale;


                                      -10-

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                  (d)   Participate,   engage  or  be  interested,  directly  or
                        indirectly,  whether  as  director,  officer,  employee,
                        advisor,   consultant,   stockbroker,   partner,   joint
                        venture,  owner, agent or in any other capacity,  in any
                        business,  in  whole  or in part,  in the  nature  of or
                        competitive  with the  business  of the  Company  in any
                        geographic  territory  served by the Company at the time
                        of  termination  of  Employee's   employment   with  the
                        Company; or

                  (e)   Directly or indirectly, employ or solicit for employment
                        (by any person,  firm,  association or corporation other
                        than the Company), or engage in any manner any employees
                        of the Company, without the prior written consent of the
                        Company.

                  The Company agrees to furnish to Employee a reasonable listing
                  of competitors and customers within 90 days of termination.

         6.4      Employee acknowledges that the restrictions  contained in this
                  Section 6 are reasonable in view of the nature of the business
                  in which the Company is engaged,  Employee's  critical role in
                  the Company's  operations and Employee's detailed knowledge of
                  the   Company's   Confidential   Information,   its  business,
                  customers,  employees and suppliers and that such restrictions
                  will not prevent Employee from earning a livelihood hereafter.

         6.5      The parties acknowledge that any breach of this Section 6 will
                  cause the Company  irreparable harm for which the Company will
                  have no adequate remedy at law. As a result,  the Company will
                  be  entitled  to the  issuance  by an  arbitrator  or court of
                  competent jurisdiction of an injunction,  restraining order or
                  other equitable relief prohibiting Employee from committing or
                  continuing  any  such  violation.   Any  right  to  obtain  an
                  injunction,   restraining  order  or  other  equitable  relief
                  hereunder  will not be  deemed a waiver of any right to assert
                  any other remedy the Company may have under this  Agreement or
                  otherwise  at law or in equity.  The  obligations  of Employee
                  pursuant to this Section 6 shall  survive any  termination  of
                  this Agreement.


7.       OTHER OBLIGATIONS

         Employee  represents  and  warrants to the  Company  that he is not now
         under any obligation to any person, firm,  corporation or other entity,
         and has no other  interest  which is known to be in  conflict  with his
         duties and  obligations,  and the terms and  conditions  of which would
         prevent,  limit or impair in any way the  performance  by him of any of
         the covenants or duties set forth herein.

                                      -11-

<PAGE>



8.       NOTICES

         All notices  which either party hereto is required or permitted to give
         to the other will be given by certified  mail or by personal  delivery.
         The certified  date of receipt of any such notice will deemed to be the
         date of delivery thereof.

9.       WAIVERS

         No waiver  by  either  party of any  breach  of  nonperformance  of any
         provision or obligation of this  Agreement  shall be deemed to a waiver
         of any  preceding  or  succeeding  breach  of  the  same  or any  other
         provision of this Agreement.


10.      ENTIRE AGREEMENT

         This Agreement constitutes the entire agreement between the parties and
         there are no  representations,  warranties,  covenants  or  obligations
         except as set forth herein.  This  Agreement  supersedes all prior and,
         contemporaneous    agreements,    understandings,    negotiations   and
         discussions,  written or oral, between the parties hereto,  relating to
         any transaction contemplated by the Agreement.

11.      AMENDMENTS

         This  Agreement may be amended only in writing  executed by the parties
         hereto.

12.      RECITALS; ENUMERATION AND HEADINGS

         The  enumeration  and  headings  contained  in this  Agreement  are for
         convenience  of  reference  only  and are  not  intended  to  have  any
         substantive significance in interpreting this Agreement.


13.      GENDER AND NUMBER

         Unless the context otherwise requires,  whenever used in this Agreement
         the singular  shall  include the plural,  the plural shall  include the
         singular, and the masculine gender shall include the neuter or feminine
         gender and vice versa.

14.      COMPUTATION OF TIME

         Whenever  any  determination  is to be made or  action to be taken on a
         date  specified  in this  Agreement,  if such  date  shall  fall upon a
         Saturday, Sunday or a legal holiday, the date for such determination or
         action  shall  be  extended  to  the  first  business  day  immediately
         thereafter.

                                      -12-

<PAGE>




15.      COUNTERPARTS

         This Agreement may be executed in any number of counterparts and by the
         different parties hereto on separate  counterpart each of which when so
         executed and delivered shall be an original document,  but all of which
         counterparts  shall together  constitute  one and the same  instrument.
         This Agreement shall not be effective  unless and until executed by all
         parties hereto.

16       NONASSIGNABILITY

         This Agreement and the benefits  hereunder are personal to Employee and
         are not assignable or transferable  by Employee to any person,  firm or
         corporation.  The  Company  may  only  assign  this  Agreement  and the
         benefits hereunder to an affiliated person, firm or corporation.


17.      MISCELLANEOUS

         Should  any  of the  provisions  of  this  Agreement  require  judicial
         interpretation,  it is agreed that the court or arbitrator interpreting
         or  construing  the Agreement  shall not apply a  presumption  that any
         provision shall be more strictly  construed against one party by reason
         of the rule of  construction,  that a document is to be construed  more
         strictly  against the party who itself or through  its agents  prepared
         the same, it being agreed that both parties and their respective agents
         have participated in the preparation of this Agreement,.


18.      PARTIAL INVALIDITY

         If any provision of this Agreement shall for any reason be held invalid
         or  unenforceable  by any court,  governmental  agency or arbitrator of
         competent  jurisdiction,  such invalidity or unenforceability  shall be
         construed as if such invalid or unenforceable  provision had never been
         contained herein.

19.      GOVERNING LAWS

         This  Agreement  shall be governed by and construed in accordance  with
         the laws of the Commonwealth of Pennsylvania.

20.      ARBITRATION

         With the  exception  of the  exercise by the Company of its  injunctive
         rights  hereunder,  all disputes  arising under the agreement  shall be
         submitted to binding  arbitration in,  Pittsburgh,  Pennsylvania,  to a
         single arbitrator chosen in accordance with the rules of the American

                                      -13-

<PAGE>


         Arbitration  Association as to the selection of the arbitrators and the
         procedures  for  the  conduct  of  the  arbitrator.  Such  arbitrator's
         decision  shall be final and  binding  upon the  parties,  and shall be
         entitled to  enforcement  in any court of competent  jurisdiction.  The
         costs and  expenses of the  arbitrator  shall be shared  equally by the
         parties.


IN WITNESS  WHEREOF,  the parties  have  Agreement  as of the day and year first
above written.


BY:________________________________                           DATE:____________
         Michael A. Wolf


By:      MK RAIL CORPORATION


BY:________________________________                           DATE:____________
         John C. Pope
         Its Chairman


                                      -14-

<PAGE>

  MK RAIL CORPORATION

                                   -----------

                       STOCK APPRECIATION RIGHT AGREEMENT


         This Stock Appreciation Right Agreement  ("Agreement") dated as of July
1, 1996 is entered into between MK Rail  Corporation  ("Company") and Michael A.
Wolf (the "Holder").

         THE PARTIES HERETO AGREE AS FOLLOWS:

         1. Grant of Stock Appreciation  Right. In consideration of the Holder's
acceptance  of  employment  as  President  and Chief  Executive  Officer  of the
Company, effective as of July 1, 1996, the Company hereby grants to the Holder a
Stock  Appreciation Right ("Right") as to 400,000 Shares of the Company's common
stock,  $0.01 par value  ("Shares"  or "Common  Stock"),  all upon the terms and
conditions hereinafter set forth.

                  (a) Upon  exercise of the Right,  the Company shall pay to the
Holder,  in cash or Shares at the sole and absolute  discretion of the Committee
(as hereinafter defined),  the Settlement Price (as hereinafter  defined),  less
any tax withheld as provided in paragraph 4 hereof. Subject to the provisions of
2(d) hereof, the Settlement Price for each Share exercised shall be equal to the
amount  determined  by the  difference  of (i) the  greater of (A) any tender or
exchange offer price per Share in connection  with any tender offer or merger or
consolidation of the Company with another  Company,  or (B) the closing price of
the Shares as reported on Nasdaq as of the trading day last ended as of the time
the Right is  exercised,  over (ii) $5.25 per Share,  the  closing  price of the
Shares as  reported on Nasdaq on May 13,  1996,  the date upon which the parties
hereto  agreed  to the  granting  of  the  Right  as  part  of the  compensation
arrangement to be offered to the Holder upon his acceptance of employment as the
Company's President and Chief Executive Officer.

                  (b) The Right shall terminate on May 12, 2006,  unless earlier
terminated as provided in this Agreement.

         2.       Exercise Rights.

                  The  Holder's  exercise  of the Right  shall be subject to the
following additional conditions and limitations:

                  (a) Subject to 100% of the Right becoming earlier  exercisable
as provided  in  paragraph  2(b),  (c) or (d)  hereof,  the Right  shall  become
exercisable in 20 percent increments,


                                       1.

<PAGE>



with the first 20  percent  increment  exercisable  on or after July 1, 1997 and
each remaining 20 percent  increment  exercisable on or after July 1, 1998, July
1, 1999, July 1, 2000 and July 1, 2001,  respectively,  provided that the Holder
has not  voluntarily  terminated his  employment  with the Company before any of
those  dates.  Vesting  under  this  Section  2(a)  terminates  once the  Holder
voluntarily terminates his employment with the Company.

                  (b) Except as otherwise provided in paragraph 2(c) or (d), (i)
if the Company  terminates  Holder's  employment with the Company for any reason
other than Cause (as that term is defined  in  paragraph  4.2 of the  Employment
Agreement  between  the  Company  and  the  Holder  dated  as of  July  1,  1996
("Employment   Agreement")),   100%  of  the  Right  shall  become   immediately
exercisable   and  will  continue  to  be  exercisable  by  the  Holder  or  his
beneficiaries or legal  representatives until the later to occur of (A) the date
three months after the  termination  or (B) the January 15th next  following the
termination;  (ii) if the Holder's employment with the Company is terminated due
to  his  death  or  disability,  100%  of the  Right  shall  become  immediately
exercisable   and  will  continue  to  be  exercisable  by  the  Holder  or  his
beneficiaries  or  legal  representatives  until  one  year  after  the  date of
termination;  (iii)  if the  Holder's  employment  with  the  Company  shall  be
terminated  by the  Company for Cause,  vesting  shall cease and the Right shall
immediately  cease to be  exercisable;  and (iv) if the Holder's  employment  is
terminated for any reason other than those set forth in Paragraphs 2(b)(i), (ii)
or (iii),  vesting shall cease,  and any then vested and exercisable  portion of
the Right will continue to be exercisable by the Holder until the later to occur
of (A) the date three months after the  termination or (B) the January 15th next
following the termination.

