Energy flow and sequestration at the state-to-state level are investigated for a prototypical four-atom reaction, H-2 + OH -> H + H2O, using a transition-state wave packet (TSWP) method. The product state distribution is found to depend strongly on the reactant vibrational excitation, indicating mode specificity at the state-to-state level. From a local-mode perspective, it is shown that the vibrational excitation of the H2O product derives from two different sources, one attributable to the energy flow along the reaction coordinate into the newly formed OH bond and the other due to the sequestration of the vibrational energy in the OH spectator moiety during the reaction. The analysis provided a unified interpretation of some seemingly contradicting experimental observations. It is further shown that the transfer of vibrational energy from the OH reactant to H2O product is gated by the transition state, accomplished. coherently by multiple TSWPs with the corresponding OH vibrational excitation.