                  (c) Notwithstanding anything to the contrary set forth herein,
in the event that (1) the Company shall propose to enter into an  arrangement or
a  transaction  which  shall  constitute  or result in a Change of  Control  (as
defined under Section  5.3(a) of the Employment  Agreement),  and (2) the Holder
proposes  to  exercise  the  Right on or before  July 1, 1997 and,  prior to the
exercise of the Right,  either the Holder or the Company  shall  terminate or be
deemed to have terminated the Holder's  employment with the Company (including a
termination  of Holder's  employment  by the Company for Cause),  then the Right
shall become immediately  exercisable,  on a provisional basis, as to any shares
as to which the Right had not  previously  become  exercisable as provided above
(the  "Provisional  Shares")  from the date ten (10)  business days prior to the
scheduled date of the Change of Control until the time immediately  prior to the
occurrence  thereof;  provided,  however  that  (i) if made by the  Holder,  the
exercise  of the  Right as to any  Provisional  Shares  shall be deemed to occur
immediately prior to the time of the Change of Control (and shall be ineffective
if the Change of Control does not occur); and (ii) if the Company announces that
it does not  intend to  proceed  with any  previously  proposed  arrangement  or
transaction  which would constitute or result in a Change of Control,  the Right
shall thereupon cease to be immediately exercisable as to any Provisional Shares
(and the  Holder's  prior  election to exercise  the Right shall be deemed to be
withdrawn),  but shall again become  immediately  exercisable  on a  provisional
basis  as  described   above  if  the  arrangement  or  transaction  or  another
arrangement  or  transaction  which  would  constitute  or result in a Change of
Control is thereafter

                                       2.

<PAGE>



proposed to be  consummated.  The Right shall terminate upon the occurrence of a
Change of Control.

         (d)  Notwithstanding  anything to the contrary set forth herein, in the
event that (i) the Shareholders of the Company approve an increase in the number
of Shares  which  may be  awarded  under  the  Company's  Stock  Incentive  Plan
effective April 1, 1994 (the "Plan"), which increase is sufficient to enable the
Company to issue to Holder the Plan Option (as hereinafter  defined) to purchase
400,000  shares of the Common Stock,  and (ii) the Company  issues to the Holder
within  sixty (60) days after such  approval an option under the Plan (the "Plan
Option") to purchase  400,000  shares of the Common Stock for an exercise  price
equal to the  closing  price of the Common  Stock as  reported  on Nasdaq on the
first trading day ended following the  Shareholders'  approval of an increase in
the number of Shares which may be awarded  under the Plan,  all on such terms as
are set in an option  agreement  in the form  attached  hereto as Exhibit 1, the
Settlement  Price of the Right shall be the lesser of (i) the exercise  price of
the Plan Option over $5.25 per Share or (ii) the Settlement  Price determined as
provided in paragraph 1(a). The Right shall be exercisable  independently of the
Plan Option, and shall survive the earlier exercise of the Plan Option.

         3.       The Committee.

                  The plan created by this Agreement  shall be administered by a
committee (the "Committee"),  which shall be comprised of two or more members of
the  Board of  Directors,  each of whom  shall be a  "disinterested  person"  as
defined  in Rule  16b-3  under the  Exchange  Act (or any  successor  provision)
promulgated by the Securities and Exchange Commission. A majority of the members
of the Committee shall constitute a quorum for the transaction of business,  and
any  determination or action may be taken at a meeting by a majority vote or may
be taken without a meeting by a written  resolution signed by all members of the
Committee.  Members  of the  Committee  acting  under the plan  created  by this
Agreement  shall be fully  protected in relying in good faith upon the advice of
counsel  and shall  incur no  liability  except for  willful  misconduct  in the
performance of their duties.

         4.       Taxes.

                  Neither  the  Company  nor  the  Committee  nor  any of  their
representatives  or agents has made any  representations  or  warranties  to the
Holder  with  respect  to  the  amount  of  tax  or  other  consequences  of the
transactions  contemplated  by this  Agreement,  and the  Holder is in no manner
relying on the Company, the Committee or any of their  representatives or agents
for an assessment of the tax or other consequences. The Company's payment of the
Settlement Price shall be subject to the Company's  obligation to withhold taxes
in accordance with its interpretation of applicable Federal and state tax laws.


                                       3.

<PAGE>



         5.       Miscellaneous.

                  (a) The Right may not be assigned,  encumbered or transferred,
except,  in the event of death of the Holder, by will or the laws of descent and
distribution.

                  (b) This Agreement  shall bind and inure to the benefit of the
Company and its successors and assigns, and the Holder and any heir, legatee, or
legal representative of the Holder.

                  (c) This  Agreement  shall be  governed  by and  construed  in
accordance  with the law of the state of  Delaware,  regardless  of the law that
might otherwise govern under applicable principles of conflicts of laws.

                  (d) All disputes  arising under this Agreement,  including any
questions  regarding  the  interpretation  of any  provisions  hereof,  shall be
submitted  to  binding  arbitration  in  Pittsburgh,  Pennsylvania,  to a single
arbitrator  chosen  in  accordance  with the rules of the  American  Arbitration
Association  as to the selection of the  arbitrators  and the procedures for the
conduct of the arbitrator. Such arbitrator's decision shall be final and binding
upon the parties, and shall be entitled to enforcement in any court of competent
jurisdiction.  The costs and expenses of the arbitrator  shall be shared equally
by the parties.



         IN WITNESS  WHEREOF,  the  parties  have  executed  this  Agreement  in
duplicate as of the day and year first above written.

                                                             MK RAIL CORPORATION



                                               ---------------------------------
                                                                    John C. Pope
                                                                        Chairman



                                                                         HOLDER:


                                               ---------------------------------
                                                                 Michael A. Wolf


                                       4.

<PAGE>


                                    EXHIBIT 1

                               MK RAIL CORPORATION

                                   -----------

                             STOCK OPTION AGREEMENT
                           UNDER STOCK INCENTIVE PLAN


         This Stock Option  Agreement  ("Agreement")  dated and  effective as of
____[the  date of the  Shareholders'  approval  of an  increase in the number of
Shares  which may be  awarded  under  the  Plan],  the date on which the  Option
evidenced  hereby was  granted,  is  entered  into  between MK Rail  Corporation
("Company")  and  Michael  A. Wolf  (the  "Optionee"),  pursuant  to the MK Rail
Corporation Stock Incentive Plan ("Plan") as approved by Company shareholders on
March 29, 1994 and last amended on the date hereof.

         THE PARTIES HERETO AGREE AS FOLLOWS:

         1.       Grant of Option

         In  consideration  of  the  Optionee's   acceptance  of  employment  as
President and Chief  Executive  Officer of the Company,  effective as of July 1,
1996 and the  services  performed or to be performed by the Optionee the Company
hereby grants to the Optionee an Option  ("Option") under the Plan to purchase a
total of 400,000 Shares of the Company's common stock, $0.01 par value ("Shares"
or "Common Stock"), all upon the terms and conditions hereinafter set forth.

                  (a) The Option is granted  under and  pursuant to the Plan,  a
copy of which is attached  hereto and  incorporated  herein by  reference,  and,
except as  modified  or limited  hereby,  is  subject  to all of the  provisions
thereof.  The Optionee  represents and warrants that he has read the Plan and is
fully  familiar  with all the terms and  conditions of the Plan and agrees to be
bound thereby.

                  (b)  The  Exercise   Price  per  share  of  the  Common  Stock
exercisable  under the Option shall be $___ per share [the closing  price of the
Common Stock as reported on Nasdaq on the first trading day ended  following the
Shareholders'  approval  of an  increase  in the  number of Shares  which may be
awarded under the Plan].

                  (c) The Option shall terminate on May 12, 2006, unless earlier
terminated as provided in this Agreement.




                                       1.

<PAGE>



         2.       Exercise Rights

                  In addition to the terms and  conditions  for  exercise of the
Option set forth in the Plan, the Optionee's  right to exercise the Option shall
be subject to the following additional conditions and limitations:

                  (a) Subject to 100% of the Option becoming earlier exercisable
as provided in paragraph 2(b) or (c) hereof, the Option shall become exercisable
in 20 percent increments,  with the first 20 percent increment exercisable on or
after July 1, 1997 and each  remaining 20 percent  increment  exercisable  on or
after July 1, 1998, July 1, 1999,  July 1, 2000 and July 1, 2001,  respectively,
provided that the Optionee has not  voluntarily  terminated his employment  with
the  Company  before  any of  those  dates.  Vesting  under  this  Section  2(a)
terminates  once the Optionee  voluntarily  terminates his  employment  with the
Company.

                  (b) Except as otherwise provided in paragraph 2(c) hereof, (i)
if the Company terminates  Optionee's employment with the Company for any reason
other than Cause (as that term is defined  in  paragraph  4.2 of the  Employment
Agreement  between  the  Company  and the  Optionee  dated  as of  July 1,  1996
("Employment   Agreement")),   100%  of  the  Option  shall  become  immediately
exercisable  and  will  continue  to be  exercisable  by  the  Optionee  or  his
beneficiaries or legal  representatives until the later to occur of (A) the date
three months after the  termination  or (B) the January 15th next  following the
termination;  (ii) if the Optionee's  employment  with the Company is terminated
due to his death or  disability,  100% of the Option  shall  become  immediately
exercisable  and  will  continue  to be  exercisable  by  the  Optionee  or  his
beneficiaries  or  legal  representatives  until  one  year  after  the  date of
termination;  (iii)  if the  Optionee's  employment  with the  Company  shall be
terminated  by the Company for Cause,  vesting  shall cease and the Option shall
immediately  cease to be exercisable;  and (iv) if the Optionee's  employment is
terminated for any reason other than those set forth in Paragraphs 2(b)(i), (ii)
and (iii),  vesting shall cease, and any then vested and exercisable  portion of
the Option will continue to be  exercisable  by the Optionee  until the later to
occur of (A) the date three months after the termination or (B) the January 15th
next following the termination.

                  (c) Notwithstanding anything to the contrary set forth herein,
in the event that (1) the Company shall propose to enter into an  arrangement or
a  transaction  which  shall  constitute  or result in a Change of  Control  (as
defined under Section 5.3(a) of the Employment Agreement),  and (2) the Optionee
proposes  to  exercise  the Option on or before  July 1, 1997 and,  prior to the
exercise of the Option, either the Optionee or the Company shall terminate or be
deemed to have terminated the Optionee's  employment with the Company (including
a  termination  of  Optionee's  employment  by the Company for Cause),  then the
Option shall become immediately  exercisable,  on a provisional basis, as to any
shares as to which the Option had not previously become  exercisable as provided
above (the  "Provisional  Shares") from the date ten (10) business days prior to
the scheduled date of the Change of Control until the time immediately  prior to
the occurrence thereof;  provided, however that (i) if made by the Optionee, the
exercise  of the Option as to any  Provisional  Shares  shall be deemed to occur
immediately prior to the time of the Change of Control (and shall be ineffective
if the Change of Control does not occur); and (ii) if the Company announces that
it does not intend to

                                       2.

<PAGE>



proceed with any previously  proposed  arrangement  or  transaction  which would
constitute or result in a Change of Control, the Option shall thereupon cease to
be  immediately  exercisable  as to any  Provisional  Shares (and the Optionee's
prior  election to exercise  the Option  shall be deemed to be  withdrawn),  but
shall again become  immediately  exercisable on a provisional basis as described
above if the  arrangement or  transaction or another  arrangement or transaction
which would  constitute or result in a Change of Control is thereafter  proposed
to be consummated. The Option shall terminate upon the occurrence of a Change of
Control.

         (d)  The  Option  shall  be  exercisable  independently  of  the  Stock
Appreciation  Right (the  "Right")  granted to the  Optionee  under that certain
Stock  Appreciation Right Agreement dated as of July 1, 1996 between the Company
and Optionee, and shall survive the earlier exercise of the Right.

         3.       Taxes

                  Neither  the  Company  nor  the  Committee  nor  any of  their
representatives  or agents has made any  representations  or  warranties  to the
Optionee  with  respect  to  the  amount  of tax or  other  consequences  of the
transactions  contemplated by this  Agreement,  and the Optionee is in no manner
relying on the Company, the Committee or any of their  representatives or agents
for an assessment of the tax or other consequences. The Company's payment of the
Settlement Price shall be subject to the Company's  obligation to withhold taxes
in accordance with its interpretation of applicable Federal and state tax laws.

         4.       Miscellaneous

                  (a) The Option may not be assigned, encumbered or transferred,
except,  in the event of death of the  Optionee,  by will or the laws of descent
and distribution.

                  (b) This Agreement  shall bind and inure to the benefit of the
Company and its successors and assigns,  and the Optionee and any heir, legatee,
or legal representative of the Optionee.
                  (c) This  Agreement  shall be  governed  by and  construed  in
accordance  with the law of the state of  Delaware,  regardless  of the law that
might otherwise govern under applicable principles of conflicts of laws.



                                       3.

<PAGE>



         IN WITNESS  WHEREOF,  the  parties  have  executed  this  Agreement  in
duplicate as of the day and year first above written.

                                                             MK RAIL CORPORATION


                                               ---------------------------------
                                                                    John C. Pope
                                                                        Chairman

                                                                       OPTIONEE:


                                               ---------------------------------
                                                                 Michael A. Wolf


                                       4.

<PAGE>

          EXHIBIT B







                               MK RAIL CORPORATION
                           DEFERRED COMPENSATION PLAN
                               FOR MICHAEL A. WOLF








                             Effective July 1, 1996



<PAGE>



                       TABLE OF CONTENTS
                                                                       Page
ARTICLE I      PURPOSE AND BACKGROUND.....................................1
               ----------------------
ARTICLE 11     DEFINITIONS................................................1
               -----------
               2.1    Account.............................................1
                      -------
               2.2    Administrative Committee............................1
                      ------------------------
               2.3    Beneficiary.........................................2
                      -----------
               2.4    Cause...............................................2
                      -----
               2.5    Code................................................2
                      ----
               2.6    Compensation........................................2
                      ------------
               2.7    Compensation Committee..............................2
                      ----------------------
               2.8    Deferral Commitment.................................2
                      -------------------
               2.9    Deferral Period.....................................2
                      ---------------
               2.10   Determination Date..................................3
                      ------------------
               2.11   Earnings Index......................................3
                      --------------
               2.12   Elective Deferred Compensation                   ...3
                      ------------------------------
               2.13   Employer     .......................................3
                      --------
               2.14   ERISA...............................................3
                      -----
               2.15   Financial...........................................3
                      ---------
               2.16   Participant.........................................3
                      -----------
               2.17   Participation Agreement.............................3
                      -----------------------
               2.18   Plan Benefit........................................4
                      ------------
               2.19   Rate of Return......................................4
                      --------------
               2.20   SARs................................................4
                      ----

ARTICLE III    PARTICIPATION AND DEFERRAL COMMITMENTS.....................4
               --------------------------------------

               3.1    Eligibility and Participation.......................4
                      -----------------------------
               3.2    Form of Deferral....................................4
                      ----------------
               3.3    Limitations on Deferral Commitment..................5
                      ----------------------------------
               3.4     Modification of Deferral Commitment................5
                       -----------------------------------

ARTICLE IV     DEFERRED COMPENSATION ACCOUNT..............................5
               -----------------------------

               4.1    Account.............................................5
                      -------
               4.2    Elective Deferred Compensation......................6
                      ------------------------------
               4.3    Allocation of Elective Deferred Compensation........6
                      --------------------------------------------
               4.4    Makeup Contributions................................6
                      --------------------
               4.5    Employer Discretionary Contributions................7
                      ------------------------------------
               4.6    Rate of Return......................................7
                      --------------
               4.7    Determination of Account............................7
                      ------------------------


<PAGE>



                                                                       Page

               4.8    Vesting of Account..................................7
                      ------------------
               4.9    Statement of Account................................8
                      --------------------

ARTICLE V      PLAN BENEFITS..............................................8
               -------------

               5.1    Distributions Prior to Termination of Employment....8
                      ------------------------------------------------
               5.2    Distributions Following Termination of Employment...9
                      -------------------------------------------------
               5.3    Form of Benefit Payment Following Termination
                      of Employment......................................10
                      -------------
               5.4    Commencement of Deferral Payment...................10
                      --------------------------------
               5.5    Death Benefit......................................11
                      -------------
               5.6    Accelerated Distribution...........................11
                      ------------------------
               5.7    Withholding for Taxes..............................12
                      ---------------------
               5.8    Valuation and Settlement       ....................12
                      ------------------------
               5.9    Payment to Guardian................................12
                      -------------------

ARTICLE VI     BENEFICIARY DESIGNATION...................................13
               -----------------------

               6.1    Beneficiary Designation............................13
                      -----------------------
               6.2    Changing Beneficiary...............................13
                      --------------------
               6.3    Community Property.................................13
                      ------------------
               6.4    No Beneficiary Designation.........................14
                      --------------------------

ARTICLE VII    ADMINISTRATION............................................15
               --------------

               7.1    Committee: Duties..................................15
                      -----------------
               7.2    Agents.............................................15
                      ------
               7.3    Binding Effect of Decisions........................15
                      ---------------------------
               7.4    Indemnity of Administrative Committee            ..15
                      -------------------------------------

ARTICLE VII    CLAIMS PROCEDURE..........................................16
               ----------------

               8.1    Claim..............................................16
                      -----
               8.2    Review of Claim....................................16
                      ---------------
               8.3    Notice of Denial of Claim..........................16
                      -------------------------
               8.4    Reconsideration of Denied Claim....................17
                      -------------------------------
               8.5    Arbitration........................................18
                      -----------
               8.6    Employer to Supply Information.....................18
                      ------------------------------

ARTICLE IX     AMENDMENT AND TERMINATION OF PLAN.........................18
               ---------------------------------

               9.1    Amendment..........................................18
                      ---------
               9.2    Termination........................................19
                      -----------


<PAGE>



                                                                       Page
ARTICLE X      MISCELLANEOUS.............................................20
               -------------

               10.1   Unfunded Plan......................................20
                      -------------
               10.2   Unsecured General Creditor.........................20
                      --------------------------
               10.3   Trust Fund.........................................21
                      ----------
               10.4   Nonassignability...................................21
                      ----------------
               10.5   Not a Contract of EDI..............................21
                      ---------------------
               10.6   Protective Provisions..............................21
                      ---------------------
               10.7   Governing Law......................................22
                      -------------
               10.8   Validity...........................................22
                      --------
               10.9   Notice.............................................22
                      ------
               10.10  Successors.........................................22
                      ----------

SIGNATURE PAGE...........................................................23



<PAGE>



                               MK RAIL CORPORATION
                           DEFERRED COMPENSATION PLAN
                               FOR MICHAEL A. WOLF
              -----------------------------------------------------


                                    ARTICLE I
                             PURPOSE AND BACKGROUND
         The  purpose  of this  Deferred  Compensation  Plan (the  "Plan") is to
provide current tax planning opportunities as well as supplemental funds for the
retirement  or  death of  Michael  A.  Wolf,  the  President  and CEO of MK Rail
Corporation  ("Company").  The  Plan  shall  be  effective  as of July  1,  1996
("Effective Date").
                                   ARTICLE II
                                   DEFINITIONS
         For the  purposes  of the Plan,  the  following  terms  shall  have the
meanings indicated, unless the context clearly indicates otherwise.
                  2.1 Account.  "Account" means the Account as maintained by the
Employer  in  accordance  with  Article  IV  with  respect  to any  deferral  of
Compensation  pursuant to the Plan. The Participant's  Account shall be utilized
solely as a device for the  determination  and  measurement of the amounts to be
paid to the  Participant  pursuant to the Plan.  Separate  subaccounts  shall be
maintained to properly reflect the  Participant's  balance and earnings thereon.
The Participant's  Account shall not constitute or be treated as a trust fund of
any kind.
                  2.2 Administrative Committee. "Administrative Committee" means
the committee appointed to administer the employee benefit plans of the Company.
                  2.3 Beneficiary.  "Beneficiary"  means the person,  persons or
entity entitled under Article VI to receive any Plan Benefits  payable after the
Participant's death.


<PAGE>



                  2.4 Cause. "Cause" is defined as provided in the Participant's
Employment Agreement.
                  2.5 Code.  "Code" means the Internal  Revenue Code of 1986, as
amended.
                  2.6  Compensation.  "Compensation"  means the  salary  and all
bonuses payable to the Participant during the calendar year and considered to be
"wages" for purposes of federal  income tax  withholding,  before  reduction for
amounts deferred under the Plan,  salary reduction  contributions  under Section
401 (k) of the Code,  or any other  deferral  arrangements.  For purposes of the
Plan, the term "bonus"  includes cash payments made to the Participant  upon the
exercise of SARS. Compensation does not include expense reimbursements, any form
of noncash Compensation or benefits, group life insurance premiums, or any other
payments or benefits other than salary or bonuses (as described above).
                  2.7 Compensation Committee. "Compensation Committee" means the
Compensation Committee of the Employer's Board of Directors.
                  2.8  Deferral  Commitment.   "Deferral  Commitment"  means  an
election to defer  Compensation made by the Participant  pursuant to Article III
and for which a  separate  Participation  Agreement  has been  submitted  by the
Participant to the Administrative Committee.
                  2.9 Deferral Period.  "Deferral  Period" means the period over
which the Participant has elected to defer a portion of his  Compensation.  Each
calendar year shall be a separate  Deferral  Period,  provided that the Deferral
Period may be modified  pursuant to Section  3.4.  The initial  Deferral  Period
shall be from July 1, 1996 through December 31, 1996.
                  2.10 Determination Date.  "Determination  Date" means the last
day of each calendar month.

                                       2.

<PAGE>



                  2.11  Earnings  Index.  "Earnings  Index" means a portfolio or
fund selected by the  Participant to be used in calculating  the Rate of Return.
The portfolio may include  stocks,  bonds and other types of securities that are
traded on a national securities exchange.  Employer shall have no responsibility
for the Earnings Indices selected by the Participant.
                  2.12  Elective  Deferred   Compensation.   "Elective  Deferred
Compensation"  means the amount of Compensation  that the Participant  elects to
defer pursuant to a Deferral Commitment.
                  2.13  Employer.  "Employer"  means MK Rail  Corporation or any
successor to the business thereof.
                  2.14  ERISA.  "ERISA"  means the  Employee  Retirement  Income
Security Act of 1974, as amended.
                  2.15  Financial  Hardship.   "Financial   Hardship"  means  an
unanticipated  emergency  that is caused by an event  beyond the  control of the
Participant  that  would  result  in  severe  financial  hardship  if  an  early
withdrawal from the Plan were not permitted.
                  2.16  Participant.  "Participant"  means Michael A. Wolf,  the
President and CEO of the Employer.
                  2.17 Participation Agreement.  "Participation Agreement" means
the agreement submitted by the Participant to the Administrative Committee prior
to the beginning of the Deferral Period,  with respect to a Deferral  Commitment
made for such Deferral Period.
                  2.18 Plan Benefit. "Plan Benefit" means the benefit payable to
the Participant as calculated in Article V.

                                       3.

<PAGE>



                  2.19  Rate of  Return.  "Rate  of  Return"  means  the  amount
credited to the Participant's  Account under Section 4.6 to be determined by the
Administrative  Committee based upon the net performance of the Earnings Indices
selected by the Participant.  If the Employer elects, in its sole discretion, to
make investments that correspond to the Earnings Indices periodically elected by
the Participant,  the Rate of Return shall be determined  after  subtracting any
transaction costs (e.g., commissions).
                  2.20 SARS. "SARS" means stock appreciation  rights provided by
the Employer to the Participant.
                                   ARTICLE III
                     PARTICIPATION AND DEFERRAL COMMITMENTS

                  3.1  Eligibility  and  Participation.  Michael  A.  Wolf,  the
President  and  CEO  of  the  Employer,  shall  be  the  only  Participant.  His
participation begins as of July 1, 1996.
                  3.2 Form of  Deferral.  The  Participant  may  elect  Deferral
Commitments in the Participation Agreement as follows:
                         (a)  Salary  Deferral  Commitment.  A  salary  Deferral
                    Commitment shall apply to the salary payable by the Employer
                    to the Participant during the Deferral Period. The amount to
                    be  deferred  shall be  stated  as a  percentage  or  dollar
                    amount. 
                         (b)  Bonus  Deferral   Commitment.   A  bonus  Deferral
                    Commitment shall apply to the bonus Compensation  payable to
                    the Participant  during the Deferral Period. If the bonus is
                    cash  payable  upon  the  exercise  of  SARS,  the  Deferral
                    Commitment shall apply to SARs that are exercised during the
                    Deferral  Period.  The amount to be deferred shall be stated
                    as a percentage or dollar amount.

                                       4.

<PAGE>



                  3.3   Limitations  on  Deferral   Commitment.   The  following
limitations shall apply to Deferral Commitments:
                           (a) Minimum. The minimum salary deferral amount shall
         be one hundred  dollars  ($100) for each pay period.  There shall be no
         minimum deferral amount for bonus in a bonus Deferral Commitment.
                           (b)  Maximum.  The maximum  deferral  amount shall be
         fifty percent (50%) of salary in a salary  Deferral  Commitment and one
         hundred percent (1 00%) of bonus in a bonus Deferral Commitment.
                  3.4 Modification of Deferral Commitment. A Deferral Commitment
shall be  irrevocable  except that the  Administrative  Committee may permit the
Participant  to reduce the amount to be deferred,  or waive the remainder of the
Deferral  Commitment,  upon a  finding  that  the  Participant  has  suffered  a
Financial Hardship.

                                   ARTICLE IV
                          DEFERRED COMPENSATION ACCOUNT
                  4.1 Account.  For record  keeping  purposes  only,  an Account
shall  be  maintained  for  the  Participant.   Separate  subaccounts  shall  be
maintained  to the  extent  necessary  to  properly  reflect  the  Participant's
election of Earnings Indices and total vested or nonvested Account balance.
                  4.2 Elective Deferred Compensation. The Participant's Elective
Deferred  Compensation  shall be  credited to the  Participant's  Account as the
corresponding  nondeferred  portion  of the  Compensation  becomes or would have
become payable. Any withholding of taxes

                                       5.

<PAGE>



or other  amounts  with  respect to deferred  Compensation  which is required by
state, federal or local law shall be withheld from the Participant's nondeferred
Compensation  to the maximum extent possible with any excess being withheld from
the Participant's Account.
                  4.3  Allocation  of  Elective   Deferred   Compensation.   The
Participant  shall allocate the Account among the Earning  Indices.  The initial
allocation shall be made in the Participation  Agreement. If the Participant has
not made an allocation election, the Participant's Account shall be allocated to
a money market or equivalent  Earnings  Index.  The  Participant  may change his
allocation  among the Earning Indices as of the first day of each month by prior
notice to the Administrative Committee.
                  The Employer shall be under no obligation to make  investments
that correspond to the Earnings Indices elected by the Participant,  even though
the Participant's elections are used to determine the Rate of Return.
                  4.4      Makeup Contributions.
                           (a)  The   Participant   shall   receive   a   makeup
         contribution   equal  to  two   percent   (2%)  of  the   Participant's
         Compensation,  less  the  matching  contribution  to the 401  (k)  plan
         required to be  allocated to Employer  stock.  The  Participant  is not
         required  to defer  any  amounts  into the Plan in order to  receive  a
         makeup contribution under this subsection.
                           (b) If the Participant defers into the Employer's 401
         (k) plan an amount equal to the limit as set forth in Section 402(g) of
         the  Code,  the   Participant   shall  receive  an  additional   makeup
         contribution equal to fifty percent (50%) of the first six percent (6%)
         deferred  into the 401 (k) plan and the Plan.  This makeup amount shall
         be reduced by the

                  6.

<PAGE>



         matching  contribution  to the 401 (k) plan  which is  directed  by the
         Participant.  This makeup contribution shall be allocated as elected by
         the Participant.
                  The total Employer  contribution  under this Section may never
exceed five percent (5%) of  Compensation.  All makeups under this Section shall
be  credited to the  Participant's  Account no later than  forty-five  (45) days
after  the end of the  calendar  year  they  would  have  been  credited  to the
underlying qualified plans if not for the limitations contained in the Code.
                  4.5  Employer  Discretionary  Contributions.  The Employer may
make  Discretionary  Contributions to the Participant's  Account.  Discretionary
Contributions  shall  be  credited  at such  times  and in such  amounts  as the
Administrative  Committee in its sole discretion shall determine.  The amount of
the  Discretionary  Contributions  shall be evident  in a special  Participation
Agreement approved by the Administrative Committee.
                  4.6  Rate  of  Return.  The  Participant's  Account  shall  be
credited monthly with the Rate of Return specified in Section 2.19.
                  4.7 Determination of Account. The Participant's  Account as of
each  Determination  Date  shall  consist of the  balance  of the  Participant's
Account  as  of  the  immediately   preceding   Determination   Date,  plus  the
Participant's  Elective Deferred Compensation credited, any makeup contributions
and the applicable Rate of Return.,  minus the amount of any distributions  made
since the immediately preceding Determination Date.
                  4.8 Vesting of Account. The Participant shall be vested in the
amounts credited to the Participant's Account and earnings thereon as follows:

                                       7.

<PAGE>



                  (a) Amounts  Deferred.  The  Participant  shall be one hundred
percent (100%) vested at all times in the amount of  Compensation  elected to be
deferred under the Plan and Rate of Return thereon.
                  (b) Employer Makeups.  The Employer makeups contributed to the
Participant's  Account, and Rate of Return thereon,  shall be vested to the same
extent that contribution in the underlying qualified plans are vested.
                  (c)  Employer   Discretionary   Contributions.   The  Employer
Discretionary  Contributions  and Rate of Return  thereon shall be vested as set
forth in the special Participation Agreement.
                  4.9 Statement of Account.  The Administrative  Committee shall
submit to the Participant, within one hundred twenty (1 20) days after the close
of each calendar year, or at such other time as determined by the Administrative
Committee,  a  statement  setting  forth  the  balance  to  the  credit  of  the
Participant's Account.
                                    ARTICLE V
                                  PLAN BENEFITS
                  5.1  Distributions  Prior to Termination  of  Employment.  The
Participant's Account may be distributed to the Participant prior to termination
of employment with the Employer as follows:
                         (a) Early  Withdrawals.  The Participant may elect in a
                    Participation  Agreement  to withdraw  all or any portion of
                    the amount deferred by that Participation  Agreement as of a
                    date  specified  in the  election.  Such  date  shall not be
                    sooner  than  seven  (7) years  after the date the  Deferral
                    Period commences. The amount withdrawn shall not

                                       8.

<PAGE>



                    exceed  the  amount  of   Compensation   deferred,   without
                    earnings,  and shall not  include  any makeup  contribution.
                    Such  election  shall  be  made  at the  time  the  Deferral
                    Commitment is made and shall be irrevocable.
                         (b)  Hardship  Withdrawals.  Upon a  finding  that  the
                    Participant   has   suffered  a  Financial   Hardship,   the
                    Administrative  Committee may, in its sole discretion,  make
                    distributions from the Participant's  Account. The amount of
                    such a withdrawal shall be limited to the amount  reasonably
                    necessary to meet the Participant's needs resulting from the
                    Financial  Hardship.  If  payment  is made due to  Financial
                    Hardship under the Plan, the  Participant's  deferrals under
                    the Plan shall  cease for a twelve  (12) month  period.  Any
                    resumption  of the  Participant's  deferrals  under the Plan
                    after such  twelve (12) month  period  shall be made only at
                    the election of the  Participant in accordance  with Article
                    III herein.
                         (c) Form of Payment and Time. Any distribution pursuant
                    to  Sections  5.1(a) or 5.1 (b) shall be  payable  in a lump
                    sum. The distribution shall be paid in the case of a partial
                    withdrawal,  as provided in the Participation Agreement, and
                    in case of a  Financial  Hardship,  within  thirty (30) days
                    after the  Administrative  Committee  approves the Financial
                    Hardship.
                  5.2 Distributions  Following  Termination of Employment.  Upon
the  Participant's  termination  of employment  with the Employer for any reason
(which  termination  shall be for a  period  of at least  five  (5)  days),  the
Employer shall pay the Participant or, in the case of death,  the  Participant's
Beneficiary, benefits equal to the vested balance in the Participant's Account.

                                       9.

<PAGE>



                         5.3 Form of Benefit  Payment  Following  Termination of
                    Employment.
                         (a) Subject to Section  5.3(b),  benefits shall be paid
                    in the form selected by the Participant in the Participation
                    Agreement. Options include:
                         (i) A lump sum payment.  
                         (ii) Equal annual  installments of the Account and Rate
                    of Return amortized over a period of five (5), ten (1 0), or
                    fifteen (1 5) years.  The Account shall be amortized with an
                    assumed  Rate of Return of seven  percent  (7%)  unless  the
                    Participant  selects,   and  the  Administrative   Committee
                    approves, an alternative assumed Rate of Return. The Account
                    shall be reamortized  annually based upon the actual Rate of
                    Return.

                         (b) Small Account(s).  Notwithstanding  Section 5.3(a),
                    if the Partici  pant's  Account is less than fifty  thousand
                    dollars ($50,000) on the date of termination, the
                    benefit  shall be paid in a lump sum.
     5.4 Commencement of Deferral Payment.
                         (a)  Subject  to  Section  5.4(b),  benefits  that  are
                    payable upon the  Participant's  termination  of  employment
                    with  the  Employer   shall   commence  as  elected  by  the
                    Participant in the Participation Agreement. Options are:
                         (i)  Payments to commence  as soon as  practical  after
                    termination  but in no case more than  sixty (60) days after
                    termination.

                         (ii)  Payment to commence as soon as  practical  in the
                    calendar year following termination but in no case more than
                    ninety (90) days after the beginning of the calendar year.

                                       10.

<PAGE>



                         (iii)  Payments to commence as soon as practical in the
                    calendar  year  following  the  later  of the  Participant's
                    termination   or  attainment  of  an  age  selected  by  the
                    Participant  which shall not exceed age sixty-five  (65). If
                    the  Participant has selected this option and has an Account
                    balance  less  than  fifty  thousand  dollars  ($50,000)  at
                    termination,   the   benefit   shall   commence  as  if  the
                    Participant had selected Section 5.4(a)(ii) above.
               (b)  Notwithstanding  Section  5.4(a),  if the  Participant  is a
          "covered  employee" as defined in Section  162(m)(3) of the Code,  the
          Participant  shall  receive  his  first  benefit  payment  as  if  the
          Participant had elected option Section  5.4(a)(ii)  above,  unless the
          Participant   has   elected   Section   5.4(a)(iii)   above  and  such
          commencement date is after the date payable under Section 5.4(a)(ii).
     5.5 Death Benefit. Upon the death of the Participant,  the Employer shall I
pay to the  Participant's  Beneficiary  an amount equal to the remaining  unpaid
balance of the Participant's Account in a lump sum.
     5.6 Accelerated  Distribution.  Notwithstanding  any other provision of the
Plan,  at any time the  Participant  shall be entitled to receive,  upon written
request to the Administrative Committee, a lump sum distribution equal to ninety
percent  (90%)  of the  vested  Account  balance  as of the  Determination  Date
immediately  preceding the date on which the  Administrative  Committee receives
the  written  request.   The  remaining   balance  shall  be  forfeited  by  the
Participant.  The amount  payable under this Section shall be paid in a lump sum
within   thirty  (30)  days   following   the  receipt  of  the  notice  by  the
Administrative Committee from the Participant. 

                                      11.

<PAGE>



                  If the Participant receives a distribution under this Section,
his Deferral  Commitments for the remaining  portion of that calendar year shall
be revoked and he shall not be permitted to make  Deferral  Commitments  for the
next succeeding calendar year.
                  5.7  Withholding  for Taxes. To the extent required by the law
in effect at the time payments are made,  the Employer  shall  withhold from the
payments made hereunder any taxes  required to be withheld by federal,  state or
local  government,  including  any  amount  which  the  Employer  determines  is
reasonably necessary to pay any generation-skipping transfer tax which is or may
become due. A Beneficiary, however, may elect not to have withholding of federal
income  tax  pursuant  to  Section  3405(a)(2)  of the  Code,  or any  successor
provision thereto.
                  5.8 Valuation and Settlement. The amount of a lump sum payment
and the  initial  amount  of  installments  shall be  based on the  value of the
Participant's  Account  on the  Determination  Date  immediately  preceding  the
payment or commencement of installment payments.
                  5.9 Payment to  Guardian.  The  Administrative  Committee  may
direct payment to the duly  appointed  guardian,  conservators  or other similar
legal  representative  of the Participant or Beneficiary to whom payment is due.
In the absence of such a legal representative, the Administrative Committee may,
in it sole and absolute discretion, make payment to a person having the care and
custody of a minor,  incompetent or person incapable of handling the disposition
of  property  upon  proof  satisfactory  to  the  Administrative   Committee  of
incompetency,  minority,  or  incapacity.  Such  distribution  shall  completely
discharge the  Administrative  Committee from all liability with respect to such
benefit.


                                       12.

<PAGE>



                                   ARTICLE VI
                             BENEFICIARY DESIGNATION
                  6.1  Beneficiary  Designation.  Subject  to Section  6.3,  the
Participant  shall have the right,  at any time,  to  designate  one (1) or more
persons or an entity as Beneficiary  (both primary as well as secondary) to whom
benefits  under the Plan shall be paid in the event of the  Participant's  death
prior to complete  distribution of the Participant's  Account.  Each Beneficiary
designation  shall  be  in a  written  form  prescribed  by  the  Administrative
Committee  and  shall be  effective  only  when  filed  with the  Administrative
Committee during the Participant's lifetime.
                  6.2  Changing   Beneficiary.   Subject  to  Section  6.3,  any
Beneficiary designation may be changed by the Participant without the consent of
the previously  named  Beneficiary by the filing of a new  designation  with the
Administrative  Committee.  The  filing of a new  designation  shall  cancel all
designations previously filed.
                  6.3  Community  Property.  If  the  Participant  resides  in a
community property state, the following rules shall apply:
                           (a) If the Participant is married, the designation of
         a  Beneficiary  other  than  the  Participant's  spouse  shall  not  be
         effective   unless  the  spouse   executes  a  written   consent   that
         acknowledges  the effect of the  designation,  or it is established the
         consent cannot be obtained because the spouse cannot be located.
                           (b) If the Participant is married,  the Participant's
         Beneficiary  designation  may  be  changed  with  the  consent  of  the
         Participant's spouse as provided for in Section 6.3(a) by the filing of
         a new designation with the Administrative Committee.

                                       13.

<PAGE>



                    (c) If the  Participant's  marital  status changes after the
               Participant  has  designated a Beneficiary,  the following  shall
               apply:
                                    (i) If the  Participant  is  married  at the
                  time of death but was unmarried when the designation was made,
                  the designation  shall be void unless the spouse has consented
                  to it in the manner prescribed in Section 6.3(a).
                                    (ii) If the  Participant is unmarried at the
                  time of death but was married when the designation was made:
                         a) The  designation  shall  be void if the  spouse  was
                    named as Beneficiary.
                         b) The  designation  shall  remain valid if a nonspouse
                    Beneficiary was named.
                         (iii)  If  the   Participant   was  married   when  the
                    designation was made and is married to a different spouse at
                    death, the designation shall I be void unless the new spouse
                    has consented to it in the manner prescribed above.
          6.4 No Beneficiary Designation.  If the Participant fails to designate
     a Beneficiary in the manner  provided above, if the designation is void, or
     if  the  Beneficiary   designated  by  the  Participant   dies  before  the
     Participant or before complete distribution of the Participant's  benefits,
     the  Participant's  Beneficiary  shall be the  person  in the  first of the
     following classes in which there is a survivor:
                           (a)      The Participant's spouse;

                                       14.

<PAGE>



                           (b)  The  Participant's  children  in  equal  shares,
                  except that if any of the children  predecease the Participant
                  but leaves  issue  surviving,  then such  issue  shall take by
                  right of representation  the share the parent would have taken
                  if living;
                           (c)      The Participant's estate.

                                   ARTICLE VII
                                 ADMINISTRATION
                  7.1 Committee;  Duties.  The Plan shall be administered by the
Administrative Committee. The Administrative Committee shall consist of at least
three  (3)   individuals   appointed   by  the   Compensation   Committee.   The
Administrative  Committee  shall have the authority to amend (but not terminate)
the Plan (subject to Section 9.1),  interpret and enforce all appropriate  rules
and regulations for the administration of the Plan and decide or resolve any and
all  questions,  including  interpretations  of the  Plan,  as may arise in such
administration.  A majority vote of the  Administrative  Committee members shall
control any decision.
                  7.2 Agents.  The  Administrative  Committee  may, from time to
time, employ agents and delegate to them such  administrative  duties as it sees
fit,  and may from time to time  consult  with counsel who may be counsel to the
Company.
                  7.3 Binding Effect of Decisions. The decision or action of the
Administrative  Committee  with  respect to any  question  arising  out of or in
connection with the  administration,  interpretation and application of the Plan
and the rules and regulations  promulgated hereunder shall be final,  conclusive
and binding upon all persons having any interest in the Plan.

                                       15.

<PAGE>



                  7.4 Indemnity of Administrative  Committee.  The Company shall
indemnify and hold harmless the members of the Administrative  Committee against
any and all claims,  loss, damage,  expense or liability arising from any action
or failure to act with respect to the Plan on account of such  person's  service
on the  Administrative  Committee,  except  in the case of gross  negligence  or
willful misconduct.
                                  ARTICLE VIII
                                CLAIMS PROCEDURE
                  8.1 Claim. The Administrative  Committee shall establish rules
and procedures to be followed by the Participant and Beneficiaries in (a) filing
claims for benefits,  and (b) for furnishing and verifying  proofs  necessary to
establish the right to benefits in accordance with the Plan, consistent with the
remainder of this Article.  Such rules and procedures  shall require that claims
and proofs be made in writing and directed to the Administrative Committee.
                  8.2 Review of Claim. The Administrative Committee shall review
all claims for benefits. Upon receipt by the Administrative  Committee of such a
claim,  it shall  determine all facts which are necessary to establish the right
of the  claimant to  benefits  under the  provisions  of the Plan and the amount
thereof as herein  provided within ninety (90) days of receipt of such claim. If
prior  to  the   expiration  of  the  initial   ninety  (90)  day  period,   the
Administrative  Committee  determines  additional  time is  needed  to come to a
determination on the claim, the  Administrative  Committee shall provide written
notice to the  Participant,  Beneficiary  or other  claimant of the need for the
extension, not to exceed a total of one hundred eighty (1 80) days from the date
the application was received.

                                       16.

<PAGE>



                  8.3  Notice  of  Denial  of  Claim.  In  the  event  that  the
Participant,  Beneficiary or other  claimant  claims to be entitled to a benefit
under the Plan,  and the  Administrative  Committee  determines  that such claim
should be denied in whole or in part, the  Administrative  Committee  shall,  in
writing,  notify such  claimant  that the claim has been denied,  in whole or in
part,  setting  forth the specific  reasons for such denial.  Such  notification
shall be  written  in a manner  reasonably  expected  to be  understood  by such
claimant and shall refer to the  specific  sections of the Plan relied on, shall
describe any additional  material or  information  necessary for the claimant to
perfect the claim and an  explanation  of why such  material or  information  is
necessary,  and where  appropriate,  shall  include  an  explanation  of how the
claimant can obtain reconsideration of such denial.
                  8.4      Reconsideration of Denied Claim.
                           (a)  Within  sixty  (60) days  after  receipt  of the
         notice  of the  denial of a claim,  such  claimant  or duly  authorized
         representative  may  request,  by mailing or delivery  of such  written
         notice  to  the  Administrative  Committee,  a  reconsideration  by the
         Administrative  Committee  of the  decision  denying the claim.  If the
         claimant  or duly  authorized  representative  fails to request  such a
         reconsideration  within  such  sixty  (60)  day  period,  it  shall  be
         conclusively determined for all purposes of the Plan that the denial of
         such claim by the Administrative Committee is correct. If such claimant
         or duly authorized  representative  requests a  reconsideration  within
         such  sixty  (60)  day  period,   the   claimant  or  duly   authorized
         representative  shall have thirty (30) days after  filing a request for
         reconsideration to submit additional written material in support of the
         claim,  review pertinent  documents,  and submit issues and comments in
         writing.

                                       17.

<PAGE>



                           (b)   After   such   reconsideration   request,   the
         Administrative  Committee  shall  determine  within  sixty (60) days of
         receipt of the  claimant's  request for  reconsideration  whether  such
         denial of the claim was  correct  and shall  notify  such  claimant  in
         writing of its  determination.  The written notice of decision shall be
         in writing and shall include specific reasons for the decision, written
         in a manner  calculated to be  understood  by the claimant,  as well as
         specific  references  to the  pertinent  Plan  provisions  on which the
         decision is based. In the event of special circumstances  determined by
         the Administrative Committee, the time for the Administrative Committee
         to make a decision  may be  extended by an  additional  sixty (60) days
         upon written  notice to the claimant prior to the  commencement  of the
         extension.
                  8.5 Arbitration.  Any decision of the Administrative Committee
may be appealed to arbitration,  pursuant to the arbitration  procedure provided
for in the Participant's Employment Agreement.
                  8.6   Employer   to  Supply   Information.   To   enable   the
Administrative  Committee to perform its  functions,  the Employer  shall supply
full  and  timely  information  to  the  Administrative  Committee  and  to  the
Participant of all matters relating to the retirement,  death or other cause for
termination of employment of the Participant,  and such other pertinent facts as
the Administrative Committee or the Participant may require.


                                       18.

<PAGE>



                                   ARTICLE IX
                        AMENDMENT AND TERMINATION OF PLAN
                  9.1 Amendment.  The  Administrative  Committee may at any time
amend the Plan by written instrument with the Participant's  written consent and
the written consent of any  Beneficiaries  to whom a benefit is due,  subject to
the following:
                    (a)  Preservation  of Account  Balance.  No amendment  shall
               reduce the amount  accrued  in the  Participant's  Account to the
               date such notice of the amendment is given.
                    (b) Changes in Earnings Rate. No amendment  shall reduce the
               Rate of Return to be credited  after the date of the amendment to
               the  amount  already  accrued  in the  Account  and any  Deferred
               Compensation  credited to the Account under Deferral  Commitments
               already in effect on that date.
                  9.2 Termination.  The  Compensation  Committee may at any time
partially  or  completely  terminate  the Plan  with the  Participant's  written
consent, if, in the Compensation  Committee's  judgment,  the tax, accounting or
other effects of the continuance of the Plan, or potential  payments  thereunder
would not be in the best interests of the Employer and the Participant.
                    (a)  Partial  Termination.  With the  Participant's  written
               consent,  the Compensation  Committee may partially terminate the
               Plan by instructing  the  Administrative  Committee not to accept
               any   additional   Deferral   Commitments.   If  such  a  partial
               termination  occurs,  the Plan shall  continue  to operate and be
               effective with regard to Deferral  Commitments entered into prior
               to the effective date of such partial termination.

                                       19.

<PAGE>



                    (b) Complete  Termination.  With the  Participant's  written
               consent, the Compensation  Committee may completely terminate the
               Plan by instructing  the  Administrative  Committee not to accept
               any  additional  Deferral  Commitments,  and by  terminating  all
               ongoing  Deferral  Commitments.  If such a  complete  termination
               occurs,  the Plan shall cease to operate and the  Employer  shall
               pay out the Account. Payment shall be made in substantially equal
               annual  installments  over  the  following  period,  based on the
               Account balance:
                  Account Balance                                 Payout Period
                  Less than $1 00,000                                  Lump Sum
                  $100,000 but less than $500,000                      3 Years
                  More than $500,000                                   5 Years

                  Payments  shall  commence  within  sixty  (60) days  after the
Compensation  Committee  terminates  the Plan and earnings  shall continue to be
credited on the unpaid Account balance.
                                    ARTICLE X
                                  MISCELLANEOUS
                  10.1 Unfunded  Plan.  The Plan is an unfunded plan  maintained
primarily  to  provide  deferred  compensation  benefits  for a select  group of
"management or highly compensated employees" within the meaning of Sections 201,
301 and 401 of ERISA,  and therefore is exempt from the provisions of Parts 2, 3
and 4 of Title I of ERISA.
                  10.2  Unsecured  General  Creditor.  The  Participant  and his
Beneficiaries  shall  be  unsecured  general  creditors,   with  no  secured  or
preferential  right to any assets of the Employer or any other party for payment
of benefits under the Plan. Any life insurance  policies,  annuity  contracts or
other  property  purchased  by the  Employer in  connection  with the Plan shall
remain

                                       20.

<PAGE>



its general,  unpledged and unrestricted assets. The Employer's obligation under
the Plan shall be an unfunded and unsecured promise to pay money in the future.
                  10.3 Trust Fund. At its discretion, the Employer may establish
one (1) or more trusts,  with such  trustees as the  Compensation  Committee may
approve, for the purpose of providing for the payment of benefits owed under the
Plan.  Although such a trust shall be irrevocable,  its assets shall be held for
payment of all the  Company's  general  creditors in the event of  insolvency or
bankruptcy. To the extent any benefits provided under the Plan are paid from any
such trust,  the Employer  shall have no further  obligation to pay them. If not
paid from the trust, such benefits shall remain the obligation of the Employer.
                  10.4  Nonassignability.  Neither the Participant nor any other
person  shall  have any  right  to  commute,  sell,  assign,  transfer,  pledge,
anticipate,  mortgage or otherwise encumber, transfer,  hypothecate or convey in
advance of actual receipt the amounts,  if any, payable  hereunder,  or any part
thereof,  which  are,  and all  rights to which are,  expressly  declared  to be
unassignable and nontransferable. No part of the amounts payable shall, prior to
actual payment,  be subject to seizure or  sequestration  for the payment of any
debts, judgments, alimony or separate maintenance owed by the Participant or any
other  person,  nor be  transferable  by  operation  of law in the  event of the
Participant's or any other person's bankruptcy or insolvency.
                  10.5  Not  a  Contract  of  Employment.  The  Plan  shall  not
constitute a contract of  employment  between the Employer and the  Participant.
Nothing in the Plan shall give the  Participant  the right to be retained in the
service  of the  Employer  or to  interfere  with the right of the  Employer  to
discharge the Participant pursuant to the Participant's Employment Agreement.

                                       21.

<PAGE>



                  10.6 Protective  Provisions.  The  Participant  will cooperate
with  the  Employer  by  furnishing  any and all  information  requested  by the
Employer in order to facilitate the payment of benefits hereunder, and by taking
such physical  examinations  as the Employer may deem  necessary and taking such
other action as may be requested by the Employer.
                  10.7  Governing  Law.  The  provisions  of the  Plan  shall be
construed  and  interpreted  according  to  the  laws  of  the  Commonwealth  of
Pennsylvania, except as preempted by ERISA or other federal law.
                  10.8 Validity. In case any provision of the Plan shall be held
illegal or invalid for any  reason,  said  illegality  or  invalidity  shall not
affect the remaining parts hereof,  but the Plan shall be construed and enforced
as if such illegal and invalid provision had never been inserted herein.
                  10.9 Notice.  Any notice  required or permitted under the Plan
shall be  sufficient  if in writing and hand  delivered or sent by registered or
certified  mail. Such notice shall be deemed as given as of the date of delivery
or, if  delivery  is made by mail,  as of the date shown on the  postmark on the
receipt for registration or certification.  Mailed notice to the  Administrative
Committee  shall be  directed to the  Company's  address.  Mailed  notice to the
Participant  or  Beneficiary  shall be directed to the  individual's  last known
address in the Employer's records.
                  10.10  Successors.  The  provisions of the Plan shall bind and
inure to the benefit of the Employer and its  successors  and assigns.  The term
successors as used herein shall include any corporate or other  business  entity
which shall, whether by merger,  consolidation,  purchase or otherwise,  acquire
all or  substantially  all of the  business  and  assets  of the  Employer,  and
successors of any such corporation or other business entity.

                                       22.

<PAGE>



                                                             MK RAIL CORPORATION

Dated                              , 1996                    By
                                                             Its





                                       23.

<PAGE>



                                EXHIBIT B (Cont.)
                                 TRUST AGREEMENT
                   TRUST UNDER DEFERRED COMPENSATION PLAN FOR
                                 MICHAEL A. WOLF

                  (a) This  Agreement  made  this day of 1996 by and  ----------
-----------------------   between  M.  K.  RAIL   CORPORATION   ("Company")  and
("Trustee");
                  (b)  WHEREAS,  Company  has  adopted a  nonqualified  deferred
compensation  plan (the "Deferred  Compensation  Plan") for Michael A. Wolf (the
"Participant");
                  (c)  WHEREAS,   Company  has  incurred  or  expects  to  incur
liability under the terms of such Deferred Compensation Plan with respect to the
Participant;
                  (d) WHEREAS,  Company wishes to establish a trust (hereinafter
called  "Trust")  and to  contribute  to the  Trust  assets  that  shall be held
therein,  subject to the claims of Company's creditors in the event of Company's
Insolvency,   as  herein  defined,   until  paid  to  the  Participant  and  his
beneficiaries  in such  manner and at such times as  specified  in the  Deferred
Compensation Plan;
                  (e)  WHEREAS,  it is the  intention  of the parties  that this
Trust shall  constitute an unfunded  arrangement and shall not affect the status
of the Deferred Compensation Plan as an unfunded plan maintained for the purpose
of providing  deferred  compensation  for a select group of management or highly
compensated  employees for purposes of Title I of the Employee Retirement Income
Security Act of 1974; and


                                       1.

<PAGE>



                  (f)  WHEREAS,   it  is  the   intention  of  Company  to  make
contributions to the Trust to provide itself with a source of funds to assist it
in the meeting of its liabilities under the Deferred Compensation Plan;
                  NOW THEREFORE,  the parties do hereby  establish the Trust and
agree that the Trust shall be comprised, held and disposed of as follows:
                  Section 1.     Establishment of Trust
                         (a) Company  hereby  deposits with Trustee in trust $ ,
                    which shall  become the  principal  of the Trust to be held,
                    administered  and disposed of by Trustee as provided in this
                    Trust Agreement.  
                         (b) The Trust hereby established shall be irrevocable.
                         (c) The  Trust is  intended  to be a  grantor  trust of
                    which Company is the grantor,  within the meaning of subpart
                    E,  part 1,  subchapter  J,  chapter  1,  subtitle  A of the
                    Internal  Revenue  Code of 1986,  as  amended,  and shall be
                    construed accordingly.
                         (d) The principal of the Trust and any earnings thereon
                    shall be held separate and apart from other funds of Company
                    and shall be used  exclusively  for the uses and purposes of
                    the Participant  and general  creditors as herein set forth.
                    The  Participant  and  his   beneficiaries   shall  have  no
                    preferred claim on, or any beneficial ownership interest in,
                    any  assets  of the  Trust.  Any  rights  created  under the
                    Deferred Compensation Plan and this Trust Agreement shall be
                    mere unsecured contractual rights of the Participant and his
                    beneficiaries  against Company. Any assets held by the Trust
                    will be subject to the claims of Company's general creditors
                    under federal and state law in the event of  Insolvency,  as
                    defined in Section 3(a) herein.

                                       2.

<PAGE>



                  (e) Company, in its sole discretion,  may at any time, or from
time to time, make  additional  deposits of cash or other property in trust with
Trustee to augment the  principal  to be held,  administered  and disposed of by
Trustee as provided in this Trust Agreement. Neither Trustee nor the Participant
or his beneficiaries shall have any right to compel such additional deposits.
                  (f)  Upon a  Change  in  Control,  Company  shall,  as soon as
possible,  but in no event longer than 30 days  following the Change in Control,
as defined  herein,  make an irrevocable  contribution to the Trust in an amount
that is sufficient to pay the  Participant  or his  beneficiary  the benefits to
which the  Participant or his  beneficiaries  would be entitled  pursuant to the
terms of the  Deferred  Compensation  Plan as of the date on which the Change in
Control occurred.
                  For purposes of this Trust,  the term Change in Control  shall
have the same meaning as in the Participant's Employment Agreement with Company.
     Section 2. Payments to the Participant and His Beneficiaries
                  (a) Company  shall deliver to Trustee a schedule (the "Payment
Schedule") that indicates the amounts payable in respect of the Participant (and
his beneficiaries),  that provides a formula or other instructions acceptable to
Trustee for determining the amounts so payable, the form in which such amount is
to be paid (as provided for or available under the Deferred  Compensation Plan),
and the time of  commencement  for payment of such amounts.  Except as otherwise
provided  herein,  Trustee  shall  make  payments  to the  Participant  and  his
beneficiaries  in  accordance  with such Payment  Schedule.  Trustee  shall make
provision for the reporting and withholding of any federal, state or local taxes
that may be required to be withheld 

                                       3.

<PAGE>



with  respect to the payment of benefits  pursuant to the terms of the  Deferred
Compensation  Plan and shall pay  amounts  withheld  to the  appropriate  taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.

                  (b) The entitlement of the Participant or his beneficiaries to
benefits under the Deferred  Compensation Plan shall be determined by Company or
such party as it shall designate under the Deferred  Compensation  Plan, and any
claim for such benefits  shall be considered  and reviewed  under the procedures
set out in the Deferred Compensation Plan.
                  (c)  Company  may make  payment of  benefits  directly  to the
Participant  or his  beneficiaries  as they  become  due  under the terms of the
Deferred Compensation Plan. Company shall notify Trustee of its decision to make
payment  of  benefits  directly  prior to the time  amounts  are  payable to the
Participant or his  beneficiaries.  In addition,  if the principal of the Trust,
and any earnings  thereon,  are not  sufficient  to make payments of benefits in
accordance with the terms of the Deferred  Compensation Plan, Company shall make
the balance of each such payment as it falls due.  Trustee shall notify  Company
where principal and earnings are not sufficient.
     Section 3. Trustee  Responsibility  Regarding Payments to Trust Beneficiary
When Company Is Insolvent

                  (a) Trustee shall cease payment of benefits to the Participant
and his  beneficiaries  if Company is  Insolvent.  Company  shall be  considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.

                                       4.

<PAGE>



                  (b) At all times  during the  continuance  of this  Trust,  as
provided in Section l(d) hereof,  the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and state law as
set forth below.
                    (1) The Board of Directors  and the Chairman of the Board of
               Company  shall  have the duty to inform  Trustee  in  writing  of
               Company's  Insolvency.  If a person  claiming to be a creditor of
               Company  alleges in writing to Trustee  that  Company  has become
               Insolvent,  Trustee shall determine  whether Company is Insolvent
               and,  pending  such  determination,   Trustee  shall  discontinue
               payment of benefits to the Participant or his beneficiaries.
                    (2)  Unless  Trustee  has  actual   knowledge  of  Company's
               Insolvency,  or has  received  notice  from  Company  or a person
               claiming to be a creditor  alleging  that  Company is  Insolvent,
               Trustee  shall  have  no  duty  to  inquire  whether  Company  is
               Insolvent.  Trustee  may in all  events  rely  on  such  evidence
               concerning  Company's solvency as may be furnished to Trustee and
               that  provides  Trustee  with a  reasonable  basis  for  making a
               determination concerning Company's solvency.
                    (3) If at any time  Trustee has  determined  that Company is
               Insolvent,  Trustee shall discontinue payments to the Participant
               or his  beneficiaries  and shall hold the assets of the Trust for
               the benefit of Company's general creditors. Nothing in this Trust
               Agreement shall in any way diminish any rights of the Participant
               or his  beneficiaries to pursue their rights as general creditors
               of  Company  with  respect  to  benefits  due under the  Deferred
               Compensation Plan or otherwise.
                                                 
                                       5.

<PAGE>



                    (4)  Trustee  shall  resume the  payment of  benefits to the
               Participant or his  beneficiaries in accordance with Section 2 of
               this Trust  Agreement  only after  Trustee  has  determined  that
               Company is not Insolvent (or is no longer Insolvent).
                  (c)  Provided  that there are  sufficient  assets,  if Trustee
discontinues  the payment of benefits  from the Trust  pursuant to Section  3(b)
hereof and subsequently resumes such payments,  the first payment following such
discontinuance  shall  include the  aggregate  amount of all payments due to the
Participant or his  beneficiaries  under the terms of the Deferred  Compensation
Plan for the period of such  discontinuance,  less the  aggregate  amount of any
payments made to the Participant or his  beneficiaries by Company in lieu of the
payments provided for hereunder during any such period of discontinuance.
                  Section 4.    Payments to Company
                  Except as provided in Section 3 hereof,  Company shall have no
right or power to direct Trustee to return to Company or to divert to others any
of the Trust  assets  before  all  payments  of  benefits  have been made to the
Participant  and  his  beneficiaries  pursuant  to the  terms  of  the  Deferred
Compensation Plan.
                  Section 5.        Investment Authority
                    (a) The assets of the Trust may be invested  and  reinvested
               in common  and  preferred  stocks,  shares,  or  certificates  of
               participation issued by investment companies,  investment trusts,
               and  mutual  funds,  common or pooled  investment  funds,  bonds,
               debentures,  insurance and annuity contracts, limited partnership
               interests,  obligations of governmental bodies, both domestic and
               foreign,  notes,  commercial paper,  certificates of deposit, and
               other  securities  or  evidences  of  indebtedness,   secured  or
               unsecured, including variable amount notes, convertible

                                       6.

<PAGE>



securities of all types and kinds,  interest-bearing savings or deposit accounts
with any federally  insured bank or trust company  (including  Trustee),  or any
federally insured savings and loan association, and-any other property permitted
as trust investments under applicable law.
                    (b) Trustee has the power to hold any or all  securities  or
               property  in  Trustee's  name,  as  Trustee,  or in the name of a
               nominee or nominee of an  affiliate,  and in accounts or deposits
               administered  in any  location  by  Trustee or any  affiliate  of
               Trustee. In the event the same are held in its own name or in the
               name of a nominee or nominees, suitable designation is to be made
               upon the books and  records of Trustee  that said  securities  or
               property are so held as part of any trusts hereunder.

                    (c) In no event may Trustee invest in securities  (including
               stock or  rights  to  acquire  stock)  or  obligations  issued by
               Company, other than a de minimis amount held in common investment
               vehicles in which Trustee  invests.  All rights  associated  with
               assets of the Trust shall be  exercised  by Trustee or the person
               designated by Trustee, and shall in no event be exercisable by or
               rest with the Participant.
                  Section 6.        Disposition of Income
                  During  the term of this  Trust,  all income  received  by the
Trust, net of expenses and taxes, shall be accumulated and reinvested.
                  Section 7.        Accounting by Trustee
                  Trustee  shall  keep  accurate  and  detailed  records  of all
investments,  receipts, disbursements, and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
Company and Trustee. Within 30 days following the

                                       7.

<PAGE>



close of each calendar year and within 30 days after the removal or  resignation
of  Trustee,  Trustee  shall  deliver  to  Company  a  written  account  of  its
administration of the Trust during such year or during the period from the close
of the last preceding year to the date of such removal or  resignation,  setting
forth all investments,  receipts,  disbursements and other transactions effected
by it,  including a description of all securities and investments  purchased and
sold with the cost or net proceeds of such 'purchases or sales (accrued interest
paid or receivable being shown separately), and showing all cash, securities and
other  property  held in the  Trust at the end of such year or as of the date of
such removal or resignation, as the case may be.
                  Section 8.     Responsibility of Trustee
                  (a)  Trustee  shall act with the  care,  skill,  prudence  and
diligence under the  circumstances  then prevailing that a prudent person acting
in like  capacity and familiar  with such matters would use in the conduct of an
enterprise  of a like  character  and with like aims;  provided,  however,  that
Trustee shall incur no liability to any person for any action taken  pursuant to
a direction,  request or approval given by Company which is contemplated by, and
in conformity  with, the terms of the Deferred  Compensation  Plan or this Trust
and is given in writing by Company.  In the event of a dispute  between  Company
and a party,  Trustee may apply to a court of competent  jurisdiction to resolve
the dispute.
                  (b) Trustee may consult  with legal  counsel  (who may also be
counsel for Company  generally) with respect to any of its duties or obligations
hereunder.
                  (c)  Trustee  shall  have,  without   exclusion,   all  powers
conferred on Trustees by applicable law,  unless  expressly  provided  otherwise
herein;  provided,  however,  that if an insurance policy is held as an asset of
the Trust Trustee shall have no power to name a
                                                     
                                       8.

<PAGE>



beneficiary of the policy other than the Trust to assign the policy (as distinct
from  conversion  of the policy to a  different  form) other than to a successor
Trustee,  or to loan to any person the  proceeds of any  borrowing  against such
policy.
                  (d)  Notwithstanding any powers granted to Trustee pursuant to
this Trust Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the  objective  of carrying on a business and dividing the
gains therefrom,  within the meaning of section  301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
                  (e)  Trustee,  its  affiliates,  their  officers,   directors,
employees  and  agents,  shall not be liable for any act or omission of Company,
any  investment  manager  (other  than an  investment  manager  affiliated  with
Trustee), or any officer, director, employee or agent of any of them (other than
an officer, director, employee or agent of an investment manager affiliated with
Trustee).
                  Section 9.     Compensation and Expenses of Trustee
                  Company shall pay all  administrative  and Trustee's  fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
                  Trustee  shall be  entitled  to receive  compensation  for its
services hereunder, to be determined from time to time by the application of the
schedule of fees as published by Trustee and in effect at the time such fees are
charged  for  trusts  of a similar  size and  character,  and in the event  that
Trustee shall be called upon to render any extraordinary  services,  it shall be
entitled to additional compensation therefor.

                                       9.

<PAGE>



                  Section 10.       Resignation and Removal of Trustee
                  (a)  Trustee  may  resign  at any time by  written  notice  to
Company,  which shall be effective 30 days after  receipt of such notice  unless
Company and Trustee agree otherwise.
                  (b)  Trustee  may be removed  by Company on 30 days  notice or
upon shorter notice accepted by Trustee.
                  (c) Upon  resignation or removal of Trustee and appointment of
a  successor  Trustee,  all assets  shall  subsequently  be  transferred  to the
successor Trustee.  The transfer shall be completed within 30 days after receipt
of notice of resignation,  removal or transfer,  unless Company extends the time
limit.
                  (d) If Trustee  resigns or is removed,  a  successor  shall be
appointed,  in  accordance  with Section 1.1 hereof,  by the  effective  date of
resignation or removal under paragraph(s) (a) or (b) of this section. If no such
appointment  has  been  made,   Trustee  may  apply  to  a  court  of  competent
jurisdiction for appointment of a successor or for instructions. All expenses of
Trustee in connection  with the  proceeding  shall be allowed as  administrative
expenses of the Trust.
                  Section 11.       Appointment of Successor
                  If Trustee  resigns or is removed in accordance with Section I
0(a) or (b) hereof,  Company may appoint any third  party,  such as a bank trust
department  or other party that may be granted  corporate  trustee  powers under
state law, as a successor to replace  Trustee upon  resignation or removal.  'Me
appointment shall be effective when accepted in writing by the new Trustee,  who
shall  have all of the  rights  and  powers  of the  former  Trustee,  including
ownership

                                       10.

<PAGE>



rights in the Trust assets.  The former  Trustee  shall  execute any  instrument
necessary  or  reasonably  requested  by  Company  or the  successor  Trustee to
evidence the transfer.
                  Section 12.       Amendment or Termination
                  (a)  This  Trust   Agreement  may  be  amended  by  a  written
instrument executed by Trustee and Company.  Notwithstanding  the foregoing,  no
such amendment shall conflict with the terms of the Deferred  Compensation  Plan
or shall make the Trust revocable after it has become  irrevocable in accordance
with Section I (b) hereof.
                  (b) The Trust shall not terminate  until the date on which the
Participant and his beneficiaries are no longer entitled to benefits pursuant to
the terms of the Deferred  Compensation Plan. Upon termination of the Trust, any
assets remaining in the Trust shall be returned to Company.
                  (c)  Upon  written   approval  of  the   Participant   or  his
beneficiaries  entitled  to payment  of  benefits  pursuant  to the terms of the
Deferred  Compensation  Plan, Company may terminate this Trust prior to the time
all benefit  payments under the Deferred  Compensation  Plan have been made. All
assets in the Trust at termination shall be returned to Company.

                  Section 13.       Miscellaneous
                  (a) Any provisions of this Trust  Agreement  prohibited by law
shall be ineffective to the extent of any such prohibition, without invalidating
the remaining provisions thereof.
                  (b) Benefits payable to the Participant and his  beneficiaries
under this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged,

                                       11.

<PAGE>


encumbered or subjected to  attachment,  garnishment,  levy,  execution or other
legal or equitable process.
                  (c) This Trust Agreement shall be governed by and construed in
accordance with the laws of Michigan.
                  Section 14.       Effective Date
                  The effective date of this Trust Agreement shall be_____ 1996.
                  IN WITNESS OF WHICH,  Company and Trustee have  executed  this
Trust Agreement by their duly authorized officers.

                                                     MK RAIL CORPORATION
                                                     By
         Its

                                                  PNC BANK, NATIONAL ASSOCIATION
                                                              By
                                                              Its:  Trustee








                                       12.
